<PAGE> 1
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 COMMISSION FILE NO. 1-12785
NATIONWIDE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1486870
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(614) 249-7111
(Address, including zip code, and telephone
number, including area code, of Registrant's
principal executive offices)
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 the filing
requirements for at least the past 90 days.
YES X NO
--- ---
The number of shares outstanding of each of the registrant's classes of common
stock on November 1, 2000 was as follows:
CLASS A COMMON STOCK (par value $0.01 per share) - 23,998,407
shares issued and outstanding (Title of Class)
CLASS B COMMON STOCK (par value $0.01 per share) - 104,745,000
shares issued and outstanding (Title of Class)
<PAGE> 2
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Unaudited Consolidated Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 27
PART II OTHER INFORMATION
Item 1 Legal Proceedings 28
Item 2 Changes in Securities and Use of Proceeds 28
Item 3 Defaults Upon Senior Securities 28
Item 4 Submission of Matters to a Vote of Security Holders 29
Item 5 Other Information 29
Item 6 Exhibits and Reports on Form 8-K 29
SIGNATURE 30
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Policy charges $285.1 $231.5 $ 824.1 $ 655.9
Life insurance premiums 51.7 51.5 180.7 153.9
Net investment income 416.7 382.3 1,239.1 1,122.4
Net realized (losses) gains on investments (2.9) 6.2 (16.3) (7.1)
Other 50.7 44.9 147.1 120.9
--------- --------- --------- ---------
801.3 716.4 2,374.7 2,046.0
--------- --------- --------- ---------
BENEFITS AND EXPENSES
Interest credited to policyholder
account balances 292.4 272.4 878.1 803.6
Other benefits and claims 56.2 51.4 185.2 146.2
Policyholder dividends on participating policies 8.3 8.7 31.8 30.5
Amortization of deferred policy acquisition costs 91.0 68.5 263.0 196.1
Interest expense on debt and capital and
preferred securities of subsidiary trusts 11.8 11.8 35.4 35.4
Other operating expenses 177.4 148.1 510.3 409.9
--------- --------- --------- ---------
637.1 560.9 1,903.8 1,621.7
--------- --------- --------- ---------
Income before federal income tax expense 164.2 155.5 470.9 424.3
Federal income tax expense 47.5 52.2 145.2 141.8
--------- --------- --------- ---------
Net income $116.7 $103.3 $ 325.7 $ 282.5
========= ========= ========= =========
NET INCOME PER COMMON SHARE
Basic $ 0.91 $ 0.80 $ 2.53 $ 2.20
Diluted $ 0.91 $ 0.80 $ 2.53 $ 2.20
Weighted average common shares outstanding 128.7 128.5 128.7 128.5
Weighted average diluted common shares outstanding 129.0 128.6 128.8 128.6
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in millions, except per share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1999
2000
------------------ ------------------
<S> <C> <C>
ASSETS
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $14,851.7 in 2000; $15,379.8 in 1999) $ 14,857.3 $ 15,296.5
Equity securities (cost $116.7 in 2000; $87.8 in 1999) 132.5 96.4
Mortgage loans on real estate, net 6,113.0 5,786.3
Real estate, net 285.6 254.8
Policy loans 578.7 519.6
Other long-term investments 99.5 73.8
Short-term investments 752.5 560.5
------------------ ------------------
22,819.1 22,587.9
------------------ ------------------
Cash 27.6 22.5
Accrued investment income 248.7 238.7
Deferred policy acquisition costs 2,818.5 2,555.8
Other assets 618.1 493.8
Assets held in separate accounts 71,710.4 67,155.3
------------------ ------------------
$ 98,242.4 $ 93,054.0
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Future policy benefits and claims $ 21,864.8 $ 21,868.3
Long-term debt 298.4 298.4
Other liabilities 1,250.0 944.9
Liabilities related to separate accounts 71,710.4 67,155.3
------------------ ------------------
95,123.6 90,266.9
------------------ ------------------
NFS-obligated mandatorily redeemable capital and preferred securities of
subsidiary trusts holding solely junior subordinated debentures of NFS 300.0 300.0
------------------ ------------------
Shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50.0 million shares; no shares
issued and outstanding - -
Class A common stock, $0.01 par value. Authorized 750.0 million shares,
24.0 million shares issued and outstanding 0.2 0.2
Class B common stock, $0.01 par value. Authorized 750.0 million shares,
104.7 million shares issued and outstanding 1.0 1.0
Additional paid-in capital 640.4 634.9
Retained earnings 2,151.5 1,867.4
Accumulated other comprehensive income (loss) 30.8 (15.5)
Other (5.1) (0.9)
------------------ ------------------
2,818.8 2,487.1
------------------ ------------------
$ 98,242.4 $ 93,054.0
================== ==================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
ACCUMULATED
CLASS A CLASS B ADDITIONAL OTHER TOTAL
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS INCOME OTHER EQUITY
-------- ------ -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $ 0.2 $ 1.0 $ 629.5 $ 1,541.5 $ 275.9 $ (0.6) $ 2,447.5
Comprehensive income:
Net income -- -- -- 282.5 -- -- 282.5
Net unrealized losses on
securities available-for-sale
arising during the period -- -- -- -- (238.6) -- (238.6)
---------
Total comprehensive income 43.9
----------
Cash dividends declared -- -- -- (36.0) -- -- (36.0)
Other, net -- -- 4.6 (6.6) 23.5 (0.3) 21.2
-------- ------ -------- ---------- -------- -------- ----------
BALANCE, SEPTEMBER 30, 1999 $ 0.2 $ 1.0 $ 634.1 $ 1,781.4 $ 60.8 $ (0.9) $ 2,476.6
======== ====== ======== ========== ======== ======== ==========
BALANCE, JANUARY 1, 2000 $ 0.2 $ 1.0 $ 634.9 $ 1,867.4 $ (15.5) $ (0.9) $ 2,487.1
Comprehensive income:
Net income -- -- -- 325.7 -- -- 325.7
Net unrealized gains on
securities available-for-sale
arising during the period -- -- -- -- 46.3 -- 46.3
--------
Total comprehensive income 372.0
-------
Cash dividends declared -- -- -- (43.8) -- -- (43.8)
Other, net -- -- 5.5 2.2 -- (4.2) 3.5
-------- ------ -------- ---------- -------- -------- ---------
BALANCE, SEPTEMBER 30, 2000 $ 0.2 $ 1.0 $ 640.4 $ 2,151.5 $ 30.8 $ (5.1) $ 2,818.8
======== ====== ======== ========== ======== ======== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, 2000 and 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 325.7 $ 282.5
Adjustments to reconcile net income to net cash provided by operating activities:
Interest credited to policyholder account balances 878.1 803.6
Capitalization of deferred policy acquisition costs (591.2) (482.8)
Amortization of deferred policy acquisition costs 263.0 196.1
Amortization and depreciation 1.4 8.1
Realized losses on investments, net 16.3 7.1
Increase in accrued investment income (10.0) (18.1)
(Increase) decrease in other assets (57.5) 23.0
Increase (decrease) in policy liabilities 0.5 (17.1)
Increase in other liabilities 277.4 67.4
Other, net 27.3 1.5
--------------- ---------------
Net cash provided by operating activities 1,131.0 871.3
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities available-for-sale 2,479.2 1,681.9
Proceeds from sale of securities available-for-sale 450.6 336.1
Proceeds from repayments of mortgage loans on real estate 609.4 350.0
Proceeds from sale of real estate 2.3 5.7
Proceeds from repayments of policy loans and sale of other invested assets 17.2 23.4
Cost of securities available-for-sale acquired (2,408.6) (2,475.9)
Cost of mortgage loans on real estate acquired (950.1) (452.2)
Cost of real estate acquired (6.1) (11.1)
Short-term investments, net (191.4) 8.3
Other, net (206.8) (267.0)
--------------- ---------------
Net cash used in investing activities (204.3) (800.8)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (41.3) (33.6)
Increase in investment product and universal life insurance product account balances 3,609.4 2,690.9
Decrease in investment product and universal life insurance product account balances (4,491.5) (2,722.2)
Other, net 1.8 (0.7)
--------------- ---------------
Net cash used in financing activities (921.6) (65.6)
--------------- ---------------
Net increase in cash 5.1 4.9
Cash, beginning of period 22.5 24.5
--------------- ---------------
Cash, end of period $ 27.6 $ 29.4
=============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2000
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Nationwide Financial Services, Inc. and subsidiaries (NFS or
collectively the Company) have been prepared in accordance with
generally accepted accounting principles, which differ from statutory
accounting practices prescribed or permitted by regulatory authorities,
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial information
included herein reflects all adjustments (all of which are normal and
recurring in nature) which are, in the opinion of management, necessary
for a fair presentation of financial position and results of
operations. Operating results for all periods presented are not
necessarily indicative of the results that may be expected for the full
year. All significant intercompany balances and transactions have been
eliminated. The accompanying unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and related notes for the year ended December 31,
1999 included in the Company's 1999 Annual Report to Shareholders.
