10-Q


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 September 30, 2015
o        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: 000-55522
 
 
NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY)
(Exact name of Registrant as specified in its charter)
 
 
 
 
 
 
DELAWARE
47-3339380
(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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). : Yes x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated file" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o     Accelerated filer  x   Non-accelerated filer  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No x
As of November 5, 2015, the number of shares of Registrant's common stock outstanding was: Class A – 3,436,166 and  Class B - 200,000.



NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY)

TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
September 30, 2015 (Unaudited) and December 31, 2014
 
 
For the Three Months Ended September 30, 2015 and 2014 (Unaudited)
 
 
For the Nine Months Ended September 30, 2015 and 2014 (Unaudited)
 
 
For the Three Months Ended September 30, 2015 and 2014 (Unaudited)
 
 
For the Nine Months Ended September 30, 2015 and 2014 (Unaudited)
 
 
For the Nine Months Ended September 30, 2015 and 2014 (Unaudited)
 
 
For the Nine Months Ended September 30, 2015 and 2014 (Unaudited)
 
 
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

 
(Unaudited)
 
 
ASSETS
September 30,
2015
 
December 31,
2014
 
 
 
 
Investments:
 
 
 
Securities held to maturity, at amortized cost (fair value: $7,466,665 and $7,175,443)
$
7,190,780

 
6,841,543

Securities available for sale, at fair value (cost: $2,783,145 and $2,590,074)
2,859,953

 
2,728,680

Mortgage loans, net of allowance for possible losses ($650 and $650)
88,061

 
149,503

Policy loans
61,611

 
63,645

Derivatives, index options
25,226

 
114,287

Other long-term investments
27,634

 
28,774

 
 
 
 
Total investments
10,253,265

 
9,926,432

 
 
 
 
Cash and cash equivalents
86,357

 
277,078

Deferred policy acquisition costs
835,446

 
802,919

Deferred sales inducements
156,670

 
159,766

Accrued investment income
100,719

 
96,127

Federal income tax receivable
19,367

 
—

Other assets
94,321

 
89,570

 
 
 
 
Total assets
$
11,546,145

 
11,351,892


See accompanying notes to condensed consolidated financial statements (unaudited).

3
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
September 30,
2015
 
December 31,
2014
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
9,504,202

 
9,384,297

Traditional life reserves
137,726

 
138,225

Other policyholder liabilities
146,603

 
139,222

Deferred Federal income tax liability
51,364

 
31,675

Federal income tax payable
—

 
3,336

Other liabilities
105,485

 
98,817

 
 
 
 
Total liabilities
9,945,380

 
9,795,572

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $1 par value; 7,500,000 shares authorized; 3,436,166 issued and outstanding in 2015 and 2014
3,436

 
3,436

Class B - $1 par value; 200,000 shares authorized, issued, and outstanding in 2015 and 2014
200

 
200

Additional paid-in capital
38,116

 
38,116

Accumulated other comprehensive income
19,826

 
41,786

Retained earnings
1,539,187

 
1,472,782

 
 
 
 
Total stockholders’ equity
1,600,765

 
1,556,320

 
 
 
 
Total liabilities and stockholders' equity
$
11,546,145

 
11,351,892


Note:  The Condensed Consolidated Balance Sheet at December 31, 2014 has been derived from the audited Consolidated Financial Statements as of that date.

See accompanying notes to condensed consolidated financial statements (unaudited).


