UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission File Number: 2-17039
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
COLORADO 84-0467208
(State of Incorporation) (I.R.S. Employer Identification Number)
850 EAST ANDERSON LANE
AUSTIN, TEXAS 78752-1602 (512) 836-1010
(Address of Principal Executive Offices) (Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: EXEMPT
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the common stock (based upon the closing
price) held by non-affiliates of the Registrant at March 15, 1996, was
approximately $130,074,000.
As of March 15, 1996, the number of shares of Registrant's common stock
outstanding was: Class A - 3,291,338 and Class B - 200,000.
PART I
ITEM 1. BUSINESS
(a) General
Life Insurance Operations
National Western Life Insurance Company (hereinafter referred to as
"National Western", "Company", or "Registrant") is a life insurance company,
chartered in the State of Colorado in 1956, and doing business in
forty-three states and the District of Columbia. National Western also
accepts applications from and issues policies to residents of several
Central and South American countries. Such policies are accepted and issued
in the United States. During 1995, the Company recorded approximately $403
million in premium revenues, universal life, and investment annuity contract
deposits. New life insurance issued during 1995 approximated $1.2 billion
and the total amount in force at year-end 1995 was $7.9 billion. As of
December 31, 1995, the Company had total consolidated assets of
approximately $2.96 billion.
Competition: The life insurance business is highly competitive and National
Western competes with over 1,700 stock and mutual companies. Best's Agents
Guide To Life Insurance Companies, an authoritative life insurance
publication, lists companies by total admitted assets and life insurance in
force. As of December 31, 1994, the most recent date for which information
is available, National Western ranked 145 in total admitted assets and 227
in life insurance in force among approximately 1,700 life insurance
companies domiciled in the United States.
Life insurance companies compete not only on product design and price, but
increasingly on policyowner service and marketing and sales efforts.
National Western believes that its products, premium rates, policyowner
service, and marketing efforts are generally competitive with those of other
life insurance companies selling similar types of insurance. Mutual
insurance companies may have certain competitive advantages over stock
companies in that the policies written by them are participating policies
and their profits inure to the benefit of their policyholders. The Company
no longer writes participating policies, and such policies represent only 1%
of the Company's life insurance in force at December 31, 1995.
In addition to competition within the life insurance industry, National
Western and other insurance companies face competition from other
industries. In recent years, there has been increased interest in the
banking industry to directly market annuities. In fact, in January, 1995,
the U.S. Supreme Court ruled that national banks may compete with insurance
companies in the sale of annuities. Such regulation changes could result in
increased competition for National Western and the life insurance industry.
Competition also arises from different investment and product choices.
Annuities are often used as long-term, tax deferred investment vehicles and
in retirement planning. As a result, other investment types can be
competitive products to annuities. For example, the recent growth and
popularity of mutual funds has attracted large amounts of investment funds
over the past several years, particularly during periods of declining market
interest rates. Many mutual funds also allow tax deferred features through
individual retirement accounts, 401(k) plans, and other qualified methods.
Agents and Employees: National Western has 230 full-time employees at its
principal executive office. Its insurance operations are conducted primarily
through broker-agents, which numbered 8,330 at December 31, 1995. The agency
operations are supervised by Senior Vice Presidents of domestic and
international marketing. The Company's agents are independent contractors
who are compensated on a commission basis. General agents receive overriding
first year and renewal commissions on business written by agents under their
supervision.
Types of Insurance Written: National Western offers a broad portfolio of
individual whole life and term life insurance plans, endowments, and
annuities, including standard supplementary riders. The Company does not
market group life insurance but does offer group annuities. In recent years
the majority of the business written has been individual flexible premium
and single premium annuities and universal life products. Except for a small
employee health plan and a small number of existing individual accident and
health policies, primarily in Florida, the Company does not write any new
policies in the accident and health markets. A distribution of the
Company's direct premium revenues and deposits by type of product is
provided below:
<TABLE>
<CAPTION>
1995 1994
Amounts in Amounts in
Thousands % Thousands %
<S> <C> <C> <C> <C>
Investment annuities 309,971 77 % 157,622 64 %
Universal life insurance 68,464 17 64,760 26
Traditional life and other 24,801 6 24,919 10
403,236 100 % 247,301 100 %
</TABLE>
The underwriting policy of the Company is to require medical examination of
applicants for ordinary insurance in excess of certain prescribed limits.
These limits are graduated according to the age of the applicant and the
amount of insurance desired. The Company has no maximum for issuance of
life insurance on any one life. However, the Company's general policy is to
reinsure that portion of any risk in excess of $150,000 on the life of any
one individual. Effective January 1, 1996, the Company has raised this
reinsurance level to $200,000 per individual. Also, following general
industry practice, policies are issued on substandard risks.
Geographical Distribution of Business: For the year 1995, insurance and
annuity policies held by residents of the State of Texas accounted for 17%
of premium revenues, universal life, and investment annuity contract
deposits from direct business, while policies held by residents of
California, Pennsylvania, and Michigan accounted for approximately 8%, 7%,
and 6%, respectively. All other states of the United States accounted for 48%
of premium revenues and deposits from direct business. The remaining 14% of
premium revenues and deposits were derived from the Company's policies
issued to foreign nationals, primarily all of which was for individual life
insurance. A distribution of the Company's direct premium revenues and
deposits by domestic and international markets is provided below:
<TABLE>
<CAPTION>
1995 1994
Amounts in Amounts in
Thousands % Thousands %
<S> <C> <C> <C> <C>
United States domestic market 345,829 86 % 193,455 78 %
International market 57,407 14 53,846 22
403,236 100 % 247,301 100 %
</TABLE>
Approximately 74% of the life insurance face amount issued by the Company
during 1995 was written through international insurance brokers acting as
independent contractors. Foreign business is solicited by various
independent brokers, primarily in Central and South America, and forwarded
to the United States for acceptance and issuance. The Company maintains
strict controls on the business it accepts from such foreign independent
brokers, as well as its underwriting procedures for such business. Except
for a small block of business, a currency clause is included in each foreign
policy stating that premium and claim "dollars" refer to lawful currency of
the United States. Traditional and universal life products are sold in the
international market to individuals in upper socioeconomic classes. By
marketing exclusively to this group, sales typically produce a higher
average policy size, strong persistency, and claims experience similar to
that in the United States.
Investments: State insurance statutes prescribe the nature, quality, an
percentage of the various types of investments which may be made by
insurance companies and generally permit investments in qualified state,
municipal, federal, and foreign government obligations, corporate bonds,
preferred and common stock, real estate, and real estate first lien
mortgages where the value of the underlying real estate exceeds the amount
of the mortgage lien by certain required percentages.
The following table shows investment results for insurance operations for
the periods indicated:
<TABLE>
<CAPTION>
Net
Unrealized
Invested Realized Appreciation
Assets of Net Gains Increase
Calendar Insurance Investment (Losses) on (Decrease)
Year Operations Income (A) Investments (B)
(In thousands)
<C> <C> <C> <C> <C>
1995 $ 2,624,596 201,816 (2,415) 17,394
1994 2,343,827 190,021 1,626 (1,942)
1993 2,237,687 180,252 3,206 (395)
1992 2,200,518 184,149 15,710 237
1991 2,025,997 176,443 9,360 527
<FN>
Notes to Table:
(A) Net investment income is after deduction of investment expenses, but
before realized gains (losses) on investments and Federal income taxes.
(B) Unrealized appreciation, net of effects of deferred policy acquisition
costs and taxes, relates only to those investment securities classified as
available for sale.
</FN>
</TABLE>
The following table shows the percentage distribution of insurance operation
investments:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1991 1992
<S> <C> <C> <C> <C> <C>
Securities held to maturity 62.6% 68.5% 79.9% 77.5% 77.1%
Securities available for sale 22.9 15.1 1.8 4.7 -
Mortgage loans 7.3 8.1 8.4 8.1 7.8
Policy loans 5.6 6.5 6.9 7.2 7.7
Other investments 1.6 1.8 3.0 2.5 7.4
Totals 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
Regulation: The Company is subject to regulation by the supervisory agency
of each state or other jurisdiction in which it is licensed to do business.
These agencies have broad administrative powers, including the granting and
revocation of licenses to transact business, the licensing of agents, the
approval of policy forms, the form and content of mandatory financial
statements, capital, surplus, and reserve requirements, as well as the
previously mentioned regulation of the types of investments which may be
made. The Company is required to file detailed financial reports with each
state or jurisdiction in which it is licensed, and its books and records are
subject to examination by each. In accordance with the insurance laws of the
various states in which the Company is licensed and the rules and practices
of the National Association of Insurance Commissioners, examination of the
Company's records routinely takes place every three to five years. These
examinations are supervised by the Company's domiciliary state, with
representatives from other states participating. The most recent examination
of National Western was completed in 1994 and covered the six-year period
ended December 31, 1992. The states of Colorado and Delaware participated.
A final report disclosing the examination results was received by the
Company in March, 1995. The report contained no adjustments or issues which
would have a significant, negative impact on the operations of the Company.
Regulations that affect the Company and the insurance industry are often the
result of efforts by the National Association of Insurance Commissioners
(NAIC). The NAIC is an association of state insurance commissioners,
regulators and support staff that acts as a coordinating body for the state
insurance regulatory process. Recently, increased scrutiny has been placed
upon the insurance regulatory framework, and certain state legislatures have
considered or enacted laws that alter, and in many cases increase, state
authority to regulate insurance companies. The NAIC and state insurance
regulators periodically re-examine existing laws and regulations, and
recently have been specifically focusing on insurance company investments
and solvency issues, statutory policy reserves, reinsurance, risk-based
capital guidelines, and codification of prescribed statutory accounting
principles.
Of particular importance, in 1993 the NAIC established new risk-based
capital (RBC) requirements to help state regulators monitor the financial
strength and stability of life insurers by identifying those companies that
may be inadequately capitalized. Under the NAIC's requirements, each
insurer must maintain its total capital above a calculated threshold or take
corrective measures to achieve the threshold. The threshold of adequate
capital is based on a formula that takes into account the amount of risk
each company faces on its products and investments. The RBC formula takes
into consideration four major areas of risk which are: (i) asset risk which
primarily focuses on the quality of investments; (ii) insurance risk which
encompasses mortality and morbidity risk; (iii) interest rate risk which
involves asset/liability matching issues; and (iv) other business risks.
The Company has calculated its RBC level and has determined that its capital
and surplus is significantly in excess of the threshold requirements.
The RBC regulation developed by the NAIC is an example of its involvement in
the regulatory process. New regulations are routinely published by the NAIC
as model acts or model laws. The NAIC encourages adoption of these model
acts by all states to provide uniformity and consistency among state
insurance regulations.
Discontinued Brokerage Operations
General: The Westcap Corporation (Westcap), a wholly owned subsidiary of
the Company, was a brokerage firm headquartered in Houston, Texas. Prior to
July 17, 1995, Westcap provided investment products and financial services
to a nationwide customer base. Its wholly owned subsidiaries include
Westcap Securities Investment, Inc. (Westcap Investment), Westcap Securities
Management, Inc. (Westcap Management), and Westcap Mortgage Company (Westcap
Mortgage). Westcap Investment and Westcap Management own 100% of the
partnership interests in Westcap Securities, L.P. (Westcap L.P.). Westcap
L.P. was primarily a dealer in municipal and corporate bonds and
collateralized mortgage obligations and a secondary market dealer in
obligations issued or guaranteed by the U.S. government or its agencies. The
limited partnership was subject to regulation by the Securities and Exchange
Commission (SEC) and the National Association of Securities Dealers.
Plan to Cease Brokerage Operations: Effective July 17, 1995, The Westcap
Corporation and subsidiaries discontinued all sales and trading activities
in its Houston, Texas, office. At that time, Westcap continued its
corporate operations and small sales operations in its New Jersey office.
However, in September, 1995, Westcap approved a plan to close the remaining
sales office in New Jersey and to cease all brokerage operations.
As more fully described in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, declines in both sales
revenues and earnings were the principal reasons for ceasing brokerage
operations. The declines resulted primarily from adverse bond market
conditions and adverse publicity about litigation. As a result of Westcap's
decision to cease brokerage operations, the brokerage segment is now
reported as discontinued operations throughout this report and in the
accompanying financial statements.
In anticipation of an Order Instituting Public Administrative Proceedings,
Making Findings and Imposing Remedial Sanctions (Order) being entered
pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934
by the Securities and Exchange Commission (Commission), on February 8, 1996,
Westcap L.P. submitted an offer of settlement to the Commission whereby it
consented, without admitting or denying the findings in the Order, to the
entry of an Order of the Commission making findings, revoking Westcap L.P.'s
registration with the Commission, and requiring payment to the Commission of
(i) $445,341 disgorgement, (ii) prejudgement interest of $83,879, and (iii)
civil penalty of $300,000. Such an Order was entered by the Commission on
February 14, 1996. In compliance with the Order, Westcap L.P. made payment
to the Commission of $829,220 on March 5, 1996.
(b) Financial Information About Industry Segments
A summary of financial information for the Company's two industry segments
follows:
<TABLE>
<CAPTION>
Life Discontinued
Insurance Brokerage Adjustments Consolidated
Operations Operations (B) Amounts
(In thousands)
<S> <C> <C> <C> <C>
Gross revenues:
1995 $ 287,816 5,112 (A) (5,693) 287,235
1994 278,431 40,208 (A) (41,881) 276,758
1993 273,363 105,923 (A) (107,579) 271,707
Net earnings
(losses):
1995 $ 35,634 (16,350) - 19,284
1994 37,172 (2,936) - 34,236
1993 34,892 21,832 - 56,724
Identifiable
assets:
1995 $2,952,282 6,177 - 2,958,459
1994 2,702,184 232,057 (19,187) 2,915,054
1993 2,590,537 372,301 (21,787) 2,941,051
<FN>
Notes to Table:
(A) These amounts are not reported as revenues in the accompanying
consolidated financial statements, as the segment has been discontinued.
Instead, gross revenues are reported net of expenses and taxes as a separate
line item identified as discontinued operations. This reporting
classification is used to clearly separate discontinued operations from
continuing operations of the consolidated entity.
(B) These amounts include both consolidating eliminations and adjustments
for reporting discontinued brokerage operations as described in note (A)
above.
Additional information concerning these industry segments is included in
Item 1. (a).
</FN>
</TABLE>
(c) Narrative Description of Business
Included in Item 1.(a).
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Included in Item 1.(a).
ITEM 2. PROPERTIES
The Company leases approximately 72,000 square feet of office space in
Austin, Texas, for $477,600 per year plus taxes, insurance, maintenance, and
other operating costs. This lease expires in 2000.
The Company's brokerage subsidiary, The Westcap Corporation, leases its
office facilities in Houston, Texas, under a lease which terminates in 1997.
The total leased space is approximately 4,200 square feet. The annual lease
costs will be approximately $74,000 and $35,000 in 1996 and 1997,
respectively.
ITEM 3. LEGAL PROCEEDINGS
On March 28, 1994, the Community College District No. 508, County of Cook
and State of Illinois (The City Colleges) filed a complaint in the United
States District Court for the Northern District of Illinois, Eastern
Division, against National Western Life Insurance Company (the Company) and
subsidiaries of The Westcap Corporation. The suit seeks rescission of
securities purchase transactions by The City Colleges from Westcap between
September 9, 1993 and November 3, 1993, alleged compensatory damages,
punitive damages, injunctive relief, declaratory relief, fees, and costs.
National Western is named as a "controlling person" of the Westcap
defendants. On February 1, 1995, the complaint was amended to add a RICO
count for treble damages and claims under the Texas securities and consumer
fraud laws, and to add additional defendants. Westcap and the Company are
of the opinions that Westcap has adequate documentation to validate all such
securities purchase transactions by The City Colleges, and that Westcap and
the Company each have adequate defenses to the litigation. Although the
alleged damages would be material to the Company's and Westcap's financial
positions, a reasonable estimate of any actual losses which may result from
this suit cannot be made at this time. A judicial ruling favorable to
Westcap has been made requiring resolution of the suit against Westcap
through binding arbitration. The lawsuit against the Company was suspended
pending determination of the arbitration proceeding against Westcap.
Arbitration proceedings are currently set to begin in August, 1996.