(2) EARNINGS PER SHARE
Basic earnings per share is the amount of earnings for the period
available to each share of common stock outstanding during the
reporting period. Diluted earnings per share is the amount of earnings
for the period available to each share of common stock outstanding
during the reporting period adjusted for the potential issuance of
common shares for stock options.
The calculations of basic and diluted earnings per share are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
(in millions, except per share amounts) 2000 1999 2000 1999
------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic and diluted net income $ 116.7 $ 103.3 $ 325.7 $ 282.5
============= ============= ============= =============
Weighted average common shares outstanding 128.7 128.5 128.7 128.5
Dilutive effect of stock options 0.3 0.1 0.1 0.1
------------- ------------- ------------- -------------
Weighted average diluted common shares outstanding 129.0 128.6 128.8 128.6
============= ============= ============= =============
Net income per common share:
Basic $ 0.91 $ 0.80 $ 2.53 $ 2.20
Diluted $ 0.91 $ 0.80 $ 2.53 $ 2.20
</TABLE>
7
<PAGE> 8
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
(3) COMPREHENSIVE INCOME
Comprehensive Income (Loss) includes net income as well as certain
items that are reported directly within a separate component of
shareholders' equity that bypass net income. Currently, the Company's
only component of Other Comprehensive Income (Loss) is unrealized gains
(losses) on securities available-for-sale. The related before and after
federal income tax amounts are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(in millions) SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------- -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Unrealized gains (losses) on securities
available-for-sale arising during the period:
Gross $116.6 $(91.7) $ 87.5 $(488.3)
Adjustment to deferred policy acquisition costs (34.9) 15.3 (25.8) 108.7
Related federal income tax (expense) benefit (28.6) 29.9 (21.6) 132.5
------ ------ ------ ------
Net 53.1 (46.5) 40.1 (247.1)
------ ------ ------ ------
Reclassification adjustment for net (gains)
losses on securities available-for-sale
realized during the period:
Gross (2.1) (2.0) 9.5 13.0
Related federal income tax expense (benefit) 0.8 0.8 (3.3) (4.5)
------ ------ ------ ------
Net (1.3) (1.2) 6.2 8.5
------ ------ ------ ------
Total Other Comprehensive Income (Loss) $ 51.8 $(47.7) $ 46.3 $(238.6)
====== ====== ====== ======
</TABLE>
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133). FAS 133, as amended by Statement Nos. 137 and
138, is effective for fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Statement also addresses
contracts that contain embedded derivatives, such as certain insurance
contracts. FAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company plans to adopt
this Statement in first quarter 2001 and is currently evaluating the
impact on results of operations and financial condition.
8
<PAGE> 9
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
(5) SEGMENT DISCLOSURES
The Company uses differences in products as the basis for defining its
reportable segments. The Company reports four product segments:
Variable Annuities, Fixed Annuities, Life Insurance and Assets Managed
and Administered.
The Variable Annuities segment consists of annuity contracts that
provide the customer with access to a wide range of investment options,
tax-deferred accumulation of savings, asset protection in the event of
an untimely death and flexible payment options including lump-sum,
systematic withdrawal or a stream of payments for life. The Company's
variable annuity products consist almost entirely of flexible premium
deferred variable annuity contracts.
The Fixed Annuities segment consists of annuity contracts that generate
a return for the customer at a specified interest rate, fixed for a
prescribed period, tax-deferred accumulation of savings and flexible
payout options including lump-sum, systematic withdrawal or a stream of
payments for life. Such contracts consist of single premium deferred
annuities, flexible premium deferred annuities and single premium
immediate annuities. The Fixed Annuities segment includes the fixed
option under variable annuity contracts.
The Life Insurance segment consists of insurance products, including
variable universal life insurance and corporate-owned life insurance
products, which provide a death benefit and may also allow the customer
to build cash value on a tax-deferred basis.
The Assets Managed and Administered segment includes the revenues and
expenses of the Company's investment adviser subsidiaries and the
operations of businesses from which the Company receives fees for
administrative services only.
In addition to the product segments, the Company reports corporate
revenue and expenses, investments and related investment income
supporting capital not specifically allocated to its product segments,
certain revenues and expenses related to the sales activities of its
distribution companies, revenues and expenses related to group annuity
contracts sold to Nationwide employee and agent benefit plans, interest
expense on long-term debt and capital and preferred securities and all
realized gains and losses on investments in a Corporate and Other
segment.
9
<PAGE> 10
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
The following table summarizes the allocation of assets to and the
financial results of the Company's business segments for the three
months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
ASSETS
VARIABLE FIXED LIFE MANAGED AND CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE ADMINISTERED AND OTHER TOTAL
------------------------------------ --------- --------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 195.1 $ 325.7 $ 187.5 $ 48.9 $ 47.0 $ 804.2
Benefits and expenses 108.6 276.4 148.4 48.4 55.3 637.1
------- ------- ------- ------- ------- -------
Operating income (loss)
before federal income taxes 86.5 49.3 39.1 0.5 (8.3) 167.1
Net realized losses on investments -- -- -- -- (2.9) (2.9)
------- ------- ------- ------- ------- -------
Income (loss) before
federal income taxes $ 86.5 $ 49.3 $ 39.1 $ 0.5 $ (11.2) $ 164.2
======= ======= ======= ======= ======= =======
1999
Operating revenue (1) $ 159.4 $ 292.1 $ 162.5 $ 42.5 $ 53.7 $ 710.2
Benefits and expenses 86.8 248.1 130.7 35.8 59.5 560.9
------- ------- ------- ------- ------- -------
Operating income (loss)
before federal income taxes 72.6 44.0 31.8 6.7 (5.8) 149.3
Net realized gains on investments -- -- -- -- 6.2 6.2
------- ------- ------- ------- ------- -------
Income before federal
income taxes $ 72.6 $ 44.0 $ 31.8 $ 6.7 $ 0.4 $ 155.5
======= ======= ======= ======= ======= =======
</TABLE>
----------
(1) Excludes net realized gains and losses on investments.
10
<PAGE> 11
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
The following table summarizes the financial results of the Company's
business segments for the nine months ended September 30, 2000 and
1999.
