nwl10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2007
 
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: 2-17039
 
 
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
 
 
   
COLORADO
84-0467208
(State of Incorporation)
(I.R.S. Employer Identification Number)
   
850 EAST ANDERSON LANE
 
AUSTIN, TEXAS 78752-1602
(512) 836-1010
(Address of Principal Executive Offices)
(Telephone Number)
   
   
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes þ   No o
   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated file" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o     Accelerated filer  þ     Non-accelerated filer   o
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No þ
   
As of August 7, 2007, the number of shares of Registrant's common stock outstanding was:   Class A – 3,422,324 and Class B - 200,000.





   
 
Page
   
3
   
3
   
3
June 30, 2007 (Unaudited) and December 31, 2006
 
   
5
For the Three Months Ended June 30, 2007 and 2006 (Unaudited)
 
   
6
For the Six Months Ended June 30, 2007 and 2006 (Unaudited)
 
   
7
For the Three Months Ended June 30, 2007 and 2006 (Unaudited)
 
   
8
For the Six Months Ended June 30, 2007 and 2006 (Unaudited)
 
   
9
For the Six Months Ended June 30, 2007 and 2006 (Unaudited)
 
   
10
For the Six Months Ended June 30, 2007 and 2006 (Unaudited)
 
   
12
   
23
Financial Condition and Results of Operations
 
   
46
   
46
   
46
   
46
   
46
   
47
   
47
   
47
   
48

 
 
   
 
   
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
 
 
(In thousands)
 
             
             
   
(Unaudited)
       
   
June 30,
   
December 31,
 
   
2007
   
2006
 
ASSETS
           
Investments:
           
Securities held to maturity, at amortized cost
  $
3,708,513
     
3,603,434
 
Securities available for sale, at fair value
   
1,867,565
     
1,902,568
 
Mortgage loans, net of allowances for possible losses ($2,100)
   
104,085
     
103,325
 
Policy loans
   
85,279
     
86,856
 
Derivatives
   
74,886
     
72,012
 
Other long-term investments
   
21,604
     
22,822
 
                 
Total investments
   
5,861,932
     
5,791,017
 
                 
Cash and short-term investments
   
28,566
     
49,901
 
Deferred policy acquisition costs
   
655,015
     
643,964
 
Deferred sales inducements
   
99,622
     
93,139
 
Accrued investment income
   
64,452
     
64,393
 
Federal income tax receivable
   
8,118
     
-
 
Other assets
   
46,688
     
51,029
 
                 
    $
6,764,393
     
6,693,443
 
                 
                 
 Note: The condensed consolidated balance sheet at December 31, 2006,                
has been derived from the audited consolidated financial statements as of that date.
               
                 
See accompanying notes to condensed consolidated financial statements.
               

 
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except share amounts)
 
             
             
   
(Unaudited)
       
   
June 30,
   
December 31,
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
2007
   
2006
 
             
LIABILITIES:
           
             
Future policy benefits:
           
Traditional life and annuity contracts
  $
139,109
     
138,382
 
Universal life and annuity contracts
   
5,434,960
     
5,395,075
 
Other policyholder liabilities
   
123,517
     
112,449
 
Federal income tax liability:
               
Current
   
-
     
1,666
 
Deferred
   
32,060
     
32,207
 
Other liabilities
   
74,291
     
80,680
 
                 
Total liabilities
   
5,803,937
     
5,760,459
 
                 
COMMITMENTS AND CONTINGENCIES (Note 5 and 9)
               
                 
STOCKHOLDERS' EQUITY:
               
                 
Common stock:
               
Class A - $1 par value; 7,500,000 shares authorized; 3,422,324 and
               
3,420,824 issued and outstanding in 2007 and 2006
   
3,422
     
3,421
 
Class B - $1 par value; 200,000 shares authorized, issued,
               
and outstanding in 2007 and 2006
   
200
     
200
 
Additional paid-in capital
   
36,236
     
36,110
 
Accumulated other comprehensive loss
    (14,714 )     (3,731 )
Retained earnings
   
935,312
     
896,984
 
                 
Total stockholders' equity
   
960,456
     
932,984
 
                 
    $
6,764,393
     
6,693,443
 
                 
 Note: The condensed consolidated balance sheet at December 31, 2006,                
 has been derived from the audited consolidated financial statements as of that date.                
                 
