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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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FORM 10-Q |
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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
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from __________ to __________ |
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Commission File Number: 000-55522 |
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NATIONAL WESTERN LIFE GROUP, INC. |
(Exact name of Registrant as specified in its charter) |
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DELAWARE | 47-3339380 |
(State of Incorporation) | (I.R.S. Employer Identification Number) |
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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 |
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September 30, 2018 (Unaudited) and December 31, 2017 | |
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For the Three Months Ended September 30, 2018 and 2017 (Unaudited) | |
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For the Nine Months Ended September 30, 2018 and 2017 (Unaudited) | |
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For the Three Months Ended September 30, 2018 and 2017 (Unaudited) | |
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For the Nine Months Ended September 30, 2018 and 2017 (Unaudited) | |
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For the Nine Months Ended September 30, 2018 and 2017 (Unaudited) | |
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For the Nine Months Ended September 30, 2018 and 2017 (Unaudited) | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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| (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 |
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Debt securities available for sale, at fair value (cost: $3,013,889 and $2,964,510) | 2,965,788 |
| | 3,041,131 |
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Mortgage loans, net of allowance for possible losses ($650 and $650) | 200,876 |
| | 208,249 |
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Policy loans | 54,474 |
| | 56,405 |
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Derivatives, index options | 136,435 |
| | 194,731 |
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Equity securities, at fair value (cost: $13,962 and $12,890) | 19,661 |
| | 18,478 |
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Other long-term investments | 54,861 |
| | 51,828 |
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Total investments | 10,713,126 |
| | 10,817,846 |
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Cash and cash equivalents | 155,381 |
| | 217,624 |
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Deferred policy acquisition costs | 842,601 |
| | 819,511 |
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Deferred sales inducements | 137,488 |
| | 135,570 |
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Accrued investment income | 101,063 |
| | 96,818 |
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Federal income tax receivable | — |
| | — |
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Other assets | 142,181 |
| | 137,725 |
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Total assets | $ | 12,091,840 |
| | 12,225,094 |
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See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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| (Unaudited) | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | September 30, 2018 | | December 31, 2017 |
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LIABILITIES: | | | |
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Future policy benefits: | | | |
Universal life and annuity contracts | $ | 9,799,833 |
| | 9,962,589 |
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Traditional life reserves | 135,522 |
| | 135,895 |
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Other policyholder liabilities | 129,529 |
| | 128,009 |
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Deferred Federal income tax liability | 18,356 |
| | 25,408 |
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Federal income tax payable | 2,005 |
| | 2,701 |
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Other liabilities | 123,578 |
| | 138,318 |
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Total liabilities | 10,208,823 |
| | 10,392,920 |
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COMMITMENTS AND CONTINGENCIES (Note 8) |
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STOCKHOLDERS’ EQUITY: | |
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Common stock: | |
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Class A - $.01 par value; 7,500,000 shares authorized; 3,436,166 issued and outstanding in 2018 and 2017 | 34 |
| | 34 |
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Class B - $.01 par value; 200,000 shares authorized, issued, and outstanding in 2018 and 2017 | 2 |
| | 2 |
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Additional paid-in capital | 41,716 |
| | 41,716 |
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Accumulated other comprehensive income (loss) | (34,272 | ) | | 14,281 |
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Retained earnings | 1,875,537 |
| | 1,776,141 |
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Total stockholders’ equity | 1,883,017 |
| | 1,832,174 |
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Total liabilities and stockholders' equity | $ | 12,091,840 |
| | 12,225,094 |
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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).