<TABLE>
<CAPTION>
VARIABLE FIXED LIFE ASSETS MANAGED CORPORATE
(in millions) ANNUITIES ANNUITIES INSURANCE AND ADMINISTERED AND OTHER TOTAL
-------------------------- ---------- ---------- --------- ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
2000
Operating revenue (1) $ 571.4 $ 975.5 $ 549.7 $ 140.8 $ 153.6 $ 2,391.0
Benefits and expenses 318.1 833.8 440.8 134.7 176.4 1,903.8
---------- ---------- ---------- ------- ---------- ----------
Operating income (loss)
before federal income taxes 253.3 141.7 108.9 6.1 (22.8) 487.2
Net realized losses on investments - - - - (16.3) (16.3)
---------- ---------- ---------- ------- ---------- ----------
Income (loss) before federal
income taxes $ 253.3 $ 141.7 $ 108.9 $ 6.1 $ (39.1) $ 470.9
========== ========== ========== ======= ========== ==========
Assets as of period end $ 66,348.8 $ 17,226.3 $ 7,936.0 $ 245.9 $ 6,485.4 $ 98,242.4
========== ========== ========== ======= ========== ==========
1999
Operating revenue (1) $ 458.0 $ 866.0 $ 466.9 $ 114.0 $ 148.2 $ 2,053.1
Benefits and expenses 250.2 733.2 376.8 94.6 166.9 1,621.7
---------- ---------- ---------- ------- ---------- ----------
Operating income (loss)
before federal income taxes 207.8 132.8 90.1 19.4 (18.7) 431.4
Net realized losses on investments - - - - (7.1) (7.1)
---------- ---------- ---------- ------- ---------- ----------
Income (loss) before federal
income taxes $ 207.8 $ 132.8 $ 90.1 $ 19.4 $ (25.8) $ 424.3
========== ========== ========== ======= ========== ==========
Assets as of period end $ 53,491.7 $ 16,685.1 $ 6,018.2 $ 222.0 $ 6,259.7 $ 82,676.7
========== ========== ========== ======= ========== ==========
</TABLE>
(1) Excludes net realized gains and losses on investments.
(6) CONTINGENCIES
On October 29, 1998, the Company was named in a lawsuit filed in Ohio
state court related to the sale of deferred annuity products for use as
investments in tax-deferred contributory retirement plans (Mercedes
Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company).
On May 3, 1999, the complaint was amended to, among other things, add
Marcus Shore as a second plaintiff. The amended complaint is brought as
a class action on behalf of all persons who purchased individual
deferred annuity contracts or participated in group annuity contracts
sold by the Company and the other named Company affiliates which were
used to fund certain tax-deferred retirement plans. The amended
complaint seeks unspecified compensatory and punitive damages. No class
has been certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On March 8,
2000, the court denied the motion to dismiss the amended complaint
filed by the Company and other named defendants. The Company intends to
defend this lawsuit vigorously.
11
<PAGE> 12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of unaudited consolidated results of
operations and financial condition of the Company should be read
in conjunction with the unaudited consolidated financial
statements and related notes included elsewhere herein.
NFS is the holding company for Nationwide Life Insurance Company
(NLIC) and other companies that comprise the retirement savings
operations of Nationwide. The Company is a leading provider of
long-term savings and retirement products and sells a diverse
range of products including individual annuities, private and
public pension plans, life insurance and mutual funds as well as
investment management and administrative services. The Company
markets its products through a broad distribution network,
including independent broker/dealers, brokerage firms, financial
institutions, pension plan administrators, life insurance
specialists, Nationwide Retirement Solutions sales
representatives, and Nationwide agents.
Management's discussion and analysis contains certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the
results of operations and businesses of the Company. These
forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ
materially from those contemplated or projected, forecast,
estimated or budgeted in such forward looking statements include,
among others, the following possibilities: (i) Nationwide
Corporation's control of the Company through its beneficial
ownership of approximately 97.8% of the combined voting power of
all the outstanding common stock and approximately 81.5% of the
economic interest in the Company; (ii) the Company's primary
reliance, as a holding company, on dividends from its subsidiaries
to meet debt payment obligations and the applicable regulatory
restrictions on the ability of the Company's subsidiaries to pay
such dividends; (iii) the potential impact on the Company's
reported net income that could result from the adoption of certain
accounting standards issued by the FASB; (iv) tax law changes
impacting the tax treatment of life insurance and investment
products; (v) heightened competition, including specifically the
intensification of price competition, the entry of new competitors
and the development of new products by new and existing
competitors; (vi) adverse state and federal legislation and
regulation, including limitations on premium levels, increases in
minimum capital and reserves, and other financial viability
requirements; (vii) failure to expand distribution channels in
order to obtain new customers or failure to retain existing
customers; (viii) inability to carry out marketing and sales
plans, including, among others, changes to certain products and
acceptance of the revised products in the market; (ix) changes in
interest rates and the capital markets causing a reduction of
investment income or asset fees, reduction in the value of the
Company's investment portfolio or a reduction in the demand for
the Company's products; (x) general economic and business
conditions which are less favorable than expected; (xi)
unanticipated changes in industry trends and ratings assigned by
nationally recognized statistical rating organizations or A.M.
Best Company, Inc.; and (xii) inaccuracies in assumptions
regarding future persistency, mortality, morbidity and interest
rates used in calculating reserve amounts.
BUSINESS OUTLOOK
In connection with the recent adoption of new Securities Exchange
Commission rules on corporate disclosure, NFS is changing its
procedures for communicating and updating its expectations and
forecasts for future results. Following the publication of its
quarterly earnings release, the Company will continue its current
practice of having corporate representatives meet during the
quarter with investors, the media, investment analysts and others.
At these meetings the Company may reiterate the expectations and
forecasts published in the earnings release. At the same time, the
Company will keep its earnings release publicly available on its
web site. Toward the end of each quarter, NFS will have a "quiet
period" when it no longer publishes or updates its current
expectations and forecasts and company representatives will not
comment concerning the Company's financial results or
expectations. The quiet period will extend until the day when the
Company's next earnings release is published. For the fourth
quarter, the quiet period will be January 3, 2001 through January
24, 2001.
12
<PAGE> 13
As part of the Company's new disclosure procedures, the Company
has incorporated a business outlook section as a permanent part of
its earnings release and conference call. The business outlook is
intended to provide investors and analysts with management's
expectations and forecasts regarding key drivers to our business.
As such, the following statements are based on current business
conditions and are forward-looking:
- Operating earnings per share is expected to be within
a range of $3.48 to $3.53 for the full year 2000.
- Revenue growth is expected to be within a range of 13
to 15 percent for the full year 2000.
- Return on equity is expected to be within a range of
16 to 17 percent for the full year 2000.
- The equity markets, as measured by the S&P 500, and
the related performance of our separate account
assets is expected to achieve an annualized return of
7 to 8 percent for the balance of the year.
- Consistent with the realization of certain tax
minimization strategies in the current quarter, the
effective tax rate for fourth quarter is expected to
be approximately 29 percent.
The ability of the Company to meet the indicated expectations and
forecasts is subject to the factors described in the section
above. Prior to the start of the quiet period, investors can
continue to rely on the earnings release and web site as still
being the Company's current expectations on matters covered,
unless the Company publishes a notice stating otherwise.
RESULTS OF OPERATIONS
In addition to net income, the Company reports net operating
income, which excludes net realized investment gains and losses.
Net operating income is commonly used in the insurance industry as
a measure of on-going earnings performance.
The following table reconciles the Company's reported net income
to net operating income. All earnings per share amounts are
presented on a diluted basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
(in millions, except per share amounts) 2000 1999 2000 1999
------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 116.7 $ 103.3 $ 325.7 $ 282.5
Net realized (gains) losses on investments, net of
tax 1.9 (4.0) 10.6 4.5
--------- --------- --------- ---------
Net operating income $ 118.6 $ 99.3 $ 336.3 $ 287.0
========= ========= ========= =========
Net operating income per share $ 0.92 $ 0.77 $ 2.61 $ 2.23
======== ========= ========= =========
</TABLE>
Revenues
Total operating revenues, which exclude net realized gains and
losses on investments, for third quarter 2000 increased to $804.2
million compared to $710.2 million for the same period in 1999.
For the first nine months of 2000 and 1999, total operating
revenues were $2.39 billion and $2.05 billion, respectively.
Increases in policy charges and net investment income were the key
drivers to revenue growth.
13
<PAGE> 14
Policy charges include asset fees, which are primarily earned from
separate account assets generated from sales of variable annuities
and variable life insurance products; cost of insurance charges
earned on universal life insurance products; administration fees,
which include fees charged per contract on a variety of the
Company's products and premium loads on universal life insurance
products; and surrender fees, which are charged as a percentage of
premiums withdrawn during a specified period of annuity and
certain life insurance contracts. Policy charges for the
comparable periods of 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
(in millions) 2000 1999 2000 1999
--------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Asset fees $ 185.9 $ 158.9 $ 542.1 $ 451.6
Cost of insurance charges 40.4 30.5 112.5 84.8
Administrative fees 35.7 28.0 99.6 75.8
Surrender fees 23.1 14.1 69.9 43.7
------------- ------------- ------------- -------------
Total policy charges $ 285.1 $ 231.5 $ 824.1 $ 655.9
============= ============= ============= =============
</TABLE>
The growth in asset fees reflects a 25% increase in total separate
account assets, which reached $71.71 billion as of September 30,
2000 compared to $57.26 billion a year ago. Continued strong sales
of variable annuity and variable life insurance products as well
as market appreciation have contributed significantly to the
increase in separate account assets.