On February 1, 1995, the San Antonio River Authority (SARA) filed a
complaint in the 285th Judicial District Court, Bexar County, Texas, against
Kenneth William Katzen (Katzen), Westcap Securities, L.P., The Westcap
Corporation (Westcap), and National Western Life Insurance Company (the
Company). The suit alleges that Katzen and Westcap sold mortgage-backed
security derivatives to SARA and misrepresented these securities to SARA.
The suit alleges violations of the Federal Securities Act, Texas Securities
Act, Deceptive Trade Practices Act, breach of fiduciary duty, fraud,
negligence, breach of contract, and seeks attorney's fees. The Company is
named as a "controlling person" of the Westcap defendants. Westcap and the
Company are of the opinions that Westcap has adequate documentation to
validate all securities purchases by SARA and that the Company and Westcap
have adequate defenses to such suit. Although the alleged damages would be
material to Westcap's financial condition, a reasonable estimate of any
actual losses which may result from this suit cannot be made at this time.
The Company and Westcap have denied all allegations and the parties have
initiated discovery. The case is set for trial on April 8, 1996.
On June 9, 1995, Charles McCutcheon, as Sheriff of Palm Beach County,
Florida, served The Westcap Corporation, Westcap Securities, Inc., Westcap
Government Securities, Inc., individual officers and directors of the
Westcap entities, and National Western Life Insurance Company as defendants
with a complaint filed in the U.S. District Court for the Southern District
of Florida. The Complaint alleges that the Westcap entities improperly sold
certain derivative securities to the Plaintiff and did not disclose the high
risk of these securities to the Plaintiff, who suffered financial losses
from the investments. The Company is sued as a "controlling person" of
Westcap, and it is alleged that the Company is responsible and liable for
the alleged wrongful conduct of Westcap. The suit seeks rescission of the
investment transactions, alleged damages, punitive and exemplary damages,
attorneys' fees, and injunction. On October 13, 1995, the U.S. District
Judge ordered arbitration of Plaintiff's claims against the Westcap entities
and stayed all proceedings pending outcome of the arbitration. Although
the alleged damages would be material to Westcap's financial condition, a
reasonable estimate of any actual losses which may result from this suit
cannot be made at this time. The Company and Westcap deny the allegations
and believe they each have adequate defenses to such suit.
On July 5, 1995, San Patricio County, Texas, filed suit in the District
Court of San Patricio County, Texas, against National Western Life Insurance
Company (the Company) and its chief executive officer, Robert L. Moody. The
suit arises from derivative investments purchased by San Patricio County
from Westcap Securities, L.P. or Westcap Government Securities, Inc.,
affiliates of The Westcap Corporation, a wholly owned subsidiary of the
Company. The suit alleges that the Westcap affiliates were controlled by
the Company and Mr. Moody and that they are responsible for the alleged
wrongful acts of the Westcap affiliates in selling the securities to the
Plaintiff. Plaintiff alleges that the Westcap affiliates violated duties
and responsibilities owed to the Plaintiff related to its investment
recommendations and the decisions made by Plaintiff, and alleges that the
Plaintiff was financially damaged by such actions of Westcap. The suit
seeks rescission of the investment transactions and actual and punitive
damages of unspecified amounts. Although the alleged damages would be
material to Westcap's financial condition, a reasonable estimate of any actual
losses which may result from this suit cannot be made at this time. The
Company believes that it has adequate defenses to such suit and denies the
allegations. The parties have initiated discovery.
On September 13, 1995, Michigan South Central Power Agency filed a
complaint in The United States District Court for the Western District of
Michigan against Westcap Securities Investment, Inc., Westcap Securities,
L.P., Westcap Securities Management, Inc., The Westcap Corporation, National
Western Life Insurance Company (the Company), and others. The suit alleges
that salesmen of Westcap sold mortgage-backed securities to the Plaintiff
and misrepresented these securities in violation of Federal and state
securities laws and common law. The Company is named as a "controlling
person" of the Westcap defendants. Westcap and the Company are of the
opinions that they have adequate defenses to the suit. Although the alleged
damages would be material to Westcap's financial condition, a reasonable
estimate of any actual losses which may result from the suit cannot be
made at this time. The Company and Westcap deny all allegations.
The Westcap Corporation and Westcap Securities, L.P. are also defendants in
several other pending lawsuits which have arisen in the ordinary course of
its business. Westcap Securities, L.P. has also been notified of several
arbitration claims filed with the National Association of Securities
Dealers. After reviewing the lawsuits and arbitration filings with outside
counsel, management believes it has adequate defenses to each of the claims.
Although the alleged damages for all of the above-described suits and
arbitration claims would be material to the financial positions of the
Company and The Westcap Corporation, a reasonable estimate of actual losses
which may result from any of these claims cannot be made at this time.
Accordingly, no provision for any liability that may result from these
actions has been recognized in the consolidated financial statements.
No other legal proceedings presently pending by or against the Company or
its subsidiaries are described, because management believes the outcome of
such litigation should not have a material adverse effect on the financial
position of the Company or its subsidiaries taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The principal market on which the common stock of the Company is traded is
The Nasdaq Stock Market under the symbol NWLIA. The high and low sales
prices for the common stock for each quarter during the last two years are
shown in the following table:
<TABLE>
<CAPTION>
High Low
<S> <C> <C> <C>
1995: First Quarter $ 39 32
Second Quarter 44 34-3/4
Third Quarter 59 43
Fourth Quarter 61 46-1/2
1994: First Quarter $ 48 37
Second Quarter 40-1/2 33-3/4
Third Quarter 38 34-1/4
Fourth Quarter 38-1/4 30
</TABLE>
(b) Equity Security Holders
The number of stockholders of record on December 31, 1995, was as follows:
<TABLE>
<S> <C>
Class A Common Stock 6,839
Class B Common Stock 2
</TABLE>
(c) Dividends
The Company has never paid cash dividends on its common stock. Payment of
dividends is within the discretion of the Company's Board of Directors and
will depend on factors such as earnings, capital requirements, and the
operating and financial condition of the Company. Presently, the Company's
capital requirements are such that it intends to follow a policy of
retaining any earnings in order to finance the development of business and
to meet increased regulatory requirements for capital.
ITEM 6. SELECTED FINANCIAL DATA
The following five-year financial summary includes comparative amounts taken
from the audited financial statements. The results have been reclassified
to reflect The Westcap Corporation as discontinued brokerage operations.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Life and annuity $ 17,390 18,938 18,624 21,365 21,525
premiums
Universal life and
investment annuity
contract revenues 69,783 64,711 67,778 56,543 44,627
Net investment income 201,816 190,021 180,252 184,149 176,443
Other income 661 1,462 1,847 616 848
Realized gains
(losses) on
investments (2,415) 1,626 3,206 15,710 9,360
Total revenues 287,235 276,758 271,707 278,383 252,803
Expenses:
Policyholder benfits 37,336 32,790 34,646 34,234 31,908
Amortization of
deferred policy
acquisition costs 33,675 32,131 33,159 25,085 16,852
Universal life and
investment annuity
contract interest 142,940 129,064 130,875 135,792 143,018
Other insurance
operating expenses 27,084 29,394 28,959 27,870 32,897
Total expenses 241,035 223,379 227,639 222,981 224,675
Federal income taxes 10,566 16,207 14,696 18,719 7,615
Earnings before
cumulative effect of
change in accounting
principle and
discontinued
operations 35,634 37,172 29,372 36,683 20,513
Cumulative effect
of change in
accounting for
income taxes - - 5,520 - -
Earnings (losses)
from discontinued
operations (16,350) (2,936) 21,832 26,728 5,245
Net earnings $ 19,284 34,236 56,724 63,411 25,758
Per Share:
Earnings before
cumulative effect
of change in
accounting
principle and
discontinued
operations $ 10.22 10.66 8.44 10.55 5.89
Cumulative effect
of change in
accounting for
income taxes - - 1.58 - -
Earnings (losses)
from discontinued
operations (4.69) (0.84) 6.27 7.68 1.52
Net earnings $ 5.53 9.82 16.29 18.23 7.41
Total assets $2,958,459 2,915,054 2,941,051 2,698,497 2,581,032
Total liabilities $2,646,472 2,639,920 2,698,333 2,512,406 2,458,589
Stockholders'
equity $ 311,987 275,134 242,718 186,091 122,443
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
National Western Life Insurance Company is a life insurance company,
chartered in the State of Colorado in 1956, and doing business in
forty-three states and the District of Columbia. It also accepts
applications from and issues policies to residents of Central and South
American countries. These policies are accepted and issued in the United
States and accounted for approximately 14% of the Company's total premium
revenues, universal life, and investment annuity contract deposits in 1995.
The primary products marketed by the Company are its universal life and
single and flexible premium annuity products.
In addition to the life insurance business, the Company has a brokerage
operations segment through its wholly owned subsidiary, The Westcap
Corporation. However, during 1995 The Westcap Corporation closed its sales
offices and approved a plan to cease all brokerage operations. Accordingly,
the brokerage segment is now reported as discontinued operations throughout
this report and in the accompanying financial statements.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investment Philosophy
The Company's investment philosophy is to maintain a diversified portfolio
of investment grade debt and equity securities that provide adequate
liquidity to meet policyholder obligations and other cash needs. The
prevailing strategy within this philosophy is the intent to hold investments
in debt securities to maturity. However, the Company manages its portfolio,
which entails monitoring and reacting to all components which affect changes
in the price, value, or credit rating of investments in debt and equity
securities.
Investments in debt and equity securities are classified and reported into
the following categories: held to maturity, available for sale, and
trading. The reporting category chosen for the Company's securities
investments depends on various factors including the type and quality of the
particular security and how it will be incorporated into the Company's
overall asset/liability management strategy. At December 31, 1995,
approximately 26% of the Company's total debt and equity securities, based
on fair values, were classified as securities available for sale. These
holdings provide flexibility to the Company to react to market opportunities
and conditions and to practice active management within the portfolio to
provide adequate liquidity to meet policyholder obligations and other cash
needs.
Securities the Company purchases with the intent to hold to maturity are
classified as securities held to maturity. Because the Company has strong
cash flows and matches expected maturities of assets and liabilities, the
Company has the ability to hold the securities, as it would be unlikely that
forced sales of securities would be required prior to maturity to cover
payments of liabilities. As a result, securities held to maturity are
carried at amortized cost less declines in value that are other than
temporary. However, certain situations may change the Company's intent to
hold a particular security to maturity, the most notable of which is a
deterioration in the issuer's creditworthiness. Accordingly, a security may
be sold to avoid a further decline in realizable value when there has been a
significant change in the credit risk of the issuer. Securities that are held
for current resale are classified as trading securities, as the intent is
to sell them, producing a trading profit. The Company does not maintain a
portfolio of trading securities.
Securities that are not classified as either held to maturity or trading
securities are reported as securities available for sale. These securities
may be sold if market or other measurement factors change unexpectedly after
the securities were acquired. For example, opportunities arise when factors
change that allow the Company to improve the performance and credit quality
of the investment portfolio by replacing an existing security with an
alternative security while still maintaining an appropriate matching of
expected maturities of assets and liabilities. Examples of such improvements
are as follows: improving the yield earned on invested assets, improving the
credit quality, changing the duration of the portfolio, and selling
securities in advance of anticipated calls or other prepayments. Securities
available for sale are reported in the Company's financial statements at
fair value. Any unrealized gains or losses resulting from changes in the
fair value of the securities are reflected as a component of stockholders'
equity.
As an integral part of its investment philosophy, the Company performs an
ongoing process of monitoring the creditworthiness of issuers within the
investment portfolio. In addition, review procedures are performed on
securities that have had significant declines in fair value. The Company's
objective in these circumstances is to determine if the decline in fair
value is due to changing market expectations regarding inflation and general
interest rates or other factors.
Additional review procedures are performed on those fair value declines
which are caused by factors other than market expectations regarding
inflation and general interest rates. Specific conditions of the issuer and
its ability to comply with all terms of the instrument are considered in the
evaluation of the realizable value of the investment. Information reviewed
in making this evaluation would include the recent operational results and
financial position of the issuer, information about its industry, recent
press releases, and other available data. If evidence does not exist to
support a realizable value equal to or greater than the carrying value of
the investment, such decline in fair value is determined to be other than
temporary, and the carrying amount is reduced to its net realizable value.
The amount of the reduction is reported as a realized loss.
The Company's overall conservative investment philosophy is reflected in the
allocation of investments of its insurance operations which is detailed
below as of December 31, 1995 and 1994. The Company emphasizes debt
securities, with smaller holdings in mortgage loans and real estate than
industry averages.
<TABLE>
<CAPTION>
Percent of Insurance
Operations Investments
1995 1994
<S> <C> <C>
Debt securities 84.5 % 82.5 %
Mortgage loans 7.3 8.1
Policy loans 5.6 6.5
Equity securities 1.0 1.1
Real Estate 0.7 0.8
Other 0.9 1.0
Totals 100.0 % 100.0 %
</TABLE>
Portfolio Analysis
At December 31, 1995, securities held to maturity totaled $1.643 billion, or
62.6% of total invested assets. The fair value of these securities was
$1.726 billion, which reflects gross unrealized gains of $83 million. The
unrealized gains within this portfolio result from decreases in market
interest rates during 1995. The unrealized gains have no effect on the
Company's financial statements, as securities held to maturity are recorded
at amortized cost.
Securities available for sale totaled $601 million at December 31, 1995, or
22.9% of total invested assets. Equity securities, which are included in
securities available for sale, continue to be a small component of the
Company's total investment portfolio totaling only $26 million. Securities
available for sale are reported in the accompanying financial statements at
fair value, with changes in values reported as a separate component of
stockholders' equity. Net unrealized gains, net of adjustments for deferred
policy acquisition costs and Federal income taxes, on securities in the
available for sale category at December 31, 1995, totaled $12 million and
are reflected as a component of stockholders' equity.
As described in the notes in the accompanying financial statements, on July
31, 1994, the Company transferred securities with fair values totaling $805
million from securities available for sale to securities held to maturity.
On December 29, 1995, the Company made additional transfers totaling $156
million to the held to maturity category from securities available for sale.
The lower holdings of securities available for sale significantly reduces
the Company's exposure to equity volatility while still providing securities
for liquidity and asset/liability management purposes. The transfers to
held to maturity in 1994 and 1995 resulted in locking in net unrealized
gains which require subsequent amortization and had the following effects on
stockholders' equity:
<TABLE>
<CAPTION>
Net Unrealized Gains (Losses)
as of December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Beginning unamortized gains
from transfers $ 941 -
Net unrealized gains related to
transfer of securities from
available for sale to held
to maturity 3,159 1,380
Amortization of net unrealized
gains related to transferred
securities (931) (439)
2,228 941
Ending unamortized gains
from transfers $ 3,169 941
</TABLE>
On December 29, 1995, the Company also transferred securities totaling $284
million to the available for sale category from securities held to maturity.
This transfer resulted in an increase to stockholder's equity of $4,266,000
as of December 31, 1995, net of effects of deferred policy acquisition costs
and taxes. This transfer was made to restructure the Company's portfolio to
provide increased flexibility for both portfolio and asset/liability
management. Accounting principles typically do not allow transfers from the
held to maturity category to the available for sale category except under
certain prescribed circumstances. However, in 1995 the Financial Accounting
Standards Board permitted a one-time reassessment by companies of their
securities classifications and allowed transfers out of the held to maturity
category without regard to the prescribed circumstances. The reassessment
and any resulting transfers had to be completed by December 31, 1995.
The Company maintains a diversified debt securities portfolio which consists
of various types of fixed income securities including primarily U.S.
government, public utilities, corporate, and mortgage-backed securities.