4
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended September 30, 2015 and 2014
(Unaudited)
(In thousands, except per share amounts)
 
2015
 
2014
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
39,175

 
36,602

Traditional life premiums
4,840

 
4,506

Net investment income
56,209

 
110,966

Other revenues
5,067

 
5,377

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
284

 
—

Portion of OTTI (gains) losses recognized in other comprehensive income
(284
)
 
—

Net OTTI losses recognized in earnings
—

 
—

Other net investment gains (losses)
813

 
2,169

Total net realized investment gains (losses)
813

 
2,169

 
 
 
 
Total revenues
106,104

 
159,620

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
14,181

 
13,163

Amortization of deferred policy acquisition costs
32,058

 
23,467

Universal life and annuity contract interest
16,259

 
59,211

Other operating expenses
18,482

 
20,451

 
 
 
 
Total benefits and expenses
80,980

 
116,292

 
 
 
 
Earnings before Federal income taxes
25,124

 
43,328

 
 
 
 
Federal income taxes
8,903

 
14,862

 
 
 
 
Net earnings
$
16,221

 
28,466

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
4.59

 
$
8.05

Class B
$
2.29

 
$
4.03

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
4.59

 
$
8.05

Class B
$
2.29

 
$
4.03


See accompanying notes to condensed consolidated financial statements (unaudited).


5
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited)
(In thousands, except per share amounts)
 
2015
 
2014
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
114,833

 
112,824

Traditional life premiums
14,349

 
13,946

Net investment income
258,391

 
374,596

Other revenues
15,590

 
16,351

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
442

 
(32
)
Portion of OTTI (gains) losses recognized in other comprehensive income
(549
)
 
(3
)
Net OTTI losses recognized in earnings
(107
)
 
(35
)
Other net investment gains (losses)
6,156

 
6,782

Total net realized investment gains (losses)
6,049

 
6,747

 
 
 
 
Total revenues
409,212

 
524,464

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
49,567

 
40,922

Amortization of deferred policy acquisition costs
87,780

 
79,304

Universal life and annuity contract interest
114,729

 
224,576

Other operating expenses
57,794

 
63,414

 
 
 
 
Total benefits and expenses
309,870

 
408,216

 
 
 
 
Earnings before Federal income taxes
99,342

 
116,248

 
 
 
 
Federal income taxes
32,937

 
38,773

 
 
 
 
Net earnings
$
66,405

 
77,475

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
18.78

 
$
21.92

Class B
$
9.39

 
$
10.95

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
18.77

 
$
21.91

Class B
$
9.39

 
$
10.95

 
 
 
 

See accompanying notes to condensed consolidated financial statements (unaudited).


6
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended September 30, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Net earnings
$
16,221

 
28,466

 
 
 
 
Other comprehensive income (loss), net of effects of deferred costs and taxes:
 

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains (losses) arising during period
(7,334
)
 
(7,793
)
Net unrealized liquidity gains (losses)
95

 
(23
)
Reclassification adjustment for net amounts included in net earnings
(96
)
 
(958
)
 
 
 
 
Net unrealized gains (losses) on securities
(7,335
)
 
(8,774
)
 
 
 
 
Foreign currency translation adjustments
54

 
(3
)
 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
(303
)
 
(176
)
 
 
 
 
Other comprehensive income (loss)
(7,584
)
 
(8,953
)
 
 
 
 
Comprehensive income (loss)
$
8,637

 
19,513


See accompanying notes to condensed consolidated financial statements (unaudited).


7
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Net earnings
$
66,405

 
77,475

 
 
 
 
Other comprehensive income, net of effects of deferred costs and taxes:
 

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains (losses) arising during period
(19,164
)
 
14,101

Net unrealized liquidity gains (losses)
188

 
28

Reclassification adjustment for net amounts included in net earnings
(2,116
)
 
(3,329
)
 
 
 
 
Net unrealized gains (losses) on securities
(21,092
)
 
10,800

 
 
 
 
Foreign currency translation adjustments
42

 
(636
)
 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
(910
)
 
(527
)
 
 
 
 
Other comprehensive income (loss)
(21,960
)
 
9,637

 
 
 
 
Comprehensive income (loss)
$
44,445

 
87,112

 
 
 
 

See accompanying notes to condensed consolidated financial statements (unaudited).


