<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
or
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 1-7369
WASHINGTON NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2663225
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
300 Tower Parkway,
Lincolnshire, Illinois 60069
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, Including Area Code: (847) 793-3000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of Common Stock, $5 par value outstanding as of
November 10, 1997 was 12,050,480.
<PAGE> 2
CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheet - September 30, 1997
and December 31, 1996 3
Consolidated Statement of Operations - Nine and Three Months
Ended September 30, 1997 and 1996 4
Consolidated Condensed Statement of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements - September 30, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
<PAGE> 3
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WASHINGTON NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(000s Omitted)
<CAPTION>
September 30,
1997 December 31,
(Unaudited) 1996
<S> <C> <C>
ASSETS
Investments
Fixed maturities - Available for sale at fair
value (cost: $1,853,987; $1,899,130) $1,911,779 $1,931,129
Mortgage loans on real estate 219,498 257,635
Real estate and joint ventures 15,116 20,044
Policy loans 57,922 55,798
Other long-term 10,378 11,812
Short-term 81,335 103,345
Total Investments 2,296,028 2,379,763
Cash 2,367 3,081
Deferred acquisition costs 231,572 242,488
Reinsurance recoverables and prepaid premiums 109,619 109,555
Accrued investment income 30,932 31,671
Insurance premiums in course of collection 9,985 12,051
Property and equipment 12,362 13,472
Goodwill 17,149 17,679
Separate Account 48,999 39,643
Other 14,909 19,793
Total Assets $2,773,922 $2,869,196
LIABILITIES
Policy liabilities $2,200,186 $2,282,537
General expenses and other liabilities 100,365 129,784
Income taxes (current: $(2,186); $550) 10,778 12,548
Mortgage payable - 740
Separate Account 48,999 39,643
Total Liabilities 2,360,328 2,465,252
SHAREHOLDERS' EQUITY
Convertible preferred stock - 712
Common stock 124,587 128,960
Retained earnings 332,662 315,661
Net unrealized investment gains 26,133 16,608
Cost of common treasury stock (69,788) (57,997)
Total Shareholders' Equity 413,594 403,944
Total Liabilities and Shareholders' Equity $2,773,922 $2,869,196
See notes to consolidated financial statements
</TABLE>
<PAGE> 4
<TABLE>
WASHINGTON NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(000s Omitted, Except Per Share Data)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Insurance premiums and policy charges $122,571 $116,810 $40,831 $39,127
Net investment income 119,856 123,897 39,113 41,898
Realized investment gains 4,208 528 2,567 770
Interest on tax refund 4,634 - - -
Other 2,075 3,769 849 1,181
Total Revenues 253,344 245,004 83,360 82,976
Benefits and Expenses
Insurance benefits paid or provided 154,170 161,418 47,760 52,934
Insurance and general expenses 32,720 31,434 12,023 10,198
Charge for sublease on home office 9,051 - - -
Amortization of deferred acquisition costs 20,522 15,859 7,839 5,105
Total Benefits and Expenses 216,463 208,711 67,622 68,237
Income from continuing operations before income taxes 36,881 36,293 15,738 14,739
Income taxes on continuing operations 11,623 11,873 4,944 4,745
Income from Continuing Operations 25,258 24,420 10,794 9,994
Discontinued Operations
Income (loss) from discontinued operations -
net of tax 1,848 (919) 1,848 (60)
Loss on disposal - net of tax - (25,080) - -
Gain (Loss) from Discontinued Operations 1,848 (25,999) 1,848 (60)
Net Income (Loss) $27,106 ($1,579) $12,642 $9,934
Primary Earnings Per Share
Income from continuing operations $2.00 $1.97 $0.87 $0.80
Income (loss) from discontinued operations -
net of tax 0.15 (2.12) 0.15 (0.01)
Net Income (Loss) Per Share $2.15 ($0.15) $1.02 $0.79
Average Shares and Equivalents Outstanding 12,533 12,250 12,455 12,446
Fully Diluted Earnings Per Share
Income from continuing operations $1.99 $1.97 $0.86 $0.78
Income (loss) from discontinued operations -
net of tax 0.14 (2.12) 0.15 -
Net Income (Loss) Per Share $2.13 ($0.15) $1.01 $0.78
Average Shares and Equivalents Outstanding 12,702 12,250 12,509 12,743
Dividends Paid Per Common Share $0.81 $0.81 $0.27 $0.27
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
<TABLE>
WASHINGTON NATIONAL CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
(000s Omitted)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Net Cash Provided by Operating Activities $2,974 $21,861
Investing Activities
Proceeds from sales
Fixed maturities - available for sale 58,652 103,242
Mortgage loans, real estate and other 15,214 27,544
Proceeds from maturities, redemptions and distributions
Fixed maturities - available for sale 118,714 87,260
Mortgage loans, real estate and other 32,522 53,027
Cost of purchases
Fixed maturities - available for sale (127,432) (203,330)
Mortgage loans, real estate and other (3,793) (7,498)
Net payments related to discontinued operations (23,099) (10,496)
Net change in short-term investments 22,010 (820)
Increase in policy loans (2,124) (125)
Purchases of property and equipment (94) (455)
Net Cash Provided by Investing Activities 90,570 48,349
Financing Activities
Policyholder account deposits 111,894 111,305
Policyholder account withdrawals (178,366) (175,452)
Dividends to shareholders (10,105) (10,190)
Preferred stock redemption (6,326) -
Proceeds from issuance of common stock 1,176 1,578
Repayment of long-term borrowing (740) (280)
Payments to acquire treasury stock (11,791) -
Change in short-term notes payable - (3,100)
Net Cash Used by Financing Activities (94,258) (76,139)
Decrease in Cash (714) (5,929)
Cash at Beginning of Period 3,081 8,331
Cash at End of Period $2,367 $2,402
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
Item 1. Financial Statements (continued)
WASHINGTON NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1997
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles (GAAP) for interim periods. In the opinion of
management, all adjustments (consisting primarily of normal,
recurring accruals) considered necessary for a fair presentation
have been included.
B. Merger
During the third quarter of 1997, PennCorp Financial Group, Inc.
