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 September 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 November 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
 
 
 
 
 
 
September 30, 2018 (Unaudited) and December 31, 2017
 
 
For the Three Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
For the Three Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
For the Nine Months Ended September 30, 2018 and 2017 (Unaudited)
 
 
For the Nine Months Ended September 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
September 30,
2018
 
December 31,
2017
 
 
 
 
Investments:
 
 
 
Debt securities held to maturity, at amortized cost (fair value: $7,186,631 and $7,434,104)
$
7,281,031

 
7,247,024

Debt securities available for sale, at fair value (cost: $3,013,889 and $2,964,510)
2,965,788

 
3,041,131

Mortgage loans, net of allowance for possible losses ($650 and $650)
200,876

 
208,249

Policy loans
54,474

 
56,405

Derivatives, index options
136,435

 
194,731

Equity securities, at fair value (cost: $13,962 and $12,890)
19,661

 
18,478

Other long-term investments
54,861

 
51,828

 
 
 
 
Total investments
10,713,126

 
10,817,846

 
 
 
 
Cash and cash equivalents
155,381

 
217,624

Deferred policy acquisition costs
842,601

 
819,511

Deferred sales inducements
137,488

 
135,570

Accrued investment income
101,063

 
96,818

Federal income tax receivable
—

 
—

Other assets
142,181

 
137,725

 
 
 
 
Total assets
$
12,091,840

 
12,225,094


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

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Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
September 30,
2018
 
December 31,
2017
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
9,799,833

 
9,962,589

Traditional life reserves
135,522

 
135,895

Other policyholder liabilities
129,529

 
128,009

Deferred Federal income tax liability
18,356

 
25,408

Federal income tax payable
2,005

 
2,701

Other liabilities
123,578

 
138,318

 
 
 
 
Total liabilities
10,208,823

 
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 (loss)
(34,272
)
 
14,281

Retained earnings
1,875,537

 
1,776,141

 
 
 
 
Total stockholders’ equity
1,883,017

 
1,832,174

 
 
 
 
Total liabilities and stockholders' equity
$
12,091,840

 
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 September 30, 2018 and 2017
(Unaudited)
(In thousands, except per share amounts)
 
2018
 
2017
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
38,287

 
40,268

Traditional life premiums
4,209

 
5,285

Net investment income
175,553

 
151,691

Other revenues
5,111

 
4,672

Net realized investment gains (losses):
 

 
 

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

 
26

Portion of OTTI (gains) losses recognized in other comprehensive income
(3
)
 
(26
)
Net OTTI losses recognized in earnings
—

 
—

Other net investment gains (losses)
2,275

 
2,074

Total net realized investment gains (losses)
2,275

 
2,074

 
 
 
 
Total revenues
225,435

 
203,990

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
5,744

 
21,015

Amortization of deferred policy acquisition costs
26,775

 
18,722

Universal life and annuity contract interest
124,145

 
107,799

Other operating expenses
24,037

 
22,596

 
 
 
 
Total benefits and expenses
180,701

 
170,132

 
 
 
 
Earnings before Federal income taxes
44,734

 
33,858

 
 
 
 
Federal income taxes
9,093

 
12,045

 
 
 
 
Net earnings
$
35,641

 
21,813

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
10.08

 
$
6.17

Class B
$
5.04

 
$
3.08

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
10.08

 
$
6.17

Class B
$
5.04

 
$
3.08


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 Nine Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands, except per share amounts)
 
2018
 
2017
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
116,753

 
122,329

Traditional life premiums
13,282

 
13,639

Net investment income
358,100

 
466,045

Other revenues
15,396

 
13,714

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
9

 
69

Portion of OTTI (gains) losses recognized in other comprehensive income
(9
)
 
(69
)
Net OTTI losses recognized in earnings
—

 
—

Other net investment gains (losses)
5,582

 
10,906

Total net realized investment gains (losses)
5,582

 
10,906

 
 
 
 
Total revenues
509,113

 
626,633

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
44,607

 
58,626

Amortization of deferred policy acquisition costs
90,073

 
85,992

Universal life and annuity contract interest
183,316

 
299,862

Other operating expenses
72,467

 
74,031

 
 