Cost of insurance charges are assessed as a percentage of the net
amount at risk on universal life insurance policies. The net
amount at risk is equal to a policy's death benefit minus the
related policyholder account value. The increase in cost of
insurance charges is due primarily to growth in the net amount at
risk related to individual investment life insurance reflecting
expanded distribution and increased customer demand for variable
life insurance products. The net amount at risk related to
individual investment life insurance grew to $23.05 billion as of
September 30, 2000 compared to $18.38 billion a year ago.
The growth in administrative fees is attributable to a significant
increase in premiums on individual variable life policies and
certain corporate-owned life policies where the Company collects a
premium load. The increase in surrender charges is primarily
attributable to policyholder withdrawals in the Variable Annuities
segment, and reflects the overall increase in variable annuity
policy reserves and an increase in surrender rates.
Net investment income includes the gross investment income earned
on investments supporting fixed annuities and certain life
insurance products as well as the yield on the Company's general
account invested assets which are not allocated to product
segments. Net investment income grew from $382.3 million in the
third quarter of 1999 to $416.7 million in the third quarter of
2000 and from $1.12 billion in the first nine months of 1999 to
$1.24 billion in the first nine months of 2000. These increases
were primarily due to increased invested assets to support growth
in fixed annuity policy reserves coupled with an increase in
average yield on the investment portfolio. Fixed annuity policy
reserves, which include the fixed option of variable annuity
contracts, increased $460.5 million to $16.61 billion as of the
end of third quarter 2000 compared to $16.15 billion a year ago.
The Company does not consider realized gains and losses on
investments to be recurring components of earnings. The Company
makes decisions concerning the sale of invested assets based on a
variety of market, business, tax and other factors. Net realized
(losses) gains on investments were $(2.9) million and $6.2 million
for third quarter 2000 and 1999, respectively. The Company
reported realized losses on investments of $16.3 million and $7.1
million for the first nine months of 2000 and 1999, respectively.
During the first nine months of 2000 the Company recognized a
total of $10.5 million of realized losses on two fixed maturity
security holdings.
Other income includes fees earned by the Company's investment
management subsidiaries as well as commissions and other income
earned by other subsidiaries of the Company that provide
marketing, distribution and administration services. The increase
is primarily attributable to growth in investment advisory fees
due to growth in assets under management and changes in the fee
structure for certain funds.
14
<PAGE> 15
Benefits and Expenses
Total benefits and expenses were $637.1 million in third quarter
2000, a 14% increase over third quarter 1999, while year-to-date
2000 benefits and expenses were $1.90 billion compared to $1.62
billion a year ago. The increase is due mainly to growth in
amortization of deferred acquisition costs (DAC) and other
operating expenses. Additionally, interest credited and other
policyholder benefits were up 8% and 12% compared to the year ago
third quarter and nine-month periods, respectively.
The significant growth in the Variable Annuities segment business
coupled with an increase in lapse rates, which resulted in
additional surrender fee income, are the primary reasons for the
increase in amortization of DAC, which totaled $91.0 million and
$68.5 million in third quarter 2000 and 1999, respectively. On a
year-to-date basis, amortization of DAC totaled $263.0 million in
2000 compared to $196.1 million in 1999.
Operating expenses increased 20% to $177.4 million in third
quarter 2000 compared to $148.1 million in third quarter 1999. For
the first nine months of 2000, operating expenses were $510.3
million, up 24% from $409.9 million for the first nine months of
1999. The increases reflect the growth in the number of annuity
and life insurance contracts in force and the related increase in
administrative processing costs. In addition, increases in
non-deferrable commissions, premium taxes associated with
increases in life insurance sales and costs associated with
expanding asset management product offerings and distribution
capabilities contributed to the increase.
Federal income tax expense was $47.5 million and $52.2 million,
representing effective tax rates of 28.9% and 33.6% for third
quarter 2000 and 1999, respectively. For the first nine months of
2000 and 1999 federal income tax expense was $145.2 million and
$141.8 million, representing effective tax rates of 30.8% and
33.4%, respectively. An increase in tax exempt income and
investment tax credits resulted in the decrease in effective
rates.
Recently Issued Accounting Standards
See note 4 to the unaudited consolidated financial statements for
a discussion of recently issued accounting standards.
15
<PAGE> 16
Sales Information
The following table summarizes total Company sales, excluding
internal replacements, by business segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
(in millions) 2000 1999 2000 1999
-------------------------------------------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Variable annuity deposits $ 2,832.9 $ 2,480.2 $ 9,447.2 $ 7,568.8
Fixed annuity deposits 785.8 758.2 2,372.1 2,125.1
Life insurance premiums 367.9 311.0 1,075.2 763.4
--------- --------- ----------- -----------
Total core premiums and deposits 3,986.6 3,549.4 12,894.5 10,457.3
Internal replacements (451.3) (169.7) (1,344.8) (425.3)
--------- --------- ----------- -----------
Net core premiums and deposits 3,535.3 3,379.7 11,549.7 10,032.0
--------- --------- ----------- -----------
Asset management account deposits 584.5 119.6 668.5 422.3
Asset administration account deposits 421.8 551.7 887.2 1,016.8
--------- --------- ----------- -----------
Total non-insurance sales 1,006.3 671.3 1,555.7 1,439.1
--------- --------- ----------- -----------
Total core sales 4,541.6 4,051.0 13,105.4 11,471.1
Bank-owned life insurance (BOLI) - - 328.7 86.7
Institutional products 484.2 316.9 808.7 316.9
Nationwide employee and agent benefit plans 103.8 92.1 239.7 282.2
--------- --------- ----------- -----------
Total sales $ 5,129.6 $ 4,460.0 $ 14,482.5 $ 12,156.9
========= ========= =========== ===========
</TABLE>
Total core sales represent amounts that are recurring and are the
sales figures management uses to set and evaluate the Company's
sales goals. In addition to statutory premiums and deposits
related to life insurance and annuity products, the Company also
reports mutual fund deposits and deposits into administered asset
products as core sales.
Sales of institutional products represents sales of funding
agreements that secure notes issued to foreign investors through
third party trust under the Company's $2 billion medium-term note
program. The program was launched in July 1999 as a means to
expand spread based product offerings. The Company excludes
institutional products and BOLI sales as well as deposits into
Nationwide employee and agent benefit plans from its targeted core
sales. Although funding agreements and BOLI contribute to asset
and earnings growth, they do not produce steady production flow
that lends itself to meaningful comparisons. BOLI sales in 2000
include $300.0 million from an affiliate. Also, included in the
third quarter and nine-month sales in 2000 is $70.0 million of
corporate-owned life insurance from an affiliate, which is
reported in the Nationwide employee and agent benefit plans. The
Company also excludes internal replacements from core sales.
Total core sales reached $4.54 billion during third quarter 2000
an increase of 12% over 1999. Total annuity sales, net of internal
replacements, contributed $3.17 billion and $3.07 billion to third
quarter of 2000 and 1999 respectively. Core life insurance sales
for third quarter 2000 were up 18% to $367.9 million with
individual variable universal life and corporate-owned life
products leading the growth. Non-insurance sales were up 50% to
$1.01 billion due to increased sales of stable value products and
private pension plans through Nationwide Trust Company.
The Company sells its products through a broad distribution
network. Unaffiliated entities that sell the Company's products to
their own customer base include independent broker/dealers,
brokerage firms, pension plan administrators, life insurance
specialists and financial institutions. Representatives of the
Company who market products directly to a customer base identified
by the Company include Nationwide Retirement Solutions sales
representatives and Nationwide agents.