(PennCorp), and the Company mutually agreed to terminate their
merger agreement. The Company then began a remarketing effort and
subsequently entered into a merger agreement with Conseco, Inc.
(Conseco), whereby the Company would be acquired for a cash price
of $33.25 per common share and WNC would become a wholly-owned
subsidiary of Conseco. As of the date of this filing, the Company
has mailed proxy materials to shareholders and has set a
shareholders' meeting date of November 17, 1997, for shareholders
to vote on the proposed merger. In addition to shareholder
approval, regulatory approval from the Illinois and Indiana
insurance departments is needed. The Company expects the merger
to close in early December.
C. Discontinued Operations
In 1996, the Company sold its individual health insurance and its
group life and health insurance business. The operating results
of the Company's sold health insurance business have been
reported in the Consolidated Statement of Operations as
discontinued operations. As permitted, the Consolidated Balance
Sheet has not been segregated between continuing and discontinued
operations. At September 30, 1997, the business had remaining
assets of approximately $129.6 million consisting primarily of
invested assets and $68.7 million of reinsurance recoverables,
and liabilities of approximately $129.6 million consisting
primarily of policy liabilities.
Revenues for the discontinued operations were $43.2 million and
$223.2 million for the nine months ended September 30, 1997 and
1996, respectively.
1997 results consist of a tax benefit recorded in conjunction
with a settlement with the Internal Revenue Service (IRS) for
prior years' returns.
D. Reinsurance
The effect of reinsurance on insurance premiums and policy charges
from continuing operations for the nine month period ended
September 30 follows:
<TABLE>
<CAPTION>
(000s omitted) 1997 1996
<S> <C> <C>
Direct premiums and policy charges $157,934 $158,337
Premiums ceded (35,363) (41,527)
Net premiums and policy charges $122,571 $116,810
</TABLE>
<PAGE> 7
Item 1. Financial Statements (continued)
WASHINGTON NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
September 30, 1997
Reinsurance benefits ceded from continuing operations were $16.3
million and $14.6 million at September 30, 1997 and 1996,
respectively.
At September 30, 1997, approximately 63% of WNC's total reinsurance
recoverables related to the Company's discontinued operations. Of
the 63%, 97% was from Pioneer Life Insurance Company as a result of
the sale of the individual health insurance and the small group
life and health insurance business. Of WNC's total reinsurance
recoverables, 21% was due from Combined Insurance Company of
America and 7% due from the UNUM Life Insurance Company.
E. Financial Guarantees
The Company has entered into certain financial guarantees. A
financial guarantee is a conditional commitment to guarantee the
payment of an obligation by an unrelated entity to a third party
and has off-balance sheet credit risk. The exposure to credit risk
is represented by the amount the Company would be required to pay
under certain circumstances.
At September 30, 1997, the Company had two financial guarantees
totaling $8.5 million and at December 31, 1996, it had three
guarantees totaling $11.5 million, with related letters of credit
of $2.1 million and a construction completion guarantee at both
dates. The Company feels it has adequate reserves for related
potential losses.
F. Net Unrealized Gains on Investments
The components of net unrealized gains on investments included in
shareholders' equity are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(000s omitted) 1997 1996
<S> <C> <C>
Unrealized gains $59,375 $33,653
Adjustment to deferred acquisition costs (23,746) (8,115)
Deferred income tax expense 9,496 8,930
Net unrealized gains on investments $26,133 $16,608
</TABLE>
G. Home Office Sublease
As a result of the sale of the Company's health insurance
business in 1996 and the pending merger, the Company has entered
into an agreement to sublease its home office building to ACCO, a
subsidiary of American Brands. The building was leased from a
joint venture partnership in which Washington National Insurance
Company, WNC's subsidiary, has a one-third interest. ACCO took
possession of approximately 80% of the building at the beginning
of August, 1997. The remaining Education business and the
administrative support functions will occupy the remaining 20% of
the building through February 15, 1998. The sublease resulted in
the Company recording a $9.1 million charge in the second quarter
of 1997 for the difference between the rent expected to be
received and the remaining lease obligation on the original
lease.
<PAGE> 8
Item 1. Financial Statements (continued)
WASHINGTON NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
September 30, 1997
H. Preferred Stock Redemption
On June 2, 1997 the Company called for redemption all of the
issued and outstanding $2.50 convertible shares of preferred
stock for $55.00 per share plus accrued dividends. Preferred
shareholders had the option to (1) convert their preferred stock
into the Company's $5.00 par value common stock at a conversion
rate of 1.875 shares of common for each share of preferred stock
prior to the redemption date, or (2) have their preferred shares
redeemed in cash on the redemption date, or (3) sell the
preferred stock prior to the redemption date. Of the 142,000
shares outstanding, 14,000 shares were converted to common stock
and 128,000 shares were redeemed for cash.
I. Federal Income Taxes
During the second quarter of 1997, the Company received a tax
refund from the IRS, settling tax years through 1988. As a
result, the Company recorded interest income of $4.6 million. The
net effect of the refund was to increase net income by $2.2
million.
In the third quarter of 1997, the Company reached an agreement
with the IRS for tax years 1992 through 1994 and filed an amended
return for 1995. The agreement and the amended return resulted in
third quarter cash payments of $5.8 million in taxes and $1.7
million in interest. The IRS settlement had a positive effect on
1997 income of $1.7 million primarily related to the sold health
insurance business.
J. Common Stock Repurchase
On July 29, 1997, the Company purchased and retired 415,564
shares of its common stock at market value from the Washington
National Retirement Plan at a cost of $11,792,000. The Plan is a
terminated defined benefit pension plan sponsored by WNIC.
K. New Accounting Standards
In February 1997 the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," which is effective for financial
statements issued for periods ending after December 15, 1997. The
Statement changes the computation of earnings per share (EPS) by
replacing primary and fully diluted EPS with basic and dilutive
EPS and requires additional disclosure.
The difference between basic and primary EPS is that the
denominator of the new calculation only uses the average shares
outstanding for the period versus average shares and equivalents
used in primary EPS. For WNC, this means that for basic EPS,
common share equivalents for outstanding stock options are not
added to the denominator. The effect on WNC between primary and
basic EPS, which is not material, is to slightly increase EPS.