Investments in mortgage-backed securities include U.S. government and
private issue mortgage-backed pass-through securities as well as
collateralized mortgage obligations (CMOs). As of December 31, 1995 and
1994, the Company's debt securities portfolio consisted of the following mix
of securities based on amortized cost:
<TABLE>
<CAPTION>
Percent of
Debt Securities
1995 1994
<S> <C> <C>
Mortgage and asset-backed securities 40.6 % 47.6 %
Corporate 40.3 32.5
Public utilities 12.9 14.5
Foreign government 2.2 1.3
States and political subdivisions 2.2 2.5
U.S. government 1.8 1.6
Totals 100.0 % 100.0 %
</TABLE>
The amortized cost and estimated fair values of investments in debt
securities at December 31, 1995, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
(In thousands)
<S> <C> <C> <C>
Due in one year or less $ 8,205 8,264
Due after one year through five years 109,919 112,928
Due after five years through ten years 853,549 898,249
Due after ten years 323,043 352,239
1,294,716 1,371,680
Mortgage-backed securities 885,223 929,723
Totals $ 2,179,939 2,301,403
</TABLE>
Because expected maturities of securities may differ from contractual
maturities due to prepayments and calls, the Company takes steps to manage
and minimize such risks. In previous years, the Company has experienced
increased calls, particularly in the public utilities portfolio. As a
result, the Company has been increasing its holdings in noncallable
corporate securities. Corporate holdings as a percentage of the entire
portfolio increased from 32.5% in 1994 to 40.3% in 1995.
The Company's holdings of mortgage-backed securities are also subject to
prepayment risk, as well as extension risk. Both of these risks are
addressed by specific portfolio management strategies. The Company
substantially reduced both prepayment and extension risks by investing
primarily in collateralized mortgage obligations which have more predictable
cash flow patterns than pass-through securities. These securities, known as
planned amortization class I (PAC I) CMOs, are designed to amortize in a
more predictable manner than other CMO classes or pass-throughs. Using this
strategy, the Company can more effectively manage and reduce prepayment and
extension risks, thereby helping to maintain the appropriate matching of the
Company's assets and liabilities.
PAC I CMOs now account for approximately 90% of the total CMO portfolio as of
December 31, 1995. The CMOs that the Company purchases are modeled and
subjected to detailed, comprehensive analysis by the Company's investment
staff before any investment decision is made. The overall structure of the
entire CMO is evaluated, and an average life sensitivity analysis is
performed on the individual tranche being considered for purchase under
increasing and decreasing interest rate scenarios. This analysis provides
information used in selecting securities that fit appropriately within the
Company's investment philosophy and asset/liability management parameters.
The Company's investment mix between mortgage-backed securities and other
fixed income securities helps effectively balance prepayment, extension, and
credit risks.
In addition to managing prepayment, extension, and call risks, the Company
continues to concentrate on improving the credit quality of its investments
in debt securities. Much attention is often placed on a company's holdings
of below investment grade debt securities, as these securities generally
have greater default risk than higher rated corporate debt. These issuers
usually have high levels of indebtedness and are more sensitive to adverse
industry or economic conditions than are investment grade issuers. The
Company's small holdings of below investment grade debt securities are
summarized as follows:
<TABLE>
<CAPTION>
Below Investment
Grade Debt Securities
% of
Carrying Market Invested
Value Value Assets
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1995 $ 14,244 14,567 0.5%
December 31, 1994 $ 31,861 28,670 1.4%
December 31, 1993 $ 24,261 24,223 1.1%
</TABLE>
The level of investments in debt securities which are in default as to
principal or interest payments is indicative of the Company's minimal
holdings of below investment grade debt securities. At December 31, 1995 and
1994, securities with principal balances totaling $3,575,000 and $2,415,000
were in default and on non-accrual status.
The Company's commitment to high-quality investments in debt securities is
also reflected by the portfolio average rating of "Aa," which is high
quality. Allocation of investments in debt securities classified in
accordance with the highest rating by a nationally recognized statistical
rating organization as of December 31, 1995, is provided below. If
securities were not rated by one of these organizations, the equivalent
classification as assigned by the National Association of Insurance
Commissioners was used.
<TABLE>
<CAPTION>
Percent of
Debt Securities
<S> <C>
Aaa and U.S. government 43.0 %
Aa 4.3
A 29.1
Baa 22.4
Ba and other below investment grade 0.7
Not rated 0.5
100.0 %
</TABLE>
MORTGAGE LOANS AND REAL ESTATE
Investment Philosophy
In general, the Company seeks loans on high quality, income producing
properties such as shopping centers, freestanding retail stores, office
buildings, industrial and sales or service facilities, selected apartment
buildings, motels, and health care facilities. The location of these loans
is typically in growth areas that offer a potential for property value
appreciation. These growth areas are found primarily in major metropolitan
areas, but occasionally in selected smaller communities. The Company
currently seeks loans ranging from $500,000 to $11,000,000, with terms
ranging from three to twenty-five years, at interest rates dictated by the
marketplace.
The Company seeks to minimize the credit and default risk in its mortgage
loan portfolio through strict underwriting guidelines and diversification of
underlying property types and geographic locations. In addition to being
secured by the property, mortgage loans with leases on the underlying
property are often guaranteed by the lessee, in which case the Company
approves the loan based on the credit strength of the lessee. This
approach, implemented in 1991, has significantly improved the quality of the
Company's mortgage loan portfolio and reduced defaults.
The Company's level of mortgage loan originations declined in 1995 to
approximately $18 million. This is in comparison to originations totaling
$30 million and $33 million in 1994 and 1993, respectively. Market
conditions in 1995 included a decreasing interest rate environment and
increasing competition. As a result, mortgage loan originations declined in
1995, as the Company has maintained its strict underwriting policies and its
commitment to quality loans.
The Company's direct investments in real estate are not a significant
portion of its total investment portfolio, and the majority of real estate
owned was acquired through mortgage loan foreclosures. However, the Company
is also currently participating in several real estate joint ventures and
limited partnerships. The joint ventures and partnerships invest primarily
in income-producing retail properties. While not a significant portion of
the Company's investment portfolio, these investments have produced
favorable returns to date. The Company has no current plans to
significantly increase its investments in real estate in the foreseeable
future.
Portfolio Analysis
The Company held net investments in mortgage loans totaling $191,674,000 and
$189,632,000, or 7.3% and 8.1% of total invested assets, at December 31,
1995 and 1994. The loans are real estate mortgages, substantially all of
which are related to commercial properties and developments and have fixed
interest rates.
The diversification of the mortgage loan portfolio by geographic region of
the United States and by property type as of December 31, 1995 and 1994, was
as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
West South Central 54.0 % 55.8 %
Mountain 12.9 12.2
Pacific 9.4 9.7
South Atlantic 9.2 8.4
East South Central 4.3 4.5
East North Central 3.9 2.9
All Other 6.3 6.5
Totals 100.0 % 100.0 %
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Retail 67.0 % 64.6 %
Office 15.9 16.8
Hotel/Motel 8.3 7.6
Apartment 3.1 4.5
Industrial 0.6 0.7
Residential 0.4 0.4
Other Commercial 4.7 5.4
Totals 100.0 % 100.0 %
</TABLE>
As of December 31, 1995, the allowance for possible losses on mortgage loans
was $5,668,000. Additions to the allowance totaling $307,000 were
recognized as realized losses on investments in the Company's 1994 financial
statements. No additions were made in 1995. Management believes that the
allowance for possible losses is adequate. However, while management uses
available information to recognize losses, future additions to the allowance
may be necessary based on changes in economic conditions, particularly in
the West South Central region which includes Texas, Louisiana, Oklahoma, and
Arkansas, as this area contains the highest concentrations of the Company's
mortgage loans.
The Company currently places all loans past due three months or more on
non-accrual status, thus recognizing no interest income on the loans. At
December 31, 1995 and 1994, the Company had approximately $202,000 and
$2,292,000, respectively, of mortgage loan principal balances on non-accrual
status. In addition to the non-accrual loans, the Company had mortgage loan
principal balances with restructured terms totaling approximately
$13,355,000 and $13,123,000 at December 31, 1995 and 1994, respectively.
For the years ended December 31, 1995 and 1994, the reductions in interest
income due to non-accrual and restructured mortgage loans were not
significant.
The contractual maturities of mortgage loans at December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Principal
Due
(In thousands)
<S> <C> <C>
Due in one year or less $ 10,128
Due after one year through five years 32,494
Due after five years through ten years 121,509
Due after ten years through fifteen years 26,379
Due after fifteen years 7,484
Total $ 197,994
</TABLE>
The Company owns real estate that was acquired through foreclosure and
through direct investment totaling approximately $19,066,000 and $17,766,000
at December 31, 1995 and 1994, respectively. This small concentration of
properties represents less than one percent of the Company's entire
investment portfolio. The real estate holdings consist primarily of
income-producing properties which are being operated by the Company. The
Company recognized operating income on these properties of approximately
$404,000 for the year ended December 31, 1995, and operating losses of
approximately $62,000 for the year ended December 31, 1994. The Company
does not anticipate significant changes in these operating results in the
near future.
The Company monitors the conditions and market values of these properties on
a regular basis. Realized losses recognized due to declines in values of
properties totaled $882,000 and $318,000 for the years ended December 31,
1995 and 1994, respectively. The Company makes repairs and capital
improvements to keep the properties in good condition and will continue this
maintenance as needed.
RESULTS OF OPERATIONS
Summary of Consolidated Operations
A summary of operating results, net of taxes, for the years ended December
31, 1995, 1994, and 1993 is provided below:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenues:
Insurance revenues excluding
realized gains (losses)
on investments $ 289,650 275,132 268,501
Realized gains (losses)
on investments (2,415) 1,626 3,206
Total revenues $ 287,235 276,758 271,707
Earnings:
Earnings from insurance
operations $ 37,203 36,115 27,288
Earnings (losses) from
discontinued
brokerage operations (16,350) (2,936) 21,832
Net realized gains (losses)
on investments (1,569) 1,057 2,084
Cumulative effect of change
in accounting
for income taxes - - 5,520
Net earnings $ 19,284 34,236 56,724
Earnings Per Share:
Earnings from insurance
operations $ 10.67 10.36 7.84
Earnings (losses) from
discontinued brokerage
operations (4.69) (0.84) 6.27
Net realized gains (losses)
on investments (0.45) 0.30 0.60
Cumulative effect of change
in accounting
for income taxes - - 1.58
Net earnings $ 5.53 9.82 16.29
</TABLE>
Significant changes and fluctuations in income and expense items between
years are described in detail for insurance and brokerage operations as
follows:
Insurance Operations
Insurance Operations Net Earnings: Earnings from insurance operations for
the year ended December 31, 1995, were $37,203,000 compared to $36,115,000
for 1994. However, 1995 earnings include a $5.7 million tax benefit
resulting from the Company's subsidiary brokerage losses. Earnings for 1994
include a comparable $2.9 million tax benefit. The tax benefits were
recognized in accordance with the Company's tax allocation agreement with
its subsidiaries. Excluding the tax benefits, earnings from insurance
operations for 1995 were down $1.7 million from 1994 due primarily to higher
life insurance benefit claims and other policy and contract related
expenses. The higher claims and policy related expenses were partially
offset by lower insurance operating expenses relating to state guaranty
association assessments.
Life and Annuity Premiums: This revenue category represents the premiums on
traditional type products. However, sales in most of the Company's markets
currently consist of non-traditional types such as universal life and
investment annuities. The Company's current plans are to continue to focus
the majority of its product development and marketing efforts on universal
life and investment annuities. As a result, no significant growth is
anticipated for these premiums in the near future.
Universal Life and Investment Annuity Contract Revenues: These revenues are
from the Company's non-traditional products, which are universal life and
investment annuities. Revenues from these types of products consist of
policy charges for the cost of insurance, policy administration fees, and
surrender charges assessed during the period. These revenues decreased from
$67.8 million in 1993 to $64.7 million in 1994 and then increased to $69.8
million in 1995. More specifically, cost of insurance, policy
administration fees, and other related revenues have steadily increased each
year due to continued sales of non-traditional products which continue to
increase the Company's policies in force. However, surrender charge
revenues were significantly higher in 1993 due to increased policy
surrenders. This accounts for the majority of the decrease in universal
life and investment annuity contract revenues in 1994. Overall revenues
were up in 1995 due to increases in cost of insurance and other related
revenues as previously described, even though surrender charge revenues were
not up significantly from 1994 and remained substantially below 1993 levels.
Actual universal life and investment annuity deposits collected for the
years ended December 31, 1995, 1994, and 1993 are detailed below. Deposits
collected on these non-traditional products are not reflected as revenues in
the Company's statements of earnings, as they are recorded directly to
policyholder liabilities upon receipt, in accordance with generally accepted
accounting principles.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Investment annuities $ 309,971 157,622 86,700
Universal life insurance 68,464 64,760 67,060
Totals $ 378,435 222,382 153,760
</TABLE>
Prior to 1993, most of the Company's investment annuity production was from
the sale of two-tier annuity products. However, in the third quarter of
1992, the Company discontinued sales of all two-tier annuities due to
declines in sales and certain regulatory issues concerning two-tier
products. The Company has continued to collect additional premiums on
existing two-tier annuities, which accounts for the majority of the deposits
for investment annuities in 1993. The vast majority of the two-tier
annuities were sold by a single independent marketing organization.
Subsequent to discontinuing the two-tier annuity sales, the Company set
goals to not only develop new annuity products to replace the lost two-tier
production, but to diversify and strengthen distribution channels to avoid
dependence on its primary independent marketing organization. The Company
achieved this by developing new annuity products in 1994 and by contracting
new marketing organizations with extensive experience, financial resources,
and success in marketing annuities. The combination of new products,
primarily a single premium deferred annuity, and new marketing organizations
started to produce results in the latter half of 1994 as annuity production
began to increase significantly. This increased production has continued
into 1995 with annuity deposits increasing from $158 million in 1994 to $310
million in 1995, reflecting a 97% increase.
The majority of the Company's universal life insurance production is from
the international market, primarily Central and South American countries.
The Company has seen increased competition in the Central and South American
market in recent years causing production growth to slow. However, the
Company has been accepting policies from foreign nationals for almost thirty
years and has developed strong relationships with carefully selected brokers
in the foreign countries. This experience and strong broker relations have
enabled the Company to meet the increased competition with new product
enhancements and marketing efforts. Such efforts have resulted in increased
universal life production once again in 1995. Deposits for universal life
for both international and domestic markets are up 5.7% in 1995 from $64.8
million in 1994 to $68.5 million in 1995.
Net Investment Income: During 1995, net investment income increased 6.2%
from 1994 while total invested assets increased 12.0% for the same period.
The increase in invested assets was primarily due to the increased annuity
production as previously described. The growth in net investment income
lagged the growth in invested assets for several reasons. Interest rates
declined significantly throughout 1995, resulting in investments in lower
yielding securities. Also, net investment income was up significantly in
1994 due to yield and amortization adjustments on mortgage-backed securities
as more fully described below. There were no significant corresponding
adjustments in 1995.
Net investment income increased 5.4% from $180.3 million in 1993 to $190.0
million in 1994. Net investment income was up primarily due to yield and
amortization adjustments on mortgage-backed securities and increases in
invested assets. The yield and amortization adjustments were made in
accordance with Statement of Financial Accounting Standards No. 91,
"Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases." The adjustments are
made to reflect changes in mortgage-backed securities prepayment levels,
caused by changes in market interest rates, which affect average lives,
yields, and amortization periods of the securities.
Other Income: The Company received proceeds from lawsuit settlements
totaling $1,050,000 in 1993 which has been reflected in other income. In
1984, certain employee participants in the Company's "Builders, Contractors,
and Employees Retirement Trust and Pension Plan" (the Plan) and other
plaintiffs filed a civil lawsuit against the Company and other defendants
with respect to various Plan matters, all as previously disclosed in the
Company's annual reports on Form 10-K. The Company settled the lawsuit in
1991 with payments to the Internal Revenue Service and participants in the
Plan. Subsequent to this settlement, the Company filed suit against the law
firm which assisted in the development of the Plan. The Company also filed
suit, for recovery of damages incurred, against an insurance company
providing liability coverage for trustees of the Plan. Both suits were
settled, with the Company receiving the proceeds as described above.
Also, as previously disclosed in the Company's annual reports on Form 10-K,
the Company was a defendant in a lawsuit seeking recovery of certain values
of life insurance policies pledged as collateral for debentures totaling
$8,000,000. In early 1991, a court ruled that the collateral assignment was
not enforceable. As a result, the Company recorded a loss of $8,000,000 in
1990, as the debentures were no longer deemed collateralized by the
insurance policies and their market value was zero due to the insolvency of
the issuer. The Company appealed the court ruling and also recorded a
corresponding $8,000,000 liability for the potential payment of this claim.