 
 
Total benefits and expenses
390,463

 
518,511

 
 
 
 
Earnings before Federal income taxes
118,650

 
108,122

 
 
 
 
Federal income taxes
23,668

 
37,288

 
 
 
 
Net earnings
$
94,982

 
70,834

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
26.86

 
$
20.03

Class B
$
13.43

 
$
10.02

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
26.86

 
$
20.03

Class B
$
13.43

 
$
10.02

 
 
 
 

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 September 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Net earnings
$
35,641

 
21,813

 
 
 
 
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
(1,416
)
 
2,212

Net unrealized liquidity gains (losses)
—

 
9

Reclassification adjustment for net amounts included in net earnings
(936
)
 
(988
)
 
 
 
 
Net unrealized gains (losses) on securities
(2,352
)
 
1,233

 
 
 
 
Foreign currency translation adjustments
20

 
166

 
 
 
 
Benefit plans:
 

 
 

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

 
(910
)
 
 
 
 
Other comprehensive income (loss)
469

 
489

 
 
 
 
Comprehensive income (loss)
$
36,110

 
22,302


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 Nine Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Net earnings
$
94,982

 
70,834

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

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains (losses) arising during period
(51,238
)
 
15,479

Net unrealized liquidity gains (losses)
2

 
22

Reclassification adjustment for net amounts included in net earnings
(2,533
)
 
(2,746
)
 
 
 
 
Net unrealized gains (losses) on securities
(53,769
)
 
12,755

 
 
 
 
Foreign currency translation adjustments
1,227

 
(5
)
 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
8,403

 
(2,730
)
 
 
 
 
Other comprehensive income (loss)
(44,139
)
 
10,020

 
 
 
 
Comprehensive income (loss)
$
50,843

 
80,854

 
 
 
 

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








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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 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
(53,771
)
 
12,733

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

 
 
 
 
   Balance at end of period
(24,521
)
 
35,546

 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(10
)
 
(203
)
Amortization
7

 
45

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

 
—

Additional credit loss on previously impaired securities
—

 
—

Change in shadow deferred policy acquisition costs
(4
)
 
(23
)
 
 
 
 
   Balance at end of period
(7
)
 
(181
)
 
 
 
 
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
(1
)
 
—

Recoveries, net of tax
—

 
—

 
 
 
 
  Balance at end of period
(2
)
 
(1
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 
 
 
 
 

9
Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
For the Nine Months Ended September 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
1,227

 
(5
)
 
 
 
 
  Balance at end of period
4,450

 
2,656

 
 
 
 
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
8,403

 
(2,730
)
 
 
 
 
  Balance at end of period
(14,192
)
 
(17,448
)
 
 
 
 
Accumulated other comprehensive income (loss) at end of period
(34,272
)
 
20,572

 
 
 
 
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
94,982

 
70,834

   Stockholder dividends
—

 
—

 
 
 
 
   Balance at end of period
1,875,537

 
1,740,358

 
 
 
 
Total stockholders' equity
$
1,883,017

 
1,802,682


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 Nine Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
94,982

 
70,834

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

 
 

Universal life and annuity contract interest
183,316

 
299,862

Surrender charges and other policy revenues
(28,429
)
 
(33,682
)
Realized (gains) losses on investments
(5,582
)
 
(10,905
)
Accretion/amortization of discounts and premiums, investments
(86
)
 
308

Depreciation and amortization
8,769

 
7,379

(Increase) decrease in value of equity securities
(254
)
 
—

(Increase) decrease in value of derivatives
(35,581
)
 
(138,552
)
(Increase) decrease in deferred policy acquisition and sales inducement costs
31,645

 
19,895

(Increase) decrease in accrued investment income
(4,245
)
 
(3,793
)
(Increase) decrease in other assets
(12,489
)
 
(7,762
)
Increase (decrease) in liabilities for future policy benefits
(11,566
)
 
6,616

Increase (decrease) in other policyholder liabilities
1,520

 
(6,319
)
Increase (decrease) in Federal income tax liability
(696
)
 