For WNC, the difference between dilutive EPS and fully diluted
EPS is the treatment of restricted stock, which is immaterial.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. This Statement establishes
standards for reporting and displaying comprehensive income and
its components in a full set of general purpose financial
statements. For WNC, comprehensive income will include net
income, the change in unrealized gains and losses on investments
and unfunded pension losses.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following updates and should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and
Results of Operations section of the Company's 1996 Annual Report on
Form 10-K, copies of which may be obtained by contacting: Craig
Simundza, Vice President, Financial Reporting, Washington National
Corporation, 300 Tower Parkway, Lincolnshire, Illinois 60069
(telephone: (847) 793-3053 or facsimile: (847) 793-3700).
<TABLE>
Analysis of Net Income (Loss)
<CAPTION>
(000s omitted) Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Pretax operating income (1)
Insurance operations $13,708 $12,144 $34,709 $32,056
Corporate and other (537) 1,825 2,381 3,709
Total pretax operating income 13,171 13,969 37,090 35,765
Income taxes on operating income 5,017 4,717 13,374 12,505
Net operating income 8,154 9,252 23,716 23,260
Other components of income, net of tax
Charge on sublease - - (5,883) -
Income tax refund interest - - 2,203 -
Net realized investment gains (2) 2,640 742 5,222 1,160
Discontinued operations (3) 1,848 (60) 1,848 (25,999)
Net income (loss) $12,642 $ 9,934 $27,106 $ (1,579)
<FN>
(1) Pretax income from continuing operations before net realized
investment gains, income tax refund, and sublease charge.
(2) 1997 includes a tax benefit of $73 and 1996 includes tax of
$28 for the three months ended September 30. The nine months
ended September 30, 1997 and 1996, include tax benefits of $1,014
and $632, respectively.
(3) The nine months ended September 30, 1996, includes a loss on
sale of health insurance business of $25,080.
</FN>
</TABLE>
Corporate Merger
During the third quarter of 1997, PennCorp Financial Group, Inc.
(PennCorp), and the Company mutually agreed to terminate their
merger agreement. The Company then began a remarketing effort and
subsequently entered into a merger agreement with Conseco, Inc.
(Conseco), whereby the Company would be acquired for a cash price of
$33.25 per common share and WNC would become a wholly-owned
subsidiary of Conseco. As of the date of this filing, the Company
has mailed proxy materials to shareholders and has set a
shareholders' meeting date of November 17, 1997, for shareholders to
vote on the proposed merger. In addition to shareholder approval,
regulatory approval from the Illinois and Indiana insurance
departments is needed. The Company expects the merger to close in
early December.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Consolidated Results of Operations
Components of Pretax Operating Income from Continuing Operations by
Segment:
<TABLE>
<CAPTION>
Insurance Corporate
(000s omitted) Operations and Other Total
Three months ended September 30, 1997
<S> <C> <C> <C>
Revenues
Insurance premiums and policy charges $40,831 $ - $40,831
Net investment income 37,569 1,544 39,113
Other revenues 836 13 849
Total revenues excluding realized investment gains 79,236 1,557 80,793
Benefits and expenses
Insurance benefits paid or provided 47,705 55 47,760
Insurance and general expenses 9,984 2,039 12,023
Amortization of deferred acquisition costs 7,839 - 7,839
Total benefits and expenses 65,528 2,094 67,622
Pretax operating income (loss) from continuing operations $13,708 $ (537) $13,171
</TABLE>
<TABLE>
<CAPTION>
Insurance Corporate
(000s omitted) Operations and Other Total
Three months ended September 30, 1996
<S> <C> <C> <C>
Revenues
Insurance premiums and policy charges $39,127 $ - $39,127
Net investment income 39,371 2,527 41,898
Other revenues 900 281 1,181
Total revenues excluding realized investment gains 79,398 2,808 82,206
Benefits and expenses
Insurance benefits paid or provided 52,874 60 52,934
Insurance and general expenses 9,275 923 10,198
Amortization of deferred acquisition costs 5,105 - 5,105
Total benefits and expenses 67,254 983 68,237
Pretax operating income from continuing operations $12,144 $1,825 $13,969
</TABLE>
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
Insurance Corporate
(000s omitted) Operations and Other Total
Nine months ended September 30, 1997
<S> <C> <C> <C>
Revenues
Insurance premiums and policy charges $122,571 $ - $122,571
Net investment income 113,289 6,567 119,856
Other revenues 1,840 235 2,075
Total revenues excluding realized investment gains
and interest on tax refund 237,700 6,802 244,502
Benefits and expenses
Insurance benefits paid or provided 154,005 165 154,170
Insurance and general expenses 28,464 4,256 32,720
Amortization of deferred acquisition costs 20,522 - 20,522
Total benefits and expenses excluding charge
on sublease 202,991 4,421 207,412
Pretax operating income from continuing operations $ 34,709 $2,381 $ 37,090
</TABLE>
<TABLE>
<CAPTION>
Insurance Corporate
(000s omitted) Operations and Other Total
Nine months ended September 30, 1996
<S> <C> <C> <C>
Revenues
Insurance premiums and policy charges $116,810 $ - $116,810
Net investment income 117,481 6,416 123,897
Other revenues 3,247 522 3,769
Total revenues excluding realized investment gains 237,538 6,938 244,476
Benefits and expenses
Insurance benefits paid or provided 161,238 180 161,418
Insurance and general expenses 28,385 3,049 31,434
Amortization of deferred acquisition costs 15,859 - 15,859
Total benefits and expenses 205,482 3,229 208,711
Pretax operating income from continuing operations $ 32,056 $3,709 $ 35,765
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Insurance Premiums and Policy Charges. Insurance premiums and
policy charges increased $5.8 million, or 4.9%, from $116.8 million
in the first nine months of 1996 to $122.6 million in 1997. The
improvement was primarily due to increases from educator disability
products and life insurance policy charges at UPI offset in part by
a decline in the closed block of life insurance and annuities at
WNIC. See "Segment Information," below.
