-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BAZfzyGDEboYcw9F4exOB+muSoIzHQAeS7UdOiCJvrsc7NToYkyomppdbwOowyie HAxtJbDDDSpRsGuSnEgK5w== 0000070684-98-000004.txt : 19980518 0000070684-98-000004.hdr.sgml : 19980518 ACCESSION NUMBER: 0000070684-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL WESTERN LIFE INSURANCE CO CENTRAL INDEX KEY: 0000070684 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 840467208 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-17039 FILM NUMBER: 98624776 BUSINESS ADDRESS: STREET 1: 850 E ANDERSON LN CITY: AUSTIN STATE: TX ZIP: 78752-1602 BUSINESS PHONE: 5128361010 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1998 [ ] 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: 2-17039 NATIONAL WESTERN LIFE INSURANCE COMPANY (Exact name of Registrant as specified in its charter) COLORADO 84-0467208 (State of Incorporation) (I.R.S. Employer Identification Number) 850 EAST ANDERSON LANE AUSTIN, TEXAS 78752-1602 (512) 836-1010 (Address of Principal Executive Offices (Telephone Number) 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 [ ] As of May 13, 1998, the number of shares of Registrant's common stock outstanding was: Class A - 3,292,538 and Class B - 200,000. NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES INDEX Part I. Financial Information: Page Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997 Condensed Consolidated Statements of Earnings - For the Three Months Ended March 31, 1998 and 1997 (Unaudited) Condensed Consolidated Statements of Comprehensive Income For the Three Months Ended March 31, 1998 and 1997 (Unaudited) Condensed Consolidated Statements of Stockholders' Equity - For the Three Months Ended March 31, 1998 and 1997 (Unaudited) Condensed Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 1998 and 1997 (Unaudited) Notes to Condensed Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information: Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K Signatures Exhibit 11 - Computation of Earnings per Share - For the Three Months Ended March 31, 1998 and 1997 (Unaudited) PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
(Unaudited) March 31, December 31, 1998 1997 ASSETS Cash and investments: Securities held to maturity, at amortized cost $ 1,896,056 1,874,643 Securities available for sale, at fair value 673,574 651,736 Mortgage loans, net of allowances for possible losses ($4,640 and $4,640) 176,130 181,878 Policy loans 131,797 133,826 Other long-term investments 29,671 27,387 Cash and short-term investments 2,496 7,870 Total cash and investments 2,909,724 2,877,340 Accrued investment income 40,720 41,050 Deferred policy acquisition costs 293,265 291,079 Other assets 15,432 15,202 Assets of discontinued operations 774 892 $ 3,259,915 3,225,563 Note: The balance sheet at December 31, 1997, has been taken from the audited financial statements at that date. Certain reclassifications have been made in accordance with the implementation of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Shares Outstanding)
(Unaudited) March 31, December 31, 1998 1997 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Future policy benefits: Traditional life and annuity products $ 169,412 170,423 Universal life and investment annuity contracts 2,597,428 2,580,867 Other policyholder liabilities 24,544 25,001 Federal income taxes payable: Current 6,177 2,470 Deferred 13,145 13,153 Other liabilities 37,813 31,894 Liabilities of discontinued operations 774 892 Total liabilities 2,849,293 2,824,700 COMMITMENTS AND CONTINGENCIES (Note 3) STOCKHOLDERS' EQUITY: Common stock: Class A - $1 par value; 7,500,000 shares authorized; 3,291,738 shares issued and outstanding in 1998 and 1997 3,292 3,292 Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 1998 and 1997 200 200 Additional paid-in capital 24,662 24,662 Accumulated other comprehensive income 15,657 16,268 Retained earnings 366,811 356,441 Total stockholders' equity 410,622 400,863 $ 3,259,915 3,225,563 Note: The balance sheet at December 31, 1997, has been taken from the audited financial statements at that date. Certain reclassifications have been made in accordance with the implementation of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS For the Three Months Ended March 31, 1998 and 1997 (Unaudited) (In Thousands Except Per Share Amounts)
1998 1997 Premiums and other revenue: Life and annuity premiums $ 3,110 3,720 Universal life and investment annuity contract revenues 20,300 19,431 Net investment income 55,538 52,553 Other income 535 68 Realized gains (losses) on investments 662 (2,856) Total premiums and other revenue 80,145 72,916 Benefits and expenses: Life and other policy benefits 10,674 9,699 Decrease in liabilities for future policy benefits (957) (718) Amortization of deferred policy acquisition costs 8,945 9,702 Universal life and investment annuity contract interest 38,335 37,720 Other insurance operating expenses 7,241 6,927 Total benefits and expenses 64,238 63,330 Earnings before Federal income taxes and discontinued operations 15,907 9,586 Provision for Federal income taxes: Current 5,217 2,677 Deferred 320 157 Total Federal income taxes 5,537 2,834 Earnings from continuing operations 10,370 6,752 Losses from discontinued operations - (1,000) Net earnings $ 10,370 5,752 Basic Earnings Per Share: Earnings from continuing operations $ 2.97 1.94 Losses from discontinued operations - (0.29) Net earnings $ 2.97 1.65 Diluted Earnings Per Share: Earnings from continuing operations $ 2.94 1.92 Losses from discontinued operations - (0.28) Net earnings $ 2.94 1.64 See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months Ended March 31, 1998 and 1997 (Unaudited) (In Thousands)
1998 1997 Net earnings $ 10,370 5,752 Other comprehensive income, net of effects of deferred policy acquisition costs and taxes: Unrealized losses on securities: Unrealized holding losses arising during period (346) (2,666) Less: reclassification adjustment for losses included in net earnings - 1 Amortization of net unrealized gains related to transferred securities (323) (236) Net unrealized losses on securities (669) (2,901) Foreign currency translation adjustments 58 1,699 Other comprehensive income (611) (1,202) Comprehensive income $ 9,759 4,550 See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Months Ended March 31, 1998 and 1997 (Unaudited) (In Thousands)
1998 1997 Common stock shares outstanding at beginning of year and end of period 3,492 3,491 Common stock at beginning of year and end of period $ 3,492 3,491 Additional paid-in capital at beginning of year and end of period 24,662 24,647 Accumulated other comprehensive income: Unrealized gains (losses) on securities: Balance at beginning of year 13,782 9,853 Change in unrealized gains (losses) during period (669) (2,901) Balance at end of period 13,113 6,952 Foreign currency translation adjustments: Balance at beginning of year 2,486 - Change in translation adjustments during period 58 1,699 Balance at end of period 2,544 1,699 Accumulated other comprehensive income at end of period 15,657 8,651 Retained earnings: Balance at beginning of year 356,441 314,869 Net earnings 10,370 5,752 Retained earnings at end of period 366,811 320,621 Total stockholders' equity $ 410,622 357,410 See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 and 1997 (Unaudited) (In Thousands)