The Company had been accruing an additional liability for interest on this
$8,000,000 balance. This lawsuit was settled in September, 1993, resulting
in an $11,500,000 payment by the Company. The Company's total accrued
liability for this claim exceeded the payment by approximately $670,000
which has been reflected as other income in 1993. The Company also received
proceeds from a settlement totaling $955,000 for recovery of damages
incurred related to this lawsuit. These settlement proceeds have been
reflected as other income in 1994.
Realized Gains and Losses on Investments: The Company recorded realized
losses totaling $2.4 million in 1995 compared to realized gains of $1.6
million and $3.2 million in 1994 and 1993, respectively. The losses in 1995
were primarily from sales of investments in debt securities, the majority of
which were from the Company's remaining investments in principal exchange
rate linked securities. The Company made the decision to realize these
losses to obtain tax benefits related to the losses which were scheduled to
expire on December 31, 1995. The gains and losses in 1995, 1994, and 1993
are net of write-downs on real estate and mortgage loans totaling $882,000,
$625,000, and $3,360,000, respectively. The 1993 gains are also net of
write-downs for permanent impairments on investments in debt securities
totaling $6,329,000.
Life and Other Policy Benefits: Expenses in 1995 and 1993 were
significantly higher at $39.8 million and $36.3 million than 1994 expenses
which totaled only $32.1 million. The significant fluctuation in expenses
is due to higher life insurance benefit claims and high policy surrenders on
traditional insurance products in both 1995 and 1993. Life insurance
benefit claims, which accounted for the majority of the fluctuation, totaled
$24.6 million, $19.1 million, and $21.3 million in 1995, 1994, and 1993,
respectively. The 1995 and 1993 expenses were abnormally high due to
adverse claims experience. Throughout the Company's history, it has
experienced both periods of higher and lower benefit claims in comparison to
Company averages. Years 1995 and 1993 reflect such periods, as benefits were
significantly higher. Such deviations are not uncommon in the life
insurance industry and, over extended periods of time, tend to be offset by
periods of more favorable claims experience.
Amortization of Deferred Policy Acquisition Costs: This expense item
represents the amortization of the costs of acquiring or producing new
business, which consists primarily of agents' commissions. The majority of
such costs are amortized in direct relation to the anticipated future gross
profits of the applicable blocks of business. Amortization is also impacted
by the level of policy surrenders. Amortization for 1995, 1994, and 1993
has been relatively consistent at $33.7 million, $32.1 million, and $33.2
million, respectively. The higher amortization in 1995 and 1993 correlates
to increased policy surrenders in those years.
Universal Life and Investment Annuity Contract Interest: Prior to 1995,
interest expense declined steadily as amounts totaled $129.1 million, $130.9
million, and $135.8 million for 1994, 1993, and 1992, respectively. This
decline was due to the lowering of credited interest rates on most universal
life and investment annuity products throughout these years. Additional
interest costs related to increasing business was not significant, as the
policy liabilities remained relatively constant over those years. However,
in the latter part of 1994, annuity production began to increase
significantly, which continued through 1995. This increase in annuity
deposits resulted in corresponding increases in policy liabilities and
significantly higher interest costs in 1995. Also, the Company's new
annuity products typically credit significantly higher interest rates in the
first policy year, again resulting in higher 1995 interest costs.
The Company closely monitors its credited interest rates, taking into
consideration such factors as profitability goals, policyholder benefits,
product marketability, and economic market conditions. Rates are
established or adjusted after careful consideration and evaluation of these
factors against established objectives.
Other Insurance Operating Expenses: These expenses totaled $27.1 million,
$29.4 million, and $29.0 million for 1995, 1994, and 1993, respectively.
Although these expenses are relatively comparable between years, these
amounts include significant expenses for guaranty association assessments.
National Western Life Insurance Company is subject to state guaranty
association assessments in all states in which it is licensed to do
business. These associations generally guarantee certain levels of benefits
payable to resident policyholders of insolvent insurance companies. Most
states allow premium tax credits for all or a portion of such assessments,
thereby allowing potential recovery of these payments over a period of
years. However, several states do not allow such credits. In December,
1995 and 1994, the National Organization of Life and Health Insurance
Guaranty Associations published revised assessment data on nationwide life
and health insurance company insolvencies. Based on this information, the
Company revised its estimates for assessment liabilities relating to such
insolvencies. The Company will continue to monitor and revise its estimates
for assessments as additional information becomes available, which could
result in additional expense charges. Other insurance operating expenses
related to state guaranty association assessments totaled $2,371,000,
$4,869,000, and $4,583,000 for the years ended December 31, 1995, 1994, and
1993, respectively. The lower assessment expenses in 1995 are the primary
reason for the lower overall insurance operating expenses for the same
period.
Discontinued Brokerage Operations
Effective July 17, 1995, The Westcap Corporation, a wholly owned brokerage
subsidiary of National Western Life Insurance Company, discontinued all
sales and trading activities in its Houston, Texas, office. At that time,
The Westcap Corporation (Westcap) continued its corporate operations and
small sales operations in its New Jersey office. However, in September,
1995, Westcap approved a plan to close the remaining sales office in New
Jersey and to cease all brokerage operations.
Declines in both sales revenues and earnings were the principal reasons for
ceasing operations. Increasing market interest rates and resulting adverse
bond market conditions during 1994 and 1995 compared to previous years had a
negative impact on the entire bond brokerage industry. These conditions,
coupled with adverse publicity about litigation related to sales of
collateralized mortgage obligation (CMO) products, led to the declines in
sales and earnings. The publicity surrounding these claims made it
extremely difficult to keep Westcap's customer base and sales force in
place. Additionally, because much publicity characterizes CMOs as
derivatives, adverse publicity about derivatives impacted the market for
CMOs and decreased Westcap's prospects for future sales.
In connection with the plan to cease brokerage operations, Westcap's assets
are being carried at their estimated fair value, and its liabilities include
estimated costs to dispose of assets and estimated future costs to cease
operations. As a result of the plan and in accordance with generally
accepted accounting principles, the assets and liabilities of Westcap have
been reclassified in the accompanying consolidated balance sheets to
separately identify them as assets and liabilities of the discontinued
operations.
In previous years, Westcap has contributed significantly to the consolidated
earnings of National Western Life Insurance Company. However, more
recently, brokerage operations have produced losses due to the reasons cited
above. A summary of net earnings and losses from brokerage operations since
1992 is provided below.
<TABLE>
<CAPTION>
Amounts in Per
Thousands Share
<S> <C> <C> <C> <C>
Years ended December 31:
1995 $ (16,350) $ (4.69)
1994 (2,936) (0.84)
1993 21,832 6.27
1992 26,728 7.68
</TABLE>
Losses from the discontinued brokerage operations have been reflected
separately from continuing operations of the Company in the accompanying
consolidated financial statements. The 1995 losses disclosed above include
estimated future operating losses as well as estimated costs to cease
brokerage operations totaling $6,381,000 and have resulted in the complete
write-off of the Company's investment in Westcap on a consolidated basis.
Consolidated Federal Income Taxes
Federal Income Taxes: Federal income taxes for 1995 on earnings from
continuing operations reflect an effective tax rate of 23%. The 1995
taxes are lower than the expected statutory rate of 35% due to a $5.7
million tax benefit resulting from the Company's subsidiary brokerage
losses. Correspondingly, losses on discontinued operations for 1995
totaling $16,350,000 do not include any tax benefits relating to the
brokerage subsidiary. This tax reporting treatment is in accordance with
the Company's tax allocation agreement with its subsidiaries. However, on a
consolidated basis, the Federal income taxes reflect the expected effective
tax rate of 35% for 1995.
Federal income taxes for 1994 on earnings from continuing operations also
reflect a low effective tax rate, as such taxes also include a tax benefit
totaling $2.9 million resulting from the Company's subsidiary brokerage
losses. Losses on discontinued operations for 1994 totaling $2,936,000
include Federal income taxes of $2,983,000. Again, the tax reporting
treatment is in accordance with the tax allocation agreement previously
described, and on a consolidated basis, Federal income taxes reflect an
effective tax rate of 35% for 1994.
The Federal corporate tax rate was increased from 34% to 35% beginning in
1993. The total increase in 1993 Federal income taxes resulting from the
change in rates was approximately $1,018,000.
Cumulative Effect of Change in Accounting for Income Taxes: In February,
1992, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires a change from the deferred method of
accounting for income taxes of Accounting Principles Board Opinion 11 to the
asset and liability method of accounting for income taxes. Under the asset
and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
The Company adopted SFAS No. 109 effective January 1, 1993. The cumulative
effect of this change in accounting for income taxes of $5,520,000 was
determined as of January 1, 1993, and is reported separately in the
statement of earnings for the year ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The liquidity requirements of the Company are met primarily by funds
provided from operations. Premium deposits and revenues, investment income,
and investment maturities are the primary sources of funds, while investment
purchases and policy benefits are the primary uses of funds. Primary
sources of liquidity to meet cash needs are the Company's securities
available for sale portfolio, net cash provided by operations, and bank line
of credit. The Company's investments consist primarily of marketable debt
securities that could be readily converted to cash for liquidity needs.
The Company may also borrow up to $60 million on its bank line of credit
for short-term cash needs.
A primary liquidity concern for the Company's life insurance operations is
the risk of early policyholder withdrawals. Consequently, the Company
closely evaluates and manages the risk of early surrenders or withdrawals.
The Company includes provisions within annuity and universal life insurance
policies, such as surrender charges, that help limit early withdrawals. The
Company also prepares cash flow projections and performs cash flow tests
under various market interest rate scenarios to assist in evaluating
liquidity needs and adequacy. The Company currently expects available
liquidity sources and future cash flows to be adequate to meet the demand
for funds.
In the past, cash flows from the Company's insurance operations have been
more than adequate to meet current needs. Cash flows from operating
activities were $99 million, $117 million, and $136 million in 1995, 1994,
and 1993, respectively. Lower earnings from brokerage operations is the
primary reason for the decrease in cash flows in 1995 and 1994.
Additionally, net cash flows from the Company's deposit product operations,
which includes universal life and investment annuity products, totaled $99
million in 1995. These operations incurred net cash outflows in 1994 and
1993 totaling $17 million and $99 million, respectively. The increase in
cash flows in 1995 is due to increased annuity production as previously
described in "Results of Operations." The Company expects this increased
annuity production will continue through 1996, thereby enhancing cash flows.
The Company also has significant cash flows from both scheduled and
unscheduled investment security maturities, redemptions, and prepayments.
These cash flows totaled $69 million, $133 million, and $486 million in
1995, 1994, and 1993, respectively. The Company again expects significant
cash flows from these sources in 1996 at levels similar to 1995 and 1994.
Capital Resources
The Company relies on stockholders' equity for its capital resources, as
there has been no long-term debt outstanding in 1995 or recent years. The
Company does not anticipate the need for any long-term debt in the near
future. There are also no current or anticipated material commitments for
capital expenditures in 1996.
Stockholders' equity totaled $312 million at December 31, 1995, reflecting
an increase of $37 million from 1994. The increase in capital is primarily
from net earnings of $19 million and the change in net unrealized gains on
investment securities totaling $17 million in 1995. The decrease in market
interest rates during 1995 resulted in the significant increase in
unrealized gains. Book value per share at December 31, 1995, was $89.36,
reflecting a 13% increase for the year.
CHANGES IN ACCOUNTING PRINCIPLES
In January, 1995, the FASB issued SFAS No. 120, "Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts." Also, the AICPA has established
accounting for certain participating life insurance contracts of mutual life
insurance enterprises in its Statement of Position (SOP) 95-1, "Accounting
for Certain Insurance Activities of Mutual Life Insurance Enterprises," that
should be applied to those contracts that meet the conditions in this
statement. This statement also permits stock life insurance enterprises to
apply the provisions of the SOP to participating life insurance contracts
that meet certain conditions. SFAS No. 120 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. Due
to the Company's small level of participating life insurance contracts, this
statement will have no significant effects on the Company's financial
statements.
The FASB issued SFAS No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," in March, 1995. The
statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity
expects to hold and use should be based on the fair value of the asset. The
statement also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less costs to sell.
The Company's real estate investments are the only significant assets that
will be subject to this statement. As the Company already records
foreclosed real estate at the lower of cost or fair value less estimated
costs to sell, the implementation of this statement will not have a
significant effect on the Company's financial statements. The statement
will be implemented in the first quarter of 1996.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. It defines
a fair value based method of accounting for employee stock options or
similar equity instruments. However, it also allows an entity to continue
to measure compensation cost for plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to continue applying the accounting
methods in Opinion 25 must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined
in SFAS No. 123 had been applied.
Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. For stock options,
fair value is determined using an option pricing model that takes into
account various information and assumptions regarding the Company's stock
and options. Under the intrinsic value based method, compensation cost is
the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock.
The Company anticipates that it will continue to apply the accounting
methods prescribed by Opinion 25 for its existing stock and incentive plan.
Therefore, the implementation of this statement will not affect the
Company's results of operations. However, as required by this statement,
disclosure information will be provided in the Company' financial statements
reflecting costs that would have been recorded under the fair value based
method. The statement will be implemented in 1996.
CURRENT REGULATORY ISSUES
Actuarial Guideline 33
In December, 1995, the National Association of Insurance Commissioners
adopted for statutory accounting practices Actuarial Guideline 33,
previously referred to as Actuarial Guideline GGG. This reserve guideline,
which has not been adopted by any states at this time, helps define the
minimum reserves for policies with multiple benefit streams, such as
two-tier annuities.
As of December 31, 1995, the Company's statutory reserving practices for
two-tier annuities follow an agreement reached in 1993 with its state of
domicile, Colorado. This agreement requires the Company to phase-in a
different reserve basis by the end of 1996. The agreement states the
acceptable difference between the target reserve and the statutory reserve
held by the Company will meet the following schedule:
<TABLE>
<S> <C>
December 31, 1995 $5,000,000
December 31, 1996 -
</TABLE>
The Company has met the above scheduled difference for December 31, 1995.
However, in 1995, the Company entered into discussions with the Colorado
Division of Insurance (the Division) to implement Actuarial Guideline 33 and
to phase it in over a three-year period as allowed by the guideline. In
January, 1996, the Division approved the proposal for this three-year
phase-in. The effect on the Company's statutory financial statements will
not be significant, since the previous agreement with the Division was
similar to the final guideline. Also, the guideline does not affect the
Company's policy reserves which are prepared under generally accepted
accounting principles as reported in the accompanying consolidated financial
statements.
Risk Based Capital Requirements
In 1993, the National Association of Insurance Commissioners (NAIC)
established new risk-based capital (RBC) requirements to help state
regulators monitor the financial strength and stability of life insurers by
identifying those companies that may be inadequately capitalized. Under the
NAIC's requirements, each insurer must maintain its total capital above a
calculated threshold or take corrective measures to achieve the threshold.
The threshold of adequate capital is based on a formula that takes into
account the amount of risk each company faces on its products and
investments. The RBC formula takes into consideration four major areas of
risk which are: (i) asset risk which primarily focuses on the quality of
investments; (ii) insurance risk which encompasses mortality and morbidity
risk; (iii) interest rate risk which involves asset/liability matching
issues; and (iv) other business risks.
There continues to be some public pressure for insurance companies to
publish their RBC ratios or levels. However, the legality of publishing
such information is uncertain. The American Institute of Certified Public
Accountants (AICPA) released an exposure draft of a Statement of Position
(SOP) which included requirements that insurance companies disclose certain
information about their RBC levels. This requirement was deleted from the
final SOP version due to questions raised about the legality of such
disclosures. Instead, the AICPA decided to consider a separate SOP at a
later date on RBC disclosures, after the legal issues are resolved. Due to
these unanswered legal issues, the Company has chosen not to publish its RBC
ratios or levels. However, the Company's current statutory capital and
surplus is significantly in excess of the threshold RBC requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is reported in Attachment A beginning
on page ____. See Index to Financial Statements and Schedules on page ___
for a list of financial information included in Attachment A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in auditors or disagreements with auditors which
are reportable pursuant to Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Identification of Directors
The following information as of January 31, 1996, is furnished with respect
to each director. All terms expire in June of 1996.