(8,647
)
Increase (decrease) in deferred Federal income tax
4,680

 
(14,370
)
Increase (decrease) in other liabilities
(3,882
)
 
12,530

 
 
 
 
Net cash provided by operating activities
222,102

 
193,394

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Debt securities held to maturity
—

 
—

Debt securities available for sale
13,098

 
22,184

Other investments
2,749

 
5,405

Proceeds from maturities and redemptions of:
 

 
 

Debt securities held to maturity
360,036

 
303,081

Debt securities available for sale
168,638

 
222,379

Derivatives, index options
160,094

 
151,298

Property and equipment
8

 
2,731

Purchases of:
 

 
 

Debt securities held to maturity
(391,548
)
 
(377,821
)
Debt securities available for sale
(228,172
)
 
(191,510
)
Equity securities
(1,678
)
 
(1,160
)
Derivatives, index options
(63,524
)
 
(55,780
)
Other investments
(5,581
)
 
(329
)
Property and equipment
(3,070
)
 
(1,697
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 
 
 
 
 

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Nine Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands)
 
2018
 
2017
 
 
 
 
Principal payments on mortgage loans
32,374

 
24,199

Cost of mortgage loans acquired
(24,803
)
 
(38,166
)
Decrease (increase) in policy loans
1,931

 
1,233

 
 
 
 
Net cash provided by/(used in) investing activities
20,552

 
66,047

 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
442,795

 
546,966

Return of account balances on universal life and annuity contracts
(749,245
)
 
(687,087
)
 
 
 
 
Net cash provided by (used in) financing activities
(306,450
)
 
(140,121
)
 
 
 
 
Effect of foreign exchange
1,553

 
(7
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(62,243
)
 
119,313

Cash and cash equivalents at beginning of period
217,624

 
51,247

 
 
 
 
Cash and cash equivalents at end of period
$
155,381

 
170,560

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid (received) during the period for:
 

 
 

Interest
$
30

 
30

Income taxes
$
19,683

 
60,304

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
(8,152
)
 
(9,696
)

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 September 30, 2018, and the results of its operations and its cash flows for the three and nine months ended September 30, 2018 and September 30, 2017. Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 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 nine months ended September 30, 2018 and September 30, 2017.

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,
 
 
2018
 
2017
 
2018
 
2017
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other net investment gains (losses)
 
$
1,185

 
1,519

 
3,206

 
4,224

Net OTTI losses recognized in earnings
 
—

 
—

 
—

 
—

Earnings before Federal income taxes
 
1,185

 
1,519

 
3,206

 
4,224

Federal income taxes
 
249

 
532

 
673

 
1,478

 
 
 
 
 
 
 
 
 
Net earnings
 
$
936

 
987

 
2,533

 
2,746



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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 August, the FASB issued ASU 2018-12 Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts. This update aimed at improving the Codification as it relates to long-duration contracts which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. Amendments include the following:

A. Require insurance entity to (1) review and update assumptions used to measure cash flows at least annually (with changes recognized in net income) and (2) update discount rate assumption at each reporting date (with changes recognized in other comprehensive income).

B. Require insurance entity to measure all market risk benefits associated with deposit (i.e. account balance) contracts at fair value, with change in fair value attributable to change in instrument-specific credit risk recognized in other comprehensive income.

C. Simplify amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins and require those balances be amortized on constant level basis over expected term of related contract. Deferred acquisition costs are required to be written off for unexpected contract terminations but are not subject to impairment test.

D. Require insurance entity to add disclosures of disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. Insurance entity must also disclose information about significant inputs, judgments, assumptions, and methods used in measurement, including changes in those inputs, judgments, and assumptions, and the effect of those changes on measurement.

These update will need to be applied retrospectively to the earliest period presented in the financial statements for periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

In August, the FASB issued a new Concepts Statement No. 8 Conceptual Framework for Financial Reporting - Chapter 8, Notes to Financial Statements. This was issued as part of a disclosure framework project aimed at improving disclosures in financial statements. This issuance provides conceptual guidance that may be followed when determining items to include as disclosures in the notes to financial statements. In conjunction with this issuance, the FASB also issued two accounting standard updates (“ASU”) which identified a particular FASB Topic and evaluated its disclosures through the new conceptual framework of Concepts Statement No. 8, Chapter 8. This process resulted in the issuance of the following two ASUs.

In August, FASB issued ASU 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure requirements for Fair Value Measurement. This update removed disclosures for 1) amount of and reasons for transfers between Level 1 and Level 2 for fair value hierarchy, 2) policy for timing of transfers between levels, 3) valuation process for Level 3 fair value measurements. This update also added disclosure requirement as follows: 1) changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at end of reporting period; 2) range and weighted average (or other reasonable quantitative measurement) of significant unobservable inputs used to develop Level 3 fair value measurements.


14
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In August, FASB issued ASU 2018-14 Compensation-Retirement Benefits - Defined Benefit Plans-General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This update removed disclosures for 1) amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year, 2) amount and timing of plan assets expected to be returned to the employer, 3) related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan, 4) the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of the net periodic benefit costs and (b) benefit obligation for postretirement health care benefits. This update also added disclosures as follow: 1) weighted-average interest crediting rates for cash balance plans and other plans with promised crediting rates, 2) explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. Finally, this update clarified that the following information for defined benefit pension plans should be disclosed: 1) projected benefit obligation (PBO) and fair value of plan assets for plans with PBO in excess of plan assets. 2) accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.

In August, the SEC released a final rule updating disclosure requirements, Disclosure Update and Simplification, which resulted in the additional interim disclosure of an analysis of changes in stockholders’ equity to be required for the current and comparative quarter and year-to-date interim periods. Registrants will be required to provide an analysis of changes in each caption of stockholders’ equity and noncontrolling interests, which will need to be accompanied by dividends per share and in the aggregate for each class of shares. The disclosure must be presented in the form of a reconciliation, either as a separate statement or in the footnotes. The amendments will be effective for interim periods beginning after November 5, 2018.

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.

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

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.
In February 2016, the FASB issued new guidance on leasing transactions (ASU 2016-02, Leases - Topic 842). The new guidance is effective for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and requires a modified retrospective transition approach (subject to optional practical expedients). The new guidance requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. Leases would be classified as finance or operating leases and both types of leases will be recognized on the balance sheet. Lessor accounting will remain largely unchanged from current guidance except for certain targeted changes. The new guidance will also require new qualitative and quantitative disclosures. Early adoption is permitted. The Company does not expect a significant impact to the financial statements resulting from this change.
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.

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.

16
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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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.


(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. In the third quarter of 2018, National Western declared a $3.0 million dividend to NWLGI which was subsequently paid on October 17, 2018. During the second quarter of 2017 National Western declared and paid a $4.0 million dividend to NWLGI. During the third quarter of 2017 National Western declared a $3.0 million dividend payable to NWLGI which was subsequently paid on October 16, 2017.

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


NWLGI did not declare or pay cash dividends on its common shares during the nine months ended September 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. The Company currently has no share-based compensation awards outstanding that could be redeemed for shares of common stock.


18
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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 September 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
$
35,641

 
 
 
21,813

 
 
Dividends - Class A shares
—

 
 
 
—

 
 
Dividends - Class B shares
—

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
35,641

 
 
 
21,813

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
—

 
—

Allocation of undistributed income
34,633

 
1,008

 
21,196

 
617

 
 
 
 
 
 
 
 
Net income
$
34,633

 
1,008

 
21,196

 
617

 
 
 
 
 
 
 
 
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
$
10.08

 
5.04

 
6.17

 
3.08

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
10.08

 
5.04

 
6.17

 
3.08


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

 
Nine Months Ended September 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
$
94,982

 
 
 
70,834

 
 
Dividends - Class A shares
—

 
 
 
—

 
 
Dividends - Class B shares
—

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Undistributed income
$
94,982

 
 
 
70,834

 
 
 
 
 
 
 
 