1998 1997 Cash flows from operating activities: Net earnings $ 10,370 5,752 Adjustments to reconcile net earnings to net cash from operating activities: Universal life and investment annuity contract interest 38,335 37,720 Surrender charges and other policy revenues (10,415) (9,986) Realized (gains) losses on investments (662) 2,856 Accrual and amortization of investment income (1,870) (1,683) Depreciation and amortization 242 181 Increase in insurance receivables and other assets (151) (607) Decrease in accrued investment income 330 1,008 Decrease (increase) in deferred policy acquisition costs (1,714) 1,322 Decrease in liability for future policy benefits (957) (718) Increase (decrease) in other policyholder liabilities (457) 1,607 Increase in Federal income taxes payable 4,026 2,702 Increase in other liabilities 5,919 3,053 Other (1,270) - Net cash provided by operating activities 41,726 43,207 Cash flows from investing activities: Proceeds from sales of: Securities held to maturity 2,978 - Securities available for sale - 15 Other investments 391 728 Proceeds from maturities and redemptions of: Securities held to maturity 27,394 35,069 Securities available for sale 18,079 11,292 Purchases of: Securities held to maturity (49,476) (81,433) Securities available for sale (41,263) (500) Other investments (1,540) (105) Principal payments on mortgage loans 9,016 3,534 Cost of mortgage loans acquired (3,211) (3,481) Decrease in policy loans 2,029 2,376 Decrease (increase) in assets of discontinued operations 118 (266) Increase (decrease) in liabilities of discontinued operations (118) 266 Other (138) (77) Net cash used in investing activities (35,741) (32,582) (Continued on next page)
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED For the Three Months Ended March 31, 1998 and 1997 (Unaudited) (In Thousands)
1998 1997 Cash flows from financing activities: Deposits to account balances for universal life and investment annuity contracts $ 74,784 62,362 Return of account balances on universal life and investment annuity contracts (86,143) (73,239) Net cash used in financing activities (11,359) (10,877) Net decrease in cash and short-term investments (5,374) (252) Cash and short-term investments at beginning of year 7,870 11,358 Cash and short-term investments at end of period $ 2,496 11,106 See accompanying notes to condensed consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of National Western Life Insurance Company and its wholly-owned subsidiaries (the Company), The Westcap Corporation (Westcap), NWL Investments, Inc., NWL Properties, Inc., NWL 806 Main, Inc., NWL Services, Inc., and NWL Financial, Inc. The Westcap Corporation ceased brokerage operations during 1995 and filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in 1996. As a result, The Westcap Corporation is reflected as discontinued operations in the accompanying financial statements. All significant intercorporate transactions and accounts have been eliminated in consolidation. In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 1998, and the results of its operations and its cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. (2) DIVIDENDS The Company paid no cash dividends on common stock during the three months ended March 31, 1998 and 1997. (3) DISCONTINUED BROKERAGE OPERATIONS National Western Life Insurance Company's brokerage subsidiary, The Westcap Corporation, is currently in reorganization bankruptcy. As a result of brokerage losses and the resulting bankruptcy, National Western Life's investment in Westcap was completely written off during 1995. No earnings or losses were reported for discontinued operations for the first quarter of 1998. However, a $1,000,000 cash infusion was made to Westcap on March 18, 1997, for operational expenses incurred during its bankruptcy. This contribution was reflected as losses from discontinued operations in the first quarter of 1997. The Westcap Corporation, the Creditors' Committee, and National Western Life filed documents with the bankruptcy court on April 30, 1998, that could lead to the settlement of all claims of the creditors of Westcap and the claims of Westcap against National Western Life, with the exception of the claims of Chicago City Colleges against National Western Life. The next step in the settlement process is the approval of such agreements by the Westcap creditors, Westcap and National Western Life, and the bankruptcy court. This process is anticipated to take several months. If the plan is ultimately approved and confirmed, National Western Life's obligations could total approximately $15 million for complete releases from all claims, except for the pending claims asserted by Chicago City Colleges against National Western Life in federal court litigation. It remains uncertain at this time whether the settlement will be approved by all the parties, including the bankruptcy court. Accordingly, no amounts have been accrued in the Company's financial statements for potential settlements. (4) COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," in the first quarter of 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No. 130 affects the Company's reporting presentation of certain items such as foreign currency translation adjustments and unrealized gains and losses on investment securities. These items are now a component of other comprehensive income, as reported in the accompanying financial statements. Prior period financial statements have been reclassified for comparative purposes in accordance with SFAS No. 130. Components of other comprehensive income and related taxes are provided below for the three months ended March 31, 1998 and 1997:
Amounts Amounts Before (Taxes) Net of Taxes Benefits Taxes (In thousands) 1998: Unrealized gains (losses) on securities, net of effects of deferred policy acquisition costs of $689: Unrealized holding gains (losses) arising during period $ (533) 187 (346) Less: reclassification adjustment for (gains) losses included in net earnings - - - Amortization of net unrealized gains related to transferred securities (497) 174 (323) Net unrealized gains (losses) on securities (1,030) 361 (669) Foreign currency translation adjustments 90 (32) 58 Other comprehensive income $ (940) 329 (611) 1997: Unrealized gains (losses) on securities, net of effects of deferred policy acquisition costs of $4,522: Unrealized holding gains (losses) arising during period $ (4,101) 1,435 (2,666) Less: reclassification adjustment for (gains) losses included in net earnings 2 (1) 1 Amortization of net unrealized gains related to transferred securities (363) 127 (236) Net unrealized gains (losses) on securities (4,462) 1,561 (2,901) Foreign currency translation adjustments 2,614 (915) 1,699 Other comprehensive income $ (1,848) 646 (1,202)
(5) STOCK AND INCENTIVE PLAN On April 17, 1998, the Board of Directors approved the issuance of an additional 48,500 nonqualified stock options to selected officers of the Company. The options were granted under the National Western Life Insurance Company 1995 Stock and Incentive Plan. The stock options begin to vest following three full years of service to the Company after date of grant, with 20% of the options to vest at the beginning of the fourth year of service, and with 20% thereof to vest at the beginning of each of the next four years of service. The exercise price of the stock options was set at the fair market value of the common stock on the date of grant. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL National Western Life Insurance Company is a life insurance company, chartered in the State of Colorado in 1956, and doing business in forty-three states and the District of Columbia. It also accepts applications from and issues policies to residents of various Central and South American, Caribbean, and Pacific Rim countries. A distribution of the Company's direct premium revenues and deposits by domestic and international markets is provided below:
Three Months Ended March 31, 1998 1997 United States domestic market: Investment annuities 77.3 % 75.1% Life insurance 8.6 9.2 Total domestic market 85.9 84.3 International market: Investment annuities - 0.6 Life insurance 14.1 15.1 Total international market 14.1 15.7 Total direct premiums collected 100.0 % 100.0%