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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
3,636

 
3,635

Shares exercised under stock option plan
—

 
1

 
 
 
 
       Balance at end of period
3,636

 
3,636

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
38,116

 
37,767

Shares exercised under stock option plan
—

 
349

 
 
 
 
       Balance at end of period
38,116

 
38,116

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains on non-impaired securities:
 

 
 

Balance at beginning of period
54,229

 
46,693

Change in unrealized gains (losses) during period, net of tax
(21,280
)
 
10,772

 
 
 
 
   Balance at end of period
32,949

 
57,465

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(1,262
)
 
(1,287
)
Amortization
357

 
80

Other-than-temporary impairments, non-credit, net of tax
—

 
—

Additional credit loss on previously impaired securities
—

 
—

Change in shadow deferred policy acquisition costs
(169
)
 
(53
)
 
 
 
 
   Balance at end of period
(1,074
)
 
(1,260
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(1
)
 
(2
)
Other-than-temporary impairments, non-credit, net of tax
—

 
—

Change in shadow deferred policy acquisition costs
—

 
(1
)
Recoveries, net of tax
—

 
2

 
 
 
 
  Balance at end of period
(1
)
 
(1
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 

9
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(continued)
For the Nine Months Ended September30, 2015 and 2014
(Unaudited)
(In thousands)
 
 
 
 
 
2015
 
2014
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
2,685

 
3,241

Change in translation adjustments during period
42

 
(636
)
 
 
 
 
  Balance at end of period
2,727

 
2,605

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(13,865
)
 
(10,565
)
Amortization of net prior service cost and net loss, net of tax
(910
)
 
(527
)
 
 
 
 
  Balance at end of period
(14,775
)
 
(11,092
)
 
 
 
 
Accumulated other comprehensive income at end of period
19,826

 
47,717

 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,472,782

 
1,368,466

   Net earnings
66,405

 
77,475

   Stockholder dividends
—

 
(1,272
)
 
 
 
 
   Balance at end of period
1,539,187

 
1,444,669

 
 
 
 
Total stockholders' equity
$
1,600,765

 
$
1,534,138


See accompanying notes to condensed consolidated financial statements (unaudited).



10
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
66,405

 
77,475

Adjustments to reconcile net earnings to net cash from operating activities:
 

 
 

Universal life and annuity contract interest
114,729

 
224,576

Surrender charges and other policy revenues
(13,302
)
 
(9,531
)
Realized (gains) losses on investments
(6,049
)
 
(7,225
)
Accretion/amortization of discounts and premiums, investments
9

 
(831
)
Depreciation and amortization
2,317

 
2,522

(Increase) decrease in value of derivatives
69,884

 
(49,278
)
(Increase) decrease in deferred policy acquisition and sales inducement costs
(632
)
 
(16,197
)
(Increase) decrease in accrued investment income
(4,592
)
 
(4,889
)
(Increase) decrease in other assets
(6,578
)
 
28

Increase (decrease) in liabilities for future policy benefits
6,887

 
3,956

Increase (decrease) in other policyholder liabilities
7,382

 
(412
)
Increase (decrease) in Federal income taxes liability
(22,703
)
 
(15,717
)
Increase (decrease) in deferred Federal income tax
31,047

 
23,408

Increase (decrease) in other liabilities
2,452

 
1,848

Other, net
—

 
1

 
 
 
 
Net cash provided by operating activities
247,256

 
229,734

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Securities held to maturity
—

 
—

Securities available for sale
14,011

 
19,511

Other investments
2,182

 
3,247

Proceeds from maturities and redemptions of:
 

 
 

Securities held to maturity
343,494

 
591,536

Securities available for sale
219,676

 
213,260

Derivatives, index options
83,835

 
164,059

Purchases of:
 

 
 

Securities held to maturity
(684,725
)
 
(933,997
)
Securities available for sale
(423,672
)
 
(275,751
)
Derivatives, index options
(66,395
)
 
(53,174
)
Other investments
(1,340
)
 
(376
)
Net change in short-term investments
—

 


