##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION



Form 10-K




|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003 or



|    |                                                                                               
|--- | ----------------------------------------------------------------------------------------------
|[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 
     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from

to

Commission file number 1-4720

WESCO FINANCIAL CORPORATION

(Exact name of Registrant as Specified in its
Charter)


|                                                                                                                  |  |                                     
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                                                          |  | 95-2109453                          
|(State or Other Jurisdiction of
    Incorporation or organization)                                                |  | (I.R.S. Employer Identification No.)
|                                                                                                                 
|301 East Colorado Boulevard,
    Suite 300,
    Pasadena, California
    (Address of Principal Executive Offices) |  | 91101-1901
    (Zip Code)           

(626) 585-6700


(Registrants Telephone Number, Including
Area Code)


Securities registered pursuant to section 12(b) of the Act:

|                            |  |                                                       
|--------------------------- |  | ------------------------------------------------------
|Title of Each Class         |  | Name of Each Exchange on Which Registered             
|Capital Stock, $1 par value |  | American Stock Exchange
    and Pacific Stock Exchange

Securities registered pursuant to
Section 12(g) of the Act:

None




(Title of Class)




---

(Title of Class)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.     Yes X No

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.  x

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes X No

The aggregate market value of voting and
non-voting stock of the registrant held by non-affiliates of the
registrant as of June 30, 2003 was: $416,099,000.

The number of shares outstanding of the
registrants Capital Stock as of March 15, 2004
was: 7,119,807.

DOCUMENTS INCORPORATED BY REFERENCE

|                                                            |  |                                      
|----------------------------------------------------------- |  | -------------------------------------
|Title of Document                                           |  | Parts of Form 10-K                   
|Proxy Statement for 2004
    Annual Meeting of Shareholders |  | Part III. Items 10, 11, 12, 13 and 14



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TABLE OF CONTENTS



|              |                                                                                                        |  |  |  |  |  |  | 
|------------- | ------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                                      
|              | Item 2.Properties                                                                                     
|              | Item 3.Legal Proceedings                                                                              
|              | Item 4.Submission of Matters to a Vote of Security Holders                                            
|PART II      
|              | Item 5.Market for Registrants Common Equity and Related Shareholder Matters                          
|              | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations          
|              | Item 7A.Quantitative and Qualitative Disclosures About Market Risk                                    
|              | Item 8.Financial Statements and Supplementary Data                                                    
|              | Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|              | Item 9A.Controls and Procedures                                                                       
|PART III     
|              | Item 10.Directors and Executive Officers of the Registrant                                            
|              | Item 11.Executive Compensation                                                                        
|              | Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
|              | Item 13.Certain Relationships and Related Transactions                                                
|              | Item 14.Principal Accountant Fees and Services                                                        
|              | Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|SIGNATURES   
|EXHIBIT 31(A)
|EXHIBIT 31(B)
|EXHIBIT 32(A)
|EXHIBIT 32(B)



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PART I






Item 1.     Business


GENERAL

Wesco Financial Corporation (Wesco)
was incorporated in Delaware on March 19, 1959. Wesco,
through subsidiaries, engages in three principal businesses:
(1) the insurance business, through Wesco-Financial
Insurance Company (Wes-FIC), which was incorporated
in 1985 and engages in the property and casualty insurance
business, and The Kansas Bankers Surety Company
(KBS), which was incorporated in 1909, was purchased
by Wes-FIC in 1996 and provides specialized insurance coverages
for banks; (2) the furniture rental business, through CORT
Business Services Corporation (CORT), which traces
its national presence to the combination of five regional
furniture rental companies in 1972 and was purchased by Wesco in
2000; and (3) the steel service center business, through
Precision Steel Warehouse, Inc. (Precision Steel),
which was begun in 1940 and acquired by Wesco in 1979. The
subsidiaries are wholly owned, either directly or indirectly.

Wescos operations also include, through
another wholly owned subsidiary, MS Property Company (MS
Property), management of owned commercial real estate in
downtown Pasadena, California, a portion of which it seeks to
redevelop. MS Property began its operations in late 1993, upon
transfer to it of real properties previously owned by Wesco and
by a former savings and loan subsidiary of Wesco.

Since 1973, Wesco has been 80.1%-owned by Blue
Chip Stamps (Blue Chip), a wholly owned subsidiary
of Berkshire Hathaway Inc. (Berkshire). Thus, Wesco
and its subsidiaries are controlled by Blue Chip and Berkshire.
All of these companies may also be deemed to be controlled by
Warren E. Buffett, who is Berkshires chairman and chief
executive officer and economic owner of approximately 31% of its
stock. Charles T. Munger, the chairman of Wesco, is also
vice chairman of Berkshire, and consults with Mr. Buffett
with respect to Wescos investment decisions and major
capital allocations. Although operating decisions for
Wescos businesses are made by the managers of those
business units, Mr. Buffett is president and a director of
Wesco Holdings Midwest, Inc. (WHMI), a wholly owned
subsidiary of Wesco, and a director of Wes-FIC, CORT and
Precision Steel, which are wholly owned subsidiaries of WHMI.

Wescos activities fall into three business
segments  insurance, furniture rental and industrial.
The insurance segment consists of the operations of Wes-FIC and
KBS. The furniture rental segment consists of the operations of
CORT. The industrial segment comprises Precision Steels
steel service center and other operations. Wesco is also engaged
in several activities not identified with the three business
segments; these include (1) investment activity unrelated
to the insurance segment, (2) MS Propertys real
estate activities, and (3) parent company activities.

INSURANCE SEGMENT

Wes-FIC was incorporated in 1985 to engage in the
property and casualty insurance and reinsurance business. Its
insurance operations are managed by National Indemnity Company
(NICO), which is headquartered in Omaha, Nebraska.
To simplify discussion, the term Berkshire Insurance
Group, as used in this report, refers to NICO and certain
other wholly owned insurance subsidiaries of Berkshire,
individually or collectively, although Berkshire also includes
in its insurance group the insurance subsidiaries that are
80.1%-owned through Berkshires ownership of Wesco.

Wes-FICs high net worth (about
$2.0 billion at December 31, 2003) has enabled
Berkshire to offer Wes-FIC the opportunity to participate, from
time to time, in contracts in which Wes-FIC effectively has
reinsured certain property and casualty risks of unaffiliated
property and casualty insurers. These arrangements have included
excess-of-loss contracts. Excess-of-loss contracts include
super-catastrophe reinsurance, which subjects the
reinsurer to especially large amounts of losses from
mega-catastrophes such as hurricanes or earthquakes.
Super-catastrophe policies, which indem-

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nify the ceding companies for all or part of
covered losses in excess of large, specified retentions, have
been subject to aggregate limits. Wes-FIC has also been party to
quota-share reinsurance, under which it shares in
premiums and losses proportionately with the ceding company.


Wescos and Wes-FICs boards of
directors have authorized automatic acceptance of retrocessions
of super-catastrophe reinsurance offered by the Berkshire
Insurance Group provided the following guidelines and
limitations are complied with: (1) in order not to delay
the acceptance process, the retrocession is to be accepted
without delay in writing in Nebraska by agents of Wes-FIC who
are salaried employees of the Berkshire Insurance Group;
(2) any ceding commission received by the Berkshire
Insurance Group cannot exceed 3% of premiums, which is believed
to be less than the Berkshire Insurance Group could get in the
marketplace; (3) Wes-FIC is to assume 20% or less of the
total risk; (4) the Berkshire Insurance Group must retain
at least 80% of the identical risk; and (5) the aggregate
premiums from this type of business in any twelve-month period
cannot exceed 10% of Wes-FICs net worth. Occasionally, the
Berkshire Insurance Group will also have an upper-level
reinsurance interest with interests different from
Wes-FICs, particularly in the event of one or more large
losses.

Following is a summary of Wes-FICs more
significant reinsurance agreements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A quota-share agreement entered into in 1985
    whereby Wes-FIC effectively reinsured  through the
    Berkshire Insurance Group, as
    intermediary-without-profit  2% of essentially all
    insurance business of a major property and casualty insurer
    written during a four-year coverage period that expired in 1989.
    Wes-FIC remains liable for its share of remaining unpaid losses
    and loss adjustment expenses, an estimate of which is included
    in insurance liabilities on Wescos consolidated balance
    sheet.                                                                                                                                                                                                                                                                                                                            
|
| |  | Several contracts for super-catastrophe
    reinsurance retroceded by the Berkshire Insurance Group
    beginning in 1994, including 3% participations in two
    super-catastrophe reinsurance policies covering hurricane risks
    in Florida: (1) a 12-month policy effective June 1,
    1996; and (2) a three-year policy effective January 1,
    1997. No losses were incurred under these contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Participation to the extent of 10% in a
    catastrophic excess-of-loss contract effective for the 1999
    calendar year covering property risks of a major international
    reinsurer, also retroceded by the Berkshire Insurance Group. No
    liabilities remain under this contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | A multi-year, quota-share arrangement, entered
    into in 2000 through NICO, as intermediary without profit, for
    participation in a pool of certain property and casualty risks
    written by a large, unaffiliated insurer, under which
    Wes-FICs participation increased from approximately 3.3%
    of certain risks associated with policy years 2000 through 2002
    to 6% of certain risks associated with the 2003 and 2004 policy
    years. The terms of this arrangement are identical to those
    accepted by another member of the Berkshire Insurance Group,
    except as to the amount of the participation.                                                                                                                                                                                                                                       
|
| |  | Participation in four risk pools managed by a
    Berkshire Insurance Group member covering hull, liability,
    workers compensation and satellite exposures relating to
    the aviation industry, as follows: with respect to 2001, to the
    extent of 3% for each pool, with satellite exposures effective
    June 1; for 2002, 13% of the hull and liability pools,
    increasing to 15.5% in August, and 3% of the workers
    compensation pool (satellite exposures were not renewed in
    June); and, for 2003 and 2004, 10% of the hull and liability
    pools only. The Berkshire Insurance Group member provides a
    portion of the upper-level reinsurance protection to these
    aviation risk pools, and therefore to Wes-FIC, on terms that
    could cause some conflict of interest under certain conditions,
    e.g., in settling a large loss.

The insurance industry, including Wes-FIC,
experienced significant reinsurance and insurance losses from
the September 11, 2001 terrorist attack. The Terrorism Risk
Insurance Act of 2002 (TRIA), enacted
November 26, 2002, established for commercial property and
casualty insurers

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(but not as reinsurers  see next
paragraph) a program providing for federal reinsurance of
insured terrorism losses occurring after enactment. Under TRIA,
a terrorism loss must have resulted from a terrorist act
undertaken on behalf of a foreign person or interest which has
resulted in an insured loss in excess of $5 million, as
certified by the federal government. To be eligible for federal
reinsurance, insurers must make available insurance coverage for
acts of terrorism by providing policyholders with clear and
conspicuous notice of the amount of premium that will be charged
for this coverage and of the federal share of any insured losses
resulting from any act of terrorism. In the event of a certified
act of terrorism, the federal government will reimburse each
insurer (conditioned on its satisfaction of policyholder
notification requirements) for 90% of its insured losses in
excess of the insurers deductible. The insurers
deductible is calculated based on the direct earned premiums for
relevant commercial lines written by the insurers entire
insurance group. For 2003, the insurers deductible was 7%
of its groups earned premiums; it is 10% in 2004 and will
rise further to 15% in 2005 assuming the TRIA program is
extended to a third year. The aggregate deductible amount for
the Berkshire insurance group (including Wescos insurance
subsidiaries), believed to have approximated $130 million
for 2003, is estimated to approximate $200 million for
2004. There is a $100 billion cap per TRIA program year on
aggregate certified losses (all eligible insurers
deductibles plus their 10% share and the federal 90% share above
the deductibles), and insurers are free to exclude their
liability for terrorism losses in excess of the cap.


Assumed reinsurance is specifically excluded from
TRIA participation. Thus, terrorism exclusions contained within
reinsurance contracts remain in effect. Reinsurers are not
required to offer terrorism coverage and are not eligible for
federal reinsurance of terrorism losses. Wes-FIC, as a
reinsurer, however, could indirectly benefit under TRIA
essentially in proportion to applicable federal loss limitations
that may be available to its ceding insurer customers. Although
Wes-FICs (and thus Wescos) exposure to terrorism
losses as a reinsurer or insurer, whether or not mitigated by
TRIA, cannot be predicted, Wes-FICs management does not
believe it likely that, on a worst-case basis, Wes-FICs
shareholders equity would be severely impacted by future
terrorism-related insurance losses under reinsurance or
insurance contracts currently in effect.

Although Wes-FIC has no active super-catastrophe
reinsurance contracts in force, its management has indicated
that Wes-FIC will likely have opportunities to participate in
such business from time to time in the future. Management
believes that an insurer in the reinsurance business must
maintain large net worth in relation to annual premiums in order
to remain solvent when called upon to pay claims when a loss
occurs. In this regard, Wes-FIC is believed to operate
differently from many other reinsurers in that risks it writes
are entirely retained, while other reinsurers may retrocede
portions of the risks to other reinsurers, thereby assuming
contingent risks that such reinsurers will not be able to
respond if called upon to pay off on risks reinsured. In this
respect Wes-FIC and KBS are competitively well positioned,
inasmuch as their net premiums written for calendar 2003
amounted to only 4% of their combined statutory surplus,
compared to an industry average of about 130% based on figures
reported for 2002.

Wes-FIC is also licensed to write
direct insurance business (as distinguished from
reinsurance) in Nebraska, Utah and Iowa, and may write direct
insurance in the non-admitted excess and surplus lines market in
several other states, but the volume written to date has been
minimal.

In July 1996, Wes-FIC purchased KBS for
approximately $80 million in cash. KBS provides specialized
insurance coverage to more than 20% of the banks in the United
States, mostly small and medium-sized banks in the Midwest. It
is licensed to write business in 28 states. KBS is also subject
to regulation by the Department of the Treasury. Its product
line for financial institutions includes policies for crime
insurance, check kiting fraud indemnification, Internet banking
catastrophe theft insurance, directors and officers liability,
bank employment practices, and bank insurance agents
professional errors and omissions indemnity, as well as deposit
guaranty bonds, which insure deposits in excess of federal
deposit insurance limits. KBS, which for many years had
minimized its risks arising from large losses through cessions
to third party reinsurers, restructured its reinsurance program
in 1998 in order to retain a much higher proportion of its
premiums and risks of loss. Wescos

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management seeks improved operating results over
the long term in return for greater short-term volatility.


KBS markets its products in some states through
exclusive, commissioned agents, and direct to insureds in other
states. Inasmuch as the number of small midwestern banks is
declining as the banking industry consolidates, KBS relies for
growth on an extraordinary level of service provided by its
dedicated employees and agents, and on new products such as
deposit guaranty bonds, which were introduced in 1993 and
currently account for approximately 45 percent of premiums
written.

A significant marketing advantage enjoyed by
Berkshires insurance subsidiaries, including Wescos
insurance segment, is the maintenance of extraordinary capital
strength. The combined statutory surplus of Wescos
insurance businesses totaled approximately $2 billion at
December 31, 2003. This capital strength creates
opportunities for the Wesco subsidiaries to participate in
reinsurance and insurance contracts not necessarily available to
many of their competitors.

Standard & Poors Corporation, in
recognition of Wes-FICs strong competitive position as a
member of Berkshires group of insurance subsidiaries and
its unusual capital strength, has assigned its highest rating,
AAA, to Wes-FICs claims-paying ability. This rating
recognizes the commitment of Wes-FICs management to a
disciplined approach to underwriting and reserving, as well as
Wes-FICs extremely strong capital base.

Wescos and Wes-FICs boards are
hopeful, but have no assurance, that the businesses of Wes-FIC
and KBS will grow. They welcome the opportunity to participate
in additional reinsurance retrocessions and other insurance
arrangements with the Berkshire Insurance Group, as well as
acquisitions of other insurance companies.

Insurance companies are subject to regulation by
the departments of insurance of the various states in which they
write policies as well as the states in which they are domiciled
and, if applicable, as is the case with KBS, by the Department
of the Treasury. Regulations relate to, among other things,
capital requirements, shareholder and policyholder dividend
restrictions, reporting requirements, annual audits by
independent accountants, periodic regulatory examinations, and
limitations on the size and types of investments that can be
made.

Wes-FIC, which is operated by NICO, has no
employees of its own. KBS has 16 employees.

FURNITURE RENTAL SEGMENT

CORT, acquired in February 2000 by a subsidiary
of Wesco, is the largest, and only national, provider of rental
furniture, accessories and related services in the
rent-to-rent (as opposed to rent-to-own)
segment of the furniture industry. CORT rents high-quality
furniture to corporate and individual customers who desire
flexibility in meeting their temporary office, residential or
trade show furnishing needs, and who typically do not seek to
own such furniture. In addition, CORT sells previously rented
furniture through company-owned clearance centers, thereby
enabling it to regularly renew its inventory and update styles.
CORTs network of facilities (in 34 states and the
District of Columbia) are 108 showrooms, 91 clearance centers
and 84 warehouses, as well as three websites 
www.cort1.com, www.relocationcentral.com and
www.corttradeshow.com.

CORTs rent-to-rent business is
differentiated from rent-to-own businesses primarily by the
terms of the rental arrangements and the type of customer
served. Rent-to-rent customers generally desire high-quality
furniture to meet temporary needs, have established credit, and
pay on a monthly basis. Typically, these customers do not seek
to acquire the property on a permanent basis. In a typical
rent-to-rent transaction, the customer agrees to rent furniture
for a minimum of three months, subject to extension by the
customer on a month-to-month basis. By contrast, rent-to-own
arrangements are generally made by customers lacking established
credit whose objective is the eventual ownership of the
property; these transactions are typically entered into on a
month-to-month basis and may require weekly rental payments.

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CORTs customer base includes Fortune 500
companies, small businesses, professionals, and owners and
operators of apartment communities. CORTs management
believes its size, national presence, brand awareness,
consistently high level of customer service, product quality and
breadth of selection, depth and experience of management, and
efficient clearance centers have been key contributors to the
companys success. CORT offers a wide variety of office and
home furnishings, including commercial panel systems,
televisions, housewares and accessories. CORT emphasizes its
ability to furnish an apartment, home or entire suite of offices
with high-quality furniture, housewares and accessories in two
business days. CORTs objective is to build upon these core
competencies and competitive advantages to increase revenues and
market share. Key to CORTs growth strategies are
(1) expanding its corporate customer base,
(2) enhancing its ability to capture an increasing number
of Internet customers through its on-line catalog and other web
services, (3) making selective acquisitions, and
(4) continuing to develop various products and services.