Net Investment Income. Net investment income was $119.9 million in
the first nine months of 1997, compared to $123.9 in the same period
of 1996. The amortized cost of the Company's investment portfolio at
September 30, 1997, was $2.24 billion, compared to $2.38 billion at
September 30, 1996. The portfolio yield (based on amortized cost)
was 7.36% in the first nine months of 1997 and 7.45% in the first
nine months of 1996. The decline in investment yield is primarily
the result of investing in short-term securities due to the pending
merger.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Realized Investment Gains and Losses. Realized investment gains
before taxes for the first nine months of 1997 were $4.2 million
compared to $0.5 million in the first nine months of 1996. In 1997,
realized investment gains were comprised primarily of gains of $6.4
million on fixed maturity investments, equity securities, and other
invested assets. These gains were partially offset by realized
investment losses of $2.2 million on mortgage loans and real estate.
The Company's income taxes included tax benefits of $1.0 million in
1997 related to realized investment losses.
In the first nine months of 1996, realized gains of $6.3 million on
other invested assets and equity securities were mostly offset by
realized losses of $5.7 million on real estate investments, mortgage
loans, and fixed maturity investments. The Company's income taxes
included a tax benefit of $0.6 million in 1996 related to realized
investment losses.
Insurance Benefits Paid or Provided. Insurance benefits paid or
provided were $154.2 million in the first nine months of 1997 and
$161.4 million in the first nine months of 1996. A decline in
benefits in the closed block of life insurance and annuities was
partially offset by increased benefits for education. Benefits
decreased in the closed block of life insurance and annuities as
this business continues to decline in size combined with a $1.2
million reserve release for a portion of this block of business.
Education disability benefits increased primarily due to an increase
in the number of insureds. See "Segment Information," below.
Insurance and General Expenses. The Company's operating income
expense ratio (expenses as a percentage of premiums and net
investment income) before the $9.1 million charge for the sublease
of the Company's home office was 13.5% in the first nine months of
1997, compared to 13.1% in the first nine months of 1996. The
increase was due primarily to merger related expenses in the 1997
third quarter, partially offset by lower operating expenses in the
closed block of life insurance and annuities.
Charge for Sublease of Home Office. In the 1997 second quarter, the
Company recorded a charge of $9.1 million ($5.9 million, net of tax)
related to the sublease of the Company's home office. The Company
has sublet the facility due to substantial excess space after the
1996 divestiture of the Company's health insurance business and the
pending merger with Conseco.
Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs was $20.5 million in the first nine months of 1997,
up 29.4% from $15.9 million in the same period of 1996. The increase
was due to higher premium and policy charges at UPI and UPI's annual
review of amortization assumptions which increased amortization by
$0.8 million in 1997. A similar study in 1996 decreased amortization
by $1.3 million. The studies resulted in nearly equal offsetting
adjustments to insurance benefits and an immaterial impact on net
income in both 1997 and 1996.
Income Taxes. Income taxes on operating income from continuing
operations were $13.4 million in the first nine months of 1997 and
$12.5 million in the same period of 1996. The effective tax rate on
pretax operating income in the first nine months of 1997 was 36.1%,
compared to 35.0% in 1996.
Income taxes for the first nine months of 1997 include a tax credit
of $3.2 million for the charge related to the sublease of the
Company's home office.
During the 1997 second quarter, the Company received a tax refund of
$5.2 million, which included interest income of $4.6 million, for
the closing of the 1974 to 1988 tax years. The increase to 1997 nine
month net income for the refund and interest, after taxes, was $2.2
million.
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Income (Loss) from Discontinued Operations, Net of Tax. In the
second quarter of 1996, the Company reported a loss of $25.1
million, net of tax, from the sale of its health insurance business.
In addition, the 1996 loss from discontinued operations includes
$0.9 million relating to the loss on operations from January 1,
1996, through May 31, 1996, the measurement date for the disposal of
the health business. The loss from discontinued operations in 1996
resulted from a high benefits ratio (benefits as a percentage of
premiums) for both the group employee benefits portion of
discontinued operations and the individual health insurance portion.
The group employee benefits ratio was high due to increased
competition for group medical insurance and adverse group life
insurance mortality experience. The increase in individual health
insurance resulted primarily from poor claims experience on policies
written in New Jersey, which had implemented certain adverse
restrictions on health insurers.
During the 1997 third quarter, the Company settled the tax years
1992 to 1994 with the IRS and amended its 1995 federal income tax
return. As a result of the settlement, the Company paid $7.5 million
in taxes and interest, and recorded an income tax benefit of $1.8
million related to discontinued operations.
Net Income (Loss). Net income for the first nine months of 1997 was
$27.1 million, compared to a net loss of $1.6 million in 1996. The
increase in net income resulted from the loss on discontinued
operations recorded in 1996, combined with improvement in the
Company's insurance operations in 1997.
Segment Information
Insurance Operations. For the first nine months of 1997, revenues
for the insurance operations segment were $237.7 million, compared
to $237.5 million in the same period of 1996. Revenues from the
educator disability business and UPI improved 7% and 4%,
respectively, over the first nine months of 1996. For the educator
disability business, revenues increased due primarily to rate
increases and increased coverage amounts. At UPI, insurance in force
at the end of the third quarter of 1997 increased 2.9% over a year
earlier. Offsetting the increases in revenues from the growth
businesses was a decline in investment income, premiums, and other
income from the closed block attributable to its ongoing shrinkage.
Annuity account balances for the closed block at September 30, 1997,
declined 9.4% from year-end 1996 and 12.3% from a year earlier. No
new sales have been made in the closed block since 1989.
Operating income for the insurance operations segment increased $2.7
million, or 8.3%, to $34.7 million in the first nine months of 1997
from $32.1 million in the first nine months of 1996. The increase
was primarily due to improved operations in the educator disability
business and at UPI, offset in part by a decline in the closed
block. Increased operating income from the educator disability
business resulted from an improvement in profit margin due to a
decline in the benefit ratio (benefits as a percentage of premiums)
in the first nine months of 1997 compared to the same period of
1996. The improvement at UPI resulted from increased policy charges
and interest spreads (the difference between interest credited to
policyholders and the interest earned on investments). The decline
in the closed block was the result of its ongoing shrinkage.