See accompanying notes to condensed consolidated financial statements.
               
 

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
 
 
For the Three Months Ended June 30, 2007 and 2006
 
(Unaudited)
 
(In thousands, except per share amounts)
 
             
             
   
2007
   
2006
 
             
Premiums and other revenue:
           
Traditional life and annuity premiums
  $
4,586
     
4,097
 
Universal life and annuity contract revenues
   
28,653
     
25,598
 
Net investment income
   
107,932
     
66,323
 
Other income
   
3,359
     
3,009
 
Realized gains on investments
   
4,165
     
1,616
 
                 
Total premiums and other revenue
   
148,695
     
100,643
 
                 
Benefits and expenses:
               
Life and other policy benefits
   
10,437
     
7,646
 
Amortization of deferred acquisition costs
   
25,637
     
22,715
 
Universal life and annuity contract interest
   
67,385
     
23,565
 
Other operating expenses
   
16,367
     
13,724
 
                 
Total benefits and expenses
   
119,826
     
67,650
 
                 
Earnings before Federal income taxes
   
28,869
     
32,993
 
                 
Provision for Federal income taxes:
               
Current
   
5,073
     
9,286
 
Deferred
   
1,945
     
1,480
 
                 
Total Federal income taxes
   
7,018
     
10,766
 
                 
Net earnings
  $
21,851
     
22,227
 
                 
                 
Basic Earnings Per Share
  $
6.03
     
6.13
 
                 
                 
Diluted Earnings Per Share
  $
5.98
     
6.07
 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               
 

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
 
 
For the Six Months Ended June 30, 2007 and 2006
 
(Unaudited)
 
(In thousands, except per share amounts)
 
             
             
   
2007
   
2006
 
             
Premiums and other revenue:
           
Traditional life and annuity premiums
  $
9,319
     
8,088
 
Universal life and annuity contract revenues
   
57,449
     
52,554
 
Net investment income
   
184,958
     
165,010
 
Other income
   
6,675
     
8,207
 
Realized gains on investments
   
4,406
     
3,039
 
                 
Total premiums and other revenue
   
262,807
     
236,898
 
                 
Benefits and expenses:
               
Life and other policy benefits
   
21,411
     
19,088
 
Amortization of deferred acquisition costs
   
49,422
     
45,013
 
Universal life and annuity contract interest
   
104,818
     
79,613
 
Other operating expenses
   
30,483
     
39,098
 
                 
Total benefits and expenses
   
206,134
     
182,812
 
                 
Earnings before Federal income taxes
   
56,673
     
54,086
 
                 
Provision (benefit) for Federal income taxes:
               
Current
   
9,387
     
20,773
 
Deferred
   
6,763
      (2,959 )
                 
Total Federal income taxes
   
16,150
     
17,814
 
                 
Net earnings
  $
40,523
     
36,272
 
                 
                 
Basic Earnings Per Share
  $
11.19
     
10.01
 
                 
                 
Diluted Earnings Per Share
  $
11.09
     
9.91
 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               
 

 
 
For the Three Months Ended June 30, 2007 and 2006
 
(Unaudited)
 
(In thousands)
 
             
             
   
2007
   
2006
 
             
Net earnings
  $
21,851
     
22,227
 
                 
Other comprehensive income (loss), net of effects of
               
deferred policy acquisition costs and taxes:
               
Net unrealized losses on securities:
               
Net unrealized holding losses arising during period
    (13,326 )     (9,898 )
Reclassification adjustment for gains included in net earnings
    (2,697 )     (806 )
Amortization of net unrealized gains
               
related to transferred securities
   
34
     
1
 
                 
Net unrealized losses on securities
    (15,989 )     (10,703 )
                 
Foreign currency translation adjustments
    (99 )    
100
 
Benefit plan adjustment
   
618
     
-
 
                 
Other comprehensive loss
    (15,470 )     (10,603 )
                 
Comprehensive income
  $
6,381
     
11,624
 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               
 

 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
For the Six Months Ended June 30, 2007 and 2006
 
(Unaudited)
 
(In thousands)
 
             
             
   
2007
   
2006
 
             
Net earnings
  $
40,523
     
36,272
 
                 
Other comprehensive income (loss), net of effects of
               
deferred policy acquisition costs and taxes:
               