In order to capitalize on the significant profit
potential available from longer average rental periods and the
higher average monthly rent typically available for office
products, CORTs strategy is to place greater emphasis on
rentals of office furniture than on residential furniture. In
order to promote longer office lease terms, CORT offers lower
rates on leases where lease terms exceed six months. A
significant portion of CORTs residential furniture rentals
are derived from corporate relocations and temporary
assignments, as new and transferred employees of CORTs
corporate customers enter into leases for residential furniture.
Sales personnel maintain contact with corporate relocation
departments and present the possibility of obtaining fully
furnished rental apartments as a lower-cost alternative to hotel
accommodations. Thus, CORT offers its corporate rental customers
a way to reduce the costs of corporate relocation while
developing residential business with new and transferred
employees.

CORTs Relocation Central Corporation
subsidiary (Relocation Central), formed in 2001,
provides the nations largest apartment locator service
through its website (www.relocationcentral.com), customer call
center and walk-in locations. More than 350 apartment
communities refer their tenants to CORT. In an effort to sharply
reduce the operating losses that Relocation Central has been
sustaining during its start-up phase, CORT is in process of
reorganizing Relocation Centrals operations, including
relocating some of its operations to CORT facilities. As the two
companies more closely align their marketing and sales efforts,
CORT believes it will expand referral opportunities to new
customer markets as well as expand business with corporate
customers, who require the services of an apartment/home locator
service and an interim provider of quality home and office
furnishings.

CORT also provides short-term rentals for trade
shows and conventions. Its www.corttradeshow.com website assists
in providing information to and gathering leads from prospects.

Until the economy weakened beginning late in
2000, CORT was benefiting from an increasing demand for
furniture rental services. CORTs management believes that
this favorable trend was caused by continued growth in
management and professional employment, the increasing
importance to American business of flexibility and outsourcing,
and the impact of a more mobile and transitory population.
CORTs management attributes the decline in business to
continued weakness of job growth in the economy, exacerbated by
the terrorist activity on September 11, 2001. In 2003,
CORTs management reduced the number of facilities and
employees, and it is believed CORT is well positioned to benefit
from domestic job growth and any corresponding economic
expansion.

The rent-to-rent segment of the furniture rental
industry is highly competitive. There are several large regional
as well as a number of smaller regional and local rent-to-rent
competitors. In addition, numerous retailers offer residential
and office furniture under rent-to-own arrangements. Management
believes that the principal competitive factors in the furniture
rental industry are product value, furniture condition, extent
of furniture selection, terms of rental agreement, speed of
delivery, exchange privilege, option to purchase, deposit
requirements and customer service.

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The majority of CORTs furniture sales
revenue is from its clearance center sales. The remaining
furniture sales revenue is derived primarily from lease
conversions and sales of new furniture. The sale of previously
leased furniture allows CORT to control inventory quantities and
to maintain inventory quality at showroom level. On the average,
furniture is typically sold through the clearance centers three
years after its initial purchase by CORT.

With respect to sales of furniture through its
clearance centers, CORT competes with numerous new and used
furniture retailers, some of which are larger than CORT.
CORTs management believes that price and value are its
principal competitive advantages in this activity.

CORT and Relocation Central have approximately
2,660 full-time employees, including 50 union members.
Management considers labor relations to be good.

INDUSTRIAL SEGMENT

Precision Steel, acquired in 1979, and one of its
subsidiaries operate steel service centers in the Chicago and
Charlotte metropolitan areas. The service centers buy stainless
steel, low carbon sheet and strip steel, coated metals, spring
steel, brass, phosphor bronze, aluminum and other metals, cut
these metals to order, and sell them to a wide variety of
customers.

The service center business is highly
competitive. Precision Steels annual sales volume of
approximately 24 thousand tons of flat rolled products compares
with the domestic steel service industrys annual volume of
approximately 13 million tons of comparable products.
Precision Steel competes not only with other service centers but
also with mills which supply metal to the service centers. Sales
competition exists in the areas of price, quality, availability
and speed of delivery. Because it is willing to sell in
relatively small quantities, Precision Steel has been able to
compete in geographic areas distant from its service center
facilities. Competitive pressure is intensified by imports, a
shift to production abroad and an increasing tendency of
domestic manufacturers to use less costly materials in making
parts.

Precision Brand Products, Inc. (Precision
Brand), a wholly owned subsidiary of Precision Steel that
is also located in the Chicago area, manufactures shim stock and
other toolroom specialty items, and distributes a line of hose
clamps and threaded rod. These products are sold under the
Precision Brand and DuPage names nationwide, generally through
industrial distributors. This business is highly competitive.
Precision Brands share of the toolroom specialty products
market is believed to approximate .5%; statistics are not
available with respect to its share of the market for hose
clamps and threaded rod.

Steel service raw materials are obtained
principally from major domestic steel mills, and their
availability was good until very recently, when the market
drifted into near chaos caused by shortages. It is not clear how
this is going to work out. Thus far in 2004, Precision
Steels prices and profits have been higher. Precision
Steels service centers maintain extensive inventories in
order to meet customer demand for prompt deliveries; typically,
processed metals are delivered to the customer within one week.
Precision Brand normally maintains inventories adequate to allow
for off-the-shelf service to customers within 24 hours.

The industrial segment businesses are subject to
economic cycles. These businesses are not dependent on a few
large customers. The backlog of steel service orders increased
to $4.7 million at December 31, 2003 from
$4.1 million at December 31, 2002.

There are 205 full-time employees engaged in the
industrial segment businesses, about 40% of whom are members of
unions. Management considers labor relations to be good.

ACTIVITIES NOT IDENTIFIED WITH A BUSINESS SEGMENT

Certain of Wescos activities are not
identified with any business segment. These extraneous
operations include (1) investment activity unrelated to the
insurance segment, (2) management of

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owned commercial real property in Pasadena,
California, a portion of which it seeks to redevelop, and
(3) parent company activities.


Six full-time employees are engaged in the
activities of Wesco and MS Property.

AVAILABLE INFORMATION

Wescos Forms 10-K, 10-Q and 8-K, and
amendments thereto, may be accessed soon after such material is
electronically filed with the Securities and Exchange Commission
(SEC), through Wescos website,
www.wescofinancial.com, or the SECs, www.sec.gov.






Item 2. Properties


MS Property owns a business block in Pasadena,
California situated between the city hall and a large shopping
mall. The mall has been redeveloped to include residential units
and a multiscreen movie theater. The blocks improvements
include a nine-story office building that was constructed in
1964 and has approximately 125,000 square feet of net rentable
area, and a multistory garage with space for 425 vehicles. Of
the 125,000 square feet of space in the office building,
approximately 5,000 square feet are used by MS Property or
leased to Blue Chip or Wesco. The remaining space is almost
fully leased to outside parties, including Citibank (the ground
floor tenant), law firms and others, under agreements expiring
at dates extending to 2008. Adjacent to the building and garage
is a vacant parcel; MS Property is seeking city approval of its
plans to redevelop the parcel, together with a vacant parcel of
land it owns in the next block.

MS Property also owns several buildings that are
leased to various small businesses in a small shopping center in
Southern California.

Wes-FICs place of business is the Omaha,
Nebraska headquarters office of NICO.

KBS leases 5,100 square feet of office space in a
multistory office building in Topeka, Kansas under a lease that
expires in 2007.

CORT leases 23,800 square feet of office space in
a multistory office building in Fairfax, Virginia, which it uses
as its headquarters. It has an option to renew the lease for
five years beyond its 2006 expiration.

CORT carries out its rental, sales and warehouse
operations in metropolitan areas in 34 states and the District
of Columbia through 186 facilities, of which 20 were owned and
the balance leased as of December 31, 2003. The leased
facilities lease terms expire at dates ranging from 2004
to 2015. CORT has generally been able to extend expiration dates
of its leases or obtain suitable alternative facilities on
satisfactory terms. As leases expire, CORT has been eliminating
redundant locations. Where locations are desirable, its
management has been attempting to combine rental, clearance and
warehouse operations rather than retain separate showrooms,
because business and residential customers have been
increasingly using the Internet, fax and telephone.

CORTs showrooms generally have 4,000 to
5,000 square feet of floor space. CORT regularly reviews the
presentation and appearance of its furniture showrooms and
clearance centers and periodically improves or refurbishes them
to enhance their attractiveness to customers.

Relocation Central leases 3,800 square feet of
office space in a multistory office building in Santa Clara,
California, which it uses as its headquarters. The lease expires
in February 2005. Its apartment locator services are situated in
36 leased facilities in 15 metropolitan areas in 14 states under
leases expiring at dates ranging from 2004 to 2007, as well as
in ten of CORTs showrooms.

Precision Steel and its subsidiaries own three
buildings housing their plant and office facilities, with usable
area approximately as follows: 138,000 square feet in
Franklin Park, Illinois; 63,000 square feet in Charlotte,
North Carolina; and 59,000 square feet in Downers Grove,
Illinois.

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Item 3. Legal Proceedings

Wesco and its subsidiaries are not involved in
any legal proceedings that are expected to result in detrimental
financial impact material to its shareholders equity.
However, see Note 8 to the accompanying consolidated financial
statements for an explanation of environmental actions brought
against a subsidiary that could materially impact consolidated
net income in any given fiscal period.






Item 4. Submission of Matters to a Vote
of Security Holders


None.




PART II




Item 5. Market for Registrants
Common Equity and Related Shareholder Matters

Wescos capital stock is traded on the
American Stock Exchange and the Pacific Stock Exchange.

The following table sets forth quarterly ranges
of composite prices for American Stock Exchange trading of Wesco
shares for 2003 and 2002, based on data reported by the American
Stock Exchange, as well as cash dividends paid by Wesco on each
outstanding share:

|              |  |             |     |           |  |             |     |           |  |     |       |      |  |   |     |  |  |   |     |  |  |   |       | 
|------------- |  | ----------- | --- | --------- |  | ----------- | --- | --------- |  | --- | ----- | ---- |  | - | --- |  |  | - | --- |  |  | - | ----- | 
|              |  |             |     |          
|              |  | 2003        |     | 2002     
|              |  |             |     |          
|              |  |             |     |           |  |             |     |          
|              |  | Sales Price |     |           |  | Sales Price |     |          
|              |  |             |     | Dividends |  |             |     | Dividends
|Quarter Ended |  | High        |     | Low       |  | Paid        |     | High      |  | Low |       | Paid
|              |  |             |     |           |  |             |     |           |  |     |       |     
|March 31      |  | $           | 310 |           |  | $           | 285 |           |  | $   | 0.335 |      |  | $ | 325 |  |  | $ | 302 |  |  | $ | 0.325 | 
|June 30       |  |             | 322 |           |  |             | 285 |           |  |     | 0.335 |      |  |   | 338 |  |  |   | 300 |  |  |   | 0.325 | 
|September 30  |  |             | 357 |           |  |             | 303 |           |  |     | 0.335 |      |  |   | 323 |  |  |   | 290 |  |  |   | 0.325 | 
|December 31   |  |             | 373 |           |  |             | 315 |           |  |     | 0.335 |      |  |   | 314 |  |  |   | 293 |  |  |   | 0.325 | 
|              |  |             |     |           |  |             |     |           |  |     |       |      |  |   |     |  |  |   |     |  |  |   |       | 
|              |  |             |     |           |  |             |     |           |  | $   | 1.340 |      |  |   |     |  |  |   |     |  |  | $ | 1.300 | 
|              |  |             |     |           |  |             |     |           |  |     |       |      |  |   |     |  |  |   |     |  |  |   |       | 

There were approximately 550 shareholders of
record of Wescos capital stock as of the close of business
on March 1, 2004. It is estimated that approximately 6,200
additional Wesco shareholders held shares of Wescos
capital stock in street name at that date.

8



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Item 6. Selected Financial Data

Set forth below and on the following page are
selected consolidated financial data for Wesco and its
subsidiaries. For additional financial information, attention is
directed to Wescos audited 2003 consolidated financial
statements appearing elsewhere in this report. (Amounts are in
thousands except for amounts per share.)

|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |           |           |           |        | 
|--------------------- | ---------------------------------------------------------- | -------------------------------- | ------------------------------ | ----------------- | ------- | --------- | ------ | --------- | ------- | --------- | ------ | --------- | ------- | --------- | ------ | --------- | ------- | --------- | ------ | --------- | --------- | --------- | ------ | 
|                      |                                                            |                                 
|                      |                                                            | December 31,                    
|                      |                                                            |                                 
|                      |                                                            | 2003                             |                                | 2002              |         | 2001      |        | 2000      |         | 1999     
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |          
|Assets:               |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      | Cash and cash equivalents                                  |                                  | $                              | 1,052,462         |         |           | $      | 349,812   |         |           | $      | 120,784   |         |           | $      | 153,810   |         |           | $      | 66,331    |          
|                      | Investments                                               |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |           |          
|                      |                                                            | Securities with fixed maturities |                                |                   | 167,390 |           |        |           | 827,537 |           |        |           | 924,160 |           |        |           | 839,683 |           |        |           | 309,976   |          
|                      |                                                            | Marketable equity securities     |                                |                   | 754,634 |           |        |           | 626,768 |           |        |           | 667,262 |           |        |           | 833,937 |           |        |           | 2,214,883 |          
|                      | Accounts receivable                                        |                                  |                                | 60,168            |         |           |        | 67,425    |         |           |        | 43,871    |         |           |        | 38,444    |         |           |        | 8,685     |          
|                      | Rental furniture                                           |                                  |                                | 163,699           |         |           |        | 187,480   |         |           |        | 212,586   |         |           |        | 244,847   |         |           |        |          |          
|                      | Goodwill of acquired businesses                            |                                  |                                | 266,607           |         |           |        | 266,203   |         |           |        | 264,465   |         |           |        | 260,037   |         |           |        | 28,556    |          
|                      | Other assets                                               |                                  |                                | 73,435            |         |           |        | 81,750    |         |           |        | 86,565    |         |           |        | 90,157    |         |           |        | 23,764    |          
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      |                                                            |                                  | Total assets                   |                   | $       | 2,538,395 |        |           | $       | 2,406,975 |        |           | $       | 2,319,693 |        |           | $       | 2,460,915 |        |           | $         | 2,652,195 |       
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|Liabilities:          |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      | Insurance losses and loss adjustment expenses              |                                  | $                              | 102,526           |         |           | $      | 73,065    |         |           | $      | 61,879    |         |           | $      | 39,959    |         |           | $      | 33,642    |          
|                      | Unearned insurance premiums                                |                                  |                                | 28,993            |         |           |        | 48,681    |         |           |        | 24,897    |         |           |        | 17,006    |         |           |        | 8,420     |          
|                      | Deferred furniture rental income and security
    deposits |                                  |                                | 19,835            |         |           |        | 21,562    |         |           |        | 23,796    |         |           |        | 27,669    |         |           |        |          |          
|                      | Notes payable                                              |                                  |                                | 12,679            |         |           |        | 32,481    |         |           |        | 33,649    |         |           |        | 56,035    |         |           |        | 3,635     |          
|                      | Income taxes payable, principally deferred                 |                                  |                                | 247,241           |         |           |        | 227,902   |         |           |        | 225,665   |         |           |        | 305,175   |         |           |        | 707,345   |          
|                      | Other Liabilities                                          |                                  |                                | 48,931            |         |           |        | 45,122    |         |           |        | 37,410    |         |           |        | 38,037    |         |           |        | 3,781     |          
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      |                                                            |                                  | Total liabilities              |                   | $       | 460,205   |        |           | $       | 448,813   |        |           | $       | 407,296   |        |           | $       | 483,881   |        |           | $         | 756,823   |       
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|Shareholders equity: |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      | Capital stock and surplus                                  |                                  | $                              | 33,324            |         |           | $      | 30,439    |         |           | $      | 30,439    |         |           | $      | 30,439    |         |           | $      | 30,439    |          
|                      | Unrealized appreciation of investments, net of
    taxes   |                                  |                                | 426,542           |         |           |        | 374,571   |         |           |        | 372,267   |         |           |        | 480,469   |         |           |        | 1,312,590 |          
|                      | Retained earnings                                          |                                  |                                | 1,618,324         |         |           |        | 1,553,152 |         |           |        | 1,509,691 |         |           |        | 1,466,126 |         |           |        | 552,343   |          
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      |                                                            |                                  | Total shareholders
    equity |                   | $       | 2,078,190 |        |           | $       | 1,958,162 |        |           | $       | 1,912,397 |        |           | $       | 1,977,034 |        |           | $         | 1,895,372 |       
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          
|                      |                                                            |                                  |                                | Per capital share |         | $         | 291.89 |           |         | $         | 275.03 |           |         | $         | 268.60 |           |         | $         | 277.68 |           |           | $         | 266.21 | 
|                      |                                                            |                                  |                                |                   |         |           |        |           |         |           |        |           |         |           |        |           |         |           |        |          

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|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |        | 
|--------------------------------------- | --------------------------------------------------------------- | ----------------------- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | --------- | --------- |  | - | ------- | ------ | 
|                                        |                                                                 |                        
|                                        |                                                                 | Year Ended December 31,
|                                        |                                                                 |                        
|                                        |                                                                 | 2003                    |         | 2002    |  | 2001 |         | 2000    |  | 1999
|                                        |                                                                 |                         |         |         |  |      |         |         |  |     
|Revenues:                               |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|                                        | Sales and service revenues                                      |                         | $       | 406,250 |  |      | $       | 437,099 |  |      | $       | 443,628 |  |   | $         | 426,096   |  |   | $       | 64,571 | 
|                                        | Insurance premiums earned                                       |                         |         | 106,651 |  |      |         | 64,627  |  |      |         | 43,031  |  |   |           | 23,783    |  |   |         | 17,655 | 
|                                        | Dividend and interest income                                    |                         |         | 44,763  |  |      |         | 70,652  |  |      |         | 70,981  |  |   |           | 59,759    |  |   |         | 49,679 | 
|                                        | Realized net investment gains                                   |                         |         | 53,466  |  |      |         |        |  |      |         |        |  |   |           | 1,311,270 |  |   |         | 11,186 | 
|                                        | Other                                                           |                         |         | 3,187   |  |      |         | 3,299   |  |      |         | 3,439   |  |   |           | 3,056     |  |   |         | 4,600  | 
|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|                                        |                                                                 |                         | 614,317 |         |  |      | 575,677 |         |  |      | 561,079 |         |  |   | 1,823,964 |           |  |   | 147,691 |       
|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|Costs and expenses:                     |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|                                        | Cost of products and services sold                              |                         |         | 144,725 |  |      |         | 145,677 |  |      |         | 144,712 |  |   |           | 146,649   |  |   |         | 50,728 | 
|                                        | Insurance losses, loss adjustment and
    underwriting expenses |                         |         | 82,497  |  |      |         | 58,736  |  |      |         | 46,682  |  |   |           | 19,392    |  |   |         | 7,366  | 
|                                        | Selling, general and administrative                             |                         |         | 278,090 |  |      |         | 288,353 |  |      |         | 276,712 |  |   |           | 227,954   |  |   |         | 11,468 | 
|                                        | Interest expense                                                |                         |         | 749     |  |      |         | 1,994   |  |      |         | 4,169   |  |   |           | 5,235     |  |   |         | 2,549  | 
|                                        | Goodwill amortization                                           |                         |         |        |  |      |         |        |  |      |         | 7,476   |  |   |           | 6,342     |  |   |         | 782    | 
|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|                                        |                                                                 |                         | 506,061 |         |  |      | 494,760 |         |  |      | 479,751 |         |  |   | 405,572   |           |  |   | 72,893  |       
|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|Income before income taxes              |                                                                 |                         | 108,256 |         |  |      | 80,917  |         |  |      | 81,328  |         |  |   | 1,418,392 |           |  |   | 74,798  |       
|Provision for income taxes              |                                                                 |                         | (34,852 | )       |  |      | (28,199 | )       |  |      | (28,792 | )       |  |   | (495,922  | )         |  |   | (20,655 | )     
|Minority interest in loss of subsidiary |                                                                 |                         | 1,307   |         |  |      |        |         |  |      |        |         |  |   |          |           |  |   |        |       
|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|Net income                              |                                                                 | $                       | 74,711  |         |  | $    | 52,718  |         |  | $    | 52,536  |         |  | $ | 922,470   |           |  | $ | 54,143  |       
|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|Amounts per capital share:              |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       
|                                        | Net income                                                      |                         | $       | 10.49   |  |      | $       | 7.40    |  |      | $       | 7.38    |  |   | $         | 129.56    |  |   | $       | 7.60   | 
|                                        | Cash dividends                                                  |                         |         | 1.34    |  |      |         | 1.30    |  |      |         | 1.26    |  |   |           | 1.22      |  |   |         | 1.18   | 
|                                        |                                                                 |                         |         |         |  |      |         |         |  |      |         |         |  |   |           |           |  |   |         |       






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

In reviewing this item, attention is directed to
Item 6, Selected Financial Data, and Item 1, Business.

OVERVIEW

Financial Condition

Wesco continues to have an exceptionally strong,
conservatively valued balance sheet at December 31, 2003,
with relatively little debt and no hedging or off-balance sheet
financing. Liquidity, which has traditionally been high, is even
higher than usual due principally to sales and maturities during
2003 of most of Wescos mortgage-backed securities and
other fixed-maturity investments and reinvestment of the
proceeds in cash equivalents pending redeployment.

Wescos four equity investees are strong,
well-known companies. The practice of concentrating in few
issues, rather than diversifying, follows the investment
philosophy of the chairmen-CEOs of Wesco and its parent,
Berkshire, who consult with respect to Wescos investments
and major capital allocations.

Results of Operations

Investment gains were realized in 2003 for the
first time in three years. As is usual for Wesco, realization of
these gains had little effect on shareholders equity,
because the gains had essentially been reflected, net of taxes,
in the unrealized appreciation component of shareholders
equity. Sales of investments at Wesco are made with a view to
economics, never the reporting of earnings, and the amounts and
timing of realizations have no predictive or practical analytic
value.

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Ignoring realized investment gains, after-tax
operating earnings declined in 2003 after remaining relatively
flat in 2002 and 2001. Improved insurance underwriting results
were more than offset by reduced investment income that resulted
from the shift from longer-term to very-short-term
fixed-maturity investments bearing lower interest rates. Also,
the furniture rental and industrial segments suffered from the
effects of the ongoing weak economy and other unfavorable
factors.

Wesco does not manage with a view toward Wall
Street expectations. Its management is not concerned with the
volatility of short-term operating results, so long as long-term
prospects are satisfactory.

FINANCIAL CONDITION

Wescos shareholders equity at
December 31, 2003 was $2.1 billion ($291.89 per
share), up from $2.0 billion ($275.03 per share) at
December 31, 2002. Shareholders equity included
$426.5 million at December 31, 2003, and
$374.6 million at December 31, 2002, representing
appreciation in market value of investments, which is credited
directly to shareholders equity, net of taxes, without
being reflected in earnings. Because unrealized appreciation is
recorded based upon market quotations, gains or losses
ultimately realized upon sale of investments could differ
substantially from recorded unrealized appreciation. Net
unrealized appreciation constituted approximately 21% of
shareholders equity at December 31, 2003 and 19% at
December 31, 2002. (See Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, as well as
Notes 1 and 3 to Wescos accompanying consolidated
financial statements, for additional information on investments.)

At December 31, 2003, Wescos
consolidated cash and cash equivalents totaled
$1.1 billion, up from $350 million at
December 31, 2002. The $703 million increase resulted
primarily from sales, maturities and early redemptions of
longer-term fixed-income securities as well as operating cash
flow from Wescos insurance businesses.

Wescos consolidated borrowings totaled
$12.7 million at December 31, 2003 versus
$32.5 million at December 31, 2002. Of these amounts,
$12.1 million and $22.0 million related to a
$100 million revolving line of credit used in CORTs
furniture rental business. The remainder represented convertible
notes of a subsidiary of CORT, which were in effect retired
during 2003 (see Note 6 to Wescos consolidated
financial statements).

Wescos management believes the group has
adequate liquidity and capital resources to provide for
contingent needs. Borrowings from banks and others have been
available to Wesco and its subsidiaries under attractive terms
for a number of years. Wes-FIC enjoys Standard & Poors
Corporations highest rating, AAA, with respect to its
claims-paying ability.

RESULTS OF OPERATIONS

The consolidated data in the second table in
Item 6 are set forth essentially in the income statement
format customary to generally accepted accounting principles
(GAAP). Revenues, including realized net securities
gains, are followed by costs and expenses, including goodwill
amortization (if applicable) and a provision for income taxes,
to arrive at net income. The following summary sets forth the
after-tax contribution to GAAP net income of each business
segment  insurance, furniture rental and
industrial  as well as activities not considered
related to such segments. Realized net securities gains and
goodwill amortization are excluded from segment activities,
consistent with the way Wescos management views the
business operations. (Amounts are in thousands, all after
income tax effect.)

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|                                                   |                       |                                         |                         |        |        |        |       |        |        |        |        |        |        |        | 
|-------------------------------------------------- | --------------------- | --------------------------------------- | ----------------------- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                   |                       |                                        
|                                                   |                       | Year Ended December 31,                
|                                                   |                       |                                        
|                                                   |                       | 2003                                    |                         | 2002   |        | 2001  
|                                                   |                       |                                         |                         |        |        |       
|Insurance segment:                                 |                       |                                         |                         |        |        |        |       |        |        |        |        |       
|                                                   | Underwriting          |                                         | $                       | 15,711 |        |        | $     | 3,829  |        |        | $      | (2,373 | )     
|                                                   | Investment income     |                                         |                         | 30,925 |        |        |       | 45,642 |        |        |        | 47,627 |       
|Furniture rental segment                           |                       |                                         | (6,257                  | )      |        |        | 2,442 |        |        |        | 13,076 |       
|Industrial segment                                 |                       |                                         | (860                    | )      |        |        | 250   |        |        |        | 388    |       
|Nonsegment items other than investment
    gains  |                       |                                         |                         |        |        |        |       |        |        |        |        |       
|                                                   | Goodwill amortization |                                         |                         |       |        |        |       |       |        |        |        | (6,814 | )     
|                                                   | Other                 |                                         |                         | 439    |        |        |       | 555    |        |        |        | 632    |       
|                                                   |                       |                                         |                         |        |        |        |       |        |        |        |        |       
|                                                   |                       | Income before realized investment gains |                         |        | 39,958 |        |       |        | 52,718 |        |        |        | 52,536 |       
|Realized investment gains                          |                       |                                         | 34,753                  |        |        |        |      |        |        |        |       |       
|                                                   |                       |                                         |                         |        |        |        |       |        |        |        |        |       
|                                                   |                       |                                         | Consolidated net income |        | $      | 74,711 |       |        | $      | 52,718 |        |        | $      | 52,536 | 
|                                                   |                       |                                         |                         |        |        |        |       |        |        |        |        |       

In the following sections the data set forth in
the foregoing summary on an after-tax basis are broken
down and discussed. Attention is directed to Note 10 to the
accompanying consolidated financial statements for additional
information.

Insurance Segment

Following is a summary of the results of
operations of the insurance segment (i.e., Wes-FIC and KBS),
which represent the combination of underwriting results with
dividend and interest income. (Amounts are in thousands.)

|                             |  |                         |         |      |  |      |         |   |  |   |         |  
|---------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                             |  |                        
|                             |  | Year Ended December 31,
|                             |  |                        
|                             |  | 2003                    |         | 2002 |  | 2001
|                             |  |                         |         |      |  |     
|Premiums written             |  | $                       | 86,962  |      |  | $    | 88,411  |   |  | $ | 50,922  |  
|                             |  |                         |         |      |  |      |         |   |  |   |         |  
|Premiums earned              |  | $                       | 106,651 |      |  | $    | 64,627  |   |  | $ | 43,031  |  
|                             |  |                         |         |      |  |      |         |   |  |   |         |  
|Underwriting gain (loss)     |  | $                       | 24,171  |      |  | $    | 5,891   |   |  | $ | (3,651  | )
|Dividend and interest income |  |                         | 44,118  |      |  |      | 70,007  |   |  |   | 70,048  |  
|                             |  |                         |         |      |  |      |         |   |  |   |         |  
|Income before income taxes   |  |                         | 68,289  |      |  |      | 75,898  |   |  |   | 66,397  |  
|Income tax provision         |  |                         | (21,653 | )    |  |      | (26,427 | ) |  |   | (21,143 | )
|                             |  |                         |         |      |  |      |         |   |  |   |         |  
|Segment net income           |  | $                       | 46,636  |      |  | $    | 49,471  |   |  | $ | 45,254  |  
|                             |  |                         |         |      |  |      |         |   |  |   |         |  

Premiums written for 2003, 2002 and 2001 included
$67.1 million, $67.7 million and $32.8 million
attributable to Wes-FIC, and $19.9 million,
$20.7 million and $18.1 million attributable to KBS.

Earned premiums for 2003, 2002 and 2001 included
$86.5 million, $45.4 million and $25.3 million
attributable to Wes-FIC, and $20.2 million,
$19.2 million and $17.7 million attributable to KBS.

At December 31, 2003, Wes-FIC was
participating in in-force reinsurance business principally as
follows: (1) a multi-year contract for property and
casualty exposure entered into in 2000 with a large,
unaffiliated insurer, and (2) a contract which became
effective in 2001 under which Wes-FIC participates in various
pools of aviation-related risks. Under the first contract
described above, Wes-FIC, in 2003, 2002 and 2001, wrote premiums
of approximately $30 million annually and earned premiums
of $42.0 million, $20.9 million and
$22.5 million. Under the second contract described above,
Wes-FIC, in 2003, 2002 and 2001, wrote $67.1 million,
$67.7 million and $32.8 million and earned premiums of
$44.3 million, $24.4 million and $2.8 million.
Wes-FICs participation in those contracts has generally
varied from year to year, and is summarized in Item 1,
Business. The decrease in premiums written by KBS in 2003
resulted from a change in the pricing of reinsurance ceded to
reinsurers; premiums written, before the purchase of
reinsurance, actually increased slightly for the year, as it did
in 2002. The increases in premiums written by KBS in recent
years have been principally

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due to growth in volume of bank deposit guarantee
bonds; this product currently accounts for approximately 45% of
premiums written by KBS.


The underwriting gain (loss) for 2003, 2002
and 2001 included $17.1 million, $.1 million, and
($12.4 million) attributable to Wes-FIC, and
$7.0 million, $5.8 million and $8.7 million
attributable to KBS. Wes-FIC benefited in 2003 mainly from
relatively low levels of aviation losses. Its underwriting loss
for 2001 resulted mainly from a provision of $10 million
before income taxes representing estimated loss and expenses
related to the terrorist activity of September 11, 2001.
Its underwriting gain in 2003 benefited by a reduction of
$3 million in that provision. Aside from the
$3 million benefit, Wes-FICs underwriting results for
2003 were detrimentally affected by net revisions of estimated
liabilities for losses and loss adjustment expenses provided for
in prior years of $4.5 million. Underwriting results for
2002 and 2001 included net beneficial revisions of estimated
liabilities for losses and loss adjustment expenses of
$.8 million and $2.3 million. Underwriting results are
based on estimates and subject to estimation error; in addition,
management believes that it will take years to resolve
complicated coverage issues relating to the September 11,
2001 loss estimate, which could have a material effect on the
ultimate loss incurred.

KBS, unlike Wes-FIC, writes numerous, relatively
small insurance policies, and thus management considers overall
combined ratios (the sum of insurance losses, loss adjustment
expenses and underwriting expenses divided by premiums) to be
meaningful. KBS combined ratios were 65.0%, 71.3% and
55.1% for 2003, 2002 and 2001.

Since September 11, 2001, the insurance
industry has been particularly concerned about its exposure to
claims resulting from acts of terrorism. As explained in
Item 1, Business, in spite of partial relief provided by
the Terrorism Risk Insurance Act, enacted in November 2002,
Wes-FIC is exposed to insurance losses from terrorist events.
Although Wes-FICs (and thus Wescos) exposure to such
losses from an insurance standpoint cannot be predicted,
Wes-FICs management does not believe it likely that, on a
worst-case basis, Wes-FICs shareholders equity would
be severely impacted by future terrorism-related insurance
losses under reinsurance or insurance contracts currently in
effect.

Another industry concern in recent years has been
its exposure to loss from environmental contamination,
particularly asbestos-related claims. Wes-FICs management
currently believes such exposure to be minimal.

Dividend and interest income has been earned by
the insurance group principally (1) on earnings retained
and reinvested by Wes-FIC, (2) on capital contributed by
Wesco, and (3) on float (funds invested pending payment of
claims). Dividend and interest income earned by the insurance
segment declined for 2003 from the corresponding 2002 figure
principally as proceeds from sales, maturities and early
redemptions of higher-yielding, long-term investments were
reinvested in lower-yielding, short-term investments. Dividend
and interest income was essentially unchanged in 2002 from the
amount earned in 2001.

The income tax provision of the insurance segment
fluctuated as a percentage of its pre-tax income from year to
year during the period presented in the foregoing table mainly
due to the relationship of substantially tax-exempt components
of income to total pre-tax income.

As explained in Item 1, Business,
Wescos insurance segment has extraordinary capital
strength, and Wesco would welcome additional attractive
reinsurance or insurance arrangements, or acquisitions of
insurance businesses. However, the timing and magnitude of
changes in its insurance underwriting activity cannot presently
be predicted.

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Furniture Rental Segment

Following is a summary of the results of
operations of the furniture segment, consisting of CORT Business
Services Corporation (CORT) and its subsidiary,
Relocation Central. (Amounts are in thousands.)

|                                                            |                        |                         |         |         |  |      |         |         |  |   |         |         | 
|----------------------------------------------------------- | ---------------------- | ----------------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                            |                        |                        
|                                                            |                        | Year Ended December 31,
|                                                            |                        |                        
|                                                            |                        | 2003                    |         | 2002    |  | 2001
|                                                            |                        |                         |         |         |  |     
|Revenues:                                                   |                        |                         |         |         |  |      |         |         |  |   |         |        
|                                                            | Furniture rentals      |                         | $       | 275,949 |  |      | $       | 309,341 |  |   | $       | 328,129 | 
|                                                            | Furniture sales        |                         |         | 68,253  |  |      |         | 72,816  |  |   |         | 66,008  | 
|                                                            | Apartment locator fees |                         |         | 15,910  |  |      |         | 6,426   |  |   |         | 1,277   | 
|                                                            |                        |                         |         |         |  |      |         |         |  |   |         |        
|                                                            |                        |                         | 360,112 |         |  |      | 388,583 |         |  |   | 395,414 |        
|                                                            |                        |                         |         |         |  |      |         |         |  |   |         |        
|Cost of rentals, sales and fees                             |                        |                         | 105,998 |         |  |      | 116,354 |         |  |   | 110,680 |        
|Selling, general and administrative expenses                |                        |                         | 265,799 |         |  |      | 266,796 |         |  |   | 260,168 |        
|Interest expense                                            |                        |                         | 749     |         |  |      | 1,790   |         |  |   | 3,889   |        
|                                                            |                        |                         |         |         |  |      |         |         |  |   |         |        
|                                                            |                        |                         | 372,546 |         |  |      | 384,940 |         |  |   | 374,737 |        
|                                                            |                        |                         |         |         |  |      |         |         |  |   |         |        
|Income (loss) before income taxes and
    minority interest |                        |                         | (12,434 | )       |  |      | 3,643   |         |  |   | 20,677  |        
|Income tax (provision) benefit                              |                        |                         | 4,870   |         |  |      | (1,201  | )       |  |   | (7,601  | )      
|Minority interest in net loss of Relocation
    Central     |                        |                         | 1,307   |         |  |      |        |         |  |   |        |        
|                                                            |                        |                         |         |         |  |      |         |         |  |   |         |        
|Segment net income (loss)                                   |                        | $                       | (6,257  | )       |  | $    | 2,442   |         |  | $ | 13,076  |        
|                                                            |                        |                         |         |         |  |      |         |         |  |   |         |        

Furniture rental revenues for 2003 declined
$33.4 million, or 10.8 %, from those of 2002, following a
decline of $18.8 million, or 5.7%, the prior year.
Excluding rental revenues each year from trade shows, as well as
from locations not in operation throughout each year, rental
revenues for 2003 declined approximately 12% from those of 2002,
following a decline of approximately 17% the prior year; the
percentage decrease would have been greater were it not for the
effect of price increases of 4% to 5% in 2002 and 2003. The
number of furniture leases in effect has been on a downward
trend since late 2000. Units of furniture rented were down
approximately 15% in 2003 and 19% in 2002, as compared with each
respective prior years. The declines of furniture rentals
in dollars and units are deemed to have resulted from continued
weakness of job growth in the economy, exacerbated by the
terrorist activity on September 11, 2001.