For the third quarter, operating income for the insurance operations
segment increased $1.6 million, or 12.9%, to $13.7 million from
$12.1 million in the third quarter of 1996. The increase was due to
a reserve release of $1.2 million on a portion of the closed block
of life insurance and annuities and increased policy charges at UPI.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Corporate and Other. The corporate and other segment had pretax
operating income of $2.4 million in the first nine months of 1997,
compared to $3.7 million in the first nine months of 1996. The
decrease was primarily due to certain merger-related expenses, final
real estate expenses on a property sold, and reduced investment
income due to the redemption of the Company's preferred shares for
$6.3 million and the purchase of 415,564 shares of the Company's
common stock for $11.8 million from a terminated defined benefit
pension plan of one of its subsidiaries.
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
The nature and reasons for any significant variations between
quarters ended September 30, 1997, and September 30, 1996, are the
same as those discussed above for the respective nine-month periods,
except where otherwise noted.
Investment Portfolio
At September 30, 1997, the Company had invested assets with a
carrying value of $2.3 billion compared to $2.4 billion at December
31, 1996. Certain information about the Company's investment
portfolio follows (dollars in millions):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
% of % of
Carrying Carrying Carrying Carrying
Value Value Value Value
<S> <C> <C> <C> <C>
Fixed maturity investments:
United States government obligations $ 65.0 2.9% $ 71.2 3.0%
Obligations of states and
political subdivisions 73.2 3.2 81.1 3.4
Public Utilities 149.7 6.5 150.1 6.3
Industrial and miscellaneous 1,001.4 43.6 1,025.1 43.1
Mortgage-backed securities 590.6 25.7 578.4 24.3
Other 31.9 1.4 25.2 1.0
Total fixed maturity investments 1,911.8 83.3 1,931.1 81.1
Mortgage loans on real estate 219.5 9.6 257.6 10.8
Real estate and joint ventures 15.1 0.7 20.1 0.8
Policy loans 57.9 2.5 55.8 2.4
Other long-term 10.4 0.4 11.8 0.5
Short-term 81.3 3.5 103.4 4.4
Total invested assets $2,296.0 100.0% $2,379.8 100.0%
</TABLE>
Fixed Maturity Investments
The Company's fixed maturity investments are carried at fair value.
Due to changes in the interest rate environment during 1997, the
carrying value of the Company's fixed maturity investments compared
to amortized cost increased $25.8 million, resulting in an
unrealized gain on fixed maturity investments of $57.8 million,
compared to an unrealized gain of $32.0 million at December 31,
1996. The amortized cost of the Company's fixed maturity portfolio
decreased $45.1 million in the first nine months of 1997 to $1.9
billion at September 30, 1997. The decrease was attributable to the
use of cash proceeds to meet the liquidity needs of the Company's
closed annuity business and to discharge liabilities from the 1996
sale of the Company's health business.
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The composition of the Company's fixed maturity portfolio at
September 30, 1997, based on ratings follows (dollars in millions):
<TABLE>
<CAPTION>
Carrying Value
as a Percent of
Carrying Fixed Invested
Value Maturities Assets
<S> <C> <C> <C>
AAA/Aaa $ 782.6 40.9% 34.1%
AA/Aa 110.9 5.8 4.8
A 571.9 29.9 24.9
BBB/Baa 380.3 19.9 16.6
BB/Ba and lower 66.1 3.5 2.9
Total fixed maturities $1,911.8 100.0% 83.3%
</TABLE>
The Company's policy for rating fixed maturity investments is to use
the rating determined by Standard & Poor's Company or Moody's
Investor Service, Inc. for publicly-traded investments. For
privately-traded securities, the ratings of Duff & Phelps Credit
Rating Company and Fitch Investors Service, Inc. are also recognized
in defining rated securities. If an investment has a split rating
(i.e., different ratings from the rating services) the Company
categorizes the investment under the lowest rating. For those
investments that do not have a rating from these services, the
Company categorizes those investments on ratings assigned by the
National Association of Insurance Commissioners (NAIC), whose
ratings are as follows: NAIC Class 1 is considered equivalent to a
AAA/Aaa, AA/Aa, or A rating; NAIC Class 2, BBB/Baa; and NAIC Classes
3-6, BB/Ba and below. At September 30, 1997, $68.5 million or 3.6%
of fixed maturity investments were rated with comparable NAIC
ratings, the majority of which is $26.3 million of investments rated
BBB and $21.6 million of investments rated BB and lower.
The Company's fixed maturity portfolio at September 30, 1997,
includes $590.6 million of mortgage-backed securities, detailed as
follows (dollars in millions):
<TABLE>
<CAPTION>
Carrying Value
as a Percent of
Mortgage-
Carrying Backed Invested
Value Securities Assets
<S> <C> <C> <C>
Agency CMOs
Planned amortization classes $129.6 21.9% 5.6%
Target amortization classes 3.8 0.6 0.2
Sequential classes 3.3 0.6 0.1
Support classes 5.8 1.0 0.3
Accrual classes 2.9 0.5 0.1
Total agency CMOs 145.4 24.6 6.3
Non-agency CMOs (1)
Planned amortization classes 14.1 2.4 0.6
Accrual classes 1.1 0.2 0.1
Sequential classes 6.2 1.0 0.3
Total non-agency CMOs 21.4 3.6 1.0
Total CMOs 166.8 28.2 7.3
Non-agency mortgage-backed
pass-through securities 1.1 0.2 0.0
Agency mortgage-backed
pass-through securities 422.7 71.6 18.4
Total mortgage-backed securities $590.6 100.0% 25.7%
<FN>
(1) All of the Company's non-agency collateralized mortgage
obligations (CMOs) investments were rated AAA at September 30,
1997. The credit risk associated with non-agency mortgage-backed
securities is generally greater than that of agency mortgage-
backed securities.
</FN>
</TABLE>
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
To mitigate prepayment risk, the Company primarily invests in CMO
classes that have, at time of investment, the most stable prepayment
structure. Such CMO classes are termed "planned amortization class"
(PAC) which comprised 86% of the Company's CMO portfolio at
September 30, 1997. The next most stable class of CMOs is "target
amortization class" (TAC) which comprised 2% of the Company's CMO
portfolio at September 30, 1997. PACs and TACs are designed to
protect against prepayment risk and may therefore have more
predictable cash flows than pass-through mortgage-backed securities.