Net unrealized losses on securities:
               
Net unrealized holding losses arising during period
    (8,605 )     (20,260 )
Reclassification adjustment for gains included in net earnings
    (2,864 )     (1,698 )
Amortization of net unrealized gains (losses)
               
related to transferred securities
   
54
      (96 )
                 
Net unrealized losses on securities
    (11,415 )     (22,054 )
                 
Foreign currency translation adjustments
    (186 )    
165
 
Benefit plan adjustment
   
618
     
-
 
                 
Other comprehensive loss
    (10,983 )     (21,889 )
                 
Comprehensive income
  $
29,540
     
14,383
 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               
 

 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
For the Six Months Ended June 30, 2007 and 2006
 
(Unaudited)
 
(In thousands)
 
             
             
   
2007
   
2006
 
Common stock:
           
Balance at beginning of year
  $
3,621
     
3,613
 
Shares exercised under stock option plan
   
1
     
8
 
                 
Balance at end of period
   
3,622
     
3,621
 
                 
Additional paid-in capital:
               
Balance at beginning of year
   
36,110
     
37,923
 
Shares exercised under the stock option plan
   
126
     
503
 
Adjustment for stock option liability classification
   
-
      (719 )
                 
Balance at end of period
   
36,236
     
37,707
 
                 
Accumulated other comprehensive income:
               
Unrealized gains (losses) on securities:
               
Balance at beginning of year
   
3,148
     
10,401
 
Change in unrealized losses during period
    (11,415 )     (22,054 )
                 
Balance at end of period
    (8,267 )     (11,653 )
                 
Foreign currency translation adjustments:
               
Balance at beginning of year
   
3,122
     
3,300
 
Change in translation adjustments during period
    (186 )    
165
 
                 
Balance at end of period
   
2,936
     
3,465
 
                 
Benefit plan liability adjustment:
               
Balance at beginning of year
    (10,001 )     (3,137 )
Change in benefit plan liability adjustment during period
   
618
     
-
 
                 
Balance at end of period
    (9,383 )     (3,137 )
                 
Accumulated other comprehensive loss at end of period
    (14,714 )     (11,325 )
                 
Retained earnings:
               
Balance at beginning of year
   
896,984
     
821,908
 
Cumulative effect of change in accounting principle, net of tax
    (2,195 )    
-
 
Net earnings
   
40,523
     
36,272
 
                 
Balance at end of period
   
935,312
     
858,180
 
                 
Total stockholders' equity
  $
960,456
     
888,183
 
                 
                 
See accompanying notes to condensed consolidated financial statements.
               
 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2007 and 2006
 
(Unaudited)
 
(In thousands)
 
             
             
   
2007
   
2006
 
             
Cash flows from operating activities:
           
Net earnings
  $
40,523
     
36,272
 
Adjustments to reconcile net earnings to net cash
               
from operating activities:
               
Universal life and annuity contract interest
   
104,818
     
79,613
 
Surrender charges and other policy revenues
    (17,630 )     (16,283 )
Realized gains on investments
    (4,406 )     (3,039 )
Accrual and amortization of investment income
    (2,641 )     (2,655 )
Depreciation and amortization
   
707
     
770
 
(Increase) decrease in value of derivatives
    (78 )    
6,905
 
Increase in deferred policy acquisition and sales inducement costs
    (4,601 )     (2,817 )
Increase in accrued investment income
    (59 )     (2,101 )
(Increase) decrease in other assets
   
1,157
      (10,575 )
Increase in liabilities for future policy benefits
   
727
     
226
 
Increase in other policyholder liabilities
   
11,068
     
13,002
 
Decrease in Federal income tax liability
    (2,365 )     (2,687 )
Increase (decrease) in other liabilities
    (10,946 )    
16,024
 
Other
   
1,802
      (1,852 )
                 
Net cash provided by operating activities
   
118,076
     
110,803
 
                 
Cash flows from investing activities:
               
Proceeds from sales of:
               
Securities held to maturity
   
5,175
     
-
 
Securities available for sale
   
11,562
     
21,368
 
Other investments
   
12,766
     
21,759
 
Proceeds from maturities and redemptions of:
               
Securities held to maturity
   
73,694
     
105,889
 
Securities available for sale
   
186,519
     
52,497
 
Derivatives
   
8,570
     
-
 
Purchases of:
               