Furniture sales revenues decreased 6.3% in 2003
from those reported in 2002 after having increased in 2002 by
10.3% over the 2001 level. CORT, in managing the level of
excess, idle inventory, periodically discounts selling prices.
It did so in 2002, resulting in higher-than-normal revenues.

Apartment locator fees, generated by Relocation
Central since its start-up in January 2001, increased sharply to
$15.9 million in 2003 from $6.4 million in 2002 and
$1.3 million in 2001, principally through acquisitions.

Cost of rentals, sales and fees amounted to 29.4%
of revenues for 2003 versus 29.9% for 2002 and 28.0% for 2001.
The decrease in cost percentage for 2003 reflected improved
rental and selling prices, as well as lower depreciation
expense, in spite of a writedown of obsolete and excess
inventories by $1.6 million in 2003. The increase in cost
percentage in 2002 reflected mainly CORTs efforts to trim
excess, idle inventories through decreases in selling prices and
would have been somewhat higher were it not for a decrease in
depreciation expense. Purchases of new product have been
generally declining in recent years; rental furniture is
depreciated under the declining balance method, whereby recorded
depreciation is higher in the first year and declines in each
successive year. Excluding costs incurred by Relocation
Central  $15.1 million in 2003,
$10.3 million in 2002 and $5.0 million in
2001  in generating apartment locator fees, segment
costs in relation to furniture rentals and sales were 26.4% in
2003, 27.7% in 2002 and 26.8% in 2001.

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Other segment operating expenses
(i.e., selling, general, administrative and interest
expenses) were $266.5 million for 2003, down .1% from the
$268.6 million incurred in 2002, following an increase of 1.7%
from the $264.0 million incurred in 2001. Excluding other
operating expenses of Relocation Central 
$16.6 million in 2003, $8.8 million in 2002 and
$7.8 million in 2001, other operating expenses of the
segment amounted to $249.9 million in 2003, down
$9.9 million, or 3.8%, from $259.8 million in 2002;
the latter was up 1.3% from $256.5 million in 2001.
CORTs management anticipates further reductions in other
operating expenses as it continues integrating the operations of
a large furniture rental company acquired early in 2002, as
Relocation Central continues integrating the operations of its
largest competitor acquired late in 2002, and as additional
synergies and efficiencies materialize from CORTs
reorganization of Relocation Centrals operations.

Income or loss before income taxes and minority
interest for the furniture rental segment amounted to a loss of
$12.4 million for the year 2003, income of
$3.6 million for 2002 and income of $20.7 million for
2001. Eliminating the portion of these amounts representing
Relocation Central losses  $15.9 million in
2003, $12.8 million in 2002 and $10.8 million in
2001  results in income before income taxes and
minority interest for CORT, at the parent company level, of
$3.5 million for 2003, $16.4 million for 2002 and
$31.5 million for 2001. The year-to-year decline in the
latter figures was due to the fact that CORTs operating
and other costs and expenses, principally fixed, were not
sufficiently reduced to compensate for decreasing revenues.
Management expects that the furniture rental business will
improve in 2004 principally as a result of continued cost
cutting and recent implementation of new rental programs.

The minority interest in net loss of Relocation
Central of $1.3 million in 2003 relates to a period of
several months during which minority shareholders held an
approximately 20% equity interest in Relocation Central. (See
Note 6 to the accompanying consolidated financial
statements for further information.)

Industrial Segment

Following is a summary of the results of
operations of the industrial segment, consisting of the
businesses of Precision Steel and its subsidiaries. (Amounts are
in thousands.)

|                                         |  |                         |        |      |  |      |        |   |  |   |        |  
|---------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                         |  |                        
|                                         |  | Year Ended December 31,
|                                         |  |                        
|                                         |  | 2003                    |        | 2002 |  | 2001
|                                         |  |                         |        |      |  |     
|Revenues, principally sales and services |  | $                       | 46,138 |      |  | $    | 48,567 |   |  | $ | 48,440 |  
|                                         |  |                         |        |      |  |      |        |   |  |   |        |  
|Income before income taxes               |  | $                       | (1,531 | )    |  | $    | 663    |   |  | $ | 862    |  
|Income tax (provision) benefit           |  |                         | 671    |      |  |      | (413   | ) |  |   | (474   | )
|                                         |  |                         |        |      |  |      |        |   |  |   |        |  
|Segment net income (loss)                |  | $                       | (860   | )    |  | $    | 250    |   |  | $ | 388    |  
|                                         |  |                         |        |      |  |      |        |   |  |   |        |  

Industrial segment revenues for 2003 decreased
5.0% from the corresponding 2002 figure; pounds of steel
products sold decreased 6.6%. Revenues for 2002 increased .3%
from the corresponding 2001 figure; pounds of steel products
sold increased 6.6%. The increase in steel sales in terms of
pounds sold in 2002 may have been anomalous, because in recent
years Precision Steel has suffered from a prolonged economic
downturn, a shift by many manufacturers from domestic to
overseas production facilities, periodic shortages of product
from domestic mills, and extraordinary competitive pressures.
Not only has there been a reduction in the number of orders
placed, but there has also been a trend towards smaller-sized
orders. The severity of these adverse factors on industrial
segment revenues is demonstrated by the fact that average annual
segment revenues for the years 2001 through 2003 were down 27%
from those reported for 1998 through 2000.

At the start of 2004, a shortage of raw materials
from domestic mills has produced near chaos in the steel service
industry. Thus far in 2004, the impact on revenues and earnings
has been favorable for Precision Steel, but it is not clear how
the situation will work out.

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Federal and state environmental agencies have
made claims relating to alleged contamination of soil and
groundwater against Precision Brand, a subsidiary of Precision
Steel, and various other businesses situated in a business park
in Downers Grove, Illinois. Precision Brand, along with the
other businesses, has been negotiating remedial actions with
various governmental entities. In addition, Precision Brand and
other parties have been named in several civil lawsuits,
including lawsuits by and on behalf of area residents, relating
to this matter. Precision Steel and Precision Brand have
notified their insurers relative to the claims and litigation.
Inasmuch as the claims and lawsuits are in early stages of
development, the ultimate cost of the claims, including defense
costs, is difficult to estimate at this time. Nevertheless, in
2003, Precision Brand recorded a provision of $1.0 million
($.6 million after income tax benefit), representing a
preliminary estimate of its share of costs of remediation agreed
to with governmental entities and other parties to date and
related expenses. Management does not anticipate that the
ultimate financial impact of such remediation and other legal
matters will be material in relation to Wescos
shareholders equity, although it believes that the effect
on consolidated net income in any given period could be material.

Even without the $1.0 million provision for
remediation in 2003 discussed above, operations of the
industrial segment for 2003 would have resulted in a loss before
income taxes of $.5 million, versus pre-tax income of
$.7 million and $.9 million for 2002 and 2001. Income
or loss before income taxes of the industrial segment is
dependent not only on revenues, but also on operating costs and
the cost of products sold. The latter, as a percentage of
revenues, amounted to 83.9%, 81.7% and 80.9% for 2003, 2002 and
2001. The cost percentage typically fluctuates slightly from
year to year as a result of changes in product mix and price
competition at all levels. Precision Steels cost of
products sold percentage is very sensitive to current changes in
the cost of materials purchased, because it carries its
inventories at the lower of last-in, first-out
(LIFO) cost or market; under this method, the most
recent costs are reflected in cost of goods sold. LIFO inventory
accounting adjustments were insignificant in relation to
industrial segment after-tax loss for 2003, but increased
earnings by $.2 million and $.4 million for 2002 and
2001.

Unrelated to Business Segment
Operations

Set forth below is a summary of items increasing
(decreasing) Wescos consolidated net income that are
viewed by management as unrelated to the operations of the
insurance, furniture rental and industrial segments. (Amounts
are in thousands.)

|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |        |     | 
|------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------- | ------- | ------ | --- | ---- | - | ------ | --- | - | ------ | ------ | --- | 
|                                                        |                                                         |                                            
|                                                        |                                                         | Year Ended December 31,                    
|                                                        |                                                         |                                            
|                                                        |                                                         | 2003                                        |         | 2002   |     | 2001
|                                                        |                                                         |                                             |         |        |     |     
|Goodwill amortization, before income tax effect         |                                                         | $                                           |        |        |     | $    |  |        |     | $ | (7,476 | )     
|Income tax benefit                                      |                                                         |                                             |        |        |     |      |  |        |     |   | 662    |       
|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |       
|                                                        | Goodwill amortization                                   |                                             | $       |       |     |      | $ |       |     |   | $      | (6,814 | )  
|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |       
|Realized investment gains, before income tax
    effect |                                                         | $                                           | 53,466  |        |     | $    |  |        |     | $ |       |       
|Income tax provision                                    |                                                         |                                             | (18,713 | )      |     |      |  |        |     |   |       |       
|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |       
|                                                        | Realized investment gains                               |                                             | $       | 34,753 |     |      | $ |       |     |   | $      |       |    
|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |       
|Other nonsegment items                                 |                                                         |                                             |         |        |     |      |   |        |     |   |        |       
|                                                        | Rental income from commercial real estate               |                                             | $       | 3,187  |     |      | $ | 3,248  |     |   | $      | 3,214  |    
|                                                        | Dividend and interest income                            |                                             |         | 617    |     |      |   | 616    |     |   |        | 885    |    
|                                                        | Real estate and general and administrative
    expenses |                                             |         | (3,367 | )   |      |   | (3,186 | )   |   |        | (3,303 | )  
|                                                        | Interest expense                                        |                                             |         |       |     |      |   |       |     |   |        | (79    | )  
|                                                        | Other items, net                                        |                                             |         | 29     |     |      |   | 35     |     |   |        | 151    |    
|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |       
|                                                        | Income before income taxes                              |                                             |         | 466    |     |      |   | 713    |     |   |        | 868    |    
|                                                        | Provision for income taxes                              |                                             |         | (27    | )   |      |   | (158   | )   |   |        | (236   | )  
|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |       
|                                                        |                                                         | Net income from other nonsegment activities |         | $      | 439 |      |   | $      | 555 |   |        | $      | 632 | 
|                                                        |                                                         |                                             |         |        |     |      |   |        |     |   |        |       

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Goodwill represents the excess of the cost over
the fair value of identified net assets of acquired businesses.
In the case of the Wesco group, it relates to the acquisitions
of CORT and KBS, as well as smaller entities acquired by CORT
following its purchase by Wesco in February 2000. Prior to 2002,
goodwill was amortized mainly on a straight-line basis over
40 years. Effective as of the beginning of 2002, Wesco
discontinued amortization of goodwill and became subject to
other changes in goodwill accounting, as required by the
Financial Accounting Standards Board. (See Notes 1 and 2 to
the accompanying consolidated financial statements for further
information on goodwill accounting.)

Realized gains and losses on the Wesco
groups investments have fluctuated in amount from year to
year, sometimes impacting net income significantly, as in 2003
and 2000. However, the amounts and timing of these realizations
have no predictive or practical analytical value. Wescos
investments are carried at market value, and unrealized gains or
losses are reflected, net of potential income tax effect, in the
unrealized appreciation component of its shareholders
equity. When gains or losses are realized, due to sale of
securities or other triggering event, they are credited or
charged to the consolidated statement of income; generally, in
Wescos case, there has been little effect on total
shareholders equity  essentially only a
transfer from unrealized appreciation to retained earnings.
Wescos consolidated earnings contained net realized
investment gains, after income taxes, of $34.8 million in
2003 and $852.4 million in 2000; no gains or losses were
realized in 2002 or 2001.

Other nonsegment items include mainly
(1) rental income from owned commercial real estate and
(2) dividend and interest income from marketable securities
and cash equivalents owned outside the insurance subsidiaries,
reduced by real estate and general and administrative
expenses  plus or minus income taxes related to such
items. These taxes do not correlate well with total pre-tax
income, primarily because dividend income is substantially
tax-exempt.

* * * * *

Wescos effective consolidated income tax
rate typically fluctuates somewhat from period to period based
mainly on the relation of dividend income, which is
substantially exempt from income taxes, to other pre-tax
earnings or losses, including realized investment gains, which
are fully taxable. The respective income tax provisions,
expressed as percentages of income before income taxes, amounted
to 32.2%, 34.8% and 35.4% in 2003, 2002 and 2001. (See
Notes 1 and 7 to the accompanying consolidated financial
statements for further information on income taxes.)

Managements principal goal is to maximize
gain in Wescos intrinsic business value per share over the
long term. Accounting consequences do not influence business
decisions. There is no particular strategy as to the timing of
sales of investments. Investments may be sold for a variety of
reasons, including (1) the belief that prospects for future
appreciation of a particular investment are less attractive than
the prospects for reinvestment of the after-tax proceeds from
its sale, or (2) the desire to generate funds for an
acquisition or repayment of debt.

Consolidated revenues, expenses and net income
reported for any period are not necessarily indicative of future
revenues, expenses and net income in that they are subject to
significant variations in amount and timing of investment gains
and losses, as well as other unusual nonoperating items such as
a large acquisition. In addition, consolidated revenues,
expenses and net income are subject to external conditions such
as the September 11, 2001 terrorist activity, which had an
immediate impact on Wes-FICs underwriting results, the
ongoing weakness of the economy, which has adversely affected
CORT and Precision Steel, and raw material shortages which have
very recently disrupted the steel service business.

As explained in Item 1, Business, in spite
of relief provided by enactment of the Terrorism Risk Insurance
Act (TRIA) on November 26, 2002, Wes-FIC is
exposed to losses from terrorist events covered by TRIA
occurring after that date as well as terrorism losses not
covered by TRIA. Although Wes-FICs and thus Wescos
exposure to terrorism losses cannot be predicted, Wes-FICs
management does not believe that, on a worst-case basis,
Wes-FICs shareholders equity would likely be

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severely impacted by any terrorism-related
insurance losses under reinsurance or insurance contracts
currently in effect.


Shareholders equity is impacted not only to
the extent that unusual items affect earnings, but also to
reflect changes in unrealized appreciation of investments, which
are not reflected in earnings.

Wesco is not now suffering from inflation, but
its business operations have potential exposure, particularly in
the insurance and industrial segments. Large unanticipated
changes in the rate of inflation could adversely impact the
insurance business, because premium rates are established well
in advance of expenditures. Precision Steels businesses
are competitive and operate on tight gross profit margins,
making their earnings susceptible to inflationary and
deflationary cost changes; the impact, though not material in
relation to Wescos consolidated net income, may be
significant to that of the industrial segment, due particularly
to the segments use of LIFO inventory accounting.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

Wescos consolidated financial statements
are prepared in conformity with accounting principles generally
accepted in the United States (GAAP). The
significant accounting policies and practices followed by Wesco
are set forth in Note 1 to the accompanying consolidated
financial statements. Following are the accounting policies and
practices considered by Wescos management to be critical
to its determination of consolidated financial position and
results of operations.

In preparing the consolidated financial
statements management is required to make estimates and
assumptions based on evaluation of facts and circumstances using
information currently available. Although the amounts of assets,
liabilities, revenues and expenses included in the consolidated
financial statements may differ significantly from those that
might result from use of estimates and assumptions based on
facts and circumstances not yet available, Wescos
management does not believe such differences would have a
material adverse effect on reported shareholders equity.

Liabilities for insurance losses and loss
adjustment expenses as of any balance sheet date represent
estimates of the ultimate amounts payable under property and
casualty reinsurance and insurance contracts related to losses
occurring on or before the balance sheet date. As of that date,
some incurred claims have not yet been reported (and some of
these may not be reported for many years); the liability for
unpaid losses includes significant estimates for these claims.
Additionally, reported claims are in various stages of the
settlement process. Each claim is settled individually based
upon its merits, and some take years to settle, especially if
legal action is involved. Actual ultimate claims amounts are
likely to differ from amounts recorded at the balance sheet
date. Changes in estimates are recorded as a component of losses
incurred in the period of change. Provisions for losses and loss
adjustment expenses are reported in the consolidated statement
of income after deducting estimates of amounts that will be
recoverable under reinsurance contracts. Reinsurance contracts
do not relieve the ceding companies of their obligations to
indemnify policyholders with respect to the underlying insurance
contracts.

Goodwill of acquired businesses represents the
difference between purchase cost and the fair value of net
assets of acquisitions accounted for under the purchase method.
Prior to 2002, goodwill from each acquisition was generally
amortized as a charge to earnings over a period not exceeding
40 years, and was reviewed for impairment if conditions
were identified that indicated possible impairment. Effective
January 1, 2002, Wesco adopted Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 eliminated the periodic amortization of goodwill in
favor of an accounting model that is based solely upon
impairment tests. Goodwill is reviewed for impairment using a
variety of methods at least annually, and impairments, if any,
are charged to operating earnings.

The appropriate classifications of investments in
securities with fixed maturities and marketable equity
securities are established at the time of purchase and
reevaluated as of each balance sheet date. There are three
permissible classifications: held-to-maturity, trading, and,
when neither of those

18



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##### Table of Contents



classifications is applicable,
available-for-sale. In recent years Wescos management has
classified all of its equity and fixed-maturity investments as
available-for-sale; they are carried at fair value, with
unrealized gains and losses, net of deemed applicable income
taxes, reported as a separate component of shareholders
equity.


Insurance premiums are recognized as earned
revenues in proportion to the insurance protection provided,
which in most cases is pro rata over the term of each contract.
Unearned insurance premiums are deferred in the liability
section of the consolidated balance sheet. Certain costs of
acquiring premiums are deferred in other assets on Wescos
consolidated balance sheet, and charged to income as the
premiums are earned.

Furniture rentals are recognized as revenue
proportionately over the rental contact period; rentals received
in advance are deferred in the liability section of the
consolidated balance sheet. Related costs comprise the main
element of cost of products and services sold on the
consolidated income statement and include depreciation expense,
repairs and maintenance and inventory losses. Rental furniture
consists principally of residential and office furniture which
is available for rental or, if no longer up to rental standards
or excessive, for sale. It is carried on the consolidated
balance sheet at cost, less accumulated depreciation calculated
primarily on a declining-balance basis over 3 to 5 years
using estimated salvage values of 25 to 40 percent of
original cost.

FORWARD-LOOKING STATEMENTS

Certain written or oral representations of
management stated in this annual report or elsewhere constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as contrasted
with statements of historical fact. Forward-looking statements
include statements which are predictive in nature, or which
depend upon or refer to future events or conditions, or which
include words such as expects, anticipates, intends, plans,
believes, estimates, may,or could,or which involve
hypothetical events. Forward-looking statements are based on
information currently available and are subject to various risks
and uncertainties that could cause actual events or results to
differ materially from those characterized as being likely or
possible to occur. Such statements should be considered
judgments only, not guarantees, and Wescos management
assumes no duty, nor has it any specific intention, to update
them.