<TABLE>
<CAPTION>
Principal Occupation During Last First
Name of Director Five Years and Directorships Elected Age
<S> <S> <C> <C>
Robert L. Moody Chairman of the Board and Chief 1964 60
(1) (3) (4) (5) Executive Officer of the Company;
Investments, Galveston, Texas
Ross R. Moody President and Chief Operating 1981 33
(1) (3) Officer of the Company,
4/92-present; Vice President -
Office of the President of
the Company, 4/91 - 4/92
Austin, Texas
Arthur O. Dummer President, The Donner Company 1980 62
(1) (2) (3) Salt Lake City, Utah
Harry L. Edwards Retired; Former President and Chief 1969 74
Operating Officer of the Company
until 7/90, Austin, Texas
E. Douglas McLeod Director of Development, Moody 1979 54
(4) Foundation, Galveston, Texas
Charles D. Milos, Jr. Senior Vice President of the 1981 50
(1) (3) Company, Galveston, Texas
Frances A. Moody Investments, Dallas, Texas, 1990 26
(4) 1992 - present; Student, Southern
Methodist
University, Dallas, Texas,
1987-1992
Russell S. Moody Investments, Austin, Texas 1988 34
(4)
Louis E. Pauls, Jr. President, Louis Pauls & Company; 1971 60
(2) Investments, Galveston, Texas
E. J. Pederson Executive Vice President, 1992 48
(2) The University of Texas
Medical Branch, Galveston,
Texas
<FN>
(1) Member of Executive Committee; (2) Member of Audit Committee; (3)
Member of Investment Committee; (4) Director of American National Insurance
Company of Galveston, Texas; (5) Director of The Moody National Bank of G
alveston, Texas.
</FN>
</TABLE>
Family relationships among the directors are: Mr. Robert Moody and Mr.
McLeod are brothers-in-law and Mr. Robert Moody is the father of Ms. Frances
Moody, Mr. Ross Moody, and Mr. Russell Moody.
(b) Identification of Executive Officers
The following is a list of the Company's executive officers, their ages, and
their positions and offices as of January 31, 1996.
<TABLE>
<CAPTION>
Name of Officer Age Position (Year elected to position)
<S> <C> <S>
Robert L. Moody 60 Chairman of the Board and Chief Executive
Officer (1964-1968, 1971-1980, 1981), Director
Ross R. Moody 33 President and Chief Operating Officer (1992),
Director
Robert L. Busby, II 58 Senior Vice President - Chief Administrative
Officer, Chief Financial Officer and
Treasurer (1992)
Charles P. Baley 57 Senior Vice President - Data Processing
(1990)
Richard M. Edwards 43 Senior Vice President - International
Marketing (1990)
Paul D. Facey 44 Senior Vice President - Chief Actuary (1992)
Charles D. Milos, Jr. 50 Senior Vice President - Investment Analyst
(1990), Director
Arthur W. Pickering 54 Senior Vice President - Domestic Marketing
(1994)
Patricia L. Scheuer 44 Senior Vice President - Chief Investment
Officer (1992)
Larry D. White 50 Senior Vice President - Policyowner Services
(1990)
Robert J. Antonowich 49 Vice President - Marketing (1995)
Carol Jackson 60 Vice President - Human Resources (1990)
Vincent L. Kasch 34 Vice President - Controller and Assistant
Treasurer (1992)
James A. Kincl 66 Vice President - Salary Savings (1986)
Doris Kruse 50 Vice President - Policy Benefits (1990)
James R. Naiser 53 Vice President - Systems Development (1984)
James P. Payne 51 Vice President - Secretary (1994)
Al R. Steger 53 Vice President - Risk Selection (1992)
B. Ben Taylor 53 Vice President - Actuarial Services (1990)
</TABLE>
(c) Identification of Certain Significant Employees
None.
(d) Family Relationships
There are no family relationships among the officers listed except that Mr.
Robert Moody is the father of Mr. Ross Moody. There are no arrangements or
understandings pursuant to which any officer was elected. All officers hold
office for one year and until their successors are elected and qualified,
unless otherwise specified by the Board of Directors.
(e) Business Experience
All of the executive officers listed above have served in various executive
capacities with the Company for more than five years, with the exception of
the following:
Mr. Ross Moody was a corporate financial analyst with Drexel Burnham Lambert
from 1986 to 1987 and was a graduate student at the Harvard Business School
from 1987 to 1989. He also served as Director of Administrative Services for
American National Insurance Company from 1989 to 1991.
Mr. Facey was Superintendent, Marketing, for Northern Life Assurance Company
of Canada from 1973-1985. From 1985-1987, he was Assistant Vice President,
Marketing and Actuarial Services for Gerling Global Life Insurance Company
in Toronto, Canada, and from 1987 until March, 1992 was Director of
Actuarial Services for Variable Annuity Life Insurance Company of Houston,
Texas.
Mr. Pickering was Agency Vice President of the Western Division with Integon
Life Insurance Company from 1981 to 1987. From 1987 to 1990, he served as
Regional Vice President of United Pacific Life Insurance Company. In 1990,
he began work for Conseco/Western National Life Insurance Company as Vice
President Marketing until May, 1994.
Ms. Scheuer was a Management Consultant for Deloitte, Haskins & Sells from
1983-1984. From 1984-1988, she was Senior Financial Analyst with the Texas
Public Utility Commission. From 1988 until August, 1992, she was the Fixed
Income Portfolio Manager for the Texas Permanent School Fund.
Mr. Antonowich was Regional Vice President of Security Life of Denver
Insurance Company from 1982 to 1991. From 1991 to December, 1993, he was
Vice President, Marketing, of Guarantee Mutual Life Company, and from 1994
to June, 1995, he was Senior Vice President, Sales, of Lamar Life Insurance
Company.
Mr. Kasch was Staff Accountant with Arthur Young & Company from 1984-1985.
From 1985 until January, 1991, he was Senior Accountant and Audit Manager
for KPMG Peat Marwick.
Mr. Payne was staff attorney with the Kansas Insurance Department from 1972
to 1975. From 1975-1983, he was Vice President, Secretary & General Counsel
for Lone Star Life Insurance Company; from 1983-1990, he was Vice President,
Secretary and General Counsel for Reserve Life Insurance Company; from
1990-1991 he was President and CEO of Great Republic Insurance Company; and
from 1991-1993 he was Vice President - Government Relations for United
American Insurance Company. From 1993 until October, 1994, he was in
private practice in Dallas, Texas.
Mr. Steger was Assistant Vice President-Chief Underwriter of Tower Life, San
Antonio, Texas from 1971 until December, 1991.
(f) Involvement in Certain Legal Proceedings
There are no events pending, or during the last five years, under any
bankruptcy act, criminal proceedings, judgments, or injunctions material to
the evaluation of the ability and integrity of any director or executive
officer except as described below:
In January, 1994, a United States District Court Judge vacated and withdrew
the judgment which had been entered in Case No. H-86-4269, W. Steve Smith,
Trustee vs. Shearn Moody, Jr., et al, United States District Court for the
Southern District of Texas. The Judge also dismissed the case with
prejudice. The judgment had been entered against Robert L. Moody and The
Moody National Bank of Galveston, of which he was Chairman of the Board.
Robert L. Moody is also Chairman of the Board of National Western Life
Insurance Company. The case arose out of complex bankruptcy and related
proceedings involving Robert L. Moody's brother, Shearn Moody, Jr.
Subsequently, a global settlement of Shearn Moody, Jr.'s bankruptcy and
related legal proceedings was reached and executed. As part of the global
settlement, the Bankruptcy Trustee recommended, and other interested parties
agreed not to oppose or object to, the Judge's vacating and withdrawing the
judgment and dismissing the case with prejudice. This case and settlement
did not involve the Company and had no effect on its financial statements.
ITEM 11. EXECUTIVE COMPENSATION
(b) Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
No. of
Annual Restricted Securities All Other
Compensation Stock Underlying Compen-
Name and Salary Bonus Awards Options sation
Principal Position Year (A) (B) (C) (D) (E)
<S> <C> <C> <C> <C> <C> <C>
1 Robert L. Moody 1995 967,696 91,616 - 25,000 111,533
Chairman of the 1994 890,216 56,886 - - 19,016
Board and Chief 1993 836,476 145,693 139,103 - 18,185
Executive Officer
Ross R. Moody 1995 361,427 19,768 - 9,000 20,866
President and 1994 311,977 12,267 - - 14,543
Chief Operating 1993 275,697 75,417 30,005 - 15,651
Officer
3 Arthur W. Pickering 1995 109,181 77,654 - 2,500 14,845
Senior Vice 1994 64,654 61,250 - - 70,340
President - 1993 - - - - -
Domestic Marketing
4 Robert L. Busby, III 1995 160,690 8,008 - 4,000 9,068
Senior Vice 1994 151,877 9,969 - - 9,773
President-Chief 1993 136,882 12,727 12,155 - 9,346
Administrative
Officer, Chief
Financial Officer
and Treasurer
5 Charles D. Milos, Jr. 1995 132,323 5,992 - 2,500 7,161
Senior Vice 1994 128,815 3,718 - - 7,561
President- 1993 119,643 53,523 9,095 - 7,245
Investment Analyst
</TABLE>
Notes to Summary Compensation Table:
(A) Salary includes directors' fees from National Western Life Insurance
Company and its subsidiaries.
(B) Bonuses include the following:
(1) Stock Bonus Plan - During 1993 the Company implemented a one-time stock
bonus plan for all officers of the Company. Class A common stock restricted
shares totaling 13,496 were granted to officers based on their individual
performance and contribution to the Company. The shares are subject to
vesting requirements as reflected in the following schedule:
<TABLE>
<S> <C>
January 1, 1993 25%
December 31, 1993 25%
December 31, 1994 25%
December 31, 1995 25%
</TABLE>
The resulting compensation from the vesting of shares has been included in
the applicable year in the bonus column. All of the 13,496 shares that were
granted have been issued and are outstanding as of December 31, 1995.
(2) Westcap Bonuses - Ross R. Moody and Charles D. Milos, Jr., are directors
of the Company's brokerage subsidiary, The Westcap Corporation. The
directors received bonuses for such services in 1993.
(3) Other Bonuses - Employment and performance related bonuses are
occasionally granted. Arthur W. Pickering received such bonuses in 1995 and
1994 and Robert L. Busby, III received such bonuses in 1994.
(C) Restricted stock awards include common stock shares that were granted
as part of the stock bonus plan described in (1) above but had not vested as
of December 31, 1993. Restricted stock holdings at December 31, 1993, for
all officers totaled 6,666 shares with a market value of $296,637.
Restricted stock holdings for the named executive officers were as follows
at December 31, 1993:
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Robert L. Moody 3,273 $ 145,649
Ross R. Moody 706 31,417
Robert L. Busby, III 286 12,727
Charles D. Milos, Jr. 214 9,523
</TABLE>
Of the remaining 6,666 unvested shares at December 31, 1993, 3,146 and 3,520
of such shares vested on December 31, 1995 and 1994, respectively, and are
reflected as bonuses in those years.
(D) Represents stock options granted under the National Western Life
Insurance Company 1995 Stock and Incentive Plan.
(E) All other compensation includes primarily employer contributions made
to the Company's 401(k) Plan and Non-Qualified Deferred Compensation Plan on
behalf of the employee.
(c) Option/SAR Grants Table
During 1995 the Company adopted the National Western Life Insurance Company
1995 Stock and Incentive Plan (the Plan). The Plan is effective as of April
21, 1995, and will terminate on April 20, 2005, unless terminated earlier by
the Board of Directors. The number of shares of Class A, $1.00 par value,
common stock which may be issued under the Plan, or as to which stock
appreciation rights or other awards may be granted, may not exceed 300,000.
These shares may be authorized and unissued shares or treasury shares.
All of the employees of the Company and its subsidiaries are eligible to
participate in the Plan. In addition, directors of the Company, other than
Compensation and Stock Option Committee members, are eligible for restricted
stock awards, incentive awards, and performance awards. Non-employee
directors, including members of the Compensation and Stock Option Committee,
are eligible for non-discretionary stock options. On May 19, 1995, the
Committee approved the issuance of 52,500 non-qualified stock options to
selected officers of the Company. The Committee also granted 7,000
non-qualified, non-discretionary stock options to non-employee Company
directors. The stock options begin to vest following three full years of
service to the Company after date of grant, with 20% of the options to vest
at the beginning of the fourth year of service, and with 20% thereof to vest
at the beginning of each of the next four years of service. The exercise
price of the stock options was set at the fair market value of the common
stock on the date of grant, May 19, 1995, which was $38.125 per share.
Stock options granted to the named executive officers during 1995 are as
follows:
<TABLE>
<CAPTION>
Potential
Realizable
% of Value at Assumed
Total Annual
Number of Options Rates of Stock
Securities Granted to Price Appreciation
Underlying Employee for Option Term
Options in Fiscal Exercise Exporation
Name Granted Year Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
1 Robert L. Moody 25,000 47.6% $38.125 4-20-05 $599,411 $1,519,033
2 Ross R. Moody 9,000 17.1 38.125 4-20-05 215,788 546,852
3 Arthur W. Pickering 2,500 4.8 38.125 4-20-05 59,941 151,903
4 Robert L. Busby III 4,000 7.6 38.125 4-20-05 95,906 243,045
5 Charles D. Milos 2,500 4.8 38.125 4-20-05 59,941 151,903
</TABLE>
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
Table
None.
(e) Long-Term Incentive Plan Awards Table
None.
(f) Defined Benefit or Actuarial Plan Disclosure
The Company currently has two employee defined benefit plans for the benefit
of its employees and officers. A brief description and formulas by which
benefits are determined for each of the plans are detailed as follows:
Qualified Defined Benefit Plan - This plan covers all full-time employees
and officers of the Company and provides benefits based on the participants'
years of service and compensation. The Company makes annual contributions to
the plan that comply with the minimum funding provisions of the Employee
Retirement Income Security Act.
Annual pension benefits for those employees who became eligible participants
prior to January 1, 1991, are calculated as the sum of the following:
(1) 50% of the participant's final 5-year average annual compensation at
December 31, 1990, less 50% of their primary social security benefit
determined at December 31, 1990; this net amount is then prorated for less
than 15 years of benefit service at normal retirement date. This result is
multiplied by a fraction which is the participant's years of benefit service
at December 31, 1990, divided by the participant's years of benefit service
at normal retirement date.
(2) 1.5% of the participant's compensation earned during each year of
benefit service after December 31, 1990.
Annual pension benefits for those employees who become eligible participants
on or subsequent to January 1, 1991, are calculated as 1.5% of their
compensation earned during each year of benefit service.
Non-Qualified Defined Benefit Plan - This plan covers those officers in the
position of senior vice president or above and other employees who have been
designated by the President of the Company as being in the class of persons
who are eligible to participate in the plan. This plan also provides
benefits based on the participants' years of service and compensation.
However, no minimum funding standards are required.
The benefit to be paid pursuant to this Plan to a Participant who retires at
his normal retirement date shall be equal to (a) less (b) less (c) where:
(a) is the benefit which would have been payable at the participant's normal
retirement date under the terms of the Qualified Defined Benefit Plan as of
December 31, 1990, as if that Plan had continued without change, and,
(b) is the benefit which actually becomes payable under the terms of the
Qualified Defined Benefit Plan at the participant's normal retirement date,
and,
(c) is the actuarially equivalent life annuity which may be provided by an
accumulation of 2% of the participant's compensation for each year of
service on or after January 1, 1991, accumulated at an assumed interest rate
of 8.5% to his normal retirement date.
In no event will the benefit be greater than the benefit which would have
been payable at normal retirement date under the terms of the Qualified
Defined Benefit Plan as of December 31, 1990, as if that plan had continued
without change.