16
<PAGE> 17
Core sales by distribution channel are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
(in millions) 2000 1999 2000 1999
--------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Independent broker/dealers $ 1,449.6 $ 1,331.9 $ 4,594.0 $ 3,953.1
Brokerage firms 294.5 207.3 902.8 655.7
Financial institutions 775.1 621.1 2,236.9 1,798.7
Pension plan administrators 228.7 261.2 819.6 934.4
Nationwide Retirement Solutions
sales representatives 447.9 623.0 1,894.4 1,830.9
Nationwide agents 184.6 189.5 619.5 573.0
Life insurance specialists 154.9 145.7 482.5 286.2
Total non-insurance sales 1,006.3 671.3 1,555.7 1,439.1
------------- ------------- ------------- -------------
Total core sales $ 4,541.6 $ 4,051.0 $ 13,105.4 $ 11,471.1
============= ============= ============= =============
</TABLE>
Sales through independent broker/dealers increased 9% and 16% for
the three months and nine months ended September 30, 2000,
respectively. The hiring of additional wholesalers and certain
product enhancements have contributed to the growth. Sales through
financial institutions increased 25% to $775.1 million in third
quarter 2000 compared to a year ago as we continue to add banks
which sell our products. Brokerage firm sales reflect strong
growth, increasing 42% and 38% for the three months and nine
months ended September 30, 2000, respectively.
The Company's flagship products are marketed under The BEST of
AMERICA(R) brand, and include individual and group variable
annuities and variable life insurance. The BEST of AMERICA(R)
products allow customers to choose from investment options managed
by premier mutual fund managers. The Company has also developed
private label variable and fixed annuity products in conjunction
with other financial services providers which allow those
providers to sell products to their own customer bases under their
own brand name.
The Company also markets group deferred compensation retirement
plans to employees of state and local governments for use under
Internal Revenue Code (IRC) Section 457. The Company utilizes its
sponsorship by the National Association of Counties and The United
States Conference of Mayors when marketing IRC Section 457
products.
17
<PAGE> 18
Core sales by product are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
(in millions) 2000 1999 2000 1999
--------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BEST of AMERICA(R)products $ 1,430.2 $ 1,176.4 $ 4,371.8 $ 3,609.1
Private label annuities 235.6 321.8 784.3 987.0
Other 165.5 118.5 501.6 320.0
------------- ------------- ------------- -------------
Total individual annuities 1,831.3 1,616.7 5,657.7 4,916.1
------------- ------------- ------------- -------------
BEST of AMERICA(R)group pension series
897.3 891.7 3,046.4 2,681.0
IRC Section 457 annuities 427.7 550.9 1,733.0 1,603.4
Other 11.1 9.4 37.4 68.1
------------- ------------- ------------- -------------
Total group annuities 1,336.1 1,452.0 4,816.8 4,352.5
------------- ------------- ------------- -------------
BEST of AMERICA(R)variable life series 155.8 107.8 419.2 297.9
Corporate-owned life insurance 152.9 145.7 476.2 286.2
Traditional/Universal life insurance 59.2 57.5 179.8 179.3
------------- ------------- ------------- -------------
Total life insurance 367.9 311.0 1,075.2 763.4
------------- ------------- ------------- -------------
Total non-insurance sales 1,006.3 671.3 1,555.7 1,439.1
------------- ------------- ------------- -------------
Total core sales $ 4,541.6 $ 4,051.0 $ 13,105.4 $ 11,471.1
============= ============= ============= =============
</TABLE>
BUSINESS SEGMENTS
The Company has four product segments: Variable Annuities, Fixed
Annuities, Life Insurance and Assets Managed and Administered. In
addition, the Company reports certain other revenues and expenses
in a Corporate and Other segment. All information set forth below
relating to the Company's Variable Annuities segment excludes the
fixed option under the Company's variable annuity contracts. Such
information is included in the Company's Fixed Annuities segment.
The following table summarizes operating income (loss) before
federal income tax expense for the Company's business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
(in millions) 2000 1999 2000 1999
------------------------------------ ------------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Variable Annuities $ 86.5 $ 72.6 $ 253.3 $ 207.8
Fixed Annuities 49.3 44.0 141.7 132.8
Life Insurance 39.1 31.8 108.9 90.1
Assets Managed and Administered 0.5 6.7 6.1 19.4
Corporate and Other (8.3) (5.8) (22.8) (18.7)
------------- ------------- ----------------------------
$ 167.1 $ 149.3 $ 487.2 $ 431.4
============= ============= ============================
</TABLE>
Variable Annuities
The Variable Annuities segment consists of annuity contracts that
provide the customer with access to a wide range of investment
options, tax-deferred accumulation of savings, asset protection in
the event of an untimely death and flexible payout options
including lump-sum, systematic withdrawal or a stream of payments
for life. The Company's variable annuity products consist almost
entirely of flexible premium deferred variable annuity contracts.
18
<PAGE> 19
The following table summarizes certain selected financial data for
the Company's Variable Annuities segment for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 195.1 $ 159.4 $ 571.4 $ 458.0
Benefits and expenses 108.6 86.8 318.1 250.2
------------- ------------- ------------- --------------
Operating income before federal income tax expense $ 86.5 $ 72.6 $ 253.3 $ 207.8
============= ============= ============= ==============
OTHER DATA
Statutory premiums and deposits (1) $ 2,832.9 $ 2,480.2 $ 9,447.2 $ 7,568.8
Policy reserves as of period end:
Individual $38,898.2 $ 32,120.8
Group 25,145.2 19,993.0
------------- -------------
Total $64,043.4 $ 52,113.8
============= =============
Pre-tax operating income to average policy reserves 0.54% 0.55% 0.54% 0.55%
</TABLE>
----------
(1) Statutory amounts have been derived from the Quarterly
Statements of the Company's life insurance subsidiaries, as
filed with insurance regulatory authorities and prepared in
accordance with statutory accounting practices, which differ
from Generally Accepted Accounting Principles.
Variable annuity segment results reflect substantially increased
asset fee revenue partially offset by increases in DAC
amortization and other operating expenses. Asset fees increased to
$179.9 million in third quarter 2000, up 16% from $154.6 million
in the same period a year ago. For the first nine months of 2000,
asset fees totaled $525.5 million up 20% from the first nine
months of 1999. The increase in asset fees is due to continued
growth in variable annuity policy reserve levels resulting from
increased variable annuity sales and market appreciation on
investments underlying reserves. Variable annuity policy reserves
slightly declined from $64.11 billion to $64.04 billion during
third quarter 2000 due to $803.8 million of policy reserves
reinsured during the quarter. However, during the first nine
months of 2000 reserves have increased $2.82 billion and are up
23% compared to a year ago.
Variable annuity deposits increased 14% for third quarter 2000,
reaching $2.83 billion compared to $2.48 billion in the year ago
quarter. Variable annuity deposits grew 25% in 2000 compared to
the first nine months of 1999, reaching $9.45 billion. Nearly all
channels contributed to the growth in 2000.
Less favorable equity market conditions during the first nine
months of 2000 have slowed the growth in variable annuity policy
reserves. Variable annuity policy reserves reflect market
appreciation of $744.6 million during the first nine months of
2000. Over the past twelve months, variable annuity policy
reserves have increased $9.44 billion as a result of market
appreciation, due mainly to $8.70 billion of market appreciation
in the fourth quarter of 1999.
19
<PAGE> 20
Offsetting the growth in policy reserves attributable to an
increase in deposits and market appreciation was an increase in
policyholder surrender activity. Excluding the impact of internal
replacements and transfers to the assets managed and administered
segment, surrenders as a percentage of average reserves were 13%,
annualized, in third quarter 2000, compared to 10% in third
quarter 1999. The surrender rate in the first nine months of 2000
was 14%, annualized, as compared to 10% for the first nine months
of 1999. The increase in surrender activity is attributable to an
increase in competition in the individual variable annuity market
which has increased transfers to competitor products and the
overall aging of the Company's book of business. The Company
introduced new products, new product features and new retention
strategies during first quarter 2000 in an effort to decrease the
rate of surrenders. The rate of surrenders in third quarter 2000
remains unchanged from second quarter 2000. However, the rate
of surrenders has declined 200 basis points to an annualized rate
of 13% from the first quarter 2000 rate of 15%.