Actual events and results may differ materially
from those expressed or forecasted in forward-looking statements
due to a number of factors. The principal important risk factors
that could cause Wescos actual performance and future
events and actions to differ materially from those expressed in
or implied by such forward-looking statements include, but are
not limited to, changes in market prices of Wescos
significant equity investments, the occurrence of one or more
catastrophic events such as acts of terrorism, hurricanes, or
other events that cause losses insured by Wescos insurance
subsidiaries, changes in insurance laws or regulations, changes
in income tax laws or regulations, and changes in general
economic and market factors that affect the prices of investment
securities or the industries in which Wesco and its affiliates
do business.




Item 7A. Quantitative and Qualitative
Disclosures About Market Risk

Wescos consolidated balance sheet contains
substantial amounts of investments whose estimated fair
(carrying) values are subject to market risks. Values of
marketable equity securities are subject to fluctuations in
their stock market prices, and values of securities with fixed
maturities are subject to changes in interest rate levels.
Otherwise, the consolidated balance sheet at December 31,
2003 did not contain significant assets or liabilities with
values subject to these or other potential market exposures such
as those relating to changes in commodity prices or foreign
exchange rates. Wesco does not utilize stand-alone derivatives
to manage market risks.

19



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##### Table of Contents



EQUITY PRICE RISK

Wescos consolidated balance sheet at
December 31, 2003 contained $755 million of marketable
equity securities stated at market value, up from
$627 million one year earlier. The increase was due to an
increase in market values; no marketable equity securities were
purchased or sold during 2003. The carrying values of
Wescos equity securities are exposed to market price
fluctuations, which may be accentuated by the concentration
existing in the equity portfolio. (At December 31, 2003,
two investments comprised 80% of the carrying value of the
consolidated equity portfolio.) In addition, the businesses
represented by the equity investments are exposed to risks
related to other markets. The two largest holdings of the
consolidated group at December 31, 2003 ($601 million,
combined) were common stocks of The Coca-Cola Company and The
Gillette Company, both of which have global operations and thus
are subject to changes in foreign currency exchange rates. These
and other market risks to which these investees are subject,
such as commodity price fluctuations, are required, where
material, to be reported upon in their filings with the SEC,
which are available to the public.

Strategically, Wesco strives to invest in
businesses that possess excellent economics, with able and
honest management, at sensible prices. Wescos management
prefers to invest a meaningful amount in each investee,
resulting in concentration. Most equity investments are expected
to be held for long periods of time; thus, Wescos
management is not ordinarily troubled by short-term price
volatility with respect to its investments provided that the
underlying business, economic and management characteristics of
the investees remain favorable. Wesco strives to maintain
above-average levels of shareholders equity to provide a
margin of safety against short-term equity price volatility.

The carrying values of investments subject to
equity price risks are based on quoted market prices. Market
prices are subject to fluctuation and, consequently, the amount
realized upon the subsequent sale of an investment may
significantly differ from the reported market value. Fluctuation
in the market price of a security may result from perceived
changes in the underlying economic characteristics of the
investee, the relative prices of alternative investments, or
general market conditions. Furthermore, amounts realized upon
the sale of a particular security may be adversely affected if a
relatively large quantity of the security is being sold.

The following table summarizes Wescos
equity price risks as of December 31, 2003 and 2002. It
shows the effects of a hypothetical 30% overall increase or
decrease in market prices of marketable equity securities owned
by the Wesco group on total recorded market value and, after tax
effect, on Wescos shareholders equity at each of
those dates. (Amounts are in thousands.)

|                                                   |              |                   |   |                   |  |          |   |           |  |  |   |           |  |  |   |           | 
|-------------------------------------------------- | ------------ | ----------------- | - | ----------------- |  | -------- | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                   |              |                   |   |                  
|                                                   |              | December 31, 2003 |   | December 31, 2002
|                                                   |              |                   |   |                  
|                                                   |              | Increase          |   | Decrease          |  | Increase |   | Decrease 
|                                                   |              |                   |   |                   |  |          |   |          
|Market value of marketable equity
    securities  |              |                   |   |                   |  |          |   |           |  |  |   |           |  |  |   |          
|                                                   | As recorded  |                   | $ | 754,634           |  |          | $ | 754,634   |  |  | $ | 626,768   |  |  | $ | 626,768   | 
|                                                   | Hypothetical |                   |   | 981,024           |  |          |   | 528,244   |  |  |   | 814,799   |  |  |   | 438,737   | 
|Shareholders equity                              |              |                   |   |                   |  |          |   |           |  |  |   |           |  |  |   |          
|                                                   | As recorded  |                   |   | 2,078,190         |  |          |   | 2,078,190 |  |  |   | 1,958,162 |  |  |   | 1,958,162 | 
|                                                   | Hypothetical |                   |   | 2,225,344         |  |          |   | 1,931,036 |  |  |   | 2,080,382 |  |  |   | 1,835,942 | 
|                                                   |              |                   |   |                   |  |          |   |           |  |  |   |           |  |  |   |          

The 30% hypothetical changes in market values
assumed in preparing the tables do not reflect what could be
considered best- or worst-case scenarios. Indeed, actual results
could be much worse or better due both to the nature of equity
markets and the aforementioned concentration existing in
Wescos equity investment portfolio.

20



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##### Table of Contents



INTEREST RATE RISK

Wescos consolidated balance sheet at
December 31, 2003 contained $167 million of securities
with fixed maturities stated at fair value, down from
$828 million one year earlier. The decrease resulted
principally from sales, as well as maturities and redemptions,
of such securities during the year. Proceeds received were
mainly invested in investments maturing within three months
(cash equivalents); as a result, cash and cash equivalents on
the consolidated balance sheet increased from $350 million
to $1.1 billion during 2003. Consequently, market value
risks with respect to interest-rate movements or otherwise as of
December 31, 2003 are substantially lower than at the end
of 2002 and are considered insignificant.

The fair values of Wescos fixed-maturity
investments fluctuate in response to changes in market interest
rates. Increases and decreases in prevailing interest rates
generally translate into decreases and increases in fair values.
Fair values of Wescos investments may also be affected by
the creditworthiness of the issuer, prepayment options, relative
values of alternative investments, the liquidity of the
instrument and other general market conditions.

As noted in the preceding section on equity price
risk, Wesco prefers to acquire entire businesses or invest in
equity securities. When unable to do so, it may invest in
mortgage-backed securities, government bonds or other
interest-rate-sensitive investments. Wescos strategy is to
acquire securities that are attractively priced in relation to
perceived interest-rate and credit risks. Although Wescos
emphasis is conservative, it recognizes and accepts that losses
may occur.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL
OBLIGATIONS

Neither Wesco nor any of its subsidiaries has
off-balance sheet arrangements. Nor do they have any insurance
obligations for which estimated provisions have not been made,
or other significant contractual obligations not included in the
accompanying consolidated financial statements or notes thereto.

Wesco and its subsidiaries have contractual
obligations associated with ongoing business activities, which
will result in cash payments in future periods. Certain of those
obligations, such as notes payable, are reflected in the
accompanying consolidated financial statements. In addition,
Wesco and its subsidiaries have entered into long-term contracts
to acquire goods or services in the future, which are not
currently reflected in the consolidated financial statements and
will be reflected in future periods as the goods are delivered
or services provided. A summary of contractual obligations
follows. (Amounts are in thousands.)

|                                                              |  |       |         |              |  |           |        |           |  |              |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------- |  | ----- | ------- | ------------ |  | --------- | ------ | --------- |  | ------------ | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                              |  |       |         |             
|                                                              |  |       |         | Payments Due
|                                                              |  |       |         |             
|                                                              |  | Total |         | 2004         |  | 2005-2006 |        | 2007-2008 |  | Subsequently
|                                                              |  |       |         |              |  |           |        |           |  |             
|Notes payable, including interest                             |  | $     | 12,879  |              |  | $         | 12,679 |           |  | $            |       |  |  | $ |       |  |  | $ | 200    | 
|Operating lease obligations                                   |  |       | 123,042 |              |  |           | 28,679 |           |  |              | 45,663 |  |  |   | 26,013 |  |  |   | 22,687 | 
|Purchase obligations, other than for capital
    expenditures |  |       | 13,803  |              |  |           | 12,916 |           |  |              | 760    |  |  |   | 127    |  |  |   |       | 
|Other, principally deferred compensation                      |  |       | 3,770   |              |  |           | 704    |           |  |              |       |  |  |   |       |  |  |   | 3,066  | 
|                                                              |  |       |         |              |  |           |        |           |  |              |        |  |  |   |        |  |  |   |        | 
|Totals                                                        |  | $     | 153,494 |              |  | $         | 54,978 |           |  | $            | 46,423 |  |  | $ | 26,140 |  |  | $ | 25,953 | 
|                                                              |  |       |         |              |  |           |        |           |  |              |        |  |  |   |        |  |  |   |        | 

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Item 8. Financial Statements and
Supplementary Data


Following is an index to financial statements and
related schedules of Wesco appearing in this report:

|                                                                                                                 |  |           |         | 
|---------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | 
|                                                                                                                 |  | Page     
|Financial Statements                                                                                             |  | Number(s)
|                                                                                                                 |  |          
|Independent auditors report                                                                                     |  |           | 25      | 
|Consolidated balance sheet 
    December 31, 2003 and 2002                                                      |  |           | 26      | 
|Consolidated statement of income 
    years ended December 31, 2003, 2002 and 2001                              |  |           | 27      | 
|Consolidated statement of changes in
    shareholders equity  years ended
    December 31, 2003, 2002 and 2001 |  |           | 28      | 
|Consolidated statement of cash flows 
    years ended December 31, 2003, 2002 and 2001                          |  |           | 29      | 
|Notes to consolidated financial statements                                                                       |  |           | 30  38 | 

Listed below are financial statement schedules
required by the SEC to be included in this report. The data
appearing therein should be read in conjunction with the
consolidated financial statements and notes thereto of Wesco and
the independent auditors report referred to above.
Schedules not included with these financial statement schedules
have been omitted because they are not applicable or the
required information is shown in the consolidated financial
statements or notes thereto.

|                                                                                                                                |  |          |   |           |  |  |         | 
|------------------------------------------------------------------------------------------------------------------------------- |  | -------- | - | --------- |  |  | ------- | 
|                                                                                                                                |  | Schedule |   | Page     
|Financial Statement Schedule                                                                                                    |  | Number   |   | Number(s)
|                                                                                                                                |  |          |   |          
|Condensed financial information of
    Wesco  December 31, 2003 and 2002, and years
    ended December 31, 2003, 2002 and 2001 |  |          | I |           |  |  | 39  40 | 




Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure

Not applicable, as there were no such changes or
disagreements.




Item 9A. Controls and
Procedures

An evaluation was performed under the supervision
and with the participation of the Companys management,
including Charles T. Munger, its Chief Executive Officer
and Jeffrey L. Jacobson, its Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as of December 31, 2003.
Based on that evaluation, Messrs. Munger and Jacobson
concluded that the Companys disclosure controls and
procedures are effective in ensuring that information required
to be disclosed by the Company in reports it files or submits
under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported as specified in the
rules and forms of the Securities Exchange Commission. There has
been no change in the Companys internal control over
financial reporting during the fiscal quarter ended
December 31, 2003 that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.




PART III




Item 10. Directors and Executive
Officers of the Registrant

The information set forth in the sections
entitled Election of Directors, Executive
Officers, Committees and Meetings and
Code of Business Conduct and Ethics appearing in the
definitive combined notice of annual meeting and proxy statement
of Wesco for its annual meeting of shareholders scheduled to be
held May 5, 2004 (the 2004 Proxy Statement) is
incorporated herein by reference.

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##### Table of Contents








Item 11. Executive
Compensation


The information set forth in the section
Compensation of Directors and Executive Officers in
the 2004 Proxy Statement is incorporated herein by reference.
All such compensation is cash compensation; Wesco neither has,
nor is considering having, any stock option plan or other equity
compensation arrangement.






Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Shareholder
Matters


The information set forth in the sections
Voting Securities and Principal Holders Thereof,
Security Ownership of Certain Beneficial Owners and
Management and Requirements for Reporting Securities
Ownership in the 2004 Proxy Statement is incorporated
herein by reference.






Item 13. Certain Relationships and
Related Transactions


Certain information set forth in the sections
Election of Directors, Voting Securities and
Principal Holders Thereof, Compensation of Directors
and Executive Officers, Board of Director Interlocks
and Insider Participation and Director Independence
and Committees in the 2004 Proxy Statement is incorporated
herein by reference.






Item 14. Principal Accountant Fees
and Services


The information set forth in the section
Independent Auditors in the 2004 Proxy Statement is
incorporated herein by reference.






Item 15. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K


The following exhibits (listed by numbers
corresponding to Table 1 of Item 601 of
Regulation S-K) are filed as part of this Annual Report on
Form 10-K or are incorporated herein by reference:

3a  Articles of incorporation and
by-laws of Wesco (filed as exhibit 3a to Wescos
Form 10-K for the year ended December 31, 1999)

21  List of subsidiaries (filed as
exhibit 21 to Wescos Form 10-K for the year
ended December 31, 2001)


31(a)  Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (chief
executive officer)


31(b)  Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (chief
financial officer)


32(a)  Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (chief
executive officer)


32(b)  Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (chief
financial officer)


Instruments defining the rights of holders of
long-term debt of Wesco and its subsidiaries are not being filed
since the total amount of securities authorized by all such
instruments does not exceed 10% of the total assets of Wesco and
its subsidiaries on a consolidated basis as of December 31,
2003. Wesco hereby agrees to furnish to the Commission upon
request a copy of any such debt instrument to which it is a
party.

The index to financial statements and related
schedules set forth in Item 8 of this report is
incorporated herein by reference.

In the fourth quarter of 2003, Wesco filed a
Report on Form 8-K dated November 7, 2003. Item
reported: 12

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SIGNATURES

Pursuant to the requirements of Section 13
of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

WESCO FINANCIAL CORPORATION

|    |  |                                                                                                                     |  |               
|--- |  | ------------------------------------------------------------------------------------------------------------------- |  | --------------
|   
|By: |  | /s/ CHARLES T. MUNGER                                                                                               |  |               
|    |  | Charles T. Munger
    Chairman of the Board (principal executive officer)                                           |  | March 10, 2004
|   
|By: |  | /s/ ROBERT H. BIRD                                                                                                  |  |               
|    |  | Robert H. Bird President                                                                                            |  | March 10, 2004
|   
|By: |  | /s/ JEFFREY L. JACOBSON                                                                                             |  |               
|    |  | Jeffrey L. Jacobson
    Vice President and Chief Financial Officer
    (principal financial and accounting officer) |  | March 10, 2004

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                      |  |               
|------------------------------------- |  | --------------
|                                     
|/s/ ROBERT H. BIRD                    |  |               
|Robert H. Bird
    Director           |  | March 10, 2004
|                                     
|/s/ CAROLYN H. CARLBURG               |  |               
|Carolyn H. Carlburg
    Director      |  | March 10, 2004
|                                     
|/s/ ROBERT E. DENHAM                  |  |               
|Robert E. Denham
    Director         |  | March 10, 2004
|                                     
|/s/ ROBERT T. FLAHERTY                |  |               
|Robert T. Flaherty
    Director       |  | March 10, 2004
|                                     
|/s/ PETER D. KAUFMAN                  |  |               
|Peter D. Kaufman
    Director         |  | March 10, 2004
|                                     
|/s/ CHARLES T. MUNGER                 |  |               
|Charles T. Munger
    Director        |  | March 10, 2004
|                                     
|/s/ ELIZABETH CASPERS PETERS          |  |               
|Elizabeth Caspers Peters
    Director |  | March 10, 2004

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of

Wesco Financial Corporation


We have audited the accompanying consolidated
balance sheets of Wesco Financial Corporation and subsidiaries
(the Corporation) as of December 31, 2003 and
2002, and the related consolidated statements of income, changes
in shareholders equity, and cash flows for each of the
three years in the period ended December 31, 2003. Our
audits also included the financial statement schedule listed in
the index at Item 8. These financial statements and the
financial statement schedule are the responsibility of the
Corporations management. Our responsibility is to express
an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of Wesco Financial Corporation and
subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As described in Note 2 to the consolidated
financial statements, the Corporation adopted Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, effective January 1, 2002.

-s- Deloitte & Touche LLP

Omaha, Nebraska

March 4, 2004


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WESCO FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEET


(Dollar amounts in thousands)

|                                                           |                                                                                                              |                            |           |           |           |   |           |           |           | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------------------------- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                           |                                                                                                              |                           
|                                                           |                                                                                                              | December 31,              
|                                                           |                                                                                                              |                           
|                                                           |                                                                                                              | 2003                       |           | 2002     
|                                                           |                                                                                                              |                            |           |          
|ASSETS                                                    
|Cash and cash equivalents                                  |                                                                                                              | $                          | 1,052,462 |           |           | $ | 349,812   |          
|Investments:                                               |                                                                                                              |                            |           |           |           |   |           |          
|                                                           | Securities with fixed maturities                                                                             |                            |           | 167,390   |           |   |           | 827,537   |          
|                                                           | Marketable equity securities                                                                                 |                            |           | 754,634   |           |   |           | 626,768   |          
|Accounts receivable                                        |                                                                                                              |                            | 60,168    |           |           |   | 67,425    |          
|Rental furniture                                           |                                                                                                              |                            | 163,699   |           |           |   | 187,480   |          
|Goodwill of acquired businesses                            |                                                                                                              |                            | 266,607   |           |           |   | 266,203   |          
|Other assets                                               |                                                                                                              |                            | 73,435    |           |           |   | 81,750    |          
|                                                           |                                                                                                              |                            |           |           |           |   |           |          
|                                                           |                                                                                                              | $                          | 2,538,395 |           |           | $ | 2,406,975 |          
|                                                           |                                                                                                              |                            |           |           |           |   |           |          
|                                                          
|LIABILITIES AND SHAREHOLDERS
    EQUITY                  
|Insurance losses and loss adjustment expenses              |                                                                                                              | $                          | 102,526   |           |           | $ | 73,065    |          
|Unearned insurance premiums                                |                                                                                                              |                            | 28,993    |           |           |   | 48,681    |          
|Deferred furniture rental income and security
    deposits |                                                                                                              |                            | 19,835    |           |           |   | 21,562    |          
|Accounts payable and accrued expenses                      |                                                                                                              |                            | 48,931    |           |           |   | 45,122    |          
|Notes payable                                              |                                                                                                              |                            | 12,679    |           |           |   | 32,481    |          
|Income taxes payable, principally deferred                 |                                                                                                              |                            | 247,241   |           |           |   | 227,902   |          
|                                                           |                                                                                                              |                            |           |           |           |   |           |          
|                                                           |                                                                                                              |                            | 460,205   |           |           |   | 448,813   |          
|                                                           |                                                                                                              |                            |           |           |           |   |           |          
|Shareholders equity:                                      |                                                                                                              |                            |           |           |           |   |           |          
|                                                           | Capital stock, $1 par value 
    authorized, 7,500,000 shares; issued and outstanding, 7,119,807
    shares |                            |           | 7,120     |           |   |           | 7,120     |          
|                                                           | Additional paid-in capital                                                                                   |                            |           | 26,204    |           |   |           | 23,319    |          
|                                                           | Unrealized appreciation of investments, net of
    taxes                                                     |                            |           | 426,542   |           |   |           | 374,571   |          
|                                                           | Retained earnings                                                                                            |                            |           | 1,618,324 |           |   |           | 1,553,152 |          
|                                                           |                                                                                                              |                            |           |           |           |   |           |          
|                                                           |                                                                                                              | Total shareholders equity |           |           | 2,078,190 |   |           |           | 1,958,162 | 
|                                                           |                                                                                                              |                            |           |           |           |   |           |          
|                                                           |                                                                                                              | $                          | 2,538,395 |           |           | $ | 2,406,975 |          
|                                                           |                                                                                                              |                            |           |           |           |   |           |          

See notes to consolidated financial
statements.