 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 

11
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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited)
(In thousands)
 
2015
 
2014
 
 
 
 
Principal payments on mortgage loans
66,830

 
14,112

Cost of mortgage loans acquired
(5,040
)
 
(33,985
)
Decrease (increase) in policy loans
2,034

 
2,223

Other, net
—

 
(1
)
 
 
 
 
Net cash used in investing activities
(449,110
)
 
(289,336
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
679,128

 
715,705

Return of account balances on universal life and annuity contracts
(668,037
)
 
(655,195
)
Issuance of common stock under stock option plan
—

 
350

 
 
 
 
Net cash provided by (used in) financing activities
11,091

 
60,860

 
 
 
 
Effect of foreign exchange
42

 
(635
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(190,721
)
 
623

Cash and cash equivalents at beginning of period
277,078

 
120,859

 
 
 
 
Cash and cash equivalents at end of period
$
86,357

 
$
121,482

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid during the period for:
 

 
 

Interest
$
30

 
30

Income taxes
$
24,127

 
30,515

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
(9,171
)
 
(6,066
)

See accompanying notes to condensed consolidated financial statements (unaudited).



12
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(1)
 CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of National Western Life Insurance Company and its subsidiaries (“Company”, "NWLIC", or "National Western") as of September 30, 2015, and the results of its operations and its cash flows for the three and nine months ended September 30, 2015 and 2014. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year. It is recommended that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 and are accessible free of charge through the Company's internet site at www.nationalwesternlife.com or the Securities and Exchange Commission internet site at www.sec.gov. The condensed consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements as of that date.

The accompanying unaudited condensed consolidated financial statements include the accounts of National Western Life Insurance Company and its wholly owned subsidiaries: The Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., NWL Financial, Inc., NWLSM, Inc. and Regent Care San Marcos Holdings, LLC. All significant intercorporate transactions and accounts have been eliminated in consolidation.

On October 1, 2015, National Western completed its previously announced holding company reorganization pursuant to the Agreement and Plan of Merger, dated April 6, 2015, which was approved by the shareholders of National Western at its Annual Meeting of Shareholders held on June 19, 2015. As a result of the reorganization, National Western became a wholly owned subsidiary of National Western Life Group, Inc. ("NWLGI"), a Delaware Corporation, and NWLGI replaced National Western as the publicly held company. Consequently, all filings with the Securities and Exchange Corporation ("SEC") from October 2, 2015 and forward will be filed by NWLGI under CIK No. 0001635984. For purposes of filing this Form 10-Q for the three and nine months ended September 30, 2015, the accompanying unaudited condensed consolidated financial statements and notes thereto have been titled "National Western Life Group, Inc." to reflect the current name of the public registrant with the parenthetical notation "formerly National Western Life Insurance Company and Subsidiaries" to reflect the reporting entity for the periods covered herein.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying condensed consolidated financial statements include (1) liabilities for future policy benefits, (2) valuation of derivative instruments, (3) recoverability and amortization of deferred policy acquisition costs, (4) valuation allowances for deferred tax assets, (5) other-than-temporary impairment losses on debt securities, (6) commitments and contingencies, and (7) valuation allowances for mortgage loans and real estate.


13
Table of Contents

The table below shows the unrealized gains and losses on available-for-sale securities that were reclassified out of accumulated other comprehensive income three and nine months ended September 30, 2015 and 2014.

Affected Line Item in the
Statements of Earnings
 
Amount Reclassified From Accumulated Other Comprehensive Income
 
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other net investment gains (losses)
 
$
147

 
1,474

 
3,362

 
5,156

Net OTTI losses recognized in earnings
 
—

 
—

 
(107
)
 
(35
)
Earnings before Federal income taxes
 
147

 
1,474

 
3,255

 
5,121

Federal income taxes
 
51

 
516

 
1,139

 
1,792

 
 
 
 
 
 
 
 
 
Net earnings
 
$
96

 
958

 
2,116

 
3,329



(2)
 NEW ACCOUNTING PRONOUNCEMENTS

In July 2013, the FASB issued guidance to amend the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as reduction to deferred tax assets for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This guidance is effective for annual reporting periods beginning on or after December 15, 2013 and interim periods within those annual periods. The Company adopted this guidance as of January 1, 2014 and the adoption did not have an effect on the deferred tax asset or liability classification on the Company's balance sheet and did not result in any additional disclosures to the financial statements.