Securities held to maturity
    (182,115 )     (197,703 )
Securities available for sale
    (174,781 )     (111,436 )
Other investments
    (24,947 )     (20,780 )
Principal payments on mortgage loans
   
15,275
     
7,547
 
Cost of mortgage loans acquired
    (15,932 )     (2,715 )
Decrease in policy loans
    (1,446 )     (117 )
Other
    (1,872 )     (538 )
                 
Net cash used in investing activities
    (87,532 )     (124,229 )
                 
                 
   
(Continued on next page)
 
 
 
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
 
For the Six Months Ended June 30, 2007 and 2006
 
(Unaudited)
 
(In thousands)
 
             
             
   
2007
   
2006
 
             
Cash flows from financing activities:
           
Deposits to account balances for universal life
           
and annuity contracts
  $
247,944
     
273,949
 
Return of account balances on universal life
               
and annuity contracts
    (299,755 )     (265,222 )
Issuance of common stock under stock option plan
   
127
     
511
 
                 
Net cash used in financing activities
    (51,684 )    
9,238
 
                 
Effect of foreign exchange
    (195 )    
1,239
 
                 
Net decrease in cash and short-term investments
    (21,335 )     (2,949 )
Cash and short-term investments at beginning of year
   
49,901
     
31,355
 
                 
Cash and short-term investments at end of period
  $
28,566
     
28,406
 
                 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
                 
Cash paid during the six month period for:
               
Interest
  $
20
     
20
 
Income taxes
   
19,097
     
21,915
 
                 
                 
                 
See accompanying notes to condensed consolidated financial statements.
 
 

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1)  CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements.  In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2007, and the results of its operations and its cash flows for the three months and six months ended June 30, 2007 and 2006.  The results of operations for the three months and six months ended June 30, 2007 and 2006 are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 accessible free of charge through the Company's internet site at www.nationalwesternlife.com or the Securities and Exchange Commission internet site at www.sec.gov.

The accompanying condensed consolidated financial statements include the accounts of National Western Life Insurance Company and its wholly-owned subsidiaries ("Company"), The Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., and NWL Financial, Inc.  All significant intercorporate transactions and accounts have been eliminated in consolidation.

Certain reclassifications have been made to the prior periods to conform to the reporting categories used in 2007.


(2)  CHANGES IN ACCOUNTING PRINCIPLES

In September 2005, the AICPA issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1") which is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB No. 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract.  The Company has an impact related to the adoption of SOP 05-1 for contracts which have annuitized and relative to reinstatements of contracts in that the unamortized deferred acquisition costs and deferred sales inducement assets must be written-off at the time of annuitization and may not be continued related to reinstatements.  SOP 05-1 results in changes in assumptions relative to estimated gross profits which affects unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement balances as of the beginning of the year.  The effect of this SOP on beginning retained earnings as of January 1, 2007 was a decrease of $2.2 million, net of tax, as detailed below.

   
Amounts
 
   
(In thousands)
 
       
Write-off of deferred acquisition cost
  $
3,321
 
Adjustment to deferred annuity revenue
   
56
 
     
3,377
 
         
Federal income tax
    (1,182 )
         
Cumulative effect of change in accounting for
       
internal replacements and investment contracts
  $
2,195
 


The FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 ("FIN 48"), dated June, 2006. The interpretation requires public companies to recognize the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. The amount recognized would be the amount that represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized. A liability would be recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) on the excess. FIN 48 requires a tabular reconciliation of the change in the aggregate unrecognized tax benefits claimed, or expected to be claimed, in tax returns and disclosure relating to accrued interest and penalties for unrecognized tax benefits. Discussion is required for those uncertain tax positions where it is reasonably possible that the estimate of the tax benefit will change significantly in the next 12 months. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on the Company's consolidated financial statements.

On February 16, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for Derivatives and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Hybrid financial instruments are single financial instruments that contain an embedded derivative. Under SFAS No. 155, entities can elect to record certain hybrid financial instruments at fair value as individual financial instruments. Prior to this amendment, certain hybrid financial instruments were required to be separated into two instruments – a derivative and host – and generally only the derivative was recorded at fair value. SFAS No. 155 also requires that beneficial interests in securitized assets be evaluated for either freestanding or embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired or issued after January 1, 2007.  SFAS No. 155 did not have a material effect on the Company's consolidated financial statements on the date of adoption.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Company plans to adopt this guidance effective January 1, 2008. The Company is currently assessing the impact of SFAS No. 157 on the Company's consolidated financial position and results of operations.