As market interest rates have declined over the past several years,
prepayments on certain PAC and TAC investments have increased
resulting in a loss of some prepayment protection. Approximately 55%
of the Company's PAC and TAC investments at September 30, 1997, have
lost some of this protection. However, the Company believes the
yield earned on these issues continues to adequately compensate for
the reduced prepayment protection.
Mortgage Loans
The Company had investments in mortgage loans of $219.5 million (net
of allowances of $6.7 million) at September 30, 1997 compared to
$257.6 million at December 31, 1996. Investments in mortgage loans
declined primarily due to prepayments and amortization. Of the
outstanding loans at September 30, 1997, loans with a carrying value
of $7.2 million, or approximately 3.3%, were delinquent 60 days or
more as to interest or principal.
Restructured loans, where modifications of the terms of the mortgage
loan have occurred and which are considered current investments, had
a carrying value of $7.0 million at September 30, 1997, a decrease
of $4.6 million from December 31, 1996, resulting primarily from a
foreclosure. Impaired loans, where compliance with the terms of the
mortgage is in doubt, total $6.9 million, a decrease of $2.5 million
from December 31, 1996.
The Company no longer makes new investments in mortgage loans except
for purchase money loans.
The Company's mortgage loan portfolio at September 30, 1997, by
geographic distribution, year of maturity, and property type follows
(dollars in millions):
<TABLE>
<CAPTION>
Geographic Distribution of
Mortgage Loans
<S> <C> <C>
California $ 39.5 18.0%
Illinois 30.5 13.9
Indiana 27.5 12.5
Florida 26.7 12.1
Texas 16.9 7.7
Virginia 11.5 5.3
All other 66.9 30.5
Total $219.5 100.0%
</TABLE>
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
Mortgage Loans by Year of Maturity
Scheduled
Principal Balloon
Payments (1) Payments Total
<S> <C> <C> <C>
1997 $ 2.6 $ 14.9 $ 17.5
1998 10.8 2.8 13.6
1999 11.7 2.8 14.5
2000 12.3 5.7 18.0
2001 12.4 20.4 32.8
2002 and thereafter 66.6 56.5 123.1
Total $116.4 $103.1 $219.5
<FN>
(1) Includes scheduled payments on balloon loans
</FN>
</TABLE>
<TABLE>
<CAPTION>
Property Type
<S> <C> <C>
Retail $132.8 60.5%
Office 27.8 12.7
Industrial 19.5 8.9
Medical 11.1 5.0
Multi-Family Residential 10.2 4.7
All other 18.1 8.2
Total $219.5 100.0%
</TABLE>
Real Estate and Joint Ventures
The Company's real estate and joint venture investments decreased
$4.9 million since December 31, 1996. The decrease was due primarily
to the second quarter 1997 sale of the Company's largest investment
property partially offset by acquiring property through foreclosure.
At September 30, 1997, $5.6 million of the real estate investments
were acquired through foreclosures, compared to $4.1 million at
December 31, 1996. As a result of the sale of the Company's largest
real estate investment, approximately 62% of remaining real estate
consists of foreclosed properties held for sale by the Company.
Liquidity and Capital Resources
Cash Flows. During the first nine months of 1997, the Company's
operating activities generated cash of $3.0 million compared to
$21.9 million in the first nine months of 1996. The decrease in cash
from operations resulted primarily from the divestiture of the
health insurance businesses.
Cash used for financing activities was $94.3 million in the first
nine months of 1997, compared to $76.1 million in the same period of
1996. The increase in cash used for financing resulted from the
third quarter purchase of 415,564 shares of the Company's common
stock at market value from a terminated defined benefit pension plan
at WNIC for $11.8 million and the second quarter redemption of the
Company's preferred stock for $6.3 million.
Liquidity. The fair value of the Company's investment portfolio,
primarily fixed maturity investments, is affected by changing
interest rates. When interest rates rise, the fair value of the
Company's fixed maturity investments declines, while in periods of
declining interest rates, the fair value of the Company's fixed
maturity investments increases. The Company estimates that a one
percentage point change in market interest rates would have an
inverse effect on the fair value of its fixed maturity investments
of 5%. In addition, rising interest rates could result in increased
surrenders of life insurance policies and annuities (as current
policy and contract holders seek higher returns elsewhere) causing
the Company to sell fixed maturity investments below cost.
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
In order to minimize the need to sell fixed maturity investments
below cost, the Company seeks to maintain sufficient levels of cash
and short-term investments. The Company held cash and short-term
investments of $83.7 million at September 30, 1997, compared to
$106.4 million at December 31, 1996. Management believes the Company
has adequate liquidity to meet its ongoing cash requirements.
A.M. Best Ratings
The ability of an insurance company to compete successfully depends,
in part, on its financial strength, operating performance, and
claims-paying ability as rated by A.M. Best and other rating
agencies. A. M. Best uses a variety of qualitative and quantitative
measures in determining a company's rating and surplus adequacy. The
Company's insurance subsidiaries are each currently rated "A-
(Excellent)" by A.M. Best, based on their 1996 statutory financial
results and operating performance.
A. M. Best's 15 categories of rating for insurance companies
currently range from "A++ (Superior)" to "F (In Liquidation)."
According to A. M. Best, an "A" or "A-" rating is assigned to
companies which, in A. M. Best's opinion, have achieved excellent
overall performance when compared to the standards of the life
insurance industry and generally have demonstrated a strong ability
to meet their obligations to policyholders over a long period of
time. Many of the Company's competitors have A.M. Best ratings of "A-
" or lower, and the Company believes the insurance subsidiaries'
A.M. Best ratings are adequate to enable them to compete
successfully. A.M. Best ratings are based upon factors of concern to
policyholders, agents, and intermediaries and are directed toward
the protection of policyholders, not investors.
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 7, 1997, a suit captioned Menachem Limor v. United
Presidential Life Insurance Company was filed against the Company's
wholly-owned subsidiary UPI in the Circuit Court of Davidson County,
Tennessee, Mr. Limor, a UPI policyholder, purports to represent a
class consisting of owners of UPI's "1/20" and "10/20" universal
life policies. Plaintiff seeks certification of the class,
compensatory damages and equitable relief. In the suit, plaintiff
alleges breach of contract, breach of fiduciary duty and breach of
the duty of good faith and fair dealing.