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WESCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF INCOME


(Dollar amounts in thousands except for
amounts per share)

|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |         |        | 
|----------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ |  | ------- | ------- | ------ | 
|                                                                                          |                                                                 |                        
|                                                                                          |                                                                 | Year Ended December 31,
|                                                                                          |                                                                 |                        
|                                                                                          |                                                                 | 2003                    |         | 2002    |        | 2001
|                                                                                          |                                                                 |                         |         |         |        |     
|Revenues:                                                                                 |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|                                                                                          | Sales and service revenues                                      |                         | $       | 406,250 |        |      | $       | 437,099 |        |  | $       | 443,628 |       
|                                                                                          | Insurance premiums earned                                       |                         |         | 106,651 |        |      |         | 64,627  |        |  |         | 43,031  |       
|                                                                                          | Dividend and interest income                                    |                         |         | 44,763  |        |      |         | 70,652  |        |  |         | 70,981  |       
|                                                                                          | Realized investment gains                                       |                         |         | 53,466  |        |      |         |        |        |  |         |        |       
|                                                                                          | Other                                                           |                         |         | 3,187   |        |      |         | 3,299   |        |  |         | 3,439   |       
|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|                                                                                          |                                                                 |                         | 614,317 |         |        |      | 575,677 |         |        |  | 561,079 |        
|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|Costs and expenses:                                                                       |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|                                                                                          | Cost of products and services sold                              |                         |         | 144,725 |        |      |         | 145,677 |        |  |         | 144,712 |       
|                                                                                          | Insurance losses, loss adjustment and
    underwriting expenses |                         |         | 82,497  |        |      |         | 58,736  |        |  |         | 46,682  |       
|                                                                                          | Selling, general and administrative expenses                    |                         |         | 278,090 |        |      |         | 288,353 |        |  |         | 276,712 |       
|                                                                                          | Interest expense                                                |                         |         | 749     |        |      |         | 1,994   |        |  |         | 4,169   |       
|                                                                                          | Goodwill amortization                                           |                         |         |        |        |      |         |        |        |  |         | 7,476   |       
|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|                                                                                          |                                                                 |                         | 506,061 |         |        |      | 494,760 |         |        |  | 479,751 |        
|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|Income before income taxes                                                                |                                                                 |                         | 108,256 |         |        |      | 80,917  |         |        |  | 81,328  |        
|Provision for income taxes                                                                |                                                                 |                         | (34,852 | )       |        |      | (28,199 | )       |        |  | (28,792 | )      
|Minority interest in net loss of subsidiary                                               |                                                                 |                         | 1,307   |         |        |      |        |         |        |  |        |        
|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|                                                                                          |                                                                 | Net income              |         | $       | 74,711 |      |         | $       | 52,718 |  |         | $       | 52,536 | 
|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|Amounts per capital share based on 7,119,807
    shares outstanding throughout each year: |                                                                 |                         |         |         |        |      |         |         |        |  |         |        
|                                                                                          | Net income                                                      |                         | $       | 10.49   |        |      | $       | 7.40    |        |  | $       | 7.38    |       
|                                                                                          | Cash dividends                                                  |                         |         | 1.34    |        |      |         | 1.30    |        |  |         | 1.26    |       
|                                                                                          |                                                                 |                         |         |         |        |      |         |         |        |  |         |        

See notes to consolidated financial
statements.

27



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##### Table of Contents



WESCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN


SHAREHOLDERS EQUITY


(Dollar amounts in thousands)

|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |          | 
|------------------------------------------------------------------------------- | --------------------------------- | -------------------- | ----- | ---------- |  | -------------- | ------ | -------- |  | ------- | ------- | -------- | - | - | --------- | - |  | - | --------- | -------- | - |  | - | -------- | 
|                                                                                |                                   |                      |       |           
|                                                                                |                                   | Shareholders Equity |       | Total     
|                                                                                |                                   |                      |       | Compre-   
|                                                                                |                                   |                      |       | Additional |  | Unrealized     |        |          |  | hensive
|                                                                                |                                   | Capital              |       | Paid In    |  | Appreciation   |        | Retained |  |         |         | Income  
|                                                                                |                                   | Stock                |       | Capital    |  | of Investments |        | Earnings |  | Total   |         | (Loss)  
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |         
|Balance, December 31, 2000                                                      |                                   | $                    | 7,120 |            |  | $              | 23,319 |          |  | $       | 480,469 |          |   | $ | 1,466,126 |   |  | $ | 1,977,034 |          |   |  |   |         
|Net income                                                                      |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   | 52,536    |   |  |   | 52,536    |          |   |  |   |         
|Decrease in unrealized appreciation                                             |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |         
|                                                                                | of investments, net of income     |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  | $ | (55,666) | 
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |          | 
|                                                                                | tax effect of $58,634             |                      |       |            |  |                |        |          |  |         |         | (108,202 | ) |   |           |   |  |   |           | (108,202 | ) |  |   |          | 
|Cash dividends declared and paid                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   | (8,971    | ) |  |   | (8,971    | )        |   |  |   |         
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |         
|Balance, December 31, 2001                                                      |                                   |                      | 7,120 |            |  |                | 23,319 |          |  |         | 372,267 |          |   |   | 1,509,691 |   |  |   | 1,912,397 |          |   |  |   |         
|Net income                                                                      |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   | 52,718    |   |  |   | 52,718    |          |   |  |   |         
|Increase in unrealized appreciation                                             |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |         
|                                                                                | of investments, net of income tax |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  | $ | 55,022   | 
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |          | 
|                                                                                | effect of $1,342                  |                      |       |            |  |                |        |          |  |         |         | 2,304    |   |   |           |   |  |   |           | 2,304    |   |  |   |          | 
|Cash dividends declared and paid                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   | (9,257    | ) |  |   | (9,257    | )        |   |  |   |         
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |         
|Balance, December 31, 2002                                                      |                                   |                      | 7,120 |            |  |                | 23,319 |          |  |         | 374,571 |          |   |   | 1,553,152 |   |  |   | 1,958,162 |          |   |  |   |         
|Net income                                                                      |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   | 74,711    |   |  |   | 74,711    |          |   |  |   |         
|Increase in unrealized appreciation                                             |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |         
|                                                                                | of investments, net of income tax |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  | $ | 126,682  | 
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |          | 
|                                                                                | effect of $28,334                 |                      |       |            |  |                |        |          |  |         |         | 51,971   |   |   |           |   |  |   |           | 51,971   |   |  |   |          | 
|Increase in additional paid-in capital due to
    subsidiary stock transactions |                                   |                      |       |            |  |                | 2,885  |          |  |         |         |          |   |   |           |   |  |   | 2,885     |          |   |  |   |         
|Cash dividends declared and paid                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   | (9,539    | ) |  |   | (9,539    | )        |   |  |   |         
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |         
|Balance, December 31, 2003                                                      |                                   | $                    | 7,120 |            |  | $              | 26,204 |          |  | $       | 426,542 |          |   | $ | 1,618,324 |   |  | $ | 2,078,190 |          |   |  |   |         
|                                                                                |                                   |                      |       |            |  |                |        |          |  |         |         |          |   |   |           |   |  |   |           |          |   |  |   |         

See notes to consolidated financial
statements.

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##### Table of Contents



WESCO FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS


(Dollar amounts in thousands)

|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |          |         |          |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------- | ------- | ------- | ------- | ------- | -------- | ------ | ------- | ------- | -------- | ------- | -------- | -
|                                                     |                                                                                     |                                                                                      
|                                                     |                                                                                     | Year Ended December 31,                                                              
|                                                     |                                                                                     |                                                                                      
|                                                     |                                                                                     | 2003                                                                                  |                                          | 2002    |         | 2001   
|                                                     |                                                                                     |                                                                                       |                                          |         |         |        
|Cash flows from operating activities:                |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|                                                     | Net income                                                                          |                                                                                       | $                                        | 74,711  |         |         | $       | 52,718   |        |         | $       | 52,536   |        
|                                                     | Adjustments to reconcile net income with cash
    flows from operating activities  |                                                                                       |                                          |         |         |         |         |          |        |         |         |          |        
|                                                     |                                                                                     | Realized net securities gains                                                         |                                          |         | (53,466 | )       |         |          |       |         |         |          |        |         
|                                                     |                                                                                     | Provision for depreciation and amortization, net                                      |                                          |         | 44,114  |         |         |          | 51,914 |         |         |          | 65,564  |         
|                                                     |                                                                                     | Increase in liabilities for insurance losses and
    loss adjustment expenses         |                                          |         | 29,461  |         |         |          | 11,186 |         |         |          | 21,920  |         
|                                                     |                                                                                     | Increase (decrease) in unearned insurance premiums                                    |                                          |         | (19,688 | )       |         |          | 23,784 |         |         |          | 7,891   |         
|                                                     |                                                                                     | Increase (decrease) in income taxes payable                                           |                                          |         | (8,995  | )       |         |          | 893    |         |         |          | (20,876 | )       
|                                                     |                                                                                     | Proceeds from sales of rental furniture, less
    gross profit included in net income |                                          |         | 40,742  |         |         |          | 48,173 |         |         |          | 44,225  |         
|                                                     |                                                                                     | Other, net                                                                            |                                          |         | 16,182  |         |         |          | (239   | )       |         |          | (6,717  | )       
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|                                                     |                                                                                     |                                                                                       | Net cash flows from operating activities |         |         | 123,061 |         |          |        | 188,429 |         |          |         | 164,543  |  
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|Cash flows from investing activities:                |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|                                                     | Purchases of securities with fixed maturities                                       |                                                                                       |                                          | (2,562  | )       |         |         | (289,117 | )      |         |         | (719,769 | )      
|                                                     | Maturities and redemptions of securities with
    fixed maturities                  |                                                                                       |                                          | 314,556 |         |         |         | 427,387  |        |         |         | 631,639  |        
|                                                     | Sales of securities with fixed maturities                                           |                                                                                       |                                          | 351,180 |         |         |         |         |        |         |         |         |        
|                                                     | Acquisitions of businesses, net of cash and cash
    equivalents acquired           |                                                                                       |                                          | (9,825  | )       |         |         | (37,082  | )      |         |         | (20,009  | )      
|                                                     | Purchases of rental furniture                                                       |                                                                                       |                                          | (50,960 | )       |         |         | (44,550  | )      |         |         | (56,065  | )      
|                                                     | Other, net                                                                          |                                                                                       |                                          | (3,267  | )       |         |         | (5,974   | )      |         |         | (2,008   | )      
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|                                                     |                                                                                     |                                                                                       | Net cash flows from investing activities |         |         | 599,122 |         |          |        | 50,664  |         |          |         | (166,212 | )
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|Cash flows from financing activities:                |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|                                                     | Increase (decrease) in notes payable, net                                           |                                                                                       |                                          | (94     | )       |         |         | (2,508   | )      |         |         | 9,714    |        
|                                                     | Borrowings (repayments) of line of credit
    borrowings, net                       |                                                                                       |                                          | (9,900  | )       |         |         | 1,700    |        |         |         | (32,100  | )      
|                                                     | Payment of cash dividends                                                           |                                                                                       |                                          | (9,539  | )       |         |         | (9,257   | )      |         |         | (8,971   | )      
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|                                                     |                                                                                     |                                                                                       | Net cash flows from financing activities |         |         | (19,533 | )       |          |        | (10,065 | )       |          |         | (31,357  | )
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|Increase (decrease) in cash and cash
    equivalents |                                                                                     |                                                                                       | 702,650                                  |         |         |         | 229,028 |          |        |         | (33,026 | )       
|Cash and cash equivalents  beginning
    of year    |                                                                                     |                                                                                       | 349,812                                  |         |         |         | 120,784 |          |        |         | 153,810 |         
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|Cash and cash equivalents  end of year              |                                                                                     | $                                                                                     | 1,052,462                                |         |         | $       | 349,812 |          |        | $       | 120,784 |         
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|Supplementary disclosures:                           |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         
|                                                     | Interest paid during year                                                           |                                                                                       | $                                        | 642     |         |         | $       | 1,241    |        |         | $       | 4,356    |        
|                                                     | Income taxes paid during year                                                       |                                                                                       |                                          | 43,847  |         |         |         | 27,306   |        |         |         | 49,668   |        
|                                                     | Noncash activities  conversion of debt
    to equity in subsidiary                 |                                                                                       |                                          | 9,808   |         |         |         |         |        |         |         |         |        
|                                                     | Increase in additional paid-in capital due to
    subsidiary stock transactions     |                                                                                       |                                          | 2,885   |         |         |         |         |        |         |         |         |        
|                                                     |                                                                                     |                                                                                       |                                          |         |         |         |         |          |        |         |         |         

See notes to consolidated financial
statements.

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##### Table of Contents



WESCO FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(Dollar amounts in thousands except for
amounts per share)

Note 1. Significant Accounting
Policies and Practices

Nature of operations and basis of
consolidation

Wesco Financial Corporation (Wesco)
is, indirectly, an 80.1%-owned subsidiary of Berkshire Hathaway
Inc. (Berkshire). Berkshire, through subsidiaries,
is engaged in a number of diverse business activities, the most
important of which are property and casualty insurance
businesses conducted on both a primary and reinsurance basis.

Wesco, like Berkshire, is a holding company. Its
consolidated financial statements include the accounts of Wesco
and its subsidiaries, all wholly owned. The principal
subsidiaries are Wesco-Financial Insurance Company
(Wes-FIC), The Kansas Bankers Surety Company
(KBS), CORT Business Services Corporation
(CORT) and Precision Steel Warehouse, Inc.
(Precision Steel). Further information regarding
these businesses is contained in Note 10. Intercompany balances
and transactions are eliminated in the preparation of the
consolidated statements.

Accounting pronouncements not yet in
effect

Wescos management does not believe that any
accounting pronouncements issued to date by the Financial
Accounting Standards Board or other applicable authorities and
required to be adopted after yearend 2003 are likely to have a
material effect on reported shareholders equity.

Use of estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. The estimates and
assumptions are based on managements evaluation of the
relevant facts and circumstances using information available at
the time such estimates and assumptions are made. Although the
amounts of such assets, liabilities, revenues and expenses
included in the consolidated financial statements may differ
significantly from those that might result from use of estimates
and assumptions based on facts and circumstances not yet
available, Wescos management does not believe such
differences would have a material adverse effect on reported
shareholders equity.

Cash equivalents

Cash equivalents consist of investments maturing
less than three months from date acquired.

Investments

The appropriate classifications of investments in
securities with fixed maturities and marketable equity
securities are established at the time of purchase and
reevaluated as of each balance sheet date. There are three
permissible classifications: held-to-maturity, trading, and,
when neither of those classifications is applicable,
available-for-sale. In recent years, Wescos management has
classified all of the Wesco groups equity and
fixed-maturity investments as available-for-sale; they are
carried at fair value, with unrealized gains and losses, net of
applicable deferred income taxes, reported as a separate
component of shareholders equity.

Realized gains and losses on sales of
investments, determined on a specific-identification basis, are
included in the consolidated statement of income, as are
provisions for other-than-temporary declines in market or
estimated fair value, when applicable.

30



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##### Table of Contents



Goodwill of acquired businesses

Goodwill of acquired businesses represents the
difference between purchase cost and the fair value of net
assets of acquisitions accounted for under the purchase method.
Prior to 2002, goodwill from each acquisition was generally
amortized as a charge to earnings over a period not exceeding
40 years, and was reviewed for impairment if conditions
were identified that indicated possible impairment.

Effective January 1, 2002, Wesco adopted
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 eliminated the periodic amortization of
goodwill in favor of an accounting model that is based solely
upon impairment tests. Goodwill is reviewed for impairment using
a variety of methods at least annually, and impairments, if any,
are charged to operating earnings.

Insurance business

Insurance premiums are recognized as earned
revenues in proportion to the insurance protection provided,
which in most cases is pro rata over the term of each contract.
Unearned insurance premiums are deferred in the liability
section of the consolidated balance sheet. Certain costs of
acquiring insurance premiums  commissions, premium
taxes, and other  are deferred and charged to income
as the premiums are earned; the unamortized balances, included
in other assets on the consolidated balance sheet, were $5,072
and $6,015 at yearend 2003 and 2002.

Liabilities for insurance losses and loss
adjustment expenses as of any balance sheet date represent
estimates of the ultimate amounts payable under property and
casualty reinsurance and insurance contracts related to losses
occurring on or before the balance sheet date. As of that date,
some incurred claims have not yet been reported (and some of
these may not be reported for many years); the liability for
unpaid losses includes significant estimates for these claims.
Liabilities for insurance losses are determined from
(1) individual case amounts, (2) reports from ceding
insurers, and (3) past experience. Considerable judgment is
required to evaluate claims and estimate claim liabilities in
connection with reinsurance contracts because of the inherent
delays in receiving loss information from ceding companies. As
further data become available, the liabilities are reevaluated
and adjusted as appropriate. Additionally, reported claims are
in various stages of the settlement process. Each claim is
settled individually based upon its merits, and some take years
to settle, especially if legal action is involved. Actual
ultimate claims amounts are likely to differ from amounts
recorded at the balance sheet date. Changes in estimates are
recorded as a component of losses incurred in the period of
change.