The estimated annual benefits payable to the named executive officers upon
retirement, at normal retirement age, for the Company's defined benefit
plans are as follows:
<TABLE>
<CAPTION>
Estimated Annual Benefits
Qualified Non-Qualified
Defined Defined
Name Benefit Plan Benefit Plan Totals
<S> <C> <C> <C> <C>
1 Robert L. Moody $ 125,335 317,317 442,652
2 Ross R. Moody 83,243 - 83,243
3 Arthur W. Pickering 26,906 - 26,906
4 Robert L. Busby, III 47,132 18,599 65,731
5 Charles D. Milos, Jr. 44,032 - 44,032
</TABLE>
(g) Compensation of Directors
All directors of the Company currently receive $12,000 a year and $500 for
each board meeting attended. They are also reimbursed for actual travel
expenses incurred in performing services as directors. An additional $500 is
paid for each committee meeting attended. However, a director attending
multiple meetings on the same day receives only one meeting fee. The amounts
paid pursuant to these arrangements are included in the summary compensation
table under Item 11(b). The directors and their dependents are also insured
under the Company's group insurance program.
During 1995 the Company adopted the National Western Life Insurance Company
1995 Stock and Incentive Plan ( the Plan), as more fully described in Item
11(c). Directors of the Company, other than Compensation and Stock Option
Committee members, are eligible for restricted stock awards, incentive
awards, and performance awards. Non-employee directors, including members
of the Compensation and Stock Option Committee, are eligible for
non-discretionary stock options. On May 19, 1995, the Committee approved
the issuance of 7,000 non-qualified, non-discretionary stock options to
non-employee Company directors, with each such director receiving 1,000
stock options. Directors who are also employees of the Company were granted
stock options as disclosed in the table in Item 11(c).
Directors of the Company's subsidiary, NWL Investments, Inc., receive $250
annually. Directors' fees for the Company's subsidiary, The Westcap
Corporation, have been suspended indefinitely. No fees were paid in 1995.
(h) Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
None.
(i) Report on Repricing of Options/SARs
None.
(j) Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors determines and approves executive
compensation. Mr. Robert Moody, Mr. Ross Moody, and Mr. Milos serve as
directors and also serve as officers and employees of the Company. The
Donner Company, 100% owned by Mr. Dummer, who is a director of National
Western Life Insurance Company, was paid $60,474 in 1995 pursuant to an
agreement between The Donner Company and a reinsurance intermediary relating
to a reinsurance contract between the Company and certain life insurance
reinsurers. No compensation committee interlocks exist with other
unaffiliated companies.
(k) Board Compensation Committee Report on Executive Compensation
The Company's Board of Directors performs the functions of an executive
compensation committee. The Board is responsible for developing and
administering the policies that determine executive compensation.
Executive compensation, including that of the chief executive officer, is
comprised primarily of a base salary. The salary is adjusted annually based
on a performance review of the individual as well as the performance of the
Company as a whole. The president and chief executive officer make
recommendations annually to the Board of Directors regarding such salary
adjustments. The review encompasses the following factors:
- - contributions to the Company's short and long-term strategic
goals, including financial goals such as Company revenues and
earnings
- - achievement of specific goals within the individual's realm of
responsibility
- - development of management and employees within the Company
- - performance of leadership within the industry
The policies discussed above are reviewed periodically by the Board of
Directors to ensure the support of the Company's overall business strategy
and to attract and retain key executives.
A separate Compensation and Stock Option Committee, comprised of outside,
independent directors, determines compensation for the three highest paid
Company executives. The committee also performs various projects relating
to executive compensaion at the request of the Board of Directors. Those
directors serving on the committee include the following:
Arthur O. Dummer
Harry L. Edwards
E. J. Pederson
The policies used by the Compensation and Stock Option Committee in
determining compensation are similar to those described above for all other
Company executives.
(1) Performance Graph
The following graph compares the change in the Company's cumulative total
stockholder return on its common stock with the NASDAQ - U.S. Companies
Index and the NASDAQ Insurance Stock Index. The graph assumes that the value
of the investment in the Company's common stock and each index was $100 at
December 31, 1990, and that all dividends were reinvested.
For the purpose of this electronic filing, the graph has been filed
separately under the Securities and Exchange Commission filing Form SE dated
March 29, 1996. The coordinates of the graph are as follows:
<TABLE>
<CAPTION>
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
<S> <C> <C> <C> <C> <C> <C>
National Western Life 100.00 482.6 817.4 773.9 604.3 973.9
NASDAQ U.S. Companies
Index 100.00 160.5 186.9 214.5 209.7 296.5
NASDAQ Insurance Stock
Index 100.00 141.0 190.8 204.1 192.1 272.9
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain financial information concerning persons who are
known by the Company to own beneficially more than 5% of any class of the
Company's common stock on December 31, 1995:
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature of Percent
of of Beneficial Ownership of
Class Beneficial Owners Record and Class
Beneficially
<S> <S> <C> <C>
Class A Common Robert L. Moody 1,160,896 35.27
2302 Postoffice
Street Suite 702
Galveston, Texas
Class A Common Westport Asset 326,700 9.93
Management, Inc.
253 Riverside Avenue
Westport, Connecticut
Class A Common Tweedy Browne Company 288,128 8.75
52 Vanderbilt Avenue
New York, New York
Class B Common Robert L. Moody 198,074 99.04
(same as above)
</TABLE>
(b) Security Ownership of Management
The following table sets forth as of December 31, 1995, information
concerning the beneficial ownership of the Company's common stock by all
directors, named officers, and all directors and officers of the Company as
a group:
<TABLE>
<CAPTION>
Title Amount and Nature of Percent
Directors of Beneficial Ownership of
and Officers Class Record and Class
Beneficially
<S> <S> <C> <C>
Directors and Named Officers:
Robert L. Moody Class A Common 1,160,896 35.27
Class B Common 198,074 99.04
Ross R. Moody Class A Common 2,828 0.09
Class B Common 482 0.24
Charles D. Milos, Jr. Class A Common 528 0.02
Class B Common - -
Directors:
Arthur O. Dummer Class A Common 10 -
Class B Common - -
Harry L. Edwards Class A Common 20 -
Class B Common - -
E. Douglas McLeod Class A Common 10 -
Class B Common - -
Frances A. Moody Class A Common 2,475 0.08
Class B Common 482 0.24
Russell S. Moody Class A Common 2,475 0.08
Class B Common 482 0.24
Louis E. Pauls, Jr. Class A Common 10 -
Class B Common - -
E. J. Pederson Class A Common 100 -
Class B Common - -
Named Officers:
Robert L. Busby, III Class A Common 688 0.02
Class B Common - -
Arthur W. Pickering Class A Common - -
Class B Common - -
All Directors and
Executive Officers Class A Common 1,173,121 35.64
as a Group Class B Common 199,520 99.76
</TABLE>
(c) Changes in Control
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
The Donner Company, 100% owned by Mr. Arthur Dummer, who is a director of
National Western Life Insurance Company, was paid $60,474 in 1995 pursuant
to an agreement between The Donner Company and a reinsurance intermediary
relating to a reinsurance contract between the Company and certain life
insurance reinsurers.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
Seal Fleet, Inc.
The Company holds a corporate note for $500,000 which was originally issued
by Oceanographic and Seismic Services, Inc. (Oceanographic). Oceanographic
was later merged into Seal Fleet, Inc. The original note was renewed in 1976
and is a 20-year debenture due in August, 1996, with interest of 8%
annually.
The Company also holds a corporate note for $2,168,232 issued in 1990 by
Seal (GP), Inc., which is a subsidiary of Seal Fleet, Inc. The note is due in
June, 2000, with interest of 12% payable monthly and is secured by first
preferred ship mortgages. The note was modified during 1992 reducing the
interest rate from 12% to 10%. However, the additional 2% interest will be
payable upon maturity of the note.
Seal Fleet, Inc., has two classes of stock outstanding, Class A and B. The
Class B shares elect a majority of the Board of Directors of Seal Fleet,
Inc. All of the Class B shares and 212,655 (9%) of the Class A shares of
Seal Fleet, Inc., are owned by the Three R Trust, Galveston, Texas. This
Trust was created by Robert L. Moody as Settlor for the benefit of his
children. Three of his children, Mr. Ross R. Moody, Mr. Russell S. Moody,
and Ms. Frances A. Moody are beneficiaries of the Three R Trust and are also
directors of National Western Life Insurance Company. The Trustee of the
Trust is Irwin M. Herz, Jr., of Galveston, Texas. Mr. Herz personally owns
10,932 (.5%) shares of the Class A stock of Seal Fleet, Inc. Mr. Herz is a
lawyer representing the Company, Mr. Moody, and several of Mr. Moody's
affiliated interests. Through its Trustee, Mr. Herz, the Three R Trust is
considered to be the controlling stockholder of Seal Fleet, Inc. Louis
Pauls, Jr., and Russell S. Moody, directors of the Company, are also
directors of Seal Fleet, Inc.
Seal Fleet, Inc., and its subsidiaries own, operate, or lease supply and
equipment boats for off-shore oil and gas well drilling rigs. The
consolidated audited financial statements of Seal Fleet, Inc., and its
subsidiaries for the fiscal year ending December 31, 1995, reflected total
assets of $10,394,000, net losses of $116,000, and negative stockholders'
equity of $3,621,000.
Gal-Tex Hotel Corporation
The Company also holds three mortgage loans issued to Gal-Tex Hotel
Corporation, which is owned 50% by the Libbie Shearn Moody Trust and 50% by
The Moody Foundation. The first mortgage loan in the amount of $3,040,000
was issued in 1988, will mature in May of 1998, and pays interest of 10.5%.
The loan is secured by property consisting of a hotel located in Kingsport,
Tennessee. The second mortgage loan in the amount of $8,796,000 was issued
in 1994, will mature in October of 2004, and pays interest of 8.75%. The
loan is secured by property consisting of a hotel located in Houston, Texas.
The third mortgage loan in the amount of $2,000,000 was issued in 1995, will
mature in January of 2006, and pays interest of 9%. The loan is secured by
property consisting of a hotel located in Woodstock, Virginia.
The Company is the beneficial owner of a life interest (1/8 share),
previously owned by Mr. Robert L. Moody, in the trust estate of Libbie
Shearn Moody. The trustee of this estate is The Moody National Bank of
Galveston. The Moody Foundation is a private charitable foundation governed
by a Board of Trustees of three members. Mr. Robert L. Moody and Mr. Ross
R. Moody are members of the Board of Trustees.
(d) Transactions with Promoters
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Listing of Financial Statements
See Attachment A, Index to Financial Statements and Schedules, on page
______ for a list of financial statements included in this report.
(a) 2. Listing of Financial Statement Schedules
See Attachment A, Index to Financial Statements and Schedules, on page ____
for a list of financial statement schedules included in this report.
All other schedules are omitted because they are not applicable, not
required or because the information required by the schedule is included
elsewhere in the financial statements or notes.
(a) 3. Listing of Exhibits
Exhibit 3(a) - Restated Articles of Incorporation of National Western
Life Insurance Company dated April 10, 1968 (filed on page _____
of this report).
Exhibit 3(b) - Amendment to the Articles of Incorporation of National
Western Life Insurance Company dated July 29, 1971 (filed on page
____ of this report).
Exhibit 3(c) - Amendment to the Articles of Incorporation of National
Western Life Insurance Company dated May 10, 1976 (filed on page
____ of this report).
Exhibit 3(d) - Amendment to the Articles of Incorporation of National
Western Life Insurance Company dated April 28, 1978 (filed on page
____ of this report).
Exhibit 3(e) - Amendment to the Articles of Incorporation of National
Western Life Insurance Company dated May 1, 1979 (filed on page
____ of this report).
Exhibit 3(f) - Bylaws of National Western Life Insurance Company as
amended through April 24, 1987 (filed on page ____ of this
report).
Exhibit 10(a) - National Western Life Insurance Company Non-Qualified
Defined Benefit Plan dated July 26, 1991 (filed on page ____ of
this report).
Exhibit 10(b) - National Western Life Insurance Company Officers' Stock
Bonus Plan effective December 31, 1992 (incorporated by reference
to the Company's Form S-8 registration dated January 27, 1994).
Exhibit 10(c) - National Western Life Insurance Company Non-Qualified
Deferred Compensation Plan, as amended and restated, dated
March 27, 1995 (filed on Page _____ of this report).
Exhibit 10(d) - First Amendment to the National Western Life Insurance
Company Non-Qualified Deferred Compensation Plan effective July 1,
1995 (filed on page _____ of this report).
Exhibit 10(e) - National Western Life Insurance Company 1995 Stock and
Incentive Plan (filed on page _____ of this report).
Exhibit 21 - Subsidiaries of the Registrant (filed on page _____ of
this report).
Exhibit 27 - Financial Data Schedule (filed electronically pursuant
to Regulation S-K).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1995.
(c) Exhibits
Exhibits required by Regulation S-K are listed as to location in the Listing
of Exhibits in Item 14(a)3 above. Exhibits not referred to have been
omitted as inapplicable or not required.
(d) Financial Statement Schedules
The financial statement schedules required by Regulation S-K are listed as
to location in Attachment A, Index to Financial Statements and Schedules, on
page ____ of this report.
ATTACHMENT A
Index to Financial Statements and Schedules
Page
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Earnings for the years ended December 31,
1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
Schedule I - Summary of Investments Other Than Investments in Related
Parties, December 31, 1995
Schedule V - Valuation and Qualifying Accounts for the years ended
December 31, 1995, 1994, and 1993
All other schedules are omitted because they are not applicable, not required
or because the information required by the schedule is included elsewhere
in the financial statements or notes.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
National Western Life Insurance Company
Austin, Texas
We have audited the consolidated financial statements of National Western
Life Insurance Company and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we
also have audited the financial statement schedules as listed in the
accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Western Life Insurance Company and subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
As discussed in Note 3, the Company changed its method of accounting for
investments in debt and equity securities in 1994 to adopt the provisions of
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." As discussed in Note 5, the Company changed its method
of accounting for income taxes in 1993 to adopt the provisions of SFAS No.