In June 2014, the FASB issued guidance that applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. It requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and follows existing accounting guidance for the treatment of performance conditions. The standard will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company’s current employee share-based plans do not require performance targets and the adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants ("AICPA"), and the SEC are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.


(3)
 STOCKHOLDERS' EQUITY

NWLIC is restricted by state insurance laws as to dividend amounts which may be paid to stockholders without prior approval from the Colorado Division of Insurance.  The restrictions are based on the greater of statutory earnings from operations excluding capital gains or 10% of statutory surplus of the Company.  The maximum dividend payment which may be made without prior approval in 2015 is $118.2 million. The Company did not declare or pay cash dividends on its common stocks during the nine months ended September 30, 2015. In the third quarter of 2014, the Board of Directors of NWLIC did declare a dividend of $0.36 per common share to Class A stockholders and $0.18 per common share to Class B stockholders which was paid in December of 2014.


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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

As discussed in Note 1 Consolidation and Basis of Presentation, on October 1, 2015, NWLIC completed its previously announced holding company reorganization and became a wholly owned subsidiary of NWLGI. While remaining under the same Colorado Division of Insurance restrictions pertaining to dividend amounts, dividends declared by NWLIC from that date forward will be payable entirely to NWLGI as the sole owner of NWLIC. On October 2, 2015, the Board of Directors of NWLIC declared a $3.5 million dividend payable October 16, 2015 which was subsequently paid to NWLGI.

The reorganization effective October 1, 2015 provided for the conversion of each share of Class A common stock, par value $1.00 per share, and each share of Class B common stock, par value $1.00 per share, of NWLIC issued and outstanding immediately prior to the effective time of the merger, into one duly issued, fully paid and non-assessable share of Class A common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, of NWLGI. Consequently, NWLGI replaced NWLIC as the publicly held company and is the successor issuer to NWLIC. On October 16, 2015, the Board of Directors of NWLGI declared a cash dividend payable December 3, 2015 to stockholders on record as of October 30, 2015. The dividends declared were $0.36 per common share to NWLGI Class A stockholders and $0.18 per common share to NWLGI Class B stockholders.






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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(4)
 EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income by the weighted-average basic common shares outstanding during the period. Diluted earnings per share assumes the issuance of common shares applicable to stock options in the denominator.
 
Three Months Ended September 30,
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
16,221

 
 
 
28,466

 
 
Dividends - Class A shares
—

 
 
 
(1,236
)
 
 
Dividends - Class B shares
—

 
 
 
(36
)
 
 
 
 
 
 
 
 
 
 
Undistributed income
$
16,221

 
 
 
27,194

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
1,236

 
36

Allocation of undistributed income
15,763

 
458

 
26,425

 
769

 
 
 
 
 
 
 
 
Net income
$
15,763

 
458

 
27,661

 
805

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Basic earnings per share - weighted-average shares
3,436

 
200

 
3,436

 
200

Effect of dilutive stock options
1

 
—

 
2

 
—

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,437

 
200

 
3,438

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
4.59

 
2.29

 
8.05

 
4.03

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
4.59

 
2.29

 
8.05

 
4.03


Stock options that were outstanding during the three months ended September 30, 2015 and 2014, but were not included in the computation of diluted earnings per share because the effect was anti-dilutive, were approximately 20,800 and 22,200, respectively.