Plaintiff alleges that UPI increased the cost of insurance rates and
reduced interest rates used in crediting accumulated cash values
during the 1990's to levels in violation of contractual provisions.
The Court has divided discovery in this matter into two phases.
Discovery is proceeding on the issue of class certification. If
there is a determination that a class will be certified, merits
discovery will proceed. UPI is vigorously contesting the allegations
made in the complaint and believes that valid defenses on the merits
exist.
<PAGE> 20
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 10.8 - Form of Amendment to Employment Agreement dated
September 11, 1997 between Registrant and
W. G. Brown, R. W. Patin, J. N. Plato, T. Pontarelli
and T. C. Scott.
Exhibit 10.9 - Form of Amendment to Employment Security and
Consulting Agreement dated September 11, 1997 between
Registrant and W. G. Brown, R. W. Patin, J. N. Plato,
T. Pontarelli and T. C. Scott.
Exhibit 11 - Computation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule.
b. Reports on Form 8-K
On September 3, 1997, WNC filed Form 8-K disclosing that it and
PennCorp Financial Group, Inc. had mutually terminated their
January 1997 merger agreement.
On September 26, 1997, WNC filed Form 8-K disclosing that it had
entered into an Agreement and Plan of Merger Dated as of
September 20, 1997 By and Among Conseco, Inc., Granite Merger
Corp., and Washington National Corporation (the "Merger
Agreement"). A copy of the Merger Agreement was attached as an
exhibit.
<PAGE> 21
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.
WASHINGTON NATIONAL CORPORATION
November 13, 1997 /s/ Joan K. Cohen
Joan K. Cohen
Vice President, Controller and Treasurer
(Duly Authorized Officer and Chief
Accounting Officer)
<PAGE> 22
EXHIBIT INDEX
PAGE
2 Agreement and Plan of Merger dated as of September 20, 1997 By
and Among Conseco, Inc., Granite Merger Corp., and Washington
National Corporation, filed on Form 8-K on September 26, 1997. *
3.1 Certificate of Incorporation, as amended, on Form 10-K, for the
year ended December 31, 1987 *
3.2 By-laws, as amended, on Form 10-K, for the year ended
December 31, 1986 *
10.1 Employment agreements with R. W. Patin, T. Pontarelli and
T. C. Scott, on Form 10-K, for the year ended December 31, 1991 ** *
10.2 Employment agreement with J. N. Plato, on Form 10-K, for the
year ended December 31, 1992 ** *
10.3 Employment agreement with W. G. Brown on Form 10-Q, for the
period ended September 30, 1993 ** *
10.4 Form of Indemnification Agreement between Registrant and each
Director and Executive Officer of Registrant on Form 10-Q, for the
period ended June 30, 1993 ** *
10.5 Form of Amendment to Employment Agreement between Registrant
and each Executive Officer on Form 10-Q, for the period ended
September 30, 1994 ** *
10.6 Form of Employment Security and Consulting Agreement dated
June 14, 1996 between Registrant and W. G. Brown, R. W. Patin,
J. N. Plato, T. Pontarelli and T. C. Scott on Form 10-Q, for
the period ended June 30, 1996 ** *
10.7 Form of Amendment to Employment Agreement between Registrant
and W. G. Brown, R. W. Patin, J. N. Plato, T. Pontarelli and
T. C. Scott on Form 10-Q, for the period ended September 30, 1996 ** *
10.8 Form of Amendment to Employment Agreement dated September 11,
1997 between Registrant and W. G. Brown, R. W. Patin, J. N. Plato,
T. Pontarelli and T. C. Scott ** 23
10.9 Form of Amendment to Employment Security and Consulting
Agreement dated September 11, 1997 between Registrant and
W. G. Brown, R. W. Patin, J. N. Plato, T. Pontarelli and
T. C. Scott ** 26
11 Computation of Per Share Earnings 27
27 Financial Data Schedule 28
* Incorporated by reference.
** Management contract and compensatory plans or arrangements.
<PAGE> 23
WASHINGTON NATIONAL CORPORATION
EXHIBIT 10.8
SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
WHEREAS, Washington National Insurance Company, an Illinois
insurance corporation (the "Company"), Washington National
Corporation, a Delaware corporation ("WNC"), and _______________
("Employee"), entered into an Employment Agreement dated as of
_________________, as amended on ("Agreement"); and
WHEREAS, Company, WNC and Employee desire to further amend
the Agreement, in certain respects, to clarify the intent
thereof;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Section 5(a)(iv) of the Agreement shall be amended in
its entirety to read:
(iv) Severance Period shall mean the
balance of the term of employment as it exists
immediately prior to the Date of Termination.
2. Section 5(b)(i) of the Agreement shall be amended
in its entirety to read:
(i) In lieu of the amounts payable under
Section 3, the Company shall pay to the Employee within
ten days after the Date of Termination, in a lump sum
payment, an amount equal to twice the sum of (A) the
Employee's salary (at the Employee's then current fixed
annual salary level), and (B) a bonus under the
Incentive Compensation Plan in an amount equal to the
higher of (1) the annual bonus most recently paid to
the Employee by the Company or WNC, and (2) the annual
bonus paid by the Company or WNC to the Employee for or
on behalf of calendar year 1996.
3. The last sentence of Section 5(b)(ii) of the
Agreement shall be amended in its entirety to read:
The Employee also shall receive the
additional benefits set forth in Subsections
4(b) and 4(d) through the Date of Termination
and the additional benefits set forth in
Subsection 4(c) through the end of the
Severance Period.
<PAGE> 24
4. Section 5(b)(iv) of the Agreement shall be amended in
its entirety to read:
If the Employee is using an automobile
pursuant to WNC's Senior Executive Automobile
Policy on the Date of Termination, the
Employee may continue to use such automobile
during the Severance Period. If the lease on
the automobile expires during the Severance
Period, WNC shall enter into a new lease for
a new automobile for the Employee's use that
expires at the end of the Severance Period.