 
 
Allocation of net income:
 

 
 
 
 

 
 
Dividends
$
—

 
—

 
—

 
—

Allocation of undistributed income
92,296

 
2,686

 
68,831

 
2,003

 
 
 
 
 
 
 
 
Net income
$
92,296

 
2,686

 
68,831

 
2,003

 
 
 
 
 
 
 
 
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
$
26.86

 
13.43

 
20.03

 
10.02

 
 
 
 
 
 
 
 
Diluted Earnings Per Share
$
26.86

 
13.43

 
20.03

 
10.02



20
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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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Service cost
$
28

 
27

 
84

 
81

Interest cost
225

 
240

 
675

 
718

Expected return on plan assets
(325
)
 
(306
)
 
(975
)
 
(920
)
Amortization of prior service cost
—

 
—

 
—

 
—

Amortization of net loss
131

 
159

 
393

 
477

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
59

 
120

 
177

 
356


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 September 30, 2018. As of September 30, 2018, the company had $0.1 million 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").


21
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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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Service cost
$
90

 
204

 
270

 
612

Interest cost
213

 
347

 
639

 
1,041

Amortization of prior service cost
15

 
15

 
45

 
45

Amortization of net loss
176

 
818

 
528

 
2,455

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
494

 
1,384

 
1,482

 
4,153


The company expects to contribute $2.0 million to these plans in 2018.  As of September 30, 2018, the company has contributed $1.6 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Interest cost
$
40

 
35

 
120

 
104

Amortization of prior service cost
26

 
25

 
78

 
77

Amortization of net loss
38

 
10

 
113

 
31

 
 
 
 
 
 
 
 
Net periodic benefit cost
$
104

 
70

 
311

 
212


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



22
Table of Contents

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. As disclosed in the Form 10-Q filed for the quarter ended March 31, 2018, National Western discontinued accepting applications for the company's international products from foreign residents in May 2018. A summary of segment information as of September 30, 2018 and December 31, 2017 for the Condensed Consolidated Balance Sheet items and for the three and nine months ended September 30, 2018 and September 30, 2017 for the Condensed Consolidated Statement of Earnings is provided below.

Condensed Consolidated Balance Sheet Items:

 
September 30, 2018
 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred policy acquisition costs and sales inducements
$
117,900

 
241,823

 
620,366

 
—

 
980,089

Total segment assets
1,217,781

 
1,227,365

 
8,922,137

 
365,195

 
11,732,478

Future policy benefits
1,045,922

 
918,658

 
7,970,775

 
—

 
9,935,355

Other policyholder liabilities
14,556

 
21,898

 
93,075

 
—

 
129,529


 
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



23
Table of Contents

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

Condensed Consolidated Statement of Earnings:


Three Months Ended September 30, 2018
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
10,060

 
26,839

 
5,597

 
—

 
42,496

Net investment income
26,912

 
19,731

 
123,525

 
5,385

 
175,553

Other revenues
11

 
5

 
11

 
5,084

 
5,111

 
 
 
 
 
 
 
 
 
 
Total revenues
36,983

 
46,575

 
129,133

 
10,469

 
223,160

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
5,839

 
6,609

 
(6,704
)
 
—

 
5,744

Amortization of deferred policy acquisition costs
2,978

 
6,307

 
17,490

 
—

 
26,775

Universal life and annuity contract interest
22,355

 
30,596

 
71,194

 
—

 
124,145

Other operating expenses
5,215

 
4,982

 
8,719

 
5,121

 
24,037

Federal income taxes (benefit)
122

 
(322
)
 
7,714

 
1,101

 
8,615

 
 
 
 
 
 
 
 
 
 
Total expenses
36,509

 
48,172

 
98,413

 
6,222

 
189,316

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
474

 
(1,597
)
 
30,720

 
4,247

 
33,844

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
29,775

 
82,218

 
18,042

 
—

 
130,035

Net investment income
41,131

 
32,305

 
263,983

 
20,681

 
358,100

Other revenues
12

 
39

 
48

 
15,297

 
15,396

 
 
 
 
 
 