In February of 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  The Company is currently assessing the impact of SFAS No. 159.


(3)  STOCKHOLDERS' EQUITY

The Company 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 Company paid no cash dividends on common stock during the six months ended June 30, 2007 and 2006, as it generally follows a policy of retaining any earnings in order to finance the development of business and to meet regulatory requirements for capital.


(4)  EARNINGS PER SHARE

Basic earnings per share of common stock are computed by dividing net income by the weighted-average basic common shares outstanding during the period.  Diluted earnings per share assumes the issuance of common shares applicable to stock options in the denominator.

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2007
   
2006
   
2007
   
2006
 
   
(In thousands, except per share data)
 
                         
Numerator for basic and diluted
                       
earnings per share:
                       
Earnings available to common stockholders
                       
before and after assumed conversions
  $
21,851
     
22,227
     
40,523
     
36,272
 
                                 
                                 
Denominator:
                               
Basic earnings per share -
                               
weighted-average shares
   
3,622
     
3,628
     
3,622
     
3,623
 
                                 
Effect of dilutive stock options
   
28
     
37
     
31
     
38
 
                                 
Diluted earnings per share -
                               
adjusted weighted-average
                               
shares for assumed conversions
   
3,650
     
3,665
     
3,653
     
3,661
 
                                 
                                 
Basic earnings per share
  $
6.03
     
6.13
     
11.19
     
10.01
 
                                 
                                 
Diluted earnings per share
  $
5.98
     
6.07
     
11.09
     
9.91
 


(5)  PENSION AND OTHER POSTRETIREMENT PLANS

(A)  Defined Benefit Pension Plans

The Company sponsors a qualified defined benefit pension plan covering substantially all employees. The plan provides benefits based on the participants' years of service and compensation. The Company makes annual contributions to the plan that complies with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").  The following summarizes the components of net periodic benefit cost.

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2007
   
2006
   
2007
   
2006
 
   
(In thousands)
 
                         
Service cost
  $
187
     
172
     
360
     
343
 
Interest cost
   
288
     
243
     
543
     
487
 
Expected return on plan assets
    (313 )     (227 )     (550 )     (455 )
Amortization of prior service cost
   
1
     
1
     
2
     
2
 
Amortization of net loss
   
72
     
82
     
160
     
165
 
                                 
Net periodic benefit cost
  $
235
     
271
     
515
     
542
 

The Company expects to contribute $1.8 million to the plan in 2007.  As of June 30, 2007, the Company has contributed $0.7 million to the plan.


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

Effective July 1, 2005, the Company established a second non-qualified defined benefit plan for the benefit of the 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, the Company established a third non-qualified defined benefit plan for the benefit of the 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 summarizes the components of net periodic benefit costs for these non-qualified plans.

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2007
   
2006
   
2007
   
2006
 
   
(In thousands)
 
                         
Service cost
  $ (21 )    
324
     
386
     
648
 
Interest cost
   
304
     
73
     
481
     
146
 
Amortization of prior service cost
   
260
     
161
     
520
     
323
 
Amortization of net loss
   
156
     
-
     
202
     
-
 
                                 
Net periodic benefit cost
  $
699
     
558
     
1,589
     
1,117
 

The Company expects to contribute $1.4 million to these plans in 2007.  As of June 30, 2007, the Company has contributed $0.6 million to the plan.

(B)  Defined Benefit Postretirement Plans

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

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2007
   
2006
   
2007
   
2006
 
   
(In thousands)
 
                         
Interest cost
  $
41
     
25
     
70
     
50
 
Amortization of prior service cost
   
26
     
25
     
52
     
51
 
Amortization of net loss
   
15
     
-
     
15
     
-
 
                                 
Net periodic benefit cost
  $
82
     
50
     
137
     
101
 


As previously disclosed in its financial statements for the year ended December 31, 2006, the Company expects to contribute minimal amounts to the plan in 2007.