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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Nine Months Ended September 30,
 
2015
 
2014
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
66,405

 
 
 
77,475

 
 
Dividends - Class A shares
—

 
 
 
(1,236
)
 
 
Dividends - Class B shares
—

 
 
 
(36
)
 
 
 
 
 
 
 
 
 
 
Undistributed income
$
66,405

 
 
 
76,203

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
1,236

 
36

Allocation of undistributed income
64,527

 
1,878

 
74,048

 
2,155

 
 
 
 
 
 
 
 
Net income
$
64,527

 
1,878

 
75,284

 
2,191

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Basic earnings per share - weighted-average shares
3,436

 
200

 
3,435

 
200

Effect of dilutive stock options
1

 
—

 
2

 
—

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,437

 
200

 
3,437

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
18.78

 
9.39

 
21.92

 
10.95

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
18.77

 
9.39

 
21.91

 
10.95


Stock options that were outstanding during the nine months ended September 30, 2015 and 2014, but were not included in the computation of diluted earnings per share because the effect was anti-dilutive were approximately 21,100 and 22,300, respectively.


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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(5)
 PENSION AND OTHER POSTRETIREMENT PLANS

(A)
Defined Benefit Pension Plans

The Company sponsors a qualified defined benefit pension plan covering employees enrolled prior to 2008. The plan provides benefits based on the participants' years of service and compensation. The Company makes annual contributions to the plan that complies with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On October 19, 2007, the Company's Board of Directors approved an amendment to freeze the Pension Plan as of December 31, 2007. The freeze ceased future benefit accruals to all participants and closed the plan to any new participants. In addition, all participants became immediately 100% vested in their accrued benefits as of that date. Fair values of plan assets and liabilities are measured as of the prior December 31 for each respective year. The following table summarizes the components of net periodic benefit cost.

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
 
 
 
 
 
 
 
 
Service cost
$
51

 
42

 
153

 
126

Interest cost
246

 
239

 
738

 
718

Expected return on plan assets
(330
)
 
(320
)
 
(991
)
 
(959
)
Amortization of prior service cost
1

 
1

 
3

 
3

Amortization of net loss
196

 
106

 
588

 
317

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
164

 
68

 
491

 
205


The service costs shown in the above table represent plan expenses expected to be paid out of plan assets. Under clarification provided by the Pension Protection Act, plan expenses paid from plan assets are to be included in the plan's service cost component.

The Company's minimum required contribution for the 2015 plan year is $0.0 million. The Company had no remaining contribution payable for the 2014 plan year as of September 30, 2015. As of September 30, 2015, the Company had contributed a total of $0.0 million to the plan for the 2015 and 2014 plan years.

The Company also sponsors a nonqualified defined benefit plan primarily for senior officers. The plan provides benefits based on the participants' years of service and compensation. The pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Insurance Company ("ANICO"). ANICO has guaranteed the payment of pension obligations under the plan. However, the Company has a contingent liability with respect to the plan should these entities be unable to meet their obligations under the existing agreements. Also, the Company has a contingent liability with respect to the plan in the event that a plan participant continues employment with the Company beyond age seventy, the aggregate average annual participant salary increases exceed 10% per year, or any additional employees become eligible to participate in the plan. If any of these conditions are met, the Company would be responsible for any additional pension obligations resulting from these items. Amendments were made to the plan to allow an additional employee to participate and to change the benefit formula for the Chairman of the Company. As previously mentioned, these additional obligations are a liability to the Company. Effective December 31, 2004, this plan was frozen with respect to the continued accrual of benefits of the Chairman and the President of the Company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Effective July 1, 2005, the Company established a second nonqualified defined benefit plan for the benefit of the Chairman and the President of the Company. This plan is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed nonqualified defined benefit plan, while complying with the requirements of the Act.


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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table summarizes the components of net periodic benefit costs for the Chairman and President's nonqualified defined benefit plans.

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
 
 
 
 
 
 
 
 
Service cost
$
64

 
74

 
192

 
222

Interest cost
219

 
250

 
657

 
752

Amortization of prior service cost
14

 
15

 
44

 
44

Amortization of net loss
379

 
323

 
1,136

 
970

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
676

 
662

 
2,029

 
1,988


The Company expects to contribute $2.0 million to these plans in 2015.  As of September 30, 2015, the Company has contributed $1.3 million to the plans.

(B)
Defined Benefit Postretirement Healthcare Plans

The Company sponsors two healthcare plans to provide postretirement benefits to certain fully-vested individuals.  The following table summarizes the components of net periodic benefit costs.

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
 
 
 
 
 
 
 
 
Interest cost
$
33

 
28

 
98

 
83

Amortization of prior service cost
25

 
26

 
77

 
78

Amortization of net loss
15

 
(1
)
 
45

 
(3
)
 
 
 
 
 
 
 
 
Net periodic benefit cost
$
73

 
53

 
220

 
158


The Company expects to contribute minimal amounts to the plan in 2015.



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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(6)
SEGMENT AND OTHER OPERATING INFORMATION

The Company defines its reportable operating segments as domestic life insurance, international life insurance, and annuities. These segments are organized based on product types and geographic marketing areas.  A summary of segment information for the quarters ended September 30, 2015 and September 30, 2014 is provided below.

Selected Segment Information:
 
 
 
 
 
 
 
 
 
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheet Items:
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
73,746

 
252,632

 
665,738

 
—

 
992,116

Total segment assets
831,407

 
1,260,628

 
8,999,978

 
262,310

 
11,354,323

Future policy benefits
720,998

 
944,618

 
7,976,312

 
—

 
9,641,928

Other policyholder liabilities
11,437

 
17,835

 
117,331

 
—

 
146,603

 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
 
 
 
 
 
 

September 30, 2015
 
 
 
 
 
 
 
 
 

Condensed Consolidated Income Statements:
 
 
 
 
 
 
 
 
 

Premiums and contract revenues
$
8,259

 
29,773

 
5,983

 
—

 
44,015

Net investment income
2,095

 
448

 
49,518

 
4,148

 
56,209

Other revenues
3

 
5

 
12

 
5,047

 
5,067

 
 
 
 
 
 
 
 
 
 
Total revenues
10,357

 
30,226

 
55,513

 
9,195

 
105,291

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
3,545

 
5,002

 
5,634

 
—

 
14,181

Amortization of deferred acquisition costs
1,594

 
6,834

 
23,630

 
—

 
32,058

Universal life and annuity contract interest
14

 
(854
)
 
17,099

 
—

 
16,259

Other operating expenses
2,397

 
3,929

 
7,254

 
4,902

 
18,482

Federal income taxes (benefit)
911

 
5,363

 
825

 
1,520

 
8,619

 
 
 
 
 
 
 
 
 
 
Total expenses
8,461

 
20,274

 
54,442

 
6,422

 
89,599

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
1,896

 
9,952

 
1,071

 
2,773

 
15,692


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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended
 
 
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
 
 
 
Condensed Consolidated Income Statements:
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
22,683

 
89,470

 
17,029

 
—

 
129,182

Net investment income
17,265

 
17,847

 
208,263

 
15,016

 
258,391

Other revenues
23

 
66

 
31

 
15,470

 
15,590

 
 
 
 
 
 
 
 
 
 
Total revenues
39,971

 
107,383

 
225,323

 
30,486

 
403,163

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
12,540

 
16,794

 
20,233

 
—

 
49,567

Amortization of deferred acquisition costs
6,473

 
11,347

 
69,960

 
—

 
87,780

Universal life and annuity contract interest
10,413

 
13,203

 
91,113

 
—

 
114,729

Other operating expenses
9,554

 
15,063

 
18,866

 
14,311

 
57,794

Federal income taxes (benefit)
327

 
16,840

 
8,309

 
5,344

 
30,820

 
 
 
 
 
 
 
 
 
 
Total expenses
39,307

 
73,247

 
208,481

 
19,655

 
340,690

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
664

 
34,136

 
16,842

 
10,831

 
62,473

 
 
 
 
 
 
 
 
 
 

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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Selected Segment Information:
 
 
 
 
 
 
 
 
 
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheet Items:
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
61,087

 
242,124

 
652,855

 
—

 
956,066

Total segment assets
705,156

 
1,223,571

 
8,871,276

 
251,905

 
11,051,908

Future policy benefits
611,550

 
944,505

 
7,848,590

 
—

 
9,404,645

Other policyholder liabilities
12,742

 
12,226

 
117,207

 
—

 
142,175

 
 
 
 
 
 
 
 
 
 
Three Months Ended
 

 
 

 
 

 
 

 
 

September 30, 2014
 

 
 

 
 

 
 

 
 

Condensed Consolidated Income Statements:
 

 
 

 
 

 
 

 
 

Premiums and contract revenues
$
6,847

 
29,135

 
5,126

 
—

 
41,108

Net investment income
6,859

 
8,273

 
90,835

 
4,999

 
110,966

Other revenues
19

 
20

 
23

 
5,315

 
5,377

 
 
 
 
 
 
 
 
 
 
Total revenues
13,725

 
37,428

 
95,984

 
10,314

 
157,451

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
3,353

 
9,672

 
138

 
—

 
13,163

Amortization of deferred acquisition costs
1,166

 
2,525

 
19,776

 
—

 
23,467

Universal life and annuity contract interest
5,803

 
6,956

 
46,452

 
—

 
59,211

Other operating expenses
2,314

 
6,307

 
7,045

 
4,785

 
20,451

Federal income taxes (benefit)
379

 
4,143

 
7,681

 
1,899

 
14,102

 
 
 
 
 
 
 
 
 
 
Total expenses
13,015

 
29,603

 
81,092

 
6,684

 
130,394

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
710

 
7,825

 
14,892

 
3,630

 
27,057



22
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended
 
 
 
 
 
 
 
 
 
September 30, 2014
 
 
 
 
 
 
 
 
 
Condensed Consolidated Income Statements:
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
22,077

 
87,906

 
16,787

 
—

 
126,770

Net investment income
24,044

 
35,902

 
300,118

 
14,532

 
374,596

Other revenues
40

 
321

 
63

 
15,927

 
16,351

 
 
 
 
 
 
 
 
 
 
Total revenues
46,161

 
124,129

 
316,968

 
30,459

 
517,717

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
7,268

 
16,375

 
17,279

 
—

 
40,922

Amortization of deferred acquisition costs
5,346

 
18,078

 
55,880

 
—

 
79,304

Universal life and annuity contract interest
19,066

 
32,820

 
172,690

 
—

 
224,576

Other operating expenses
10,585

 
18,167

 
19,965

 
14,697

 
63,414

Federal income taxes (benefit)
1,295

 
12,865

 
17,010

 
5,241

 
36,411

 
 
 
 
 
 
 
 
 
 
Total expenses
43,560

 
98,305

 
282,824

 
19,938

 
444,627

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
2,601

 
25,824

 
34,144

 
10,521

 
73,090



23
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NATIONAL WESTERN LIFE GROUP, INC.
(formerly NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Reconciliations of segment information to the Company's condensed consolidated financial statements are provided below.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
 
 
 
 
 
 
 
 
Premiums and Other Revenues:
 
 
 
 
 
 
 
Premiums and contract revenues
$
44,015

 
41,108

 
129,182

 
126,770

Net investment income
56,209

 
110,966

 
258,391

 
374,596

Other revenues
5,067

 
5,377

 
15,590

 
16,351

Realized gains (losses) on investments
813

 
2,169

 
6,049

 
6,747

 
 
 
 
 
 
 
 
Total condensed consolidated premiums and other revenues
$
106,104

 
159,620

 
409,212

 
524,464


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)