Provisions for losses and loss adjustment
expenses are reported in the consolidated statement of income
after deducting estimates of amounts that will be recoverable
under reinsurance contracts. Reinsurance contracts do not
relieve the ceding companies of their obligations to indemnify
policyholders with respect to the underlying insurance contracts.

Furniture rental business

Rental furniture consists principally of
residential and office furniture which is available for rental
or, if no longer up to rental standards or excessive in
quantity, for sale. Rental furniture is carried at cost, less
accumulated depreciation calculated primarily on a
declining-balance basis over 3 to 5 years using estimated
salvage values of 25 to 40 percent of original cost.

Furniture rentals are recognized as revenue
proportionately over the rental contact period; rentals received
in advance are deferred in the liability section of the
consolidated balance sheet. Costs related to furniture rentals
comprise the main element of cost of products and services sold
on the consolidated income statement and include depreciation
expense, repairs and maintenance and inventory losses.

31



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##### Table of Contents



Income taxes

Income taxes are accounted for using the asset
and liability method. Under this method, temporary differences
between financial statement and tax return bases of assets and
liabilities at each balance sheet date are multiplied by the tax
rates in effect at that date, with the results reported on the
balance sheet as net deferred tax liabilities or assets. The
effect of a change in tax rate on such deferred items is
required, under GAAP, to be reflected when enacted in the
consolidated statement of income even though the original charge
or credit for income taxes has been charged or credited to
shareholders equity, as in the case of unrealized
appreciation of investments. As the temporary differences
reverse in future periods, the taxes become currently payable or
recoverable.

Note 2. Acquisitions and
Goodwill

Effective February 18, 2000, Wesco acquired
all of the outstanding common stock of CORT for approximately
$386 million cash pursuant to a tender offer and merger.

CORT has subsequently purchased various companies
engaged in the furniture rental business. These acquisitions,
like Wescos acquisition of CORT, have been accounted for
as purchases, and the results of their operations have been
included in Wescos consolidated statements since the dates
of acquisition. Pro forma disclosures have not been provided
inasmuch as the acquisitions, taken as a whole, have not been
material in relation to Wescos consolidated income
statement for any one year.

Due to Wescos adoption of SFAS No. 142
effective January 1, 2002 (see Note 1), the
consolidated financial statements do not reflect any goodwill
amortization in 2003 or 2002, compared to $7,476, before taxes,
of goodwill amortization for 2001. Had Wesco discontinued such
amortization as of the beginning of 2001, its after-tax income
would have increased by $6,814 ($.96 per share) in 2001 to
$59,350 ($8.34 per share).

At yearend 2003, the unamortized balance of
goodwill carried as an asset on Wescos consolidated
balance sheet was $266,607, of which $239,616 related to CORT
and the balance to KBS, acquired by Wesco in 1996.

Note 3. Investments

Following is a summary of securities with fixed
maturities:

|                                                |  |                   |         |                   |  |           |         |                |  |   |         |  |  |   |         | 
|----------------------------------------------- |  | ----------------- | ------- | ----------------- |  | --------- | ------- | -------------- |  | - | ------- |  |  | - | ------- | 
|                                                |  |                   |         |                  
|                                                |  | December 31, 2003 |         | December 31, 2002
|                                                |  |                   |         |                  
|                                                |  |                   |         | Estimated Fair    |  |           |         | Estimated Fair
|                                                |  | Amortized         |         | (Carrying)        |  | Amortized |         | (Carrying)    
|                                                |  | Cost              |         | Value             |  | Cost      |         | Value         
|                                                |  |                   |         |                   |  |           |         |               
|Mortgage-backed securities                      |  | $                 | 146,793 |                   |  | $         | 154,623 |                |  | $ | 463,176 |  |  | $ | 484,760 | 
|Other, principally U. S. government obligations |  |                   | 12,160  |                   |  |           | 12,767  |                |  |   | 308,364 |  |  |   | 342,777 | 
|                                                |  |                   |         |                   |  |           |         |                |  |   |         |  |  |   |         | 
|                                                |  | $                 | 158,953 |                   |  | $         | 167,390 |                |  | $ | 771,540 |  |  | $ | 827,537 | 
|                                                |  |                   |         |                   |  |           |         |                |  |   |         |  |  |   |         | 

At yearend 2003 and 2002, the estimated fair
values of securities with fixed maturities contained unrealized
gains of $8,437 and $55,997. There were no unrealized losses at
either yearend.

Fixed-maturity investments other than
mortgage-backed securities at 2003 yearend are expected to
mature as follows:

|                                   |  |           |        |          |  |   |        | 
|---------------------------------- |  | --------- | ------ | -------- |  | - | ------ | 
|                                   |  | Amortized |        | Carrying
|                                   |  | Cost      |        | Value   
|                                   |  |           |        |         
|In one year or less                |  | $         | 2,518  |          |  | $ | 2,519  | 
|After five years through ten years |  |           | 9,642  |          |  |   | 10,248 | 
|                                   |  |           |        |          |  |   |        | 
|                                   |  | $         | 12,160 |          |  | $ | 12,767 | 
|                                   |  |           |        |          |  |   |        | 

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Following is a summary of marketable equity
securities (all common stocks):

|                         |  |           |           |                   |  |                   |         |      |  |            |         |  |  |   |         |  |  |   |         | 
|------------------------ |  | --------- | --------- | ----------------- |  | ----------------- | ------- | ---- |  | ---------- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                         |  |           |           |                   |  |                  
|                         |  |           |           | December 31, 2003 |  | December 31, 2002
|                         |  |           |           |                   |  |                  
|                         |  |           |           |                   |  | Quoted            |         |      |  | Quoted    
|                         |  |           |           |                   |  | Market            |         |      |  | Market    
|                         |  | Number of |           |                   |  | (Carrying)        |         |      |  | (Carrying)
|                         |  | Shares    |           | Cost              |  | Value             |         | Cost |  | Value     
|                         |  |           |           |                   |  |                   |         |      |  |           
|The Coca-Cola Company    |  |           | 7,205,600 |                   |  | $                 | 40,761  |      |  | $          | 365,684 |  |  | $ | 40,761  |  |  | $ | 315,893 | 
|The Gillette Company     |  |           | 6,400,000 |                   |  |                   | 40,000  |      |  |            | 235,072 |  |  |   | 40,000  |  |  |   | 194,304 | 
|American Express Company |  |           | 1,943,100 |                   |  |                   | 20,687  |      |  |            | 93,716  |  |  |   | 20,687  |  |  |   | 68,689  | 
|Wells Fargo & Company    |  |           | 1,021,600 |                   |  |                   | 6,333   |      |  |            | 60,162  |  |  |   | 6,333   |  |  |   | 47,882  | 
|                         |  |           |           |                   |  |                   |         |      |  |            |         |  |  |   |         |  |  |   |         | 
|                         |  |           |           |                   |  | $                 | 107,781 |      |  | $          | 754,634 |  |  | $ | 107,781 |  |  | $ | 626,768 | 
|                         |  |           |           |                   |  |                   |         |      |  |            |         |  |  |   |         |  |  |   |         | 

Realized investment gains for 2003 resulted from
sales of securities with fixed maturities and cash equivalents.
There were no realized losses. No gains or losses were realized
in 2002 or 2001.

Although the investments of Wesco and its
subsidiaries are subject to market risks, derivatives are not
utilized to manage risks.

Note 4. Insurance Business

Following is a summary of liabilities for unpaid
losses and loss adjustment expenses for each of the past three
years:

|                                       |                     |                       |         |        |        |      |        |        |        |   |        |        |        | 
|-------------------------------------- | ------------------- | --------------------- | ------- | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                       |                     | 2003                  |         | 2002   |        | 2001
|                                       |                     |                       |         |        |        |     
|Balance at beginning of year           |                     | $                     | 73,065  |        |        | $    | 61,879 |        |        | $ | 39,959 |       
|Less ceded liabilities                 |                     |                       | (50     | )      |        |      |       |        |        |   | (50    | )     
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       
|Net balance at beginning of year       |                     |                       | 73,015  |        |        |      | 61,879 |        |        |   | 39,909 |       
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       
|Incurred losses recorded during year  |                     |                       |         |        |        |      |        |        |        |   |        |       
|                                       | For current year    |                       |         | 57,805 |        |      |        | 39,641 |        |   |        | 35,913 |       
|                                       | For all prior years |                       |         | 4,497  |        |      |        | (818   | )      |   |        | (2,336 | )     
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       
|                                       |                     | Total incurred losses |         |        | 62,302 |      |        |        | 38,823 |   |        |        | 33,577 | 
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       
|Payments made during year             |                     |                       |         |        |        |      |        |        |        |   |        |       
|                                       | For current year    |                       |         | 15,584 |        |      |        | 12,607 |        |   |        | 3,597  |       
|                                       | For all prior years |                       |         | 17,707 |        |      |        | 15,080 |        |   |        | 8,010  |       
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       
|                                       |                     | Total payments        |         |        | 33,291 |      |        |        | 27,687 |   |        |        | 11,607 | 
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       
|Net liabilities at end of year         |                     |                       | 102,026 |        |        |      | 73,015 |        |        |   | 61,879 |       
|Plus ceded liabilities                 |                     |                       | 500     |        |        |      | 50     |        |        |   |       |       
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       
|Gross liabilities at end of year       |                     | $                     | 102,526 |        |        | $    | 73,065 |        |        | $ | 61,879 |       
|                                       |                     |                       |         |        |        |      |        |        |        |   |        |       

Incurred losses for all prior years
represent the net amount of estimation error charged
(credited) to earnings with respect to the liabilities
established as of the beginning of the year.

In 2003, losses incurred for all prior years
included increased estimates for losses with respect to the
companys reinsurance-assumed business, partially offset by
a $3,000 pre-tax reduction in estimated reserves relating to the
September 11, 2001 terrorist activity originally provided
for in 2001 at $10,000. The reserve increases recorded in 2003
for prior years related primarily to loss occurrences during
2000.

Wes-FICs exposure to environmental
contamination, including asbestos, is believed to be minimal.

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Payment of dividends by insurance subsidiaries is
restricted by insurance statutes and regulations. In 2004,
without prior regulatory approval, Wesco can receive dividends
from its insurance subsidiaries up to approximately $201,600.

Combined shareholders equity of
Wescos insurance subsidiaries determined pursuant to
statutory accounting rules approximated $2,016,000 and
$1,839,000 at yearend 2003 and 2002.

Note 5. Furniture Rental
Business

Since the acquisition of CORT in February 2000
(see Note 2), the principal source of Wescos consolidated
sales and service revenues has been from rental of furniture.
Following is a breakdown of rental furniture:

|                              |  |              |         |      |  |   |         |  
|----------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                              |  |             
|                              |  | December 31,
|                              |  |             
|                              |  | 2003         |         | 2002
|                              |  |              |         |     
|Cost of rental furniture      |  | $            | 250,658 |      |  | $ | 261,565 |  
|Less accumulated depreciation |  |              | (86,959 | )    |  |   | (74,085 | )
|                              |  |              |         |      |  |   |         |  
|                              |  | $            | 163,699 |      |  | $ | 187,480 |  
|                              |  |              |         |      |  |   |         |  

Note 6. Notes Payable and Other
Contractual Obligations

Following is a summary of notes payable, at
yearend:

|                         |  |              |        |      |  |   |        | 
|------------------------ |  | ------------ | ------ | ---- |  | - | ------ | 
|                         |  |             
|                         |  | December 31,
|                         |  |             
|                         |  | 2003         |        | 2002
|                         |  |              |        |     
|Revolving line of credit |  | $            | 12,100 |      |  | $ | 22,000 | 
|Other                    |  |              | 579    |      |  |   | 10,481 | 
|                         |  |              |        |      |  |   |        | 
|                         |  | $            | 12,679 |      |  | $ | 32,481 | 
|                         |  |              |        |      |  |   |        | 

The line of credit, used in the furniture rental
business, totals $100,000 and is unsecured. The weighted average
annual rate of interest on amounts outstanding under the line of
credit at yearend 2003 was 2.8% in addition to an annual
commitment fee of .14% of the total credit line. The underlying
agreement does not contain any materially restrictive covenants.
The credit line expires in June 2006.

Other notes payable at yearend 2002 represented
convertible notes of a subsidiary of CORT. During 2003 most of
the principal amount of these notes were converted into equity
of the subsidiary, after which the resulting minority interest
was bought out at a discount from an agreed option price. These
transactions resulted in additional paid-in capital of $2,885 on
the CORTs books as well as Wescos. The minority
interest in net loss sustained by the subsidiary prior to the
buyout, $1,307, is set out separately on the consolidated
statement of income. The conversion feature on the $379
principal amount of the notes remaining at yearend 2003, which
are included in other notes payable, has expired. The weighted
average interest rate on other notes payable at yearend 2003 was
5.1%

Estimated fair values of the notes payable at
yearend 2003 and 2002 approximated carrying values of $12,679
and $32,481.

In addition to recorded liabilities, Wesco at
yearend 2003 had operating lease obligations aggregating
$123,042 (payable in 2004, $28,679; in 2005, $25,063; in 2006,
$20,600; in 2007, $14,726; in 2008, $11,287; and thereafter,
$22,687) and other contractual obligations aggregating $17,773.

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Note 7. Income Taxes

Following is a breakdown of income taxes payable
at 2003 and 2002 yearends:

|                                        |                              |              |         |         |  |   |         |         | 
|--------------------------------------- | ---------------------------- | ------------ | ------- | ------- |  | - | ------- | ------- | 
|                                        |                              |             
|                                        |                              | December 31,
|                                        |                              |             
|                                        |                              | 2003         |         | 2002   
|                                        |                              |              |         |        
|Deferred tax liabilities, relating to  |                              |              |         |         |  |   |         |        
|                                        | Appreciation of investments  |              | $       | 228,748 |  |   | $       | 200,414 | 
|                                        | Other items                  |              |         | 30,161  |  |   |         | 32,511  | 
|                                        |                              |              |         |         |  |   |         |        
|                                        |                              |              | 258,909 |         |  |   | 232,925 |        
|Deferred tax assets                     |                              |              | (9,716  | )       |  |   | (8,159  | )      
|                                        |                              |              |         |         |  |   |         |        
|                                        | Net deferred tax liabilities |              |         | 249,193 |  |   |         | 224,766 | 
|Taxes currently payable (recoverable)   |                              |              | (1,952  | )       |  |   | 3,136   |        
|                                        |                              |              |         |         |  |   |         |        
|Income taxes payable                    |                              | $            | 247,241 |         |  | $ | 227,902 |        
|                                        |                              |              |         |         |  |   |         |        

The consolidated statement of income contains a
provision (benefit) for income taxes, as follows:

|         |                            |      |        |        |  |      |        |        |  |   |        |        | 
|-------- | -------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|         |                            | 2003 |        | 2002   |  | 2001
|         |                            |      |        |        |  |     
|Federal  |                            | $    | 37,362 |        |  | $    | 29,046 |        |  | $ | 29,225 |       
|State    |                            |      | (2,510 | )      |  |      | (847   | )      |  |   | (433   | )     
|         |                            |      |        |        |  |      |        |        |  |   |        |       
|         | Provision for income taxes |      | $      | 34,852 |  |      | $      | 28,199 |  |   | $      | 28,792 | 
|         |                            |      |        |        |  |      |        |        |  |   |        |       
|Current  |                            | $    | 39,965 |        |  | $    | 24,750 |        |  | $ | 28,461 |       
|Deferred |                            |      | (5,113 | )      |  |      | 3,449  |        |  |   | 331    |       
|         |                            |      |        |        |  |      |        |        |  |   |        |       
|         | Provision for income taxes |      | $      | 34,852 |  |      | $      | 28,199 |  |   | $      | 28,792 | 
|         |                            |      |        |        |  |      |        |        |  |   |        |       

Following is a reconciliation of the statutory
federal income tax rate with the effective income tax rate
resulting in the provision for income taxes appearing on the
consolidated statement of income:

|                                         |                                              |      |      |      |   |      |      |      |   |  |      |      |  
|---------------------------------------- | -------------------------------------------- | ---- | ---- | ---- | - | ---- | ---- | ---- | - |  | ---- | ---- | -
|                                         |                                              | 2003 |      | 2002 |   | 2001
|                                         |                                              |      |      |      |   |     
|Statutory federal income tax rate        |                                              |      | 35.0 | %    |   |      | 35.0 | %    |   |  | 35.0 | %   
|Increase (decrease) resulting
    from  |                                              |      |      |      |   |      |      |      |   |  |      |     
|                                         | Dividends received deduction                 |      |      | (2.9 | ) |      |      | (3.1 | ) |  |      | (3.3 | )
|                                         | Goodwill amortization                        |      |      |     |   |      |      |     |   |  |      | 2.4  |  
|                                         | State income taxes, less federal tax benefit |      |      | (1.7 | ) |      |      | (1.0 | ) |  |      | (0.3 | )
|                                         | Other differences, net                       |      |      | 1.8  |   |      |      | 3.9  |   |  |      | 1.6  |  
|                                         |                                              |      |      |      |   |      |      |      |   |  |      |     
|Effective income tax provision rate      |                                              |      | 32.2 | %    |   |      | 34.8 | %    |   |  | 35.4 | %   
|                                         |                                              |      |      |      |   |      |      |      |   |  |      |     

Wesco and its subsidiaries join with other
Berkshire entities in the filing of consolidated federal income
tax returns for the Berkshire group. The consolidated federal
tax liability is apportioned among group members pursuant to
methods that result in each member of the group paying or
receiving an amount that approximates the increase or decrease
in consolidated taxes attributable to that member. Returns have
been examined by and settled with the Internal Revenue Service
through 1996.