(6)  SEGMENT AND OTHER OPERATING INFORMATION

Under Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures About Segments of an Enterprise and Related Information, the Company defines its reportable operating segments as domestic life insurance, international life insurance, and annuities. These segments are organized based on product types and geographic marketing areas.  A summary of segment information for the quarters ended June 30, 2007 and 2006 is provided below.

Selected Segment Information.
                             
   
Domestic
   
International
                   
   
Life
   
Life
         
All
       
   
Insurance
   
Insurance
   
Annuities
   
Others
   
Totals
 
   
(In thousands)
 
                               
June 30, 2007:
                             
Selected Balance Sheet Items:
                         
Deferred policy acquisition
                             
costs and sales inducements
  $
54,622
     
185,507
     
514,508
     
-
     
754,637
 
Total segment assets
   
387,613
     
748,423
     
5,500,959
     
104,690
     
6,741,685
 
Future policy benefits
   
317,127
     
526,618
     
4,730,324
     
-
     
5,574,069
 
Other policyholder liabilities
   
11,517
     
21,093
     
90,907
     
-
     
123,517
 
                                         
Three Months Ended
                                       
June 30, 2007:
                                       
Condensed Income Statements:
                                       
Premiums and contract
                                       
revenues
  $
6,314
     
20,564
     
6,361
     
-
     
33,239
 
Net investment income
   
4,515
     
8,853
     
91,677
     
2,887
     
107,932
 
Other income
   
13
     
42
     
138
     
3,166
     
3,359
 
                                         
Total revenues
   
10,842
     
29,459
     
98,176
     
6,053
     
144,530
 
                                         
Life and other policy benefits
   
2,617
     
7,300
     
520
     
-
     
10,437
 
Amortization of deferred
                                       
policy acquisition costs
   
2,324
     
7,817
     
15,496
     
-
     
25,637
 
Universal life and annuity
                                       
contract interest
   
2,312
     
7,844
     
57,229
     
-
     
67,385
 
Other operating expenses
   
2,119
     
5,838
     
5,599
     
2,811
     
16,367
 
Federal income taxes (benefit)
   
509
      (112 )    
4,318
     
845
     
5,560
 
                                         
Total expenses
   
9,881
     
28,687
     
83,162
     
3,656
     
125,386
 
                                         
Segment earnings
  $
961
     
772
     
15,014
     
2,397
     
19,144
 
                                         




   
Domestic
   
International
                   
   
Life
   
Life
         
All
       
   
Insurance
   
Insurance
   
Annuities
   
Others
   
Totals
 
   
(In thousands)
 
                               
Six Months Ended
                             
June 30, 2007:
                             
Condensed Income Statements:
                             
Premiums and contract
                             
revenues
  $
12,647
     
42,235
     
11,886
     
-
     
66,768
 
Net investment income
   
9,193
     
14,615
     
157,430
     
3,720
     
184,958
 
Other income
   
27
     
87
     
366
     
6,195
     
6,675
 
                                         
Total revenues
   
21,867
     
56,937
     
169,682
     
9,915
     
258,401
 
                                         
Life and other policy benefits
   
8,758
     
10,977
     
1,676
     
-
     
21,411
 
Amortization of deferred
                                       
policy acquisition costs
   
4,188
     
15,980
     
29,254
     
-
     
49,422
 
Universal life and annuity
                                       
contract interest
   
4,632
     
13,096
     
87,090
     
-
     
104,818
 
Other operating expenses
   
4,831
     
10,148
     
10,080
     
5,424
     
30,483
 
Federal income taxes (benefit)
    (151 )    
1,883
     
11,621
     
1,255
     
14,608
 
                                         
Total expenses
   
22,258
     
52,084
     
139,721
     
6,679
     
220,742
 
                                         
Segment earnings (losses)
  $ (391 )    
4,853
     
29,961
     
3,236
     
37,659
 




Selected Segment Information.
                             
   
Domestic
   
International
                   
   
Life
   
Life
         
All
       
   
Insurance
   
Insurance
   
Annuities
   
Others
   
Totals
 
   
(In thousands)
 
                               
June 30, 2006:
                             
Selected Balance Sheet Items:
                         
Deferred policy acquisition
                             
costs and sales inducements
  $
46,914
     
176,709
     
517,180
     
-
     
740,803
 
Total segment assets
   
370,597
     
671,099
     
5,319,538
     
97,658
     
6,458,892
 
Future policy benefits