109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Austin, Texas
March 1, 1996
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C> <C>
Cash and investments:
Securities held to maturity, at
amortized cost
(fair value: $1,726,469 and $1,488,063) $ 1,643,211 1,605,813
Securities available for sale, at
fair value (cost: $561,127 and $366,024) 600,794 354,300
Mortgage loans, net of allowance for
possible losses ($5,668 and $5,929) 191,674 189,632
Policy loans 147,923 151,487
Other long-term investments 30,970 24,872
Cash and short-term investments 10,024 17,723
Total cash and investments 2,624,596 2,343,827
Accrued investment income 36,127 31,630
Deferred policy acquisition costs 270,167 291,274
Other assets 21,392 16,266
Assets of discontinued operations 6,177 232,057
$ 2,958,459 2,915,054
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In thousands except per share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
LIABILITIES:
Future policy benefits:
Traditional life and annuity products $ 174,946 177,429
Universal life and investment annuity
contracts 2,401,098 2,194,264
Other policyholder liabilities 22,833 23,183
Federal income taxes payable:
Current 413 -
Deferred 12,287 1,996
Other liabilities 28,718 27,718
Liabilities of discontinued operations 6,177 215,330
Total liabilities 2,646,472 2,639,920
COMMITMENTS AND CONTINGENCIES
(Notes 4, 7, 9, and 15)
STOCKHOLDERS' EQUITY:
Common stock:
Class A - $1 par value; 7,500,000
shares authorized; 3,291,338
and 3,288,192 shares issued and
outstanding in 1995 and 1994 3,291 3,288
Class B - $1 par value; 200,000 shares
authorized, issued and outstanding
in 1995 and 1994 200 200
Additional paid-in capital 24,647 24,475
Net unrealized gains (losses) on
investment securities 15,195 (2,199)
Retained earnings 268,654 249,370
Total stockholders' equity 311,987 275,134
$ 2,958,459 2,915,054
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended December 31, 1995, 1994, and 1993
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Premiums and other revenue:
Life and annuity premiums $ 17,390 18,938 18,624
Universal life and investment
annuity contract revenues 69,783 64,711 67,778
Net investment income 201,816 190,021 180,252
Other income 661 1,462 1,847
Realized gains (losses) on
investments (2,415) 1,626 3,206
Total premiums and other revenue 287,235 276,758 271,707
Benefits and expenses:
Life and other policy benefits 39,823 32,132 36,257
Increase (decrease) in liabilities
for future policy benefits (2,487) 658 (1,611)
Amortization of deferred policy
acquisition costs 33,675 32,131 33,159
Universal life and investment
annuity contract interest 142,940 129,064 130,875
Other insurance operating expenses 27,084 29,394 28,959
Total benefits and expenses 241,035 223,379 227,639
Earnings before Federal income taxes,
cumulative effect of change in
accounting principle, and
discontinued operations 46,200 53,379 44,068
Provision (benefit) for Federal
income taxes:
Current 9,640 16,300 20,006
Deferred 926 (93) (5,310)
Total Federal income taxes 10,566 16,207 14,696
Earnings before cumulative effect of
change in accounting principle and
discontinued operations 35,634 37,172 29,372
Cumulative effect of change in
accounting for income taxes - - 5,520
Earnings from continuing operations 35,634 37,172 34,892
<FN>
(Continued on next page)
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS, CONTINUED
For the Years Ended December 31, 1995, 1994, and 1993
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discontinued operations:
Earnings (losses) from operations
of discontinued brokerage
operations (net of Federal income
taxes of $2,983 and $11,781 in
1994 and 1993) $ (9,969) (2,936) 21,832
Estimated loss on disposal of
discontinued brokerage
operations (6,381) - -
Earnings (losses) from
discontinued operations (16,350) (2,936) 21,832
Net earnings $ 19,284 34,236 56,724
Earnings per share of common stock:
Earnings before cumulative effect
of change in accounting principle
and discontinued operations $ 10.22 10.66 8.44
Cumulative effect of change in
accounting for income taxes - - 1.58
Earnings (losses) from
discontinued operations (4.69) (0.84) 6.27
Net earnings $ 5.53 9.82 16.29
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994, and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Common stock shares outstanding:
Shares outstanding at beginning
of year 3,488 3,485 3,478
Shares issued for stock
bonus plan 3 3 7
Shares outstanding at end of year 3,491 3,488 3,485
Common stock:
Balance at beginning of year $ 3,488 3,485 3,478
Shares issued for stock
bonus plan 3 3 7
Balance at end of year 3,491 3,488 3,485
Additional paid-in capital:
Balance at beginning of year 24,475 24,356 24,065
Shares issued for stock
bonus plan 172 119 291
Balance at end of year 24,647 24,475 24,356
Net unrealized gains (losses) on
securities available for sale,
net of effects of deferred
policy acquisition costs and taxes:
Balance at beginning of year (2,199) (257) 138
Effect of change in accounting
for investments in debt and
equity securities - 26,610 -
Change in unrealized gains
(losses) during year 15,166 (29,493) (395)
Net unrealized gains related to
transfer of securities from
available for sale to held
to maturity 3,159 1,380 -
Amortization of net unrealized
gains related to transferred
securities (931) (439) -
Balance at end of year 15,195 (2,199) (257)
Retained earnings:
Balance at beginning of year 249,370 215,134 158,410
Net earnings 19,284 34,236 56,724
Balance at end of year 268,654 249,370 215,134
Total stockholders' equity $ 311,987 275,134 242,718
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994, and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 19,284 34,236 56,724
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Universal life and investment
annuity contract interest 142,940 129,064 130,875
Surrender charges (34,936) (33,016) (36,563)
Realized (gains) losses on
investments 2,415 (1,626) (3,206)
Accrual and amortization of
investment income (7,129) (10,722) 30
Depreciation and amortization 620 649 482
Decrease (increase) in other
assets 940 3,771 (3,184)
Decrease (increase) in accrued
investment income (4,497) (3,468) 959
Decrease (increase) in deferred
policy acquisition costs (12,018) 2,354 11,475
Increase (decrease) in liability
for future policy benefits (2,487) 658 (1,611)
Increase (decrease) in other
policyholder liabilities (350) (1,028) 3,149
Decrease in Federal income
taxes payable (4,180) (9,222) (11,096)
Increase (decrease) in other
liabilities (1,781) 4,972 (12,314)
Other 176 121 (74)
Net cash provided by operating 98,997 116,743 135,646
activities
Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity 10,659 - -
Securities available for sale 44,440 9,114 -
Investments in debt securities - - 77,869
Other investments 1,645 22,531 8,835
Proceeds from maturities and
redemptions of:
Securities held to maturity 54,720 76,174 -
Securities available for sale 13,942 57,270 -
Investments in debt securities - - 485,818
Purchases of:
Securities held to maturity (212,192) (155,892) -
Securities available for sale (130,066) (116,923) -
Investments in debt securities - - (576,403)
Other investments (5,941) (3,548) (18,588)
Principal payments on
mortgage loans 15,952 29,431 16,971
Cost of mortgage loans acquired (18,125) (30,093) (33,393)
Decrease in policy loans 3,564 2,335 4,394
Decrease (increase) in assets of
discontinued operations 225,880 140,244 (208,299)
Increase (decrease) in liabilities
of discontinued operations (209,153) (136,590) 206,799
Other (851) (245) (244)
Net cash used in investing activities (205,526) (106,192) (36,241)
<FN>
(Continued on next page)
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Years Ended December 31, 1995, 1994, and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Deposits to account balances for
universal life and investment
annuity contracts $ 343,588 190,687 122,545
Return of account balances on
universal life and investment
annuity contracts (244,758) (207,823) (221,658)
Net cash provided by (used in)
financing activities 98,830 (17,136) (99,113)
Net increase (decrease) in cash and
short-term investments (7,699) (6,585) 292
Cash and short-term investments at
beginning of year 17,723 24,308 24,016
Cash and short-term investments at
end of year $ 10,024 17,723 24,308
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,740 9,134 4,468
Income taxes 15,129 26,332 32,992
Non-cash investing activities:
Foreclosed mortgage loans $ 961 2,557 6,678
Mortgage loans originated to
facilitate the sale of
real estate 1,105 2,655 2,684
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of National Western Life Insurance Company
and its wholly owned subsidiaries (the Company), The Westcap Corporation,
NWL Investments, Inc., NWL Properties, Inc., NWL 806 Main, Inc., and
Commercial Adjusters, Inc. Commercial Adjusters, Inc., was dissolved in
October, 1994, and all remaining assets and liabilities were assumed by
National Western Life Insurance Company. The Westcap Corporation ceased
brokerage operations during 1995 and, as a result, is reflected as
discontinued operations in the accompanying financial statements. All
significant intercorporate transactions and accounts have been eliminated in
consolidation.
(B) Basis of Presentation - The accompanying consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities, and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates. Significant estimates included in the
accompanying financial statements include (1) contingent liabilities related
to litigation, (2) recoverability of deferred policy acquisition costs,
(3) estimated losses related to discontinued operations, and (4) valuation
allowances for mortgage loans.
National Western Life Insurance Company also files financial statements
with insurance regulatory authorities which are prepared on the
basis of statutory accounting practices which are significantly
different from financial statements prepared in accordance with
generally accepted accounting principles. These differences are
described in detail in the statutory information section of this note.
(C) Investments - Investments in debt securities the Company purchases with
the intent to hold to maturity are classified as securities held to
maturity. The Company has the ability to hold the securities, as it would be
unlikely that forced sales of securities would be required prior to maturity
to cover payments of liabilities. As a result, securities held to maturity
are carried at amortized cost less declines in value that are other than
temporary.
Investments in debt and equity securities that are not classified as
securities held to maturity are reported as securities available for sale.
Securities available for sale are reported in the accompanying financial
statements at individual fair value. Any valuation changes resulting from
changes in the fair value of the securities are reflected as a component of
stockholders' equity. These unrealized gains or losses in stockholders'
equity are reported net of taxes and adjustments to deferred policy
acquisition costs.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses associated with
transfers of securities held to maturity to securities available for sale
are recorded as a separate component of stockholders' equity. The
unrealized holding gains or losses included as a separate component of
equity for securities transferred from available for sale to held to
maturity are maintained and amortized into earnings over the remaining life
of the security as an adjustment to yield in a manner consistent with the
amortization or accretion of premium or discount on the associated security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Realized gains and losses for securities available for sale and
securities held to maturity are included in earnings and are derived using
the specific identification method for determining the cost of securities
sold. For securities available for sale or securities held to maturity, a
decline in the fair value below cost that is deemed other than temporary is
charged to earnings, resulting in the establishment of a new cost basis for
the security.
Mortgage loans and other long-term investments are stated at cost, less
unamortized discounts and allowances for possible losses. Policy loans are
stated at their aggregate unpaid balances. Real estate acquired by
foreclosure is stated at the lower of cost or fair value less estimated
costs to sell.
(D) Cash Equivalents - For purposes of the statements of cash flows, the
Company considers all short-term investments with a maturity at date of
purchase of three months or less to be cash equivalents.
(E) Insurance Revenues and Expenses - Premiums on traditional life insurance
products are recognized as revenues as they become due or, for short
duration contracts, over the contract periods. Benefits and expenses are
matched with premiums in arriving at profits by providing for policy
benefits over the lives of the policies and by amortizing acquisition costs
over the premium-paying periods of the policies. For universal life and
investment annuity contracts, revenues consist of policy charges for the
cost of insurance, policy administration, and surrender charges assessed
during the period. Expenses for these policies include interest credited to
policy account balances and benefit claims incurred in excess of policy
account balances. The related deferred policy acquisition costs are
amortized in relation to the present value of expected gross profits on the
policies.
(F) Federal Income Taxes - Federal income taxes are accounted for under the
asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance for deferred tax
assets is provided if all or some portion of the deferred tax asset may not
be realized. An increase or decrease in a valuation allowance that results
from a change in circumstances that affects the realizability of the related
deferred tax asset is included in income.
(G) Depreciation of Property, Equipment, and Leasehold Improvements -
Depreciation is based on the estimated useful lives of the assets and is
calculated on the straight-line and accelerated methods. Leasehold
improvements are amortized over the lesser of the economic useful life of
the improvement or the term of the lease.
(H) Earnings Per Share - Earnings per share of common stock are based on the
weighted average number of such shares outstanding during each year. The
weighted average shares outstanding were 3,488,205 and 3,484,682, and
3,481,233 for the years ended December 31, 1995, 1994, and 1993,
respectively.
(I) Classification - Certain reclassifications have been made to the prior
years to conform to the reporting categories used in 1995. The most
significant of these reclassifications relate to The Westcap Corporation and
its discontinued brokerage operations. All assets, liabilities, results of
operations, and cash flows of The Westcap Corporation for 1994 and 1993 have
been reclassified and reported separately as discontinued operations in the
accompanying financial statements.
(J) Statutory Information - National Western Life Insurance Company,
domiciled in Colorado, prepares its statutory financial statements in
accordance with accounting practices prescribed or permitted by the Colorado
Division of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance
Commissioners (NAIC), as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed. Such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently is in the process of codifying
statutory accounting practices, the result of which is expected to
constitute the only source of prescribed statutory accounting practices.
Accordingly, that project will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that insurance companies use to prepare their statutory financial
statements. The following are major differences between generally accepted
accounting principles and prescribed or permitted statutory accounting
practices.
1. The Company accounts for universal life and investment annuity contracts
based on the provisions of Statement of Financial Accounting Standards
(SFAS) No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the
Sale of Investments." The basic effect of the statement with respect to
certain long-duration contracts is that deposits for universal life and
investment annuity contracts are not reflected as revenues, and surrenders
and certain other benefit payments are not reflected as expenses. However,
statutory accounting practices do reflect such items as revenues and
expenses.
2. Commissions and certain expenses related to policy issuance and
underwriting, all of which generally vary with and are related to the
production of new business, have been deferred. For traditional products,
these costs are being amortized over the premium-paying period of the
related policies in proportion to the ratio of the premium earned to the
total premium revenue anticipated, using the same assumptions as to
interest, mortality, and withdrawals as were used in calculating the
liability for future policy benefits. For universal life and investment
annuity contracts, these costs are amortized in relation to the present
value of expected gross profits on these policies. The Company evaluates
the recoverability of deferred policy acquisition costs on an annual basis.
In this evaluation, the Company considers estimated future gross profits or
future premiums, as applicable for the type of contract. The Company also
considers expected mortality, interest earned and credited rates, persistency,
and expenses. Statutory accounting practices require commissions and
related costs to be expensed as incurred.
A summary of information relative to deferred policy acquisition costs and
premiums and deposits follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Costs deferred:
Agents' commissions $ 42,904 27,177 19,038
Other 2,790 2,600 2,646
$ 45,694 29,777 21,684
Amounts amortized $ 33,675 32,131 33,159
Direct traditional life
and other premiums $ 24,801 24,919 26,070
Universal life insurance deposits $ 68,464 64,760 67,060
Investment annuity deposits $ 309,971 157,622 86,700
</TABLE>
3. Under generally accepted accounting principles, the liability for future
policy benefits on traditional products has been calculated by the net level
method using assumptions as to future mortality (based on the 1965-1970 and
1975-1980 Select and Ultimate mortality tables), interest ranging from 4% to
8%, and withdrawals based on Company experience. For universal life and
investment annuity contracts, the liability for future policy benefits
represents the account balance.
4. Deferred Federal income taxes are provided for temporary differences
which are recognized in the financial statements in a different period than
for Federal income tax purposes. Deferred taxes are not recognized in
statutory accounting practices. Also, for statutory accounting purposes,
the Company has recorded Federal income tax receivables as permitted by the
Colorado Division of Insurance. The Federal income tax receivables related
to subsidiary losses have been recorded directly to surplus and were not
recorded in results of operations. Prescribed statutory accounting
practices do not address the accounting for tax receivables.
5. For statutory accounting purposes, debt securities are recorded at
amortized cost, except for securities in or near default which are reported
at market value.
6. Investments in subsidiaries are recorded at admitted asset value for
statutory purposes, whereas the financial statements of the subsidiaries
have been consolidated with those of the Company under generally accepted
accounting principles.
7. The asset valuation reserve and interest maintenance reserve, which are
investment valuation reserves prescribed by statutory accounting practices,
have been eliminated, as they are not required under generally accepted
accounting principles.
8. The recorded value of the life interest in the Libbie Shearn Moody Trust
(the Trust) is reported at its initial valuation, net of accumulated
amortization. The initial valuation was based on the assumption that the
Trust would provide certain income to the Company at an assumed interest
rate and is being amortized over 53 years, the life expectancy of Mr. Robert
L. Moody at the date he contributed the life interest to the Company. For
statutory accounting purposes, the life interest has been valued at
$26,400,000, which was computed as the present value of the estimated future
income to be received from the Trust. However, this amount is being
amortized to a valuation of $12,774,000 over a seven-year period in
accordance with Colorado Division of Insurance permitted accounting
requirements. Prescribed statutory accounting practices provide no
accounting guidance for such asset. The statutory admitted value of this
life interest at December 31, 1995, is $20,561,000 in comparison to a
carrying value of $5,206,000 in the accompanying consolidated financial
statements.