Insurance Operations - Domestic Division The Company's Domestic Division concentrates marketing efforts on federal employees, seniors, and specific employee groups in private industry, as well as individual sales. The products marketed are annuities, universal life insurance, and traditional life insurance, which includes both term and whole life products. The majority of products sold are the Company's annuities, which include single and flexible premium deferred annuities, single premium immediate annuities, and a newly introduced equity-indexed annuity. Most of these annuities can be sold as tax qualified or nonqualified products. National Western Life markets and distributes its domestic products primarily through independent marketing organizations (IMOs). These IMOs assist the Company in recruiting, contracting, and managing agents. The Company currently has over 30 IMOs contracted for sales of life and annuity products. Current marketing plans are to increase the number of IMOs under contract by adding qualified, select organizations each year that are able to meet minimum production standards. Insurance Operations - International Division The Company's International Division issues policies to foreign nationals in upper socioeconomic classes with substantial financial resources. Insurance sales are primarily on residents from Central and South America, the Caribbean, and increasingly the Pacific Rim. Providing insurance policies to residents in numerous countries in these different regions provides diversification that helps to minimize large fluctuations in sales that can occur due to various economic, political, and competitive pressures that may occur from one country to another. Products sold in the international market are almost entirely universal life and traditional life insurance products. However, certain annuity and investment contracts are also available through the International Division. The Company minimizes exposure to foreign currency risks, as almost all foreign policies require payment of premiums and claims in United States dollars. The International Division's sales production is from independent broker- agents, many of whom have been selling National Western Life products for 20 or more years. Currently marketing plans include expanding sales networks in specifically targeted South American and Pacific Rim countries which have higher growth potential than other countries. These plans also include the introduction in 1998 of two new equity-indexed investment products similar to the Domestic Division's new equity-indexed annuity. While National Western Life increases its sales efforts in the international arena, the Company remains committed to its conservative, yet competitive, underwriting practices which historically have resulted in claims experience similar to that in the United States. Other In addition to the life insurance business, the Company had a brokerage operations segment through its wholly owned subsidiary, The Westcap Corporation (Westcap). However, during 1995 Westcap closed its sales offices and approved a plan to cease all brokerage operations. Subsequently on April 12, 1996, Westcap and its wholly owned subsidiary, Westcap Enterprises, Inc., separately filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The brokerage segment is now reported as discontinued operations throughout this report and in the accompanying financial statements. INVESTMENTS IN DEBT AND EQUITY SECURITIES Investment Philosophy The Company's investment philosophy is to maintain a diversified portfolio of investment grade debt and equity securities that provide adequate liquidity to meet policyholder obligations and other cash needs. The prevailing strategy within this philosophy is the intent to hold investments in debt securities to maturity. However, the Company manages its portfolio, which entails monitoring and reacting to all components which affect changes in the price, value, or credit rating of investments in debt and equity securities. Investments in debt and equity securities are classified and reported as either securities held to maturity or securities available for sale. The Company does not maintain a portfolio of trading securities. The reporting category chosen for the Company's securities investments depends on various factors including the type and quality of the particular security and how it will be incorporated into the Company's overall asset/liability management strategy. At March 31, 1998, approximately 25.5% of the Company's total debt and equity securities, based on fair values, were classified as securities available for sale. These holdings provide flexibility to the Company to react to market opportunities and conditions and to practice active management within the portfolio to provide adequate liquidity to meet policyholder obligations and other cash needs. Securities the Company purchases with the intent to hold to maturity are classified as securities held to maturity. Because the Company has strong cash flows and matches expected maturities of assets and liabilities, the Company has the ability to hold the securities, as it would be unlikely that forced sales of securities would be required prior to maturity to cover payments of liabilities. As a result, securities held to maturity are carried at amortized cost less declines in value that are other than temporary. However, certain situations may change the Company's intent to hold a particular security to maturity, the most notable of which is a deterioration in the issuer's creditworthiness. Accordingly, a security may be sold to avoid a further decline in realizable value when there has been a significant change in the credit risk of the issuer. Securities that are not classified as held to maturity are reported as securities available for sale. These securities may be sold if market or other measurement factors change unexpectedly after the securities were acquired. For example, opportunities arise that allow the Company to improve the performance and credit quality of the investment portfolio by replacing an existing security with an alternative security while still maintaining an appropriate matching of expected maturities of assets and liabilities. Examples of such improvements are as follows: improving the yield earned on invested assets, improving the credit quality, changing the duration of the portfolio, and selling securities in advance of anticipated calls or other prepayments. Securities available for sale are reported in the Company's financial statements at fair value. Any unrealized gains or losses resulting from changes in the fair value of the securities are reflected as components of stockholders' equity and other comprehensive income. As an integral part of its investment philosophy, the Company performs an ongoing process of monitoring the creditworthiness of issuers within the investment portfolio. Review procedures are also performed on securities that have had significant declines in fair value. The Company's objective in these circumstances is to determine if the decline in fair value is due to changing market expectations regarding inflation and general interest rates or other factors. Additionally, the Company closely monitors financial, economic, and interest rate conditions to manage prepayment and extension risks in its mortgage-backed securities portfolio. The Company's overall conservative investment philosophy is reflected in the allocation of its investments which is detailed below as of March 31, 1998 and December 31, 1997. The Company emphasizes investment grade debt securities, with smaller holdings in mortgage loans and real estate.
Percent of Investments March 31, December 31, 1998 1997 Debt securities 87.8% 87.3% Mortgage loans 6.1 6.3 Policy loans 4.5 4.7 Equity securities 0.5 0.5 Real estate 0.5 0.5 Other 0.6 0.7 Totals 100.0% 100.0%
Portfolio Analysis The Company maintains a diversified debt securities portfolio which consists of various types of fixed income securities including primarily corporate, mortgage-backed securities, and public utilities. Investments in mortgage-backed securities include U.S. government agency and private issue pass-through securities and collateralized mortgage obligations (CMOs). At March 31, 1998, the Company's debt and equity securities were classified as follows:
Gross Fair Amortized Unrealized Value Cost Gains (In thousands) Securities held to maturity: Debt securities $ 1,970,156 1,896,056 74,100 Securities available for sale: Debt securities 658,620 629,901 28,719 Equity securities 14,954 11,266 3,688 Totals $ 2,643,730 2,537,223 106,507
As detailed above, debt securities classified as held to maturity comprise the majority of the Company's securities portfolio, while equity securities are a small component of the portfolio. Gross unrealized gains totaling $106,507,000 on the securities portfolio at March 31, 1998, is a reflection of market interest rates at quarter-end. The fair values, or market values, of fixed income debt securities correlate to external market interest rate conditions. Because the interest rates are fixed on almost all of the Company's debt securities, market values typically increase when market interest rates decline, and decrease when market interest rates rise. An analysis of gross unrealized gains and losses on the Company's securities portfolio for the quarter ended March 31, 1998, is detailed below:
Change in Gross Unrealized Gains Unrealized At At Gains (Losses) March 31, December 31, During 1st 1998 1997 Quarter 1998 (In thousands) Securities held to maturity: Debt securities $ 74,100 75,233 (1,133) Securities available for sale: Debt securities 28,719 30,287 (1,568) Equity securities 3,688 3,175 513 Totals $ 106,507 108,695 (2,188)
Changes in interest rates typically have a significant impact on the market values of the Company's debt securities. Unrealized gains at March 31, 1998, decreased only slightly from year-end 1997 as market interest rate fluctuations were minimal. Because the majority of the Company's debt securities are classified as held to maturity, which are recorded at amortized cost, changes in market values have relatively small effects on the Company's financial statements. Also, the Company has the intent and ability to hold these securities to maturity, and it is unlikely that sales of such securities would be required which would realize market gains or losses. An important aspect of the Company's investment philosophy is managing the cash flow stability of the portfolio. Because expected maturities of securities may differ from contractual maturities due to prepayments, extensions, and calls, the Company takes steps to manage and minimize such risks. The Company continues to invest primarily in corporate debt securities, many of which are noncallable, which helps reduce prepayment and call risks. At March 31, 1998, corporate and public utility securities represented over 66% of the entire debt securities portfolio. Mortgage-backed securities are also an important component of the Company's debt securities portfolio, representing 26% of the portfolio at March 31, 1998. Although holdings of mortgage-backed securities are subject to prepayment and extension risks, both of these risks are addressed by specific portfolio management strategies which add stability to the Company's cash flow management. The Company substantially reduces both prepayment and extension risks of mortgage-backed securities by investing primarily in collateralized mortgage obligations which have more predictable cash flow patterns than pass-through securities. These securities, known as planned amortization class I (PAC I) CMOs, are designed to amortize in a more predictable manner than other CMO classes or pass-throughs. Using this strategy, the Company can more effectively manage and reduce prepayment and extension risks, thereby helping to maintain the appropriate matching of the Company's assets and liabilities. As of March 31, 1998, CMOs represent about 90% of the Company's mortgage- backed securities, and PAC I CMOs account for approximately 90% of this CMO portfolio. The CMOs in the Company's portfolio have been modeled and subjected to detailed, comprehensive analysis by the Company's investment staff. The overall structure of the CMO as well as the individual tranche being considered for purchase have been evaluated to ensure that the security fits appropriately within the Company's investment philosophy and asset/liability management parameters. The Company's investment mix between mortgage-backed securities and other fixed income securities helps effectively balance prepayment, extension, and credit risks. In addition to managing prepayment, extension, and call risks, the Company closely manages the credit quality of its investments in debt securities. Thorough credit analysis is performed on potential corporate investments including examinations of a company's credit and industry outlook, financial ratios and trends, and event risks. The Company continues to follow its conservative investment philosophy by minimizing its holdings of below investment grade debt securities, as these securities generally have greater default risk than higher rated corporate debt. These issuers usually are more sensitive to adverse industry or economic conditions than are investment grade issuers. The Company's small holdings of below investment grade debt securities are summarized below. The decrease in below investment grade debt securities from 1997 is due to a rating upgrade of one security and a sale of another security.
Below Investment Grade Debt Securities % of Carrying Market Invested Value Value Assets (In thousands) March 31, 1998 $ 33,055 33,860 1.1% December 31, 1997 $ 41,149 41,969 1.4% December 31, 1996 $ 38,696 38,784 1.4%
The Company's strong credit risk management and commitment to quality has resulted in minimal defaults in the debt securities portfolio in recent years. In fact, at March 31, 1998 and December 31, 1997, no securities were in default and on nonaccrual status. Also, during the quarter ended March 31, 1998, the Company sold a held to maturity security due to the significant credit deterioration of the issuing company. Amortized cost of the security totaled $2,981,000 and a realized loss of $3,000 was recognized on the sale. MORTGAGE LOANS AND REAL ESTATE Investment Philosophy In general, the Company seeks loans on high quality, income producing properties such as shopping centers, freestanding retail stores, office buildings, industrial and sales or service facilities, selected apartment buildings, motels, and health care facilities. The location of these loans is typically in growth areas that offer a potential for property value appreciation. These growth areas are found primarily in major metropolitan areas, but occasionally in selected smaller communities. The Company seeks to minimize the credit and default risk in its mortgage loan portfolio through strict underwriting guidelines and diversification of underlying property types and geographic locations. In addition to being secured by the property, mortgage loans with leases on the underlying property are often guaranteed by the lessee, in which case the Company approves the loan based on the credit strength of the lessee. This approach has resulted in higher quality mortgage loans with fewer defaults. While mortgage loans remain an important component of the Company's investment portfolio, loans as a percentage of the portfolio have been declining in recent years. Competition for high quality mortgage loans in a declining interest rate environment has impacted the Company's level of mortgage loan originations, and the Company is unwilling to compromise its strict underwriting guidelines to maintain specific mortgage loan levels. The Company's direct investments in real estate are not a significant portion of its total investment portfolio, and the majority of real estate owned was acquired through mortgage loan foreclosures. However, the Company also participates in several real estate joint ventures and limited partnerships. The joint ventures and partnerships invest primarily in income-producing retail properties. Portfolio Analysis The Company held net investments in mortgage loans totaling $176,130,000 and $181,878,000, or 6.1% and 6.3% of total invested assets, at March 31, 1998, and December 31, 1997, respectively. The loans are real estate mortgages, substantially all of which are related to commercial properties and developments and have fixed interest rates. The diversification of the mortgage loan portfolio by geographic regions of the United States and by property type as of March 31, 1998 and December 31, 1997, was as follows:
March 31, December 31, 1998 1997 West South Central 53.8% 54.9% South Atlantic 11.7 11.4 Mountain 11.6 11.3 Pacific 8.2 8.0 East South Central 5.3 5.2 East North Central 4.0 3.9 Other 5.4 5.3 Totals 100.0% 100.0% March 31, December 31, 1998 1997 Retail 61.5% 62.2% Office 17.0 16.6 Hotel/Motel 8.1 7.9 Apartment 4.2 4.1 Land/Lots 3.3 3.3 Nursing Homes 3.2 3.2 Other 2.7 2.7 Totals 100.0% 100.0%
As of March 31, 1998, allowance for possible losses on mortgage loans was $4,640,000. No additions were made to the allowance in the first quarter of 1998. Although management believes that the current balance is adequate, future additions to the allowance may be necessary based on changes in economic conditions, particularly in the West South Central region which includes Texas, Louisiana, Oklahoma, and Arkansas, as this area contains the highest concentrations of the Company's mortgage loans. The Company currently places all loans past due three months or more on nonaccrual status, thus recognizing no interest income on the loans. Also, the Company will at times restructure mortgage loans under certain conditions which may involve changes in interest rates, payment terms, or other modifications. For the three months ended March 31, 1998 and 1997, the reductions in interest income due to nonaccrual and restructured mortgage loans were not significant. The Company owns real estate that was acquired through foreclosure and through direct investment totaling approximately $14,904,000 and $15,027,000 at March 31, 1998, and December 31, 1997, respectively. This small concentration of properties represents less than one percent of the Company's entire investment portfolio. The real estate holdings consist primarily of income-producing properties which are being operated by the Company. The Company recognized operating gains on these properties of approximately $122,000 and $189,000 for the three months ended March 31, 1998 and 1997. The Company does not anticipate significant changes in these operating results in the near future. The Company monitors the conditions and market values of these properties on a regular basis. No significant realized losses were recognized due to declines in values of properties for the three months ended March 31, 1998 and 1997, respectively. The Company makes repairs and capital improvements to keep the properties in good condition and will continue this maintenance as needed. RESULTS OF OPERATIONS Summary of Consolidated Operations A summary of operating results for the three months ended March 31, 1998 and 1997 is provided below:
Three Months Ended March 31, 1998 1997 (In thousands except per share data) Revenues: Insurance revenues excluding realized gains (losses) on investments $ 79,483 75,772 Realized gains (losses) on investments 662 (2,856) Total revenues $ 80,145 72,916 Earnings: Earnings from insurance operations $ 9,940 8,608 Losses from discontinued brokerage operations - (1,000) Net realized gains (losses) on investments 430 (1,856) Net earnings $ 10,370 5,752 Basic Earnings Per Share: Earnings from insurance operations $ 2.85 2.47 Losses from discontinued brokerage operations - (0.29) Net realized gains (losses) on investments 0.12 (0.53) Net earnings $ 2.97 1.65 Diluted Earnings Per Share: Earnings from insurance operations $ 2.82 2.44 Losses from discontinued brokerage operations - (0.28) Net realized gains (losses) on investments 0.12 (0.52) Net earnings $ 2.94 1.64
Significant changes and fluctuations in income and expense items between the three months ended March 31, 1998 and 1997 are described in detail for insurance operations and discontinued brokerage operations as follows: Insurance Operations Insurance Operations Net Earnings: Earnings from insurance operations for the quarter ended March 31, 1998, were $9,940,000 compared to $8,608,000 for the first quarter of 1997. This reflects an increase of $1,332,000, or 15.5%, over 1997 first quarter earnings. National Western Life continues to record increases in universal life and annuity contract revenues and net investment income, which contributed to the higher earnings. Amortization of deferred policy acquisition costs, primarily capitalized agents' commissions, was also lower in 1998 versus 1997. However, life insurance benefit claims were higher in the first quarter of 1998, partially offsetting the positive impacts to earnings. Life and Annuity Premiums: This revenue category represents the premiums on traditional type products. However, sales in most of the Company's markets continue to consist of nontraditional types such as universal life and investment annuities. The Company's current plans are to continue to focus the majority of its product development and marketing efforts on universal life and investment annuities. As a result, as in past years no significant growth is anticipated for these premiums in the near future, and actual declines in this category are likely. Universal Life and Investment Annuity Contract Revenues: These revenues are from the Company's nontraditional products which are universal life and investment annuities. Revenues from these types of products consist of policy charges for the cost of insurance, surrender charges, policy administration fees, and other miscellaneous revenues. These revenues increased from $19,431,000 for the quarter ended March 31, 1997, to $20,300,000 for the same 1998 period. Increases in cost of insurance resulted in the majority of the increase in these contract revenues, as the Company's universal life insurance in force continues to grow. Although total life surrenders were down in the first quarter of 1998 compared to 1997, surrender charge revenues increased in 1998 due to higher surrenders of both single and two-tier annuities. Single- tier annuity surrenders and related revenues should continue to increase in relation to two-tier annuities, as sales of two-tier annuities were discontinued several years ago. Policy fees and other revenues consist primarily of policy administration fee charges on universal life products and recognition of deferred revenues relating to immediate annuities. Annuitizations result in transfers of policies from deferred to immediate or pay-out status. The deferred revenues related to the immediate annuities are amortized into income during the payout period. A comparative detail of the components of universal life and investment annuity contract revenues is provided below:
Three Months Ended March 31, 1998 1997 (In thousands) Surrender charges: Two-tier annuities $ 4,830 4,407 Universal life insurance 1,967 2,597 Single-tier annuities 1,491 922 Total surrender charges 8,288 7,926 Cost of insurance revenues 9,198 8,431 Policy fees and other revenues 2,814 3,074 Totals $ 20,300 19,431
Actual universal life and investment annuity deposits collected for the quarters ended March 31, 1998 and 1997, are detailed below. Deposits collected on these nontraditional products are not reflected as revenues in the Company's statements of earnings, as they are recorded directly to policyholder liabilities upon receipt, in accordance with generally accepted accounting principles.
Three Months Ended March 31, 1998 1997 (In thousands) Investment annuities: First year and single premiums $ 63,644 51,995 Renewal premiums 5,830 6,105 Total annuities 69,474 58,100 Universal life insurance: First year and single premiums 4,318 2,964 Renewal premiums 11,298 10,743 Total universal life insurance 15,616 13,707 Totals $ 85,090 71,807
Annuities sold include flexible premium deferred annuities, single premium deferred annuities, and single premium immediate annuities. These products can be tax qualified or nonqualified annuities. In recent years the majority of annuities sold have been nonqualified single premium deferred annuities. The Company also continues to collect additional premiums on existing two-tier annuities, as a large portion of the two-tier block of business were flexible premium annuities on which renewal premiums continue to be collected. Although annuity sales declined in 1996 and 1997 from previous levels, the Company experienced significant growth in annuity production once again in the first quarter of 1998. The growth is primarily attributable to the Company's new equity-indexed annuity. The Company has diversified its annuity products offered to customers by introducing an equity-indexed annuity in late 1997. This product is a flexible premium deferred annuity which combines the features associated with traditional fixed annuities, with the option to have interest rates that are linked in part to an equity index, the S&P 500 Composite Stock Price Index. This new annuity is a long-term contract designed as a planning vehicle for retirement security. Significant initial sales totaling $21,732,000 in the first quarter of 1998 indicate that this product is attractive to customers, as it has guaranteed minimum interest rates, coupled with the potential for significantly higher returns based on an equity index component. Also, because the Company does not offer variable products or mutual funds, this new product provides a key equity-based alternative to the Company's existing fixed annuity products. The Company has implemented an investment hedging program to offset the potential higher returns required to be paid on these products. Specifically, the Company purchases index options from highly rated banks and brokerage firms. These index options act as hedges to match closely the returns based on the S&P 500 Composite Stock Price Index which may be paid to policyholders. The majority of the Company's life insurance production is from the international market, primarily Central and South American countries. While the Company continues to see economic and competitive pressures in the Central and South American market, which has resulted in relatively flat insurance production over the past few years, first year universal life insurance premiums showed growth in the first quarter of 1998. The Company has been accepting policies from foreign nationals for over thirty years and has developed strong relationships with carefully selected brokers in the foreign countries. This experience and strong broker relations have enabled the Company to meet pressures with continued strong production and successful marketing efforts. Domestic life insurance sales increased even more significantly than international sales during the first quarter of 1998 versus the same period in 1997, as increased marketing efforts and additional personnel start to take effect. While international life insurance production remains consistent, the Company's goal is to increase sales in this market. To accomplish this goal, the Company has continued to modify its market, distribution, and product strategies. The Company's plans for international products include the development of two new equity-indexed investment products similar to the equity-indexed annuity developed for the domestic market. These new products, expected to be released in the second quarter of 1998, will be targeted primarily to specific South American countries for pension and retirement planning needs. The Company also plans to modify the current portfolio of international universal life products to better meet the needs in expanded market niches. For example, new life insurance products will be developed for large policy cases and with low minimum premiums specifically for business cases. Net Investment Income: Net investment income increased 5.7% from the first quarter of 1997, due primarily to corresponding increases in invested assets for the same period and due to other investment income from index options used to hedge the equity return component of the Company's equity-indexed annuity products. The increase in invested assets was primarily from debt securities. The Company experienced declines in investment income from mortgage loans which is consistent with decreases in mortgage loans as previously described. A detail of net investment income is provided below:
Three Months Ended March 31, 1998 1997 (In thousands) Investment income: Debt securities $ 47,336 45,666 Mortgage loans 4,488 4,666 Policy loans 2,425 2,342 Other investment income 1,877 509 Total investment income 56,126 53,183 Investment expenses 588 630 Net investment income $ 55,538 52,553
Other Income: Other income increased significantly from $68,000 in 1997 to $535,000 in 1998. The increase was due to proceeds received from the U.S. government in 1998 related to previous litigation involving a failed savings and loan institution. The litigation related to the Company's previous investment in bonds of the financial institution and subsequent losses incurred upon its failure. Realized Gains and Losses on Investments: The Company recorded realized gains of $662,000 in 1998 compared to realized losses of $2,856,000 in 1997. The gains in 1998 were primarily from debt securities that were called. The losses in 1997 were primarily from net losses on debt securities totaling $1.9 million. The Company also incurred losses totaling $1.1 million on mortgage loans relating to a foreclosure during the first quarter of 1997. Life and Other Policy Benefits: Expenses in 1998 and 1997 were $10.7 million and $9.7 million, respectively. The significant increase in expenses is due to higher life insurance benefit claims. Mortality claims experience fluctuates from period to period, and such deviations are not uncommon in the life insurance industry. Over extended periods of time, higher claims experience tends to be offset by periods of lower claims experience. Also, as the Company's insurance in force continues to grow, increases in life insurance claims are to be expected. However, the Company utilizes reinsurance to help minimize its exposure to adverse mortality experience. The Company's general policy is to reinsure amounts in excess of $200,000 on the life of any one individual. A comparative detail of life and other policy benefits is provided below:
Three Months Ended March 31, 1998 1997 (In thousands) Life insurance benefit claims $ 7,578 6,557 Surrenders of traditional products 2,642 2,638 Other policy benefits 454 504 Totals $ 10,674 9,699
Amortization of Deferred Policy Acquisition Costs: This expense item represents the amortization of the costs of acquiring or producing new business, which consists primarily of agents' commissions. The majority of such costs are amortized in direct relation to the anticipated future gross profits of the applicable blocks of business. Amortization is also impacted by the level and types of policy surrenders. Amortization for 1998 was $8,945,000 compared to $9,702,000 for 1997. The higher amortization in 1997 was impacted by changes in timing and levels of anticipated future gross profits for certain blocks of business. Universal Life and Investment Annuity Contract Interest: Interest expense was up from $37,720,000 in 1997 to $38,335,000 in 1998. Increases in annuity production, resulting in corresponding increases in policy liabilities, was the primary reason for the higher expenses. Also, much of the increase in annuity production in the first quarter of 1998 was from sales of equity- indexed annuities. The contract interest expense was higher on these products, than the Company's other annuities, due to the equity return component which is linked to the S&P 500 Composite Stock Price Index. As previously described, the Company implemented a hedging program to provide investment income to offset the higher returns that can be paid on these annuities. As a result of this hedging program, the increase in contract interest expense related to the equity return component was completely offset by additional net investment income recognized from the Company's investments in index options during the first quarter of 1998. Other Insurance Operating Expenses: These expenses totaled $7,241,000 and $6,927,000 for the quarters ended March 31, 1998 and 1997, respectively. Included in 1998 expenses is a $200,000 lawsuit settlement payment by National Western Life to San Patricio County. The lawsuit arose from derivative investments purchased by San Patricio County from affiliates of The Westcap Corporation, as more fully described in Part II, Item 1, Legal Proceedings. As part of the settlement, National Western Life received a general release of all claims asserted with no admission of liability. Federal Income Taxes: Federal income taxes for 1998 reflect an effective tax rate of 35% which is the current federal rate. However, the 1997 taxes reflect a significantly lower effective tax rate of 30%. Federal income taxes for the three months ended March 31, 1997, include a tax benefit of $350,000 resulting from the Company's subsidiary brokerage operations losses. This tax benefit was reflected in earnings from continuing operations in accordance with the Company's tax allocation agreement with its subsidiaries. Discontinued Brokerage Operations As more fully described in note 3 to the accompanying financial statements, National Western Life's brokerage subsidiary, The Westcap Corporation, is currently in reorganization bankruptcy. No earnings or losses were reported for discontinued operations for the first quarter of 1998. However, a $1,000,000 cash infusion was made by the Company to Westcap on March 18, 1997, for operational expenses incurred during its bankruptcy. This contribution was reflected as losses from discontinued operations in the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES Liquidity The liquidity requirements of the Company are met primarily by funds provided from operations. Premium deposits and revenues, investment income, and investment maturities are the primary sources of funds, while investment purchases and policy benefits are the primary uses of funds. Primary sources of liquidity to meet cash needs are the Company's securities available for sale portfolio, net cash provided by operations, and a bank line of credit. The Company's investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. The Company may also borrow up to $60 million on its bank line of credit for short-term cash needs. A primary liquidity concern for the Company's life insurance operations is the risk of early policyholder withdrawals. Consequently, the Company closely evaluates and manages the risk of early surrenders or withdrawals. The Company includes provisions within annuity and universal life insurance policies, such as surrender charges, that help limit early withdrawals. The Company also prepares cash flow projections and performs cash flow