Amortization of DAC increased 46% to $59.7 million in third
quarter 2000 compared to $40.9 million in third quarter 1999. DAC
amortization for the first nine months of 2000 increased to $171.6
million compared to $115.2 million for the first nine months of
1999. Operating expenses of $47.6 million in third quarter 2000
increased slightly compared to $45.5 million in 1999, while
year-to-date 2000 operating expenses were $143.5 million compared
to $133.4 million in 1999. The growth in DAC amortization and
operating expenses reflect the overall growth in the variable
annuity business. The increase in DAC amortization also reflects
the increase in policyholder surrenders.
Fixed Annuities
The Fixed Annuities segment consists of annuity contracts that
generate a return for the customer at a specified interest rate
fixed for a prescribed period, tax-deferred accumulation of
savings and flexible payout options including lump-sum, systematic
withdrawal or a stream of payments for life. Such contracts
consist of single premium deferred annuities, flexible premium
deferred annuities and single premium immediate annuities. The
Fixed Annuities segment includes the fixed option under the
Company's variable annuity contracts.
The following table summarizes certain selected financial data for
the Company's Fixed Annuities segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Net investment income $ 310.8 $ 281.5 $ 919.2 $ 834.9
Other 14.9 10.6 56.3 31.1
----------- ----------- ----------- ------------
325.7 292.1 975.5 866.0
----------- ----------- ----------- ------------
Benefits and expenses:
Interest credited to policyholder account balances 227.0 208.9 674.6 613.6
Other benefits and expenses 49.4 39.2 159.2 119.6
----------- ----------- ----------- ------------
276.4 248.1 833.8 733.2
----------- ----------- ----------- ------------
Operating income before federal income tax expense $ 49.3 $ 44.0 $ 141.7 $ 132.8
=========== =========== =========== ============
OTHER DATA
Statutory premiums and deposits (1) $ 1,270.0 $ 1,075.1 $ 3,180.8 $ 2,442.0
Policy reserves as of period end:
Individual $ 7,507.2 $ 7,767.7
Group 7,818.5 8,048.3
Institutional 1,287.2 336.4
----------- -----------
Total $ 16,612.9 $ 16,152.4
----------- -----------
Pre-tax operating income to average policy reserves 1.20% 1.13% 1.15% 1.16%
</TABLE>
20
<PAGE> 21
----------
(1) Statutory amounts have been derived from the Quarterly
Statements of the Company's life insurance subsidiaries, as
filed with insurance regulatory authorities and prepared in
accordance with statutory accounting practices, which differ
from Generally Accepted Accounting Principles.
Fixed Annuity segment results reflect an increase in interest
spread income attributable to growth in fixed annuity policy
reserves. Interest spread is the differential between net
investment income and interest credited to policyholder account
balances. Interest spreads vary depending on crediting rates
offered by competitors, performance of the investment portfolio,
including the rate of prepayments, changes in market interest
rates and other factors.
The following table depicts the interest spreads on general
account policy reserves in the Fixed Annuities segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net investment income 7.91% 7.48% 7.79% 7.57%
Interest credited 5.78 5.55 5.72 5.57
------------- ------------- ------------- -------------
2.13% 1.93% 2.07% 2.00%
============= ============= ============= =============
</TABLE>
Recent increases in interest rates have slowed mortgage loan and
bond prepayment activity and the Company anticipates interest
spreads over the next several quarters to range between 200 and
210 basis points, excluding the impact of mortgage loan and bond
prepayment income.
Fixed annuity policy reserves increased to $16.61 billion as of
September 30, 2000 compared to $16.59 billion as of the end of
1999 and $16.15 billion a year ago.
Third quarter fixed annuity premiums and deposits increased to
$1.27 billion in 2000 compared to $1.08 billion in 1999 while
sales for the first nine months of 2000 increased to $3.18 billion
from $2.44 billion in 1999. Sales of institutional products were
$484.2 million and $808.7 million during third quarter 2000 and
the first nine months of 2000, respectively, compared to $316.9
million in the third quarter and first nine months of 1999. Most
of the Company's fixed annuity sales are premiums and deposits
allocated to the fixed option of variable annuity contracts. Third
quarter 2000 fixed annuity sales include $626.1 million in
premiums allocated to the fixed option under a variable annuity
contract, compared to $658.3 million in third quarter 1999. The
increase in fixed annuity premiums and deposits is primarily
attributable to sales of institutional products in the form of
funding agreements issued in connection with the Company's
medium-term note program partially offset by a decrease in the
fixed option of variable annuity contract deposits in the third
quarter of 2000 as compared to the third quarter of 1999.
Other benefits and expenses increased 26% to $49.4 million in
third quarter 2000 compared to a year ago. For the first nine
months of 2000, other benefits and expenses totaled $159.2
million, up 33% from the first nine months of 1999. The increase
primarily reflects an increase in immediate annuity benefits due
to growth in new sales and contracts in force.
Life Insurance
The Life Insurance segment consists of insurance products,
including variable universal life insurance and corporate-owned
life insurance products, which provide a death benefit and may
also allow the customer to build cash value on a tax-advantaged
basis.
21
<PAGE> 22
The following table summarizes certain selected financial data for
the Company's Life Insurance segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 187.5 $ 162.5 $ 549.7 $ 466.9
Benefits and expenses 148.4 130.7 440.8 376.8
----------- ---------- --------- ---------
Operating income before federal income tax expense $ 39.1 $ 31.8 $ 108.9 $ 90.1
=========== ========== ========= =========
OTHER DATA
Statutory premiums (1):
Traditional and universal life insurance $ 59.2 $ 57.5 $ 179.8 $ 179.3
Individual investment life insurance 155.8 107.8 419.2 298.0
Corporate investment life insurance 222.9 145.7 874.9 372.8
----------- ---------- --------- ---------
Total $ 437.9 $ 311.0 $ 1,473.9 $ 850.1
=========== ========== ========= =========
Policy reserves as of period end:
Traditional and universal life insurance $ 2,577.7 $ 2,525.5
Individual investment life insurance 2,152.1 1,532.9
Corporate investment life insurance 2,378.8 1,288.1
----------- ----------
Total $ 7,108.6 $ 5,346.5
=========== ==========
</TABLE>
----------
(1) Statutory amounts have been derived from the Quarterly
Statements of the Company's life insurance subsidiaries, as
filed with insurance regulatory authorities and prepared in
accordance with statutory accounting practices, which differ
from Generally Accepted Accounting Principles.
Life Insurance segment results reflect increased revenues driven
by growth in investment life insurance in force and policy
reserves, partially offset by higher benefits and expense levels.
The increase in Life Insurance segment earnings is attributable to
strong growth in investment life insurance products, which include
individual variable universal life insurance and corporate
investment life insurance, where the Company has aggressively
expanded its distribution capabilities. Revenues from investment
life products increased to $83.9 million in third quarter 2000
from $61.9 million in third quarter 1999 as a result of the sales
growth and high persistency. On a year-to-date basis, investment
life product revenues increased to $232.9 million in 2000 from
$165.6 million in 1999.
Individual investment life insurance statutory premiums increased
45% during third quarter 2000 reaching $155.8 million compared to
$107.8 million in 1999. Corporate investment life insurance
statutory premiums reflected strong growth reaching $222.9 million
in third quarter 2000, including $70.0 million in sales to an
affiliate, compared to $145.7 million in third quarter 1999. Total
investment life insurance in force reached $30.83 billion at
September 30, 2000 representing 49% of all life insurance in force
compared to $23.62 billion and 45% a year ago.
Interest credited to policyholders increased $7.8 million in third
quarter 2000 reaching $40.0 million compared to $32.2 million in
the year ago third quarter. For the first nine months of 2000,
interest credited to policyholders increased $18.2 million over
1999 to $114.6 million. Increased corporate investment life
insurance business accounted for most of the increases. Corporate
investment fixed life insurance reserves increased 47% to $1.38
billion as of September 30, 2000 compared to $939.5 million a year
ago.