Note 8. Environmental Matters

Federal and state environmental agencies have
made claims relating to alleged contamination of soil and
groundwater against Precision Brand Products (PBP),
whose results, like those of its parent, Precision Steel
Warehouse, Inc., are included in Wescos industrial
segment, and various other businesses situated in a business
park in Downers Grove, Illinois. PBP, along with the other
businesses, has been negotiating remedial actions with various
governmental entities. In addition, PBP and other parties have
been named in several civil lawsuits, including lawsuits by and
on behalf of

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area residents, relating to this matter.
Precision Steel and PBP have notified their insurers relative to
the claims and litigation. Inasmuch as the claims and lawsuits
are in early stages of development, the ultimate cost of the
claims, including defense costs, is difficult to estimate at
this time. Nevertheless, in 2003, PBP recorded a provision of
approximately $1,044 ($628 after income tax benefit),
representing a preliminary estimate of its share of costs of
remediation agreed to with governmental entities and other
parties to date and related expenses. Management does not
anticipate that the ultimate financial impact of such
remediation and other legal matters will be material in relation
to Wescos shareholders equity, although it believes
that the effect on consolidated net income in any given period
could be material.


Note 9. Quarterly Financial
Information

Unaudited quarterly consolidated financial
information for 2003 and 2002 follows:

|                            |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |      | 
|--------------------------- | ------------------------------------ | ------------- | ------- | ------------- |  | -------- | ------- | --------- |  | - | ------- | ------ |  | - | ------- | ---- | 
|                            |                                      |              
|                            |                                      | Quarter Ended
|                            |                                      |              
|                            |                                      | December 31,  |         | September 30, |  | June 30, |         | March 31,
|                            |                                      |               |         |               |  |          |         |          
|2003                        |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|Revenues                    |                                      | $             | 121,292 |               |  | $        | 145,111 |           |  | $ | 192,125 |        |  | $ | 155,839 |     
|                            |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|Net income                  |                                      | $             | 9,089   |               |  | $        | 7,137   |           |  | $ | 45,981  |        |  | $ | 12,504  |     
|                            | Per capital share                    |               |         | 1.28          |  |          |         | 1.00      |  |   |         | 6.45   |  |   |         | 1.76 | 
|                            |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|2002                        |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|Revenues                    |                                      | $             | 139,547 |               |  | $        | 148,424 |           |  | $ | 144,397 |        |  | $ | 143,309 |     
|                            |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|Net income                  |                                      | $             | 8,256   |               |  | $        | 15,145  |           |  | $ | 14,880  |        |  | $ | 14,437  |     
|                            | Per capital share                    |               |         | 1.16          |  |          |         | 2.12      |  |   |         | 2.09   |  |   |         | 2.03 | 
|                            |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|Realized investment gains  |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|                            | 2003                                 |               |         |               |  |          |         |           |  |   |         |        |  |   |         |      | 
|                            | Before taxes (included in revenues)  |               | $       |              |  |          | $       | 447       |  |   | $       | 52,208 |  |   | $       | 811  | 
|                            | After taxes (included in net income) |               |         |              |  |          |         | 291       |  |   |         | 33,935 |  |   |         | 527  | 
|                            |                                      |               |         |               |  |          |         |           |  |   |         |        |  |   |         |     
|                            | 2002                                 |               |         |               |  |          |         |           |  |   |         |        |  |   |         |      | 
|                            | None                                 |               |         |               |  |          |         |           |  |   |         |        |  |   |         |      | 

Note 10. Business Segment Data

Consolidated financial information for each of
the past three years is presented in the table on the next page.
It is broken down as to Wescos three business segments.

The insurance segment includes the accounts of
Wes-FIC and its subsidiary, KBS. Wes-FIC is engaged in the
property and casualty insurance and reinsurance business. Its
business has included retrocessions from wholly owned insurance
subsidiaries of Berkshire and reinsurance with unaffiliated
insurance companies. KBS provides specialized insurance coverage
to more than 20% of the banks in the United States, mostly small
and medium-sized banks in the Midwest. In addition to generating
insurance premiums, Wescos insurance segment has derived
dividend and interest income from the investment of float
(premiums received before payment of related claims and
expenses) as well as shareholders equity.

The furniture rental segment includes the
operating accounts of CORT, which was acquired in February 2000
(see Note 2), and its subsidiary. CORT is the largest, and
only national, provider of rental furniture, accessories and
related services in the rent-to-rent segment of the
furniture industry. It rents high-quality furniture to corporate
and individual customers who desire flexibility in meeting their
temporary office, residential or trade show furnishing needs and
who typically do not seek to own such furniture. In addition,
CORT sells previously rented furniture through company-owned
clearance centers.

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The industrial segment includes the operating
accounts of Precision Steel and its subsidiaries. The Precision
Steel group operates two service centers, which buy steel and
other metals in the form of sheets or strips, cut these to order
and sell them directly to a wide variety of industrial customers
throughout the United States. The Precision Steel group also
manufactures shim stock and other toolroom specialty items and
sells them, along with hose clamps and threaded rod, nationwide,
generally through distributors.

Wescos consolidated realized net securities
gains  most of which have resulted from sales of
investments held by its insurance subsidiaries  and
goodwill of acquired businesses and related amortization, are
shown separately as nonsegment items, consistent with the way
Wescos management evaluates the performance of its
operating segments. Other items considered unrelated to
Wescos three business segments include principally
(1) investments other than those held by Wes-FIC and KBS,
together with related dividend and interest income,
(2) commercial real estate, together with related revenues
and expenses, (3) the assets, revenues and expenses of the
parent company, and (4) related income taxes.

|                                 |                                                                                       |      |   |           |   |      |   |           |   |  |   |           |  
|-------------------------------- | ------------------------------------------------------------------------------------- | ---- | - | --------- | - | ---- | - | --------- | - |  | - | --------- | -
|                                 |                                                                                       | 2003 |   | 2002      |   | 2001
|                                 |                                                                                       |      |   |           |   |     
|Insurance segment:               |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|                                 | Premiums earned                                                                       |      | $ | 106,651   |   |      | $ | 64,627    |   |  | $ | 43,031    |  
|                                 | Dividend and interest income                                                          |      |   | 44,118    |   |      |   | 70,007    |   |  |   | 70,048    |  
|                                 | Provision for income taxes                                                            |      |   | (21,653   | ) |      |   | (26,427   | ) |  |   | (21,143   | )
|                                 | Net income                                                                            |      |   | 46,636    |   |      |   | 49,471    |   |  |   | 45,254    |  
|                                 | Depreciation and amortization other than of
    discounts and premiums of investments |      |   | 27        |   |      |   | 26        |   |  |   | 39        |  
|                                 | Capital expenditures                                                                  |      |   | 4         |   |      |   | 3         |   |  |   | 23        |  
|                                 | Assets at yearend                                                                     |      |   | 1,985,846 |   |      |   | 1,818,788 |   |  |   | 1,724,612 |  
|                                 |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|Furniture rental segment:        |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|                                 | Revenues                                                                              |      | $ | 360,112   |   |      | $ | 388,583   |   |  | $ | 395,414   |  
|                                 | Income tax (provision) benefit                                                        |      |   | 4,870     |   |      |   | (1,201    | ) |  |   | (7,601    | )
|                                 | Net income (loss)                                                                     |      |   | (6,257    | ) |      |   | 2,442     |   |  |   | 13,076    |  
|                                 | Depreciation and amortization other than of
    discounts and premiums of investments |      |   | 41,472    |   |      |   | 47,998    |   |  |   | 53,429    |  
|                                 | Capital expenditures                                                                  |      |   | 3,209     |   |      |   | 3,497     |   |  |   | 1,605     |  
|                                 | Assets at yearend                                                                     |      |   | 235,455   |   |      |   | 277,308   |   |  |   | 286,269   |  
|                                 |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|Industrial segment:              |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|                                 | Sales, service and other revenues                                                     |      | $ | 46,138    |   |      | $ | 48,567    |   |  | $ | 48,440    |  
|                                 | Income tax (provision) benefit                                                        |      |   | 671       |   |      |   | (413      | ) |  |   | (474      | )
|                                 | Net income (loss)                                                                     |      |   | (860      | ) |      |   | 250       |   |  |   | 388       |  
|                                 | Depreciation and amortization                                                         |      |   | 505       |   |      |   | 592       |   |  |   | 747       |  
|                                 | Capital expenditures                                                                  |      |   | 106       |   |      |   | 137       |   |  |   | 245       |  
|                                 | Assets at yearend                                                                     |      |   | 16,826    |   |      |   | 17,905    |   |  |   | 19,044    |  
|                                 |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|Goodwill of acquired businesses: |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|                                 | Amortization, net of income taxes                                                     |      | $ |          |   |      | $ |          |   |  | $ | (6,814    | )
|                                 | Assets at yearend                                                                     |      |   | 266,607   |   |      |   | 266,203   |   |  |   | 264,465   |  
|                                 |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|Realized investment gains:       |                                                                                       |      |   |           |   |      |   |           |   |  |   |          
|                                 | Before taxes (included in revenues)                                                   |      | $ | 53,466    |   |      | $ |          |   |  | $ |          |  
|                                 | After taxes (included in net income)                                                  |      |   | 34,753    |   |      |   |          |   |  |   |          |  
|                                 |                                                                                       |      |   |           |   |      |   |           |   |  |   |          

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|                                                           |                               |      |           |        |   |      |           |        |   |   |           |        |  
|---------------------------------------------------------- | ----------------------------- | ---- | --------- | ------ | - | ---- | --------- | ------ | - | - | --------- | ------ | -
|                                                           |                               | 2003 |           | 2002   |   | 2001
|                                                           |                               |      |           |        |   |     
|Other items unrelated to business segments:                |                               |      |           |        |   |      |           |        |   |   |           |       
|                                                           | Dividend and interest income  |      | $         | 617    |   |      | $         | 616    |   |   | $         | 885    |  
|                                                           | Other revenues                |      |           | 3,215  |   |      |           | 3,277  |   |   |           | 3,261  |  
|                                                           | Provision for income taxes    |      |           | (27    | ) |      |           | (158   | ) |   |           | (236   | )
|                                                           | Net income                    |      |           | 439    |   |      |           | 555    |   |   |           | 632    |  
|                                                           | Depreciation and amortization |      |           | 354    |   |      |           | 360    |   |   |           | 360    |  
|                                                           | Capital expenditures          |      |           | 366    |   |      |           | 302    |   |   |           | 135    |  
|                                                           | Assets at yearend             |      |           | 33,661 |   |      |           | 26,771 |   |   |           | 25,303 |  
|                                                           |                               |      |           |        |   |      |           |        |   |   |           |       
|Consolidated revenues (total of those set forth
    above) |                               | $    | 614,317   |        |   | $    | 575,677   |        |   | $ | 561,079   |       
|                                                           |                               |      |           |        |   |      |           |        |   |   |           |       
|Consolidated assets (total of those set forth
    above)   |                               | $    | 2,538,395 |        |   | $    | 2,406,975 |        |   | $ | 2,319,693 |       
|                                                           |                               |      |           |        |   |      |           |        |   |   |           |       

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WESCO FINANCIAL CORPORATION

SCHEDULE I  CONDENSED
FINANCIAL


INFORMATION OF REGISTRANT


BALANCE SHEET

(Dollar amounts in thousands)


|                                      |                                                                                                                             |                   |           |           |         |   |           |           |         | 
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ----------------- | --------- | --------- | ------- | - | --------- | --------- | ------- | 
|                                      |                                                                                                                             |                  
|                                      |                                                                                                                             | December 31,     
|                                      |                                                                                                                             |                  
|                                      |                                                                                                                             | 2003              |           | 2002     
|                                      |                                                                                                                             |                   |           |          
|Assets:                               |                                                                                                                             |                   |           |           |         |   |           |          
|                                      | Cash and cash equivalents                                                                                                   |                   | $         | 27        |         |   | $         | 20        |        
|                                      | Investment in subsidiaries, at cost plus equity
    in subsidiaries undistributed earnings and unrealized
    appreciation |                   |           | 2,196,376 |         |   |           | 2,065,376 |        
|                                      | Other assets                                                                                                                |                   |           |          |         |   |           | 10        |        
|                                      |                                                                                                                             |                   |           |           |         |   |           |          
|                                      |                                                                                                                             | $                 | 2,196,403 |           |         | $ | 2,065,406 |          
|                                      |                                                                                                                             |                   |           |           |         |   |           |          
|Liabilities and shareholders equity: |                                                                                                                             |                   |           |           |         |   |           |          
|                                      | Advances from subsidiaries                                                                                                  |                   | $         | 115,420   |         |   | $         | 104,792   |        
|                                      | Income taxes payable, principally deferred                                                                                  |                   |           | 2,768     |         |   |           | 2,426     |        
|                                      | Other liabilities                                                                                                           |                   |           | 25        |         |   |           | 26        |        
|                                      |                                                                                                                             |                   |           |           |         |   |           |          
|                                      |                                                                                                                             | Total liabilities |           |           | 118,213 |   |           |           | 107,244 | 
|                                      | Shareholders equity (see consolidated
    balance sheet and statement of changes in shareholders
    equity)              |                   |           | 2,078,190 |         |   |           | 1,958,162 |        
|                                      |                                                                                                                             |                   |           |           |         |   |           |          
|                                      |                                                                                                                             | $                 | 2,196,403 |           |         | $ | 2,065,406 |          
|                                      |                                                                                                                             |                   |           |           |         |   |           |          

STATEMENT OF INCOME

(Dollar amounts in thousands)


|                                                 |                                                                            |                         |        |       |        |      |        |       |        |  |        |       |        | 
|------------------------------------------------ | -------------------------------------------------------------------------- | ----------------------- | ------ | ----- | ------ | ---- | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|                                                 |                                                                            |                        
|                                                 |                                                                            | Year Ended December 31,
|                                                 |                                                                            |                        
|                                                 |                                                                            | 2003                    |        | 2002  |        | 2001
|                                                 |                                                                            |                         |        |       |        |     
|Revenues:                                        |                                                                            |                         |        |       |        |      |        |       |        |  |        |      
|                                                 | Dividend and interest income                                               |                         | $      |      |        |      | $      |      |        |  | $      | 1     |       
|                                                 | Other                                                                      |                         |        |      |        |      |        |      |        |  |        |      |       
|                                                 |                                                                            |                         |        |       |        |      |        |       |        |  |        |      
|                                                 |                                                                            |                         |       |       |        |      |       |       |        |  | 1      |      
|                                                 |                                                                            |                         |        |       |        |      |        |       |        |  |        |      
|Expenses:                                        |                                                                            |                         |        |       |        |      |        |       |        |  |        |      
|                                                 | Interest, including intercompany interest of
    $1,487, $1,511 and $1,899 |                         |        | 1,487 |        |      |        | 1,512 |        |  |        | 1,978 |       
|                                                 | General and administrative                                                 |                         |        | 706   |        |      |        | 531   |        |  |        | 512   |       
|                                                 |                                                                            |                         |        |       |        |      |        |       |        |  |        |      
|                                                 |                                                                            |                         | 2,193  |       |        |      | 2,043  |       |        |  | 2,490  |      
|                                                 |                                                                            |                         |        |       |        |      |        |       |        |  |        |      
|Loss before items shown below                    |                                                                            |                         | (2,193 | )     |        |      | (2,043 | )     |        |  | (2,489 | )    
|Income tax benefit                               |                                                                            |                         | 767    |       |        |      | 714    |       |        |  | 870    |      
|Equity in undistributed earnings of subsidiaries |                                                                            |                         | 76,137 |       |        |      | 54,047 |       |        |  | 54,155 |      
|                                                 |                                                                            |                         |        |       |        |      |        |       |        |  |        |      
|                                                 |                                                                            | Net income              |        | $     | 74,711 |      |        | $     | 52,718 |  |        | $     | 52,536 | 
|                                                 |                                                                            |                         |        |       |        |      |        |       |        |  |        |      

See notes to consolidated financial
statements

39



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##### Table of Contents



WESCO FINANCIAL CORPORATION

SCHEDULE I  CONDENSED
FINANCIAL


INFORMATION OF REGISTRANT
(CONTINUED)


STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)


|                                                     |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |        |         |      |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------------------------------- | ---------------------------------------- | ------ | ------- | ------ | -- | ------ | ------- | ------ | -- | ------ | ------- | ---- | -
|                                                     |                                                                                     |                                                          
|                                                     |                                                                                     | Year Ended December 31,                                  
|                                                     |                                                                                     |                                                          
|                                                     |                                                                                     | 2003                                                      |                                          | 2002   |         | 2001  
|                                                     |                                                                                     |                                                           |                                          |        |         |       
|Cash flows from operating activities:                |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       
|                                                     | Net income                                                                          |                                                           | $                                        | 74,711 |         |        | $  | 52,718 |         |        | $  | 52,536 |        
|                                                     | Adjustments to reconcile net income with cash
    flows from operating activities  |                                                           |                                          |        |         |        |    |        |         |        |    |        |        
|                                                     |                                                                                     | Increase (decrease) in income taxes payable
    currently |                                          |        | 342     |        |    |        | (693    | )      |    |        | 1,231   |     
|                                                     |                                                                                     | Equity in undistributed earnings of subsidiaries          |                                          |        | (76,137 | )      |    |        | (54,047 | )      |    |        | (54,155 | )   
|                                                     |                                                                                     | Other, net                                                |                                          |        | 2       |        |    |        | 1       |        |    |        | 14      |     
|                                                     |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       
|                                                     |                                                                                     |                                                           | Net cash flows from operating activities |        |         | (1,082 | )  |        |         | (2,021 | )  |        |         | (374 | )
|                                                     |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       
|Cash flows from financing activities:                |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       
|                                                     | Advances from subsidiaries, net                                                     |                                                           |                                          | 10,628 |         |        |    | 12,305 |         |        |    | 9,347  |        
|                                                     | Repayment of notes payable                                                          |                                                           |                                          |       |         |        |    | (1,035 | )       |        |    |       |        
|                                                     | Payment of cash dividends                                                           |                                                           |                                          | (9,539 | )       |        |    | (9,257 | )       |        |    | (8,971 | )      
|                                                     |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       
|                                                     |                                                                                     |                                                           | Net cash flows from financing activities |        |         | 1,089  |    |        |         | 2,013  |    |        |         | 376  |  
|                                                     |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       
|Increase (decrease) in cash and cash
    equivalents |                                                                                     |                                                           | 7                                        |        |         |        | (8 | )      |         |        | 2  |       
|Cash and cash equivalents  beginning
    of year    |                                                                                     |                                                           | 20                                       |        |         |        | 28 |        |         |        | 26 |       
|                                                     |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       
|Cash and cash equivalents  end of year              |                                                                                     | $                                                         | 27                                       |        |         | $      | 20 |        |         | $      | 28 |       
|                                                     |                                                                                     |                                                           |                                          |        |         |        |    |        |         |        |    |       

See notes to consolidated financial
statements

40