WNC shall assign any right WNC has to
purchase the automobile upon expiration of
the lease to the Employee if the Employee so
requests. While the Employee uses the
automobile during the Severance Period, WNC
shall continue to provide benefits to the
Employee in accordance with WNC's Senior
Executive Automobile Policy, existing at the
Date of Termination, regarding maintenance,
fuel, insurance and income recognition
related to leased automobiles.
5. Section 5(b)(vi) is deleted.
6. Section 5(d) of the Agreement shall be amended in its
entirety to read:
The parties agree that, in the event of
the Company's or WNC's breach or constructive
breach of this Agreement, the payments and
benefits provided for in this Section 5 shall
constitute liquidated damages for any such
breach. The parties further agree that (i)
the Employee shall not be required to
mitigate his damages by seeking other
employment or otherwise, and (ii) the
Company's and WNC's obligations under this
Agreement shall not be reduced in any way by
reason of any compensation received by the
Employee from sources other than the Company
and WNC after the Date of Termination;
provided, however, that any payments pursuant
to Subsection 5(b)(i) or 5(c) of this
Agreement shall reduce dollar for dollar
amounts payable under any severance pay
policy of the Company, WNC or any of their
subsidiaries.
Except as otherwise set forth in this Second Amendment, the
provision of the Agreement shall continue in full force and
effect.
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Second
Amendment to the Agreement, effective as of the 11th day of
September, 1997.
WASHINGTON NATIONAL INSURANCE COMPANY
By:
Its:
WASHINGTON NATIONAL CORPORATION
By:
_________________________________, Employee
<PAGE> 26
WASHINGTON NATIONAL CORPORATION
EXHIBIT 10.9
FIRST AMENDMENT
TO
EMPLOYMENT SECURITY AND CONSULTING AGREEMENT
WHEREAS, Washington National Insurance Company, an Illinois
insurance corporation (the "Company"), Washington National
Corporation, a Delaware corporation ("WNC"), and ________________
("Employee"), entered into an Employment Security and Consulting
Agreement dated as of the 14th day of June, 1996 ("Agreement");
and
WHEREAS, Company, WNC and Employee desire to amend the
Agreement, in certain respects, to clarify the intent thereof;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Section 1(e) of the Agreement shall be amended in its
entirety to read:
(e) "Bonus" shall mean the higher of (1) the annual
award under the WNC Annual Pay At Risk Plan most recently
paid to Employee by Company or WNC, and (2) the annual award
paid by Company or WNC to Employee for or on behalf of
calendar year 1996 under the WNC Annual Pay At Risk Plan.
Except as otherwise set forth in this First Amendment, the
provision of the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this First
Amendment to the Agreement, effective as of the 11th day of
September, 1997.
WASHINGTON NATIONAL INSURANCE COMPANY
By:
Its:
WASHINGTON NATIONAL CORPORATION
By:
___________________________, Employee
<PAGE> 27
<TABLE>
WASHINGTON NATIONAL CORPORATION
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
Primary and Fully Diluted
(000s Omitted Except Per Share Amounts)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary
Average Shares:
Average common shares outstanding 12,358 12,250 12,255 12,268
Assumed exercise of stock options 175 - 200 178
Total Average Shares 12,533 12,250 12,455 12,446
Net Income (Loss) Available to Common Shareholders:
Income from continuing operations before
Preferred Stock dividend requirement $25,258 $24,420 $10,794 $9,994
Preferred Stock dividend requirement (138) (268) - (89)
Income from continuing operations 25,120 24,152 10,794 9,905
Income (loss) from discontinued operations -
net of tax 1,848 (25,999) 1,848 (60)
Net Income (Loss) Available to Common Shareholders $26,968 ($1,847) $12,642 $9,845
Primary Earnings Per Share:
Income from continuing operations $2.00 $1.97 $0.87 $0.80
Income (loss) from discontinued operations -
net of tax 0.15 (2.12) 0.15 (0.01)
Net Income (Loss) Per Share $2.15 ($0.15) $1.02 $0.79
Fully Diluted
Average Shares:
Average common shares outstanding 12,358 12,250 12,255 12,268
Assumed conversion of Preferred Stock 148 - - 268
Assumed exercise of stock options 196 - 254 207
Total Average Shares 12,702 12,250 12,509 12,743
Net Income (Loss) Available to Common Shareholders:
Income from continuing operations before
Preferred Stock dividend requirement $25,258 $24,420 $10,794 $9,994
Preferred Stock dividend requirement - (268) - -
Income from continuing operations 25,258 24,152 10,794 9,994
Income (loss) from discontinued operations -
net of tax 1,848 (25,999) 1,848 (60)
Net Income (Loss) Available to Common Shareholders $27,106 ($1,847) $12,642 $9,934
Fully Diluted Earnings Per Share:
Income from continuing operations $1.99 $1.97 $0.86 $0.78
Income (loss) from discontinued operations -
net of tax 0.14 (2.12) 0.15 -
Net Income (Loss) Per Share $2.13 ($0.15) $1.01 $0.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,911,779
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,000
<MORTGAGE> 219,498
<REAL-ESTATE> 15,116
<TOTAL-INVEST> 2,296,028
<CASH> 2,367
<RECOVER-REINSURE> 109,619
<DEFERRED-ACQUISITION> 231,572
<TOTAL-ASSETS> 2,773,922
<POLICY-LOSSES> 1,955,055
<UNEARNED-PREMIUMS> 33,029
<POLICY-OTHER> 198,213
<POLICY-HOLDER-FUNDS> 13,889
<NOTES-PAYABLE> 0
<COMMON> 124,587<F1>
0
0
<OTHER-SE> 289,007
<TOTAL-LIABILITY-AND-EQUITY> 2,773,922
122,571
<INVESTMENT-INCOME> 119,856
<INVESTMENT-GAINS> 4,208
<OTHER-INCOME> 6,709
<BENEFITS> 154,170
<UNDERWRITING-AMORTIZATION> 20,522
<UNDERWRITING-OTHER> 41,771
<INCOME-PRETAX> 36,881
<INCOME-TAX> 11,623
<INCOME-CONTINUING> 25,258
<DISCONTINUED> 1,848
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,106
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.13
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>INCLUDES ADDITIONAL PAID-IN CAPITAL OF $45,345.
</FN>
</TABLE>