Reconciliations of statutory stockholders' equity, as included in the annual
statements filed with the Colorado Division of Insurance, to the respective
amounts as reported in the accompanying consolidated financial statements
prepared under generally accepted accounting principles are as follows:
<TABLE>
<CAPTION>
Stockholders' Equity
as of December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Statutory equity $ 236,884 212,063 182,876
Adjustments:
Difference in valuation of
investment in the Libbie
Shearn Moody Trust (15,355) (17,021) (17,911)
Deferral of policy
acquisition costs 270,167 291,274 287,711
Adjustment of future
policy benefits (218,352) (206,027) (205,357)
Deferred Federal income
taxes payable (12,287) (1,996) (3,078)
Adjust securities available for
sale to fair value 48,880 (10,469) (1,080)
Reversal of asset valuation
reserve 4,002 10,197 13,225
Reversal of interest maintenance
reserve 5,991 4,922 2,222
Reinstatement of non-admitted
assets 2,429 2,468 3,134
Valuation allowances on
investments (10,862) (10,573) (15,566)
Adjustment for consolidation 102 102 (3,664)
Other, net 388 194 206
Generally accepted accounting
principles equity $ 311,987 275,134 242,718
</TABLE>
Reconciliations of statutory net earnings, as included in the annual
statements filed with the Colorado Division of Insurance, to the respective
amounts as reported in the accompanying consolidated financial statements
prepared under generally accepted accounting principles are as follows:
<TABLE>
<CAPTION>
Net Earnings for the
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Statutory net earnings $ 28,343 32,513 46,013
Subsidiary earnings (losses) before
deferred Federal income taxes (17,594) (3,806) 20,879
Consolidated statutory net earnings 10,749 28,707 66,892
Adjustments:
Deferral of policy acquisition
costs 12,018 (2,354) (11,475)
Adjustment of future policy
benefits (12,325) (671) 11,816
Amortization of investment in
Trust (280) (279) (275)
Benefit (provision) for deferred
Federal income taxes (715) 108 5,675
Valuation allowances and permanent
impairment write-downs on
investments 3,901 5,238 5,238
Lawsuit settlements recorded as
surplus adjustments for
statutory accounting (200) 955 1,620
Subsidiary stock dividends - (1,366) (20,442)
Increase (decrease) in interest
maintenance reserve 1,069 2,700 (8,364)
Cumulative effect of change in
accounting for income taxes - - 5,520
Other, net 5,067 1,198 519
Generally accepted accounting
principles net earnings $ 19,284 34,236 56,724
</TABLE>
(2) DEPOSITS WITH REGULATORY AUTHORITIES
The following assets were on deposit with state and other regulatory
authorities as required by law at the end of each year:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Debt securities $ 28,184 62,413
Certificates of deposit 210 210
Totals $ 28,394 62,623
</TABLE>
(3) INVESTMENTS
(A) Investment Income
The major components of net investment income are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Investment income:
Debt securities $ 165,879 154,417 144,218
Mortgage loans 19,644 19,839 18,450
Policy loans 11,018 10,546 11,962
Other investment income 7,764 7,982 8,412
Total investment income 204,305 192,784 183,042
Investment expenses 2,489 2,763 2,790
Net investment income $ 201,816 190,021 180,252
</TABLE>
Investments of the following amounts were non-income producing for the
preceding twelve months:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Debt securities $ 2,209 4,924
Equity securities 1,896 1,549
Real estate 2,175 2,160
Totals $ 6,280 8,633
</TABLE>
As of December 31, 1995 and 1994, investments in debt securities and
mortgage loans with principal balances totaling $3,778,000 and $8,314,000
were on non-accrual status. During 1995, 1994, and 1993, reductions in
interest income associated with non-performing investments in debt
securities and mortgage loans were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Interest at contract rate $ 340 647 1,029
Interest income recognized 4 184 123
Interest income not accrued $ 336 463 906
</TABLE>
(B) Investment Concentrations
Concentrations of credit risk arising from mortgage loans exist in relation
to certain groups of customers. A group concentration arises when a number
of counterparties have similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions. The Company does not have a
significant exposure to any individual customer or counterparty. The major
concentrations of mortgage loan credit risk for the Company arise by
geographic location in the United States and by property type as detailed
below.
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
West South Central 54.0% 55.8%
Mountain 12.9 12.2
Pacific 9.4 9.7
All other 23.7 22.3
Totals 100.0 % 100.0 %
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Retail 67.0 % 64.6 %
Office 15.9 16.8
Hotel/Motel 8.3 7.6
All other 8.8 11.0
Totals 100.0 % 100.0 %
</TABLE>
The Company held in its investment portfolio below investment grade debt
securities totaling $14,244,000 and $31,861,000 at December 31, 1995 and
1994, respectively. This represents approximately 0.5% and 1.4% of total
invested assets. These below investment grade debt securities often
have common characteristics in that they are usually unsecured and are
often subordinated to other creditors of the borrower or issuer.
Additionally, the issuers of the below investment grade debt
securities usually have high levels of indebtedness and are more sensitive
to adverse economic conditions.
At December 31, 1995 and 1994, the Company held $4,966,000 and $8,948,000 of
residual interests in collateralized mortgage obligations (CMOs) in its
investment portfolio. Investments in residual interests of CMOs are
securities that entitle the Company to the excess cash flows arising from
the difference between the cash flows required to make principal and
interest payments on the related CMOs and the actual cash flows received on
the underlying U.S. agency collateral included in the CMO portfolios. Total
cash flows to be received by the Company from the residual interests could
differ from the projected cash flows resulting in changes in yield or losses
if prepayments vary from projections on the collateral underlying the CMOs.
At December 31, 1995 and 1994, the Company had real estate totaling
$19,066,000 and $17,766,000, net of estimated selling costs, which is
reflected in other long-term investments in the accompanying financial
statements.
The Company had no investments in any entity, except for U.S. government
agency securities, in excess of 10% of stockholders' equity at December 31,
1995.
(C) Investment Gains and Losses
The table below presents realized gains and losses and increases or
decreases in unrealized gains on investments:
<TABLE>
<CAPTION>
Net Realized Increase
Investment (Decrease)
Gains in Unrealized
(Losses) Investment Gains
(In thousands)
<S> <C> <C> <C>
Year Ended December 31, 1995:
Securities held to maturity $ 600 201,008
Securities available for sale (2,599) 15,166
Other (416) -
Totals $ (2,415) 216,174
Year Ended December 31, 1994:
Securities held to maturity $ 1,632 (239,104)
Securities available for sale (881) (29,493)
Other 875 -
Totals $ 1,626 (268,597)
Year Ended December 31, 1993:
Securities held to maturity $ 3,937 78,960
Securities available for sale 1,541 (395)
Other (2,272) -
Totals $ 3,206 78,565
</TABLE>
The tables below present amortized cost and fair values of securities held
to maturity and securities available for sale at December 31, 1995:
<TABLE>
<CAPTION>
Securities Held to Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury and
other U.S. government
corporations and
agencies $ 35,764 262 - 36,026
States and political
subdivisions 47,574 3,737 - 51,311
Foreign governments 48,286 3,030 - 51,316
Public utilities 227,449 12,358 278 239,529
Corporate 774,134 43,724 438 817,420
Mortgage-backed 510,004 21,391 528 530,867
Totals $ 1,643,211 84,502 1,244 1,726,469
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C> <C>
Debt securities:
U.S. Treasury and
other U.S. government
corporations and
agencies $ 2,948 363 - 3,311
Public utilities 54,677 3,543 790 57,430
Corporate 103,884 11,618 165 115,337
Mortgage-backed 375,219 25,259 1,622 398,856
Equity securities 24,399 2,434 973 25,860
Totals $ 561,127 43,217 3,550 600,794
</TABLE>
The tables below present amortized cost and fair values of securities held
to maturity and securities available for sale at December 31, 1994:
<TABLE>
<CAPTION>
Securities Held to Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury and
other U.S. government
corporations and
agencies $ 24,595 44 886 23,753
States and political
subdivisions 47,532 480 3,527 44,485
Foreign governments 25,407 - 1,517 23,890
Public utilities 272,478 722 22,807 250,393
Corporate 538,914 1,728 43,200 497,442
Mortgage-backed 696,887 5,759 54,546 648,100
Totals $ 1,605,813 8,733 126,483 1,488,063
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C> <C>
Debt securities:
U.S. Treasury and
other U.S. government
corporations and
agencies $ 7,353 59 2,467 4,945
Public utilities 10,263 155 918 9,500
Corporate 92,280 881 1,847 91,314
Mortgage-backed 228,389 2,413 8,570 222,232
Equity securities 27,739 1,382 2,812 26,309
Totals $ 366,024 4,890 16,614 354,300
</TABLE>
The amortized cost and fair values of investments in debt securities at
December 31, 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Securities Securities
Held to Maturity Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
(In thousands)
<S> <C> <C> <C> <C>
Due in 1 year or less $ 7,923 7,978 282 286
Due after 1 year through
5 years 93,335 95,280 16,584 17,648
Due after 5 years through
10 years 773,979 812,622 79,570 85,627
Due after 10 years 257,970 279,722 65,073 72,517
1,133,207 1,195,602 161,509 176,078
Mortgage-backed securities 510,004 530,867 375,219 398,856
Totals $ 1,643,211 1,726,469 536,728 574,934
</TABLE>
Proceeds from sales of securities available for sale during 1995 and 1994
totaled $44,440,000 and $9,114,000, respectively. Gross gains of $1,153,000
and $654,000 and gross losses of $3,752,000 and $1,535,000 were realized on
those sales during 1995 and 1994, respectively. Proceeds from sales of
investments in debt securities during 1993 were $77,869,000. Gross gains of
$12,966,000 and gross losses of $1,283,000 were realized on those sales,
respectively. The Company uses the specific identification method in
computing realized gains and losses.
The Company sold three held to maturity securities during 1995 due to
significant credit deterioration of the issuing companies. Amortized cost
of the securities sold totaled $10,727,000, and realized losses of $68,000
were recognized on the sales.
(D) Changes in Accounting Principles
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities
as previously described in note 1. The Company adopted SFAS No. 115
effective January 1, 1994. Upon adoption, approximately 60% of the
Company's insurance operations debt securities were reported as securities
available for sale, with the remainder classified as securities held to
maturity. The Company's relatively small holdings of equity securities were
also reported as securities available for sale.
Upon adoption of the new statement, certain related balance sheet accounts,
deferred Federal income taxes payable and deferred policy acquisition costs,
were adjusted as if the unrealized gains on the securities classified as
available for sale had actually been realized. For the Company's universal
life and investment annuity contracts, deferred policy acquisition costs are
amortized in relation to the present value of expected gross profits on
these policies. Accordingly, under SFAS No. 115, deferred policy
acquisition costs are adjusted for the impact on estimated gross profits of
net unrealized gains and losses on securities. The implementation of the
new statement had no effect on net earnings of the Company. However,
stockholders' equity was adjusted as follows as of January 1, 1994:
<TABLE>
<CAPTION>
January 1,
1994
(In thousands)
<S> <C> <C>
Fair value adjustment to investments in
debt and equity securities $ 93,788
Less:
Decrease in deferred policy acquisition costs (52,849)
Increase in deferred Federal income taxes (14,329)
Effect of change in accounting for investments
in debt and equity securities $ 26,610
</TABLE>
At July 31, 1994, the Company transferred debt securities with fair values
totaling $805 million from securities available for sale to securities held
to maturity. On December 29, 1995, the Company made additional transfers
totaling $156 million to the held to maturity category from securities
available for sale. The lower holdings of securities available for sale
significantly reduces the Company's exposure to equity volatility while
still providing securities for liquidity and asset/liability management
purposes. The transfers of securities were recorded at fair values in
accordance with SFAS No. 115. This statement requires that the unrealized
holding gain or loss at the date of the transfer continue to be reported in
a separate component of stockholders' equity but shall be amortized over the
remaining life of the security as an adjustment of yield in a manner
consistent with the amortization of any premium or discount. The
amortization of an unrealized holding gain or loss reported in equity will
offset or mitigate the effect on interest income of the amortization of the
premium or discount for the held-to-maturity securities. The transfer of
securities from available for sale to held to maturity had no effect on net
earnings of the Company. However, stockholders' equity was adjusted as
follows:
<TABLE>
<CAPTION>
Net Unrealized Gains (Losses)
as of December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Beginning unamortized gains from transfers $ 941 -
Net unrealized gains related to transfer of
securities from available for sale to
held to maturity 3,159 1,380
Amortization of net unrealized gains related
to transferred securities (931) (439)
2,228 941
Ending unamortized gains from transfers $ 3,169 941
</TABLE>
Also on December 29, 1995, the Company transferred securities totaling $284
million to the available for sale category from securities held to maturity.
This transfer resulted in an increase to stockholder's equity of $4,266,000
as of December 31, 1995, net of effects of deferred policy acquisition costs
and taxes. This transfer was made to restructure the Company's portfolio
to provide increased flexibility for both portfolio and asset/liability
management. Accounting principles typically do not allow transfers from the
held to maturity category to the available for sale category except under
certain prescribed circumstances. However, in 1995 the Financial Accounting
Standards Board permitted a one-time reassessment by companies of their
securities classifications and allowed transfers out of the held to maturity
category without regard to the prescribed circumstances. The reassessment
and any resulting transfers had to be completed by December 31, 1995.
Net unrealized gains (losses) on investment securities included in
stockholders' equity at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(in thousands)
<S> <C> <C> <C>
Gross unrealized gains $ 43,217 4,890
Gross unrealized losses (3,550) (16,614)
Adjustments for:
Deferred policy acquisition costs (21,166) 6,893
Deferred Federal income taxes (6,475) 1,691
12,026 (3,140)
Net unrealized gain related to securities
transferred to held to maturity 3,169 941
Net unrealized gains (losses)
on investment securities $ 15,195 (2,199)
</TABLE>
The Financial Accounting Standards Board (FASB) issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," in May, 1993. In
October, 1994, the FASB also issued SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," which amends
SFAS No. 114. These statements address the accounting by creditors for
impairment of certain loans and related financial statement disclosures.
The Company adopted both SFAS No. 114 and No. 118 effective January 1, 1995.
As the Company was already providing for impairment of loans through an
allowance for possible losses, the implementation of this statement had no
significant effect on the Company's results of operations or stockholders'
equity. However, additional disclosures are required by these statements
which are provided below.
As of December 31, 1995 and 1994, impaired mortgage loans were as follows:
<TABLE>
<CAPTION>
1995 1994
(In thousands)
<S> <C> <C> <C>
Impaired loans with allowance for losses $ - 861
Allowance for losses - (261)
Impaired loans with no allowance for losses - 379
Net impaired loans $ - 979
</TABLE>
For the years ended December 31, 1995 and 1994, average investments in
impaired mortgage loans were $234,000 and $997,000, respectively. Interest
income recognized on impaired loans during the years ended December 31, 1995
and 1994, was not significant. Impaired loans are typically placed on
non-accrual status and no interest income is recognized. However, if cash
is received on the impaired loan, it is applied to principal and interest on
past due payments, beginning with the most delinquent payment. Detailed
below are the changes in the allowance for mortgage loan losses for the
years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 5,929 6,849
Net additions charged to realized
investment gains and losses - 307
Releases due primarily to foreclosures (261) (1,227)
Balance at end of year $ 5,668 5,929
</TABLE>
In March, 1995, the FASB issued SFAS No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity
expects to hold and use should be based on the fair value of the asset. The
statement also requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less costs to sell.
The Company's real estate investments are the only significant assets that
will be subject to this statement. As the Company already records
foreclosed real estate at the lower of cost or fair value less estimated
costs to sell, the implementation of this statement will not have a
significant effect on the Company's financial statements. The statement
will be implemented in the first quarter of 1996.
(4) REINSURANCE
The Company is party to several reinsurance agreements. The Company's
general policy is to reinsure that portion of any risk in excess of $150,000
on the life of any one individual. Total life insurance in force was $7.94
billion and $7.71 billion at December 31, 1995 and 1994, respectively. Of
these amounts, life insurance in force totaling $1.27 billion and $1.05
billion was ceded to reinsurance companies, primarily on a yearly renewable
term basis, at December 31, 1995 and 1994, respectively.
In accordance with the reinsurance contracts, reinsurance receivables
including amounts related to claims incurred but not reported and
liabilities for future policy benefits totaled $5,646,000 and $6,480,000 at
December 31, 1995 and 1994, respectively. Premium revenues were reduced by
$7,420,000, $6,040,000, and $7,450,000 for reinsurance premiums incurred
during 1995, 1994, and 1993, respectively. Benefit expenses were reduced by
$5,812,000, $3,295,000, and $6,943,000 for reinsurance recoveries during
1995, 1994, and 1993, respectively. A contingent liability exists with
respect to reinsurance, as the Company remains liable if the reinsurance
companies are unable to meet their obligations under the existing
agreements.
(5) FEDERAL INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes," which requires an asset and liability method of
accounting. The cumulative effect of this change in accounting for
income taxes of $5,520,000 was determined as of January 1, 1993, and is
reported separately in the consolidated statement of earnings for the year
ended December 31, 1993.
Total Federal income taxes were allocated as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Earnings from continuing operations $ 10,566 16,207 14,696
Discontinued operations - 2,983 11,781
Stockholders' equity for net
unrealized gains and losses
on securities available for sale 9,365 (974) (211)
Total Federal income taxes $ 19,931 18,216 26,266
</TABLE>
The provisions for Federal income taxes attributable to income from
continuing operations vary from amounts computed by applying the statