Document

 
 
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 June 30, 2018
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.
(Exact name of Registrant as specified in its charter)
 
 
 
 
DELAWARE
47-3339380
(State of Incorporation)
(I.R.S. Employer Identification Number)
 
 
10801 N. MOPAC EXPY BLDG 3
 
AUSTIN, TEXAS 78759-5415
(512) 836-1010
(Address of Principal Executive Offices) (Zip Code)
(Telephone Number, including area code)


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, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of "accelerated filer." "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x  Accelerated filer  o   Non-accelerated filer (Do not check if a smaller reporting company)  o Smaller reporting company o Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 August 6, 2018, the number of shares of Registrant's common stock outstanding was: Class A – 3,436,166 and  Class B - 200,000.


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TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
June 30, 2018 (Unaudited) and December 31, 2017
 
 
For the Three Months Ended June 30, 2018 and 2017 (Unaudited)
 
 
For the Six Months Ended June 30, 2018 and 2017 (Unaudited)
 
 
For the Three Months Ended June 30, 2018 and 2017 (Unaudited)
 
 
For the Six Months Ended June 30, 2018 and 2017 (Unaudited)
 
 
For the Six Months Ended June 30, 2018 and 2017 (Unaudited)
 
 
For the Six Months Ended June 30, 2018 and 2017 (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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

 
(Unaudited)
 
 
ASSETS
June 30,
2018
 
December 31,
2017
 
 
 
 
Investments:
 
 
 
Debt securities held to maturity, at amortized cost (fair value: $7,261,763 and $7,434,104)
$
7,315,947

 
7,247,024

Debt securities available for sale, at fair value (cost: $3,022,106 and $2,964,510)
2,980,103

 
3,041,131

Mortgage loans, net of allowance for possible losses ($650 and $650)
196,752

 
208,249

Policy loans
55,603

 
56,405

Derivatives, index options
102,007

 
194,731

Equity securities, at fair value (cost: $13,197 and $12,890)
18,637

 
18,478

Other long-term investments
49,969

 
51,828

 
 
 
 
Total investments
10,719,018

 
10,817,846

 
 
 
 
Cash and cash equivalents
126,519

 
217,624

Deferred policy acquisition costs
848,392

 
819,511

Deferred sales inducements
138,920

 
135,570

Accrued investment income
98,679

 
96,818

Federal income tax receivable
13,771

 
—

Other assets
140,520

 
137,725

 
 
 
 
Total assets
$
12,085,819

 
12,225,094


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
June 30,
2018
 
December 31,
2017
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
9,818,830

 
9,962,589

Traditional life reserves
135,149

 
135,895

Other policyholder liabilities
133,344

 
128,009

Deferred Federal income tax liability
24,918

 
25,408

Federal income tax payable
—

 
2,701

Other liabilities
126,671

 
138,318

 
 
 
 
Total liabilities
10,238,912

 
10,392,920

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $.01 par value; 7,500,000 shares authorized; 3,436,166 issued and outstanding in 2018 and 2017
34

 
34

Class B - $.01 par value; 200,000 shares authorized, issued, and outstanding in 2018 and 2017
2

 
2

Additional paid-in capital
41,716

 
41,716

Accumulated other comprehensive income
(34,741
)
 
14,281

Retained earnings
1,839,896

 
1,776,141

 
 
 
 
Total stockholders’ equity
1,846,907

 
1,832,174

 
 
 
 
Total liabilities and stockholders' equity
$
12,085,819

 
12,225,094


Note:  The Condensed Consolidated Balance Sheet at December 31, 2017 has been derived from the audited Consolidated Financial Statements as of that date.

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands, except per share amounts)
 
2018
 
2017
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
39,945

 
40,697

Traditional life premiums
4,928

 
4,133

Net investment income
121,802

 
142,612

Other revenues
5,287

 
4,537

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
3

 
23

Portion of OTTI (gains) losses recognized in other comprehensive income
(3
)
 
(23
)
Net OTTI losses recognized in earnings
—

 
—

Other net investment gains (losses)
2,696

 
6,247

Total net realized investment gains (losses)
2,696

 
6,247

 
 
 
 
Total revenues
174,658

 
198,226

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
17,461

 
17,854

Amortization of deferred policy acquisition costs
31,069

 
33,058

Universal life and annuity contract interest
60,990

 
82,170

Other operating expenses
24,795

 
26,343

 
 
 
 
Total benefits and expenses
134,315

 
159,425

 
 
 
 
Earnings before Federal income taxes
40,343

 
38,801

 
 
 
 
Federal income taxes
7,877

 
13,318

 
 
 
 
Net earnings
$
32,466

 
25,483

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
9.18

 
$
7.21

Class B
$
4.59

 
$
3.60

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
9.18

 
$
7.21

Class B
$
4.59

 
$
3.60


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Six Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands, except per share amounts)
 
2018
 
2017
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
78,465

 
82,061

Traditional life premiums
9,073

 
8,354

Net investment income
182,547

 
314,354

Other revenues
10,284

 
9,042

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
6

 
43

Portion of OTTI (gains) losses recognized in other comprehensive income
(6
)
 
(43
)
Net OTTI losses recognized in earnings
—

 
—

Other net investment gains (losses)
3,307

 
8,832

Total net realized investment gains (losses)
3,307

 
8,832

 
 
 
 
Total revenues
283,676

 
422,643

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
38,862

 
37,611

Amortization of deferred policy acquisition costs
63,298

 
67,270

Universal life and annuity contract interest
59,172

 
192,063

Other operating expenses
48,428

 
51,435

 
 
 
 
Total benefits and expenses
209,760

 
348,379

 
 
 
 
Earnings before Federal income taxes
73,916

 
74,264

 
 
 
 
Federal income taxes
14,575

 
25,243

 
 
 
 
Net earnings
$
59,341

 
49,021

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
16.78

 
$
13.86

Class B
$
8.39

 
$
6.93

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
16.78

 
$
13.86

Class B
$
8.39

 
$
6.93

 
 
 
 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Net earnings
$
32,466

 
25,483

 
 
 
 
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
(15,068
)
 
7,788

Net unrealized liquidity gains (losses)
2

 
(30
)
Reclassification adjustment for net amounts included in net earnings
(1,564
)
 
(1,068
)
 
 
 
 
Net unrealized gains (losses) on securities
(16,630
)
 
6,690

 
 
 
 
Foreign currency translation adjustments
39

 
(86
)
 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
2,801

 
(933
)
 
 
 
 
Other comprehensive income (loss)
(13,790
)
 
5,671

 
 
 
 
Comprehensive income (loss)
$
18,676

 
31,154


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Net earnings
$
59,341

 
49,021

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

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains (losses) arising during period
(49,822
)
 
13,267

Net unrealized liquidity gains (losses)
2

 
13

Reclassification adjustment for net amounts included in net earnings
(1,597
)
 
(1,758
)
 
 
 
 
Net unrealized gains (losses) on securities
(51,417
)
 
11,522

 
 
 
 
Foreign currency translation adjustments
1,207

 
(171
)
 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
5,602

 
(1,820
)
 
 
 
 
Other comprehensive income (loss)
(44,608
)
 
9,531

 
 
 
 
Comprehensive income (loss)
$
14,733

 
58,552

 
 
 
 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).








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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
36

 
36

Shares exercised under stock option plan
—

 
—

 
 
 
 
       Balance at end of period
36

 
36

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
41,716

 
41,716

Shares exercised under stock option plan
—

 
—

 
 
 
 
       Balance at end of period
41,716

 
41,716

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains (losses) on non-impaired securities:
 

 
 

Balance at beginning of period
33,664

 
22,813

Change in unrealized gains (losses) during period, net of tax
(51,419
)
 
11,509

Cumulative effect of change in accounting principle, net of tax (See Note 2)
(4,414
)
 
—

 
 
 
 
   Balance at end of period
(22,169
)
 
34,322

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(10
)
 
(203
)
Amortization
5

 
28

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

 
—

Additional credit loss on previously impaired securities
—

 
—

Change in shadow deferred policy acquisition costs
(3
)
 
(15
)
 
 
 
 
   Balance at end of period
(8
)
 
(190
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

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

 
—

Change in shadow deferred policy acquisition costs
—

 
—

Recoveries, net of tax
—

 
—

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

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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
For the Six Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands)
 
 
 
 
 
2018
 
2017
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
3,223

 
2,661

Change in translation adjustments during period
1,207

 
(171
)
 
 
 
 
  Balance at end of period
4,430

 
2,490

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(22,595
)
 
(14,718
)
Amortization of net prior service cost and net loss, net of tax
5,602

 
(1,820
)
 
 
 
 
  Balance at end of period
(16,993
)
 
(16,538
)
 
 
 
 
Accumulated other comprehensive income at end of period
(34,741
)
 
20,083

 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,776,141

 
1,669,524

Cumulative effect of change in accounting principle, net of tax (See Note 2)
4,414

 
—

   Net earnings
59,341

 
49,021

   Stockholder dividends
—

 
—

 
 
 
 
   Balance at end of period
1,839,896

 
1,718,545

 
 
 
 
Total stockholders' equity
$
1,846,907

 
1,780,380


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
59,341

 
49,021

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

 
 

Universal life and annuity contract interest
59,172

 
192,063

Surrender charges and other policy revenues
(19,138
)
 
(23,568
)
Realized (gains) losses on investments
(3,307
)
 
(8,832
)
Accretion/amortization of discounts and premiums, investments
(150
)
 
221

Depreciation and amortization
5,932

 
4,962

(Increase) decrease in value of equity securities
107

 
—

(Increase) decrease in value of derivatives
34,102

 
(93,421
)
(Increase) decrease in deferred policy acquisition and sales inducement costs
21,304

 
20,987

(Increase) decrease in accrued investment income
(1,861
)
 
1,211

(Increase) decrease in other assets
(8,071
)
 
(3,307
)
Increase (decrease) in liabilities for future policy benefits
1,389

 
6,748

Increase (decrease) in other policyholder liabilities
5,335

 
2,862

Increase (decrease) in Federal income tax liability
(16,472
)
 
(15,182
)
Increase (decrease) in deferred Federal income tax
11,367

 
(12,281
)
Increase (decrease) in other liabilities
(3,890
)
 
9,264

 
 
 
 
Net cash provided by operating activities
145,160

 
130,748

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Debt securities held to maturity
—

 
—

Debt securities available for sale
—

 
22,184

Other investments
2,220

 
312

Proceeds from maturities and redemptions of:
 

 
 

Debt securities held to maturity
275,670

 
233,272

Debt securities available for sale
105,678

 
144,617

Derivatives, index options
105,615

 
100,516

Property and equipment
8

 
2,731

Purchases of:
 

 
 

Debt securities held to maturity
(343,145
)
 
(296,706
)
Debt securities available for sale
(161,416
)
 
(116,225
)
Equity securities
(406
)
 
(702
)
Derivatives, index options
(44,943
)
 
(36,587
)
Other investments
(586
)
 
(188
)
Property and equipment
(2,988
)
 
(233
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 
 
 
 
 

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Six Months Ended June 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Principal payments on mortgage loans
21,521

 
22,685

Cost of mortgage loans acquired
(9,895
)
 
(31,779
)
Decrease (increase) in policy loans
802

 
800

 
 
 
 
Net cash provided by/(used in) investing activities
(51,865
)
 
44,697

 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
316,906

 
360,928

Return of account balances on universal life and annuity contracts
(502,834
)
 
(478,290
)
 
 
 
 
Net cash provided by (used in) financing activities
(185,928
)
 
(117,362
)
 
 
 
 
Effect of foreign exchange
1,528

 
(262
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(91,105
)
 
57,821

Cash and cash equivalents at beginning of period
217,624

 
51,247

 
 
 
 
Cash and cash equivalents at end of period
$
126,519

 
109,068

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid (received) during the period for:
 

 
 

Interest
$
20

 
19

Income taxes
$
19,680

 
52,706

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
(6,177
)
 
(3,986
)

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



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NATIONAL WESTERN LIFE GROUP, INC.
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 Group, Inc. ("NWLGI") and its wholly owned subsidiaries (“Company”) as of June 30, 2018, and the results of its operations and its cash flows for the three and six months ended June 30, 2018 and June 30, 2017. Such adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2018 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, 2017 which is accessible free of charge through the Company's internet site at www.nwlgi.com or the Securities and Exchange Commission internet site at www.sec.gov. The Condensed Consolidated Balance Sheet at December 31, 2017 has been derived from the audited consolidated financial statements as of that date.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of NWLGI and its wholly owned subsidiaries: National Western Life Insurance Company ("NWLIC" or "National Western"), Regent Care San Marcos Holdings, LLC, NWL Investments, Inc., and NWL Services, Inc. National Western's wholly owned subsidiaries include The Westcap Corporation, NWL Financial, Inc., NWLSM, Inc., and Braker P III, LLC. Where comments or disclosures are made specifically in reference to the insurance operations of National Western, the "company" is used in order to distinguish such comments from the consolidated entity. All significant intercorporate transactions and accounts have been eliminated in consolidation.

The preparation of financial statements in accordance with 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.

The table below shows the unrealized gains and losses on available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and six months ended June 30, 2018 and June 30, 2017.

Affected Line Item in the
Statements of Earnings
 
Amount Reclassified From Accumulated Other Comprehensive Income
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other net investment gains (losses)
 
$
1,981

 
1,644

 
2,021

 
2,705

Net OTTI losses recognized in earnings
 
—

 
—

 
—

 
—

Earnings before Federal income taxes
 
1,981

 
1,644

 
2,021

 
2,705

Federal income taxes
 
417

 
576

 
424

 
947

 
 
 
 
 
 
 
 
 
Net earnings
 
$
1,564

 
1,068

 
1,597

 
1,758



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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2)
 NEW ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements not yet adopted

In June 2016, the FASB released Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses, which revises the credit loss recognition criteria for certain financial assets measured at amortized cost. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for the reporting entity to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance deducted from the amortized cost basis of the related financial assets that results in presenting the net carrying value of the financial assets at the amount expected to be collected. The guidance is effective for interim and annual periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained income. Adoption of the guidance is not expected to have a material effect on the Company’s results of operations or financial position.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium. The amortization period for premiums is being shortened to the earliest call date. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Adoption of the guidance is not expected to have a material effect on the Company’s results of operations or financial position.

In July 2017, the FASB released ASU 2017-11, Earnings Per Share; Distinguishing Liabilities from Equity; and, Derivatives and Hedging. This update includes: (I) Accounting for Certain Financial Instruments with Down Round Features, and (II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception. Part I of this update changes the classification analysis of certain equity-linked financial instruments with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. Part II of this update recharacterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company does not expect a material effect on the results of operations or financial position with the adoption of this ASU.
In June 2018, the FASB released ASU 2018-07 Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting. This update largely aligns the accounting for share-based payment awards issued to employees and nonemployees. Previously, nonemployee stock compensation was accounted for under Subtopic 505-50 but will now fall under Topic 718. Changes to the accounting for nonemployee awards include 1) measurement based on fair value of the equity instrument at grant date, rather than previous requirement to measure based on the more reliable option of the fair value of the consideration or the fair value of the equity instrument, 2) initial measurement at grant date, rather than the earlier of the date at which commitment for performance is reached or performance is complete, and 3) when performance conditions are present, the probability of satisfying performance conditions should be considered in measurement rather than the previous requirement to measure at the lowest aggregate fair value. The amendments in the new guidance are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal period. The Company does not expect a material effect on the results of operations or financial position with the adoption of this ASU.
Recent accounting pronouncements adopted
In January 2018, the Company adopted ASU 2017-07 Compensation-Retirement Benefits (Topic 615): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  The new guidance requires that an employer that offers to its employees defined benefit pension or other postretirement benefit plans report the service cost component in the same line item or items as other compensation costs. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item is not used, the line item used in the income statement to present the other components of net periodic benefit cost must be disclosed. In addition, the guidance allows only the service cost component to be eligible for capitalization when applicable. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.


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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In February 2018, the FASB released ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The update addresses certain stranded income tax effects in accumulated other comprehensive income caused by the Tax Cuts and Job Act ("Tax Act") which was passed in December 2017. Under the new FASB rules, financial statement preparers are provided the option to reclassify stranded tax effects within accumulated other comprehensive income in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recorded. Companies must apply the new guidance for fiscal years, including interim periods within such years, starting after December 15, 2018, with early adoption permitted. The amendments are to be applied in either the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the federal corporate income tax rate from the Tax Act is recognized. The Company's accounting policy for the release of stranded tax effects in AOCI is on an aggregate portfolio basis. The Company elected to adopt the requirements of this update in its Consolidated Financial Statements for the year ended December 31, 2017 and has reported the resultant reclassification amount, $2.5 million, as a charge to Retained Earnings in the accompanying Consolidated Statements of Changes in Stockholders' Equity.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance requires companies to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. As an insurance enterprise, the primary sources of revenue are excluded from this guidance, including insurance premiums, contract charges, and investment revenues. We have certain types of non-insurance and non-investment revenue from contracts with customers that fall under this guidance. These revenues are recognized when obligations under the terms of the contract are satisfied. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those services. For these revenues, the performance obligation is fulfilled as services are rendered. Revenues from contracts with customers identified under Topic 606 are not material, approximately 2% of total revenues for the year ended December 31, 2017. The guidance was effective for reporting periods beginning after December 15, 2017. The adoption of this ASU did not have a material effect on the results of operations or financial position of the Company.
In January 2016, the FASB released ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. The main provisions of the update eliminate the available for sale classification of accounting for equity securities and to adjust the fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent an exit price as opposed to an entry price. The provisions of this update require that equity securities be carried at fair market value on the balance sheet and any periodic changes in value be recorded as adjustments directly to the income statement. The provisions of this update became effective for the Company beginning January 1, 2018. The prospective adoption of this update resulted in the reclassification of $4.4 million pertaining to unrealized gains, net of tax, out of Accumulated Other Comprehensive Income into Retained Earnings as a cumulative effect of a change in accounting principle, as shown in the Condensed Consolidated Statements of Changes in Stockholders' Equity. Equity securities, previously included in Securities Available for Sale are now reported as a separate line item on the Consolidated Balance Sheet. The change in fair value of equity securities, previously reported in Other Comprehensive income, is now included in net investment income in the Condensed Consolidated Statements of Earnings. As the Company's equity securities holdings are not significant, the adoption of the requirements of this update did not have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2017, the FASB released ASU 2017-09, Compensation - Stock Compensation. The update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Accounting Standards Codification ("ASC") Topic 718. An entity shall account for the effects of a modification described in ASC paragraphs 718-20-35-3 through 35-9, unless all the following are met: (1) The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The provisions of this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The adoption of this ASU did not have a material effect on the results of operations or financial position of the Company.
  
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future Consolidated Financial Statements.


15
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(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 lesser of statutory earnings from operations, excluding capital gains, from the prior calendar year or 10% of statutory surplus of the company as of the previous calendar year-end.  The maximum dividend payment which may be made without prior approval in 2018 is $127.3 million. As the sole owner of NWLIC, all dividends declared by National Western are payable entirely to NWLGI and are eliminated in consolidation.

In the first quarter of 2018, National Western declared and paid a $3.0 million dividend to NWLGI. During the second quarter of 2017 National Western declared and paid a $4.0 million dividend to NWLGI.

NWLGI did not declare or pay cash dividends on its common shares during the six months ended June 30, 2018 and 2017.


(4)
 EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income available to each class of common stockholders on an as if distributed basis by the weighted-average number of common shares outstanding for the period. Diluted earnings per share, by definition, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock, that then shared in the distributed earnings of each class of common stock. U.S. GAAP requires a two-class presentation for the Company's two classes of common stock. However, settlement of stock option exercises in cash or by issuance of shares is at the discretion of the Company's option holders and such exercises have been predominantly in cash. Consequently, the Company's stock options outstanding are not considered potentially dilutive under accounting guidance.


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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Net income for the periods shown below is allocated between Class A shares and Class B shares based upon (1) the proportionate number of shares issued and outstanding as of the end of the period, and (2) the per share dividend rights of the two classes under the Company's Restated Certificate of Incorporation (the Class B dividend per share is equal to one-half the Class A dividend per share).
 
Three Months Ended June 30,
 
2018
 
2017
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
32,466

 
 
 
25,483

 
 
Dividends - Class A shares
—

 
 
 
—

 
 
Dividends - Class B shares
—

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
32,466

 
 
 
25,483

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
—

 
—

Allocation of undistributed income
31,548

 
918

 
24,762

 
721

 
 
 
 
 
 
 
 
Net income
$
31,548

 
918

 
24,762

 
721

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

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

 
200

 
3,436

 
200

Effect of dilutive stock options
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,436

 
200

 
3,436

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
9.18

 
4.59

 
7.21

 
3.60

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
9.18

 
4.59

 
7.21

 
3.60


17
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
Six Months Ended June 30,
 
2018
 
2017
 
Class A
 
Class B
 
Class A
 
Class B
 
(In thousands except per share amounts)
 
 
 
 
 
 
 
 
Numerator for Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
Net income
$
59,341

 
 
 
49,021

 
 
Dividends - Class A shares
—

 
 
 
—

 
 
Dividends - Class B shares
—

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
59,341

 
 
 
49,021

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
—

 
—

Allocation of undistributed income
57,663

 
1,678

 
47,635

 
1,386

 
 
 
 
 
 
 
 
Net income
$
57,663

 
1,678

 
47,635

 
1,386

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

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

 
200

 
3,436

 
200

Effect of dilutive stock options
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Diluted earnings per share - adjusted weighted-average shares for assumed conversions
3,436

 
200

 
3,436

 
200

 
 
 
 
 
 
 
 
Basic Earnings Per Share
$
16.78

 
8.39

 
13.86

 
6.93

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
16.78

 
8.39

 
13.86

 
6.93



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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(5)
 PENSION AND OTHER POSTRETIREMENT PLANS

(A)
Defined Benefit Pension Plans

National Western 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 comply with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On October 19, 2007, National Western'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. As participants are no longer earning a credit for service, future qualified defined benefit plan expense is projected to be minimal. Fair values of plan assets and liabilities are measured as of the prior December 31 for each year. The following table summarizes the components of net periodic benefit cost.

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Service cost
$
28

 
27

 
56

 
54

Interest cost
225

 
239

 
450

 
478

Expected return on plan assets
(325
)
 
(307
)
 
(650
)
 
(614
)
Amortization of prior service cost
—

 
—

 
—

 
—

Amortization of net loss
131

 
159

 
262

 
318

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
59

 
118

 
118

 
236


The service cost shown above for each period represents plan expenses expected to be paid out of plan assets. Under the clarified rules of 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 2018 plan year is $0.1 million. There was no remaining contribution payable for the 2017 plan year as of June 30, 2018. As of June 30, 2018, the company had minimal contributions to the plan for the 2018 plan year.

National Western also sponsors three non-qualified defined benefit pension plans. The first plan covers certain senior officers and provides benefits based on the participants' years of service and compensation. The primary 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"), a related party. 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 National Western 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 then 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 then Chairman and the then President of the company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").


19
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Effective July 1, 2005, National Western established a second non-qualified defined benefit plan for the benefit of the then Chairman 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 non-qualified plan, while complying with the requirements of the Act.

Effective November 1, 2005, National Western established a third non-qualified defined benefit plan for the benefit of the then President of the company.  This plan is intended to provide for post-2004 benefit accruals that supplement the pre-2005 benefit accruals under the first non-qualified plan as previously discussed, while complying with the requirements of the Act.

The following table summarizes the components of net periodic benefit costs for the non-qualified defined benefit plans.

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Service cost
$
90

 
204

 
180

 
408

Interest cost
213

 
347

 
426

 
694

Amortization of prior service cost
15

 
15

 
30

 
30

Amortization of net loss
176

 
819

 
352

 
1,637

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
494

 
1,385

 
988

 
2,769


The company expects to contribute $2.0 million to these plans in 2018.  As of June 30, 2018, the company has contributed $0.9 million to the plans.

(B)
Postretirement Employment Plans Other Than Pension

National Western sponsors two healthcare plans that were amended in 2004 to provide postretirement benefits to certain fully-vested individuals.  The plan is unfunded. The following table summarizes the components of net periodic benefit costs.

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Interest cost
$
40

 
39

 
80

 
69

Amortization of prior service cost
26

 
26

 
52

 
52

Amortization of net loss
38

 
21

 
75

 
21

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
104

 
86

 
207

 
142


The company expects to contribute minimal amounts to the plan in 2018.



20
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NATIONAL WESTERN LIFE GROUP, INC.
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 as of June 30, 2018 and December 31, 2017 for the Condensed Consolidated Balance Sheet items and for the three and six months ended June 30, 2018 and June 30, 2017 for the Condensed Consolidated Statement of Earnings is provided below.

Condensed Consolidated Balance Sheet Items:

 
June 30, 2018
 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
112,975

 
248,621

 
625,716

 
—

 
987,312

Total segment assets
1,173,465

 
1,227,200

 
9,086,354

 
381,620

 
11,868,639

Future policy benefits
1,004,473

 
901,729

 
8,047,777

 
—

 
9,953,979

Other policyholder liabilities
12,561

 
20,453

 
100,330

 
—

 
133,344


 
December 31, 2017
 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
101,253

 
250,128

 
603,700

 
—

 
955,081

Total segment assets
1,106,410

 
1,236,733

 
9,269,956

 
398,597

 
12,011,696

Future policy benefits
950,884

 
915,384

 
8,232,216

 
—

 
10,098,484

Other policyholder liabilities
13,643

 
11,318

 
103,048

 
—

 
128,009



21
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Condensed Consolidated Statement of Earnings:


Three Months Ended June 30, 2018
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
10,114

 
27,461

 
7,298

 
—

 
44,873

Net investment income
13,556

 
10,603

 
86,915

 
10,728

 
121,802

Other revenues
—

 
4

 
18

 
5,265

 
5,287

 
 
 
 
 
 
 
 
 
 
Total revenues
23,670

 
38,068

 
94,231

 
15,993

 
171,962

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
5,103

 
4,534

 
7,824

 
—

 
17,461

Amortization of deferred policy acquisition costs
2,709

 
7,336

 
21,024

 
—

 
31,069

Universal life and annuity contract interest
9,907

 
7,600

 
43,483

 
—

 
60,990

Other operating expenses
5,006

 
5,628

 
9,085

 
5,076

 
24,795

Federal income taxes (benefit)
185

 
2,516

 
2,478

 
2,132

 
7,311

 
 
 
 
 
 
 
 
 
 
Total expenses
22,910

 
27,614

 
83,894

 
7,208

 
141,626

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
760

 
10,454

 
10,337

 
8,785

 
30,336

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
19,715

 
55,378

 
12,445

 
—

 
87,538

Net investment income
14,219

 
12,574

 
140,458

 
15,296

 
182,547

Other revenues
—

 
34

 
37

 
10,213

 
10,284

 
 
 
 
 
 
 
 
 
 