Other policy benefits increased $3.2 million and $17.4 million,
respectively, in the three and nine months ended September 30,
2000 over comparable periods in 1999, reflecting growth in
insurance in force and an increase in claims.
22
<PAGE> 23
Assets Managed and Administered
The Assets Managed and Administered segment consists of the
Company's investment advisor subsidiaries and the operations of
businesses from which the Company receives fees for administrative
services only.
The following table summarizes certain selected financial data for
the Company's Assets Managed and Administered segment for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
(in millions) 2000 1999 2000 1999
----------------------------------------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 48.9 $ 42.5 $ 140.8 $ 114.0
Operating expenses 48.4 35.8 134.7 94.6
---------- ----------- ----------- ------------
Operating income before federal income tax expense $ 0.5 $ 6.7 $ 6.1 $ 19.4
========== =========== =========== ============
OTHER DATA (1)
Assets under management $ 23,138.7 $ 21,479.1
Assets administered $ 16,558.5 $ 12,787.6
</TABLE>
------------
(1) Represents the notional amount of assets managed and
administered. These assets are not reflected on the Company's
consolidated balance sheet, unless part of an annuity or life
insurance contract issued by the Company.
Assets Managed and Administered segment revenue growth was mainly
due to increased investment advisory fees and other income as a
result of growth in assets managed and administered and changes in
the fee structure for certain funds under management. Increased
operating expenses are primarily the result of staffing and
infrastructure related to the Company's commitment to expanding
this segment.
Assets under management include $10.17 billion and $9.51 billion
of Company managed investment options that support the Company's
variable annuity and variable life insurance products as of
September 30, 2000 and 1999, respectively. These assets are also
included in the related variable annuity and variable life
insurance policy reserves.
Corporate and Other
The following table summarizes certain selected financial data for
the Company's Corporate and Other segment for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
(in millions) 2000 1999 2000 1999
--------------------------------------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 47.0 $ 53.7 $ 153.6 $ 148.2
Benefits and expenses 55.3 59.5 176.4 166.9
---------- ----------- ---------- ----------
Operating loss before federal income tax expense (1) $ (8.3) $ (5.8) $ (22.8) $ (18.7)
========== =========== ========== ==========
</TABLE>
----------
(1) Excludes net realized gains and losses on investments.
23
<PAGE> 24
Revenues in the Corporate and Other segment consist of net
investment income on invested assets not allocated to the four
product segments, commissions and other income earned by the
marketing and distribution subsidiaries of the Company and net
investment income and policy charges from group annuity contracts
issued to Nationwide employee and agent benefit plans. The
increase in year-to-date revenues reflects an increase in net
investment income, while the increase in year-to-date benefits and
expenses is the result of increased corporate expenses.
In addition to the operating revenues previously presented, the
Company also reports realized gains and losses on investments in
the Corporate and Other segment. The Company realized net
investment losses of $2.9 million during the third quarter of 2000
verses net realized investment gains of $6.2 million during the
third quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources demonstrate the overall financial
strength of the Company and its ability to generate strong cash
flows from its operations and borrow funds at competitive rates to
meet operating and growth needs. The Company's capital structure
consists of long-term debt, capital and preferred securities of
subsidiary trusts and equity, summarized in the following table.
<TABLE>
<CAPTION>
AS OF
---------------------------------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(in millions) 2000 1999 1999
------------------------------------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
Long-term debt $ 298.4 $ 298.4 $ 298.4
Capital and preferred securities of subsidiary trusts 300.0 300.0 300.0
----------------- ---------------- ----------------
Total long-term debt and capital and
preferred securities 598.4 598.4 598.4
----------------- ---------------- ----------------
Shareholders' equity, excluding accumulated other
comprehensive income (loss) 2,788.0 2,502.6 2,415.8
Accumulated other comprehensive income (loss) 30.8 (15.5) 60.8
----------------- ---------------- ----------------
Total shareholders' equity 2,818.8 2,487.1 2,476.6
----------------- -------------- ----------------
Total capital $ 3,417.2 $ 3,085.5 $ 3,075.0
================= ================ ================
</TABLE>
The Company's long-term debt bears interest at 8.0% per annum and
matures March 1, 2027. The capital and preferred securities of
subsidiary trusts include $100.0 million of capital securities
that are due March 1, 2037 and pay a distribution rate of 7.899%
and $200.0 million of preferred securities that are due October
31, 2028 and pay a distribution rate of 7.10%. There are no
sinking fund requirements related to the debt or capital and
preferred securities.
NFS is a holding company whose principal asset is the common stock
of NLIC. The principal sources of funds for NFS to pay interest,
dividends and operating expenses are existing cash and
investments, and dividends from NLIC and other subsidiaries.
24
<PAGE> 25
State insurance laws generally restrict the ability of insurance
companies to pay cash dividends in excess of certain prescribed
limitations without prior approval. The ability of NLIC to pay
dividends is subject to restrictions set forth in the insurance
laws and regulations of Ohio, its domiciliary state. The Ohio
insurance laws require life insurance companies to seek prior
regulatory approval to pay a dividend if the fair market value of
the dividend, together with that of other dividends made within
the preceding 12 months, exceeds the greater of (i) 10% of
statutory-basis policyholders' surplus as of the prior December 31
or (ii) the statutory-basis net income of the insurer for the
prior year. NLIC's statutory-basis policyholders' surplus as of
December 31, 1999 was $1.35 billion and statutory-basis net income
for 1999 was $276.2 million. Total dividends paid from surplus in
the 12 months preceding September 30, 2000 were $140.0 million.
The Ohio insurance laws also require insurers to seek prior
regulatory approval for any dividend paid from other than earned
surplus. The payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that
limit the amount of statutory profits on NLIC's participating
policies (measured before dividends to policyholders) that can
inure to the benefit of NFS and its stockholders. NFS currently
does not expect such regulatory requirements to impair its ability
to pay interest, dividends, operating expenses, and principal in
the future.
Also available as a source of funds to the Company is a $1 billion
revolving credit facility entered into by NFS, NLIC and Nationwide
Mutual Insurance Company with a group of national financial
institutions. The facility provides for several and not joint
liability with respect to any amount drawn by any party. The
facility provides covenants, including, but not limited to,
requirements that the Company maintain consolidated tangible net
worth, as defined, in excess of $1.69 billion and NLIC maintain
statutory surplus in excess of $935 million. The Company had no
amounts outstanding under this agreement as of September 30, 2000.
The Company also launched a $300 million commercial paper program
in early October 2000 which provides an additional source of
funds.
INVESTMENTS
General
The Company's assets are divided between separate account and
general account assets. As of September 30, 2000, $71.71 billion
(or 73%) of the Company's total assets were held in separate
accounts and $26.53 billion (or 27%) were held in the Company's
general account, including $22.82 billion of general account
investments.
Separate account assets consist primarily of deposits from the
Company's variable annuity business. Most separate account assets
are invested in various mutual funds. All of the investment risk
in the Company's separate account assets is borne by the Company's
customers, with the exception of $1.04 billion of policy reserves
as of September 30, 2000 ($915.4 million as of December 31, 1999)
for which the Company bears the investment risk.
25
<PAGE> 26
Fixed Maturity Securities
The following table summarizes the composition of the Company's
general account fixed maturity securities by category.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
--------------------------- ---------------------------
CARRYING % OF CARRYING % OF
(in millions) VALUE TOTAL VALUE TOTAL
----------------------------------------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
U.S. government/agencies $ 270.4 1.8% $ 449.4 2.9%
Foreign governments 107.9 0.7 110.4 0.7
State and political subdivisions 5.8 - 0.8 -
Mortgage-backed securities:
U.S. government/agencies 2,929.5 19.7 3,420.9 22.4
Non-government/agencies - - - -
Corporate:
Public 6,291.8 42.5 5,950.5 38.9
Private 5,251.9 35.3 5,364.5 35.1
--------------- ----------- --------------- -----------
$ 14,857.3 100.0% $ 15,296.5 100.0%
=============== =========== =============== ===========
</TABLE>
The National Association of Insurance Commissioners (NAIC) assigns
securities quality ratings and uniform valuations called "NAIC
Designations" which are used by insurers when preparing their
annual statements. The NAIC assigns designations to publicly
traded as well as privately placed securities. The designations
assigned by the NAIC range from class 1 to class 6, with a
designation in class 1 being of the highest quality. Of the
Company's general account fixed maturity securities, 96% were in
the highest two NAIC Designations as of September 30, 2000.