tests under various market interest rate scenarios to assist in evaluating liquidity needs and adequacy. The Company currently expects available liquidity sources and future cash flows to be adequate to meet the demand for funds. In the past, cash flows from the Company's insurance operations have been more than adequate to meet current needs. Cash flows from operating activities were $41.7 million and $43.2 million for the three months ended March 31, 1998 and 1997, respectively. Net cash flows from the Company's deposit product operations, which includes universal life and investment annuity products, reflected net cash outflows in the first quarters of 1998 and 1997 totaling $11.4 million and $10.9 million, respectively. The net cash outflows from the deposit product operations were due primarily to higher policy surrenders, offset significantly by higher annuity production from the Company's new equity-indexed annuity product. The Company also has significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows totaled $45.5 million and $46.4 million for the quarters ended March 31, 1998 and 1997, respectively. The Company again expects significant cash flows from these sources throughout the remainder of 1998. Capital Resources The Company relies on stockholders' equity for its capital resources, as there has been no long-term debt outstanding in 1998 or recent years. The Company does not anticipate the need for any long-term debt in the near future. There are also no current or anticipated material commitments for capital expenditures in 1998. Stockholders' equity totaled $410.6 million at March 31, 1998, reflecting an increase of $9.8 million from December 31, 1997. The increase in capital is primarily from net earnings of $10.4 million and a small foreign currency translation adjustment, offset by a decline in net unrealized gains on investment securities totaling $669,000 during the first quarter of 1998. Book value per share at March 31, 1998, was $117.60. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Litigation On July 5, 1995, San Patricio County, Texas, filed suit in the District Court of San Patricio County, Texas, against National Western Life Insurance Company (the Company) and its chief executive officer, Robert L. Moody. The suit arose from derivative investments purchased by San Patricio County from Westcap Securities, L.P. or Westcap Government Securities, Inc., affiliates of The Westcap Corporation. The suit alleged that the Westcap affiliates were controlled by the Company and Mr. Moody and that they were responsible for the alleged wrongful acts of the Westcap affiliates in selling the securities to the Plaintiff. Plaintiff alleged that the Westcap affiliates violated duties and responsibilities owed to the Plaintiff related to the investment recommendations and decisions made by Plaintiff, and alleged that the Plaintiff was financially damaged by such actions of Westcap. The suit was settled effective March 9, 1998, with a payment of $200,000 by National Western Life to San Patricio County and with no admission of liability. In exchange for the payment, National Western Life and Robert L. Moody received a general release of all claims asserted, including all claims that have been asserted against Westcap Securities, L.P. or could have been asserted in another court against Westcap Securities, L.P., and the lawsuit was dismissed. The Westcap Corporation Bankruptcy Proceedings The Westcap Corporation, which is currently in Chapter 11 bankruptcy, the Creditors' Committee, and National Western Life filed documents with the bankruptcy court on April 30, 1998, that could lead to the settlement of all claims of the creditors of Westcap and the claims of Westcap against National Western Life, with the exception of the claims of Chicago City Colleges against National Western Life. The next step in the settlement process is the approval of such agreements by the Westcap creditors, Westcap and National Western Life, and the bankruptcy court. This process is anticipated to take several months. If the plan is ultimately approved and confirmed, National Western Life's obligations could total approximately $15 million for complete releases from all claims, except for the pending claims asserted by Chicago City Colleges against National Western Life in federal court litigation. It remains uncertain at this time whether the settlement will be approved by all the parties, including the bankruptcy court. Accordingly, no amounts have been accrued in the Company's financial statements for potential settlements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 11 - Computation of Earnings Per Share (filed on page __ of this report). Exhibit 27 - Financial Data Schedule (filed electronically pursuant to Regulation S-K). (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1998. SIGNATURES Pursuant to the requirements 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. National Western Life Insurance Company (Registrant) Date: May 13, 1998 /S/ Ross R. Moody Ross R. Moody President, Chief Operating Officer, and Director (Authorized Officer) Date: May 13, 1998 /S/ Robert L. Busby, III Robert L. Busby, III Senior Vice President - Chief Administrative Officer, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: May 13, 1998 /S/ Vincent L. Kasch Vincent L. Kasch Vice President - Controller and Assistant Treasurer (Principal Accounting Officer) EX-11 2 EXHIBIT 11 NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE For the Three Months Ended March 31, 1998 and 1997 (Unaudited) (In Thousands Except Per Share Data)
1998 1997 Numerator for basic and diluted earnings per share: Earnings available to common stockholders before and after assumed conversions: Earnings from continuing operations $ 10,370 6,752 Losses from discontinued operations - (1,000) Net earnings $ 10,370 5,752 Denominator: Basic earnings per share - weighted-average shares 3,492 3,491 Effect of dilutive stock options 33 27 Diluted earnings per share - adjusted weighted-average shares for assumed conversions 3,525 3,518 Basic earnings per share: Earnings from continuing operations $ 2.97 1.94 Losses from discontinued operations - (0.29) Net earnings $ 2.97 1.65 Diluted earnings per share: Earnings from continuing operations $ 2.94 1.92 Losses from discontinued operations - (0.28) Net earnings $ 2.94 1.64
EX-27 3
7 This schedule contains summary financial information extracted from the National Western Life Insurance Company and subsidiaries consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 658,620 1,896,056 1,970,156 14,954 176,130 14,904 2,909,724 2,496 5,821 293,265 3,259,915 2,766,840 0 15,155 9,389 2,628 0 0 3,492 407,130 3,259,915 23,410 55,538 662 535 48,052 8,945 7,241 15,907 5,537 10,370 0 0 0 10,370 2.97 2.94 0 0 0 0 0 0 0 Consists of $3,110 revenues from traditional contracts subject to FAS 60 accounting treatment and $20,300 revenues from universal life and investment annuity contracts subject to FAS 97 accounting treatment. Consists of $10,674 benefits paid to policyholders, $(957) decrease in reserves on traditional contracts and $38,335 interest on universal life and investment annuity contracts.
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