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)
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| 2018 | | 2017 |
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Premiums and other revenues: | | | |
Universal life and annuity contract charges | $ | 38,287 |
| | 40,268 |
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Traditional life premiums | 4,209 |
| | 5,285 |
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Net investment income | 175,553 |
| | 151,691 |
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Other revenues | 5,111 |
| | 4,672 |
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Net realized investment gains (losses): | |
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Total other-than-temporary impairment (“OTTI”) gains (losses) | 3 |
| | 26 |
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Portion of OTTI (gains) losses recognized in other comprehensive income | (3 | ) | | (26 | ) |
Net OTTI losses recognized in earnings | — |
| | — |
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Other net investment gains (losses) | 2,275 |
| | 2,074 |
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Total net realized investment gains (losses) | 2,275 |
| | 2,074 |
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Total revenues | 225,435 |
| | 203,990 |
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Benefits and expenses: | |
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Life and other policy benefits | 5,744 |
| | 21,015 |
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Amortization of deferred policy acquisition costs | 26,775 |
| | 18,722 |
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Universal life and annuity contract interest | 124,145 |
| | 107,799 |
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Other operating expenses | 24,037 |
| | 22,596 |
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Total benefits and expenses | 180,701 |
| | 170,132 |
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Earnings before Federal income taxes | 44,734 |
| | 33,858 |
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Federal income taxes | 9,093 |
| | 12,045 |
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Net earnings | $ | 35,641 |
| | 21,813 |
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Basic earnings per share: | |
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Class A | $ | 10.08 |
| | $ | 6.17 |
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Class B | $ | 5.04 |
| | $ | 3.08 |
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Diluted earnings per share: | |
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Class A | $ | 10.08 |
| | $ | 6.17 |
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Class B | $ | 5.04 |
| | $ | 3.08 |
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See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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)
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| 2018 | | 2017 |
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Premiums and other revenues: | | | |
Universal life and annuity contract charges | $ | 116,753 |
| | 122,329 |
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Traditional life premiums | 13,282 |
| | 13,639 |
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Net investment income | 358,100 |
| | 466,045 |
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Other revenues | 15,396 |
| | 13,714 |
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Net realized investment gains (losses): | |
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Total other-than-temporary impairment (“OTTI”) gains (losses) | 9 |
| | 69 |
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Portion of OTTI (gains) losses recognized in other comprehensive income | (9 | ) | | (69 | ) |
Net OTTI losses recognized in earnings | — |
| | — |
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Other net investment gains (losses) | 5,582 |
| | 10,906 |
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Total net realized investment gains (losses) | 5,582 |
| | 10,906 |
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Total revenues | 509,113 |
| | 626,633 |
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Benefits and expenses: | |
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Life and other policy benefits | 44,607 |
| | 58,626 |
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Amortization of deferred policy acquisition costs | 90,073 |
| | 85,992 |
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Universal life and annuity contract interest | 183,316 |
| | 299,862 |
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Other operating expenses | 72,467 |
| | 74,031 |
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Total benefits and expenses | 390,463 |
| | 518,511 |
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Earnings before Federal income taxes | 118,650 |
| | 108,122 |
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Federal income taxes | 23,668 |
| | 37,288 |
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Net earnings | $ | 94,982 |
| | 70,834 |
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Basic earnings per share: | |
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Class A | $ | 26.86 |
| | $ | 20.03 |
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Class B | $ | 13.43 |
| | $ | 10.02 |
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Diluted earnings per share: | |
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Class A | $ | 26.86 |
| | $ | 20.03 |
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Class B | $ | 13.43 |
| | $ | 10.02 |
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See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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)
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| 2018 | | 2017 |
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Net earnings | $ | 35,641 |
| | 21,813 |
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Other comprehensive income (loss), net of effects of deferred costs and taxes: | |
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Unrealized gains (losses) on securities: | |
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Net unrealized holding gains (losses) arising during period | (1,416 | ) | | 2,212 |
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Net unrealized liquidity gains (losses) | — |
| | 9 |
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Reclassification adjustment for net amounts included in net earnings | (936 | ) | | (988 | ) |
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Net unrealized gains (losses) on securities | (2,352 | ) | | 1,233 |
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Foreign currency translation adjustments | 20 |
| | 166 |
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Benefit plans: | |
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Amortization of net prior service cost and net gain (loss) | 2,801 |
| | (910 | ) |
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Other comprehensive income (loss) | 469 |
| | 489 |
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Comprehensive income (loss) | $ | 36,110 |
| | 22,302 |
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See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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)
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| 2018 | | 2017 |
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Net earnings | $ | 94,982 |
| | 70,834 |
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Other comprehensive income, net of effects of deferred costs and taxes: | |
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Unrealized gains (losses) on securities: | |
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Net unrealized holding gains (losses) arising during period | (51,238 | ) | | 15,479 |
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Net unrealized liquidity gains (losses) | 2 |
| | 22 |
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Reclassification adjustment for net amounts included in net earnings | (2,533 | ) | | (2,746 | ) |
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Net unrealized gains (losses) on securities | (53,769 | ) | | 12,755 |
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Foreign currency translation adjustments | 1,227 |
| | (5 | ) |
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Benefit plans: | |
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Amortization of net prior service cost and net gain (loss) | 8,403 |
| | (2,730 | ) |
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Other comprehensive income (loss) | (44,139 | ) | | 10,020 |
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Comprehensive income (loss) | $ | 50,843 |
| | 80,854 |
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See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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) |
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| 2018 | | 2017 |
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Common stock: | | | |
Balance at beginning of period | $ | 36 |
| | 36 |
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Shares exercised under stock option plan | — |
| | — |
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Balance at end of period | 36 |
| | 36 |
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Additional paid-in capital: | |