The following table sets forth an analysis of credit quality, as
determined by NAIC Designation, of the Company's general account
fixed maturity securities portfolio.
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 2000 DECEMBER 31, 1999
---------------------- ------------------------
NAIC RATING AGENCY CARRYING % OF CARRYING % OF
DESIGNATION (1) EQUIVALENT DESIGNATION (2) VALUE TOTAL VALUE TOTAL
--------------- -------------------------- ------------ ------ ------------- -----
(in millions)
<S> <C> <C> <C> <C> <C>
1 Aaa/Aa/A $ 9,228.5 62.1% $ 9,802.7 64.1%
2 Baa 5,070.5 34.1 4,990.1 32.6
3 Ba 394.8 2.7 408.6 2.7
4 B 111.0 0.8 87.0 0.6
5 Caa and lower 52.5 0.3 8.1 -
6 In or near default - - - -
------------ ----- ------------- -----
$ 14,857.3 100.0% $ 15,296.5 100.0%
============ ===== ============= =====
</TABLE>
----------
(1) NAIC Designations are assigned no less frequently than
annually. Some designations for securities shown have been
assigned to securities not yet assigned an NAIC Designation
in a manner approximating equivalent public rating
categories.
(2) Comparison's between NAIC and Moody's designations are
published by the NAIC. In the event no Moody's rating is
available, the Company has assigned internal ratings
corresponding to the public rating.
The Company's general account mortgage-backed security (MBS)
investments include residential MBSs and multi-family mortgage
pass-through certificates. As of September 30, 2000, MBSs were
$2.93 billion (or 20%) of the carrying value of the general
account fixed maturity securities available-for-sale, all of which
were guaranteed by the U.S. government or an agency of the U.S.
government.
26
<PAGE> 27
The Company believes that general account MBS investments add
diversification, liquidity, credit quality and additional yield to
its general account fixed maturity securities portfolio. The
objective of the Company's general account MBS investments is to
provide reasonable cash flow stability and increased yield.
General account MBS investments include collateralized mortgage
obligations (CMOs), Real Estate Mortgage Investment Conduits
(REMICs) and mortgage-backed pass-through securities. The
Company's general account MBS investments do not include
interest-only securities or principal-only securities or other
MBSs, which may exhibit extreme market volatility.
Prepayment risk is an inherent risk of holding MBSs. However, the
degree of prepayment risk is particular to the type of MBS held.
The Company limits its exposure to prepayments by purchasing less
volatile types of MBSs. As of September 30, 2000, $1.68 billion
(or 57%) of the carrying value of the general account MBS
portfolio was invested in planned amortization class CMOs/REMICs
(PACs). PACs are securities whose cash flows are designed to
remain constant over a variety of mortgage prepayment
environments. Other classes in the CMO/REMIC security are
structured to accept the volatility of mortgage prepayment
changes, thereby insulating the PAC class.
The following table sets forth the distribution by investment type
of the Company's general account MBS portfolio.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000 AS OF DECEMBER 31, 1999
----------------------------- -----------------------------
CARRYING % OF CARRYING % OF
(in millions) VALUE TOTAL VALUE TOTAL
------------------------------------------- --------------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Planned Amortization Class $ 1,676.8 57.2% $ 2,010.1 58.8%
Very Accurately Defined Maturity 390.2 13.3 477.9 14.0
Multi-family Mortgage Pass-through
Certificates 318.2 10.9 367.6 10.8
Scheduled 107.1 3.7 120.7 3.5
Targeted Amortization Class 101.8 3.5 110.1 3.2
Accrual 67.9 2.3 75.7 2.2
Sequential 112.7 3.8 93.5 2.7
Other 154.8 5.3 165.3 4.8
--------------- ------------ --------------- -----------
$ 2,929.5 100.0% $ 3,420.9 100.0%
=============== ============ =============== ===========
</TABLE>
Mortgage Loans
As of September 30, 2000, general account mortgage loans were
$6.11 billion (or 27%) of the carrying value of consolidated
general account invested assets.
As of September 30, 2000, 0.11% of the Company's mortgage loans
were classified as delinquent compared to none a year ago and
0.09% at December 31, 1999. Foreclosed and restructured loans
totaled only 0.26% and 0.20% of the Company's mortgage loans as of
September 30, 2000, respectively, compared to none and 0.45% as of
September 30, 1999, respectively.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that
affect the quantitative and qualitative disclosures presented in
NFS's Annual Report on Form 10-K for the year ended December 31,
1999.
27
<PAGE> 28
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is a party to litigation and arbitration proceedings
in the ordinary course of its business, none of which is expected
to have a material adverse effect on the Company.
In recent years, life insurance companies have been named as
defendants in lawsuits, including class action lawsuits, relating
to life insurance and annuity pricing and sales practices. A
number of these lawsuits have resulted in substantial jury awards
or settlements.
As was previously disclosed in the Company's Form 10-Q for the
quarterly period ended March 31, 2000, the Robert Young and David
D. Distad v. Nationwide Life Insurance Company et al lawsuit was
dismissed by the court with prejudice on February 9, 2000.
On October 29, 1998, the Company was named in a lawsuit filed in
Ohio state court related to the sale of deferred annuity products
for use as investments in tax-deferred contributory retirement
plans (Mercedes Castillo v. Nationwide Financial Services, Inc.,
Nationwide Life Insurance Company and Nationwide Life and Annuity
Insurance Company). On May 3, 1999, the complaint was amended to,
among other things, add Marcus Shore as a second plaintiff. The
amended complaint is brought as a class action on behalf of all
persons who purchased individual deferred annuity contracts or
participated in group annuity contracts sold by the Company and
the other named Company affiliates which were used to fund certain
tax-deferred retirement plans. The amended complaint seeks
unspecified compensatory and punitive damages. No class has been
certified. On June 11, 1999, the Company and the other named
defendants filed a motion to dismiss the amended complaint. On
March 8, 2000, the court denied the motion to dismiss the amended
complaint filed by the Company and other named defendants. The
Company intends to defend this lawsuit vigorously.
There can be no assurance that any litigation relating to pricing
or sales practices will not have a material adverse effect on the
Company in the future.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to the Stock Retainer Plan for Non-Employee Directors,
1,501 shares of Class A Common Stock were issued by NFS during the
third quarter of 2000, at an average price of $37.492 per share to
NFS' directors as partial payment of the $50,000 annual retainer
paid by NFS to the directors in consideration of serving as
directors of the Company. The issuance of such shares is exempt
from registration under the Securities Act of 1933, as amended,
pursuant to section 4(2) promulgated thereunder.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
28
<PAGE> 29
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.32 Form of Employment Agreement, dated May 26,
2000, between Nationwide Mutual Insurance
Company and W.G. Jurgensen
10.33 Form of Employment Agreement, dated July 1,
2000, between Nationwide Financial Services
Inc., and Joseph Gasper
10.34 Form of Retention Agreement, dated July 1,
2000, between Nationwide Financial Services,
Inc. and Joseph Gasper
27 Financial Data Schedule (electronic filing
only)
(b) Reports on Form 8-K:
On October 30, 2000, NFS filed a Current Report on
Form 8-K in connection with the release of quarterly
earnings results.
29
<PAGE> 30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONWIDE FINANCIAL SERVICES, INC.
-----------------------------------
(Registrant)
Date: November 13 , 2000 /s/Mark R. Thresher
-------------------------------------
Mark R. Thresher, Senior Vice
President - Finance
(Chief Accounting Officer)
30