 
 
 
 
Total revenues
70,918

 
114,562

 
282,073

 
35,978

 
503,531

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
15,751

 
16,872

 
11,984

 
—

 
44,607

Amortization of deferred acquisition costs
8,362

 
21,023

 
60,688

 
—

 
90,073

Universal life and annuity contract interest
29,401

 
37,046

 
116,869

 
—

 
183,316

Other operating expenses
15,368

 
15,991

 
25,741

 
15,367

 
72,467

Federal income taxes (benefit)
405

 
4,701

 
13,290

 
4,100

 
22,496

 
 
 
 
 
 
 
 
 
 
Total expenses
69,287

 
95,633

 
228,572

 
19,467

 
412,959

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
1,631

 
18,929

 
53,501

 
16,511

 
90,572


24
Table of Contents

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


Three Months Ended September 30, 2017
 
Domestic
Life
Insurance
 
International
 Life
Insurance
 
Annuities
 
All
 Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
9,907

 
30,353

 
5,293

 
—

 
45,553

Net investment income
17,385

 
15,711

 
114,123

 
4,472

 
151,691

Other revenues
11

 
26

 
26

 
4,609

 
4,672

 
 
 
 
 
 
 
 
 
 
Total revenues
27,303

 
46,090

 
119,442

 
9,081

 
201,916

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
3,483

 
8,437

 
9,095

 
—

 
21,015

Amortization of deferred acquisition costs
2,517

 
(21,585
)
 
37,790

 
—

 
18,722

Universal life and annuity contract interest
14,119

 
9,112

 
84,568

 
—

 
107,799

Other operating expenses
4,086

 
5,661

 
8,714

 
4,135

 
22,596

Federal income taxes (benefit)
1,061

 
15,473

 
(7,007
)
 
1,792

 
11,319

 
 
 
 
 
 
 
 
 
 
Total expenses
25,266

 
17,098

 
133,160

 
5,927

 
181,451

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
2,037

 
28,992

 
(13,718
)
 
3,154

 
20,465


 
Nine Months Ended September 30, 2017
 
Domestic
Life
Insurance
 
International
Life
Insurance
 
Annuities
 
All
Others
 
Totals
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums and contract revenues
$
27,822

 
91,563

 
16,583

 
—

 
135,968

Net investment income
51,998

 
48,581

 
346,031

 
19,435

 
466,045

Other revenues
30

 
73

 
90

 
13,521

 
13,714

 
 
 
 
 
 
 
 
 
 
Total revenues
79,850

 
140,217

 
362,704

 
32,956

 
615,727

 
 
 
 
 
 
 
 
 
 
Life and other policy benefits
13,850

 
19,399

 
25,377

 
—

 
58,626

Amortization of deferred acquisition costs
8,300

 
(7,874
)
 
85,566

 
—

 
85,992

Universal life and annuity contract interest
41,576

 
36,871

 
221,415

 
—

 
299,862

Other operating expenses
13,975

 
18,846

 
28,588

 
12,622

 
74,031

Federal income taxes (benefit)
740

 
25,125

 
605

 
7,001

 
33,471

 
 
 
 
 
 
 
 
 
 
Total expenses
78,441

 
92,367

 
361,551

 
19,623

 
551,982

 
 
 
 
 
 
 
 
 
 
Segment earnings (loss)
$
1,409

 
47,850

 
1,153

 
13,333

 
63,745

 
 
 
 
 
 
 
 
 
 

25
Table of Contents

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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
 
 
 
 
 
 
 
 
Premiums and Other Revenues:
 
 
 
 
 
 
 
Premiums and contract revenues
$
42,496

 
45,553

 
130,035

 
135,968

Net investment income
175,553

 
151,691

 
358,100

 
466,045

Other revenues
5,111

 
4,672

 
15,396

 
13,714

Realized gains (losses) on investments
2,275

 
2,074

 
5,582

 
10,906

 
 
 
 
 
 
 
 
Total condensed consolidated premiums and other revenues
$
225,435

 
203,990

 
509,113

 
626,633


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(In thousands)