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Balance at beginning of period | 41,716 |
| | 41,716 |
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Shares exercised under stock option plan | — |
| | — |
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Balance at end of period | 41,716 |
| | 41,716 |
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Accumulated other comprehensive income: | |
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Unrealized gains (losses) on non-impaired securities: | |
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Balance at beginning of period | 33,664 |
| | 22,813 |
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Change in unrealized gains (losses) during period, net of tax | (53,771 | ) | | 12,733 |
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Cumulative effect of change in accounting principle, net of tax (See Note 2) | (4,414 | ) | | — |
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Balance at end of period | (24,521 | ) | | 35,546 |
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Unrealized losses on impaired held to maturity securities: | |
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Balance at beginning of period | (10 | ) | | (203 | ) |
Amortization | 7 |
| | 45 |
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Other-than-temporary impairments, non-credit, net of tax | — |
| | — |
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Additional credit loss on previously impaired securities | — |
| | — |
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Change in shadow deferred policy acquisition costs | (4 | ) | | (23 | ) |
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Balance at end of period | (7 | ) | | (181 | ) |
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Unrealized losses on impaired available for sale securities: | |
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Balance at beginning of period | (1 | ) | | (1 | ) |
Other-than-temporary impairments, non-credit, net of tax | — |
| | — |
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Change in shadow deferred policy acquisition costs | (1 | ) | | — |
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Recoveries, net of tax | — |
| | — |
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Balance at end of period | (2 | ) | | (1 | ) |
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| Continued on Next Page | |
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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) |
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| 2018 | | 2017 |
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Foreign currency translation adjustments: | |
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Balance at beginning of period | 3,223 |
| | 2,661 |
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Change in translation adjustments during period | 1,227 |
| | (5 | ) |
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Balance at end of period | 4,450 |
| | 2,656 |
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Benefit plan liability adjustment: | |
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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 | ) |
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Balance at end of period | (14,192 | ) | | (17,448 | ) |
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Accumulated other comprehensive income (loss) at end of period | (34,272 | ) | | 20,572 |
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Retained earnings: | | | |
Balance at beginning of period | 1,776,141 |
| | 1,669,524 |
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Cumulative effect of change in accounting principle, net of tax (See Note 2) | 4,414 |
| | — |
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Net earnings | 94,982 |
| | 70,834 |
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Stockholder dividends | — |
| | — |
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Balance at end of period | 1,875,537 |
| | 1,740,358 |
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Total stockholders' equity | $ | 1,883,017 |
| | 1,802,682 |
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See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2018 and 2017 (Unaudited) (In thousands) |
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| 2018 | | 2017 |
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Cash flows from operating activities: | | | |
Net earnings | $ | 94,982 |
| | 70,834 |
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Adjustments to reconcile net earnings to net cash from operating activities: | |
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Universal life and annuity contract interest | 183,316 |
| | 299,862 |
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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 |
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Depreciation and amortization | 8,769 |
| | 7,379 |
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(Increase) decrease in value of equity securities | (254 | ) | | — |
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(Increase) decrease in value of derivatives | (35,581 | ) | | (138,552 | ) |
(Increase) decrease in deferred policy acquisition and sales inducement costs | 31,645 |
| | 19,895 |
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(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 |
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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 |
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Net cash provided by operating activities | 222,102 |
| | 193,394 |
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Cash flows from investing activities: | |
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Proceeds from sales of: | |
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Debt securities held to maturity | — |
| | — |
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Debt securities available for sale | 13,098 |
| | 22,184 |
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Other investments | 2,749 |
| | 5,405 |
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Proceeds from maturities and redemptions of: | |
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Debt securities held to maturity | 360,036 |
| | 303,081 |
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Debt securities available for sale | 168,638 |
| | 222,379 |
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Derivatives, index options | 160,094 |
| | 151,298 |
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Property and equipment | 8 |
| | 2,731 |
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Purchases of: | |
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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 | ) |
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| 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) |
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| 2018 | | 2017 |
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Principal payments on mortgage loans | 32,374 |
| | 24,199 |
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Cost of mortgage loans acquired | (24,803 | ) | | (38,166 | ) |
Decrease (increase) in policy loans | 1,931 |
| | 1,233 |
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Net cash provided by/(used in) investing activities | 20,552 |
| | 66,047 |
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Cash flows from financing activities: | |
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Deposits to account balances for universal life and annuity contracts | 442,795 |
| | 546,966 |
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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 |
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Cash and cash equivalents at beginning of period | 217,624 |
| | 51,247 |
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Cash and cash equivalents at end of period | $ | 155,381 |
| | 170,560 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
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Cash paid (received) during the period for: | |
| | |
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Interest | $ | 30 |
| | 30 |
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Income taxes | $ | 19,683 |
| | 60,304 |
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| | | |
Noncash operating activities: | | | |
Deferral of sales inducements | $ | (8,152 | ) | | (9,696 | ) |
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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(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 |
|
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.
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.
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.
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.
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.
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.
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.
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 |
|
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 |
|
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").
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.
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 |
|
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 |
|
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 |
|
| | | | | | | | | |
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) |
| | |