Total revenues
33,934

 
67,986

 
152,940

 
25,509

 
280,369

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
9,912

 
10,262

 
18,688

 
—

 
38,862

Amortization of deferred acquisition costs
5,384

 
14,716

 
43,198

 
—

 
63,298

Universal life and annuity contract interest
7,046

 
6,450

 
45,676

 
—

 
59,172

Other operating expenses
10,153

 
11,009

 
17,020

 
10,246

 
48,428

Federal income taxes (benefit)
283

 
5,023

 
5,576

 
2,999

 
13,881

 
 
 
 
 
 
 
 
 
 
Total expenses
32,778

 
47,460

 
130,158

 
13,245

 
223,641

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
1,156

 
20,526

 
22,782

 
12,264

 
56,728


22
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Three Months Ended June 30, 2017
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
9,066

 
29,710

 
6,054

 
—

 
44,830

Net investment income
15,023

 
14,251

 
105,474

 
7,864

 
142,612

Other revenues
6

 
21

 
38

 
4,472

 
4,537

 
 
 
 
 
 
 
 
 
 
Total revenues
24,095

 
43,982

 
111,566

 
12,336

 
191,979

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
5,448

 
4,677

 
7,729

 
—

 
17,854

Amortization of deferred acquisition costs
2,994

 
6,305

 
23,759

 
—

 
33,058

Universal life and annuity contract interest
11,210

 
11,377

 
59,583

 
—

 
82,170

Other operating expenses
5,157

 
7,207

 
9,814

 
4,165

 
26,343

Federal income taxes (benefit)
(242
)
 
4,928

 
3,656

 
2,790

 
11,132

 
 
 
 
 
 
 
 
 
 
Total expenses
24,567

 
34,494

 
104,541

 
6,955

 
170,557

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
(472
)
 
9,488

 
7,025

 
5,381

 
21,422


 
Six Months Ended June 30, 2017
 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
17,915

 
61,210

 
11,290

 
—

 
90,415

Net investment income
34,613

 
32,870

 
231,908

 
14,963

 
314,354

Other revenues
19

 
47

 
64

 
8,912

 
9,042

 
 
 
 
 
 
 
 
 
 
Total revenues
52,547

 
94,127

 
243,262

 
23,875

 
413,811

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
10,367

 
10,962

 
16,282

 
—

 
37,611

Amortization of deferred acquisition costs
5,783

 
13,711

 
47,776

 
—

 
67,270

Universal life and annuity contract interest
27,457

 
27,759

 
136,847

 
—

 
192,063

Other operating expenses
9,889

 
13,185

 
19,874

 
8,487

 
51,435

Federal income taxes (benefit)
(321
)
 
9,652

 
7,612

 
5,209

 
22,152

 
 
 
 
 
 
 
 
 
 
Total expenses
53,175

 
75,269

 
228,391

 
13,696

 
370,531

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
(628
)
 
18,858

 
14,871

 
10,179

 
43,280

 
 
 
 
 
 
 
 
 
 

23
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NATIONAL WESTERN LIFE GROUP, INC.
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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Premiums and Other Revenues:
 
 
 
 
 
 
 
Premiums and contract revenues
$
44,873

 
44,830

 
87,538

 
90,415

Net investment income
121,802

 
142,612

 
182,547

 
314,354

Other revenues
5,287

 
4,537

 
10,284

 
9,042

Realized gains (losses) on investments
2,696

 
6,247

 
3,307

 
8,832

 
 
 
 
 
 
 
 
Total condensed consolidated premiums and other revenues
$
174,658

 
198,226

 
283,676

 
422,643


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Federal Income Taxes:
 
 
 
 
 
 
 
Total segment Federal income taxes
$
7,311

 
11,132

 
13,881

 
22,152

Taxes on realized gains (losses) on investments
566

 
2,186

 
694

 
3,091

 
 
 
 
 
 
 
 
Total condensed consolidated Federal income taxes
$
7,877

 
13,318

 
14,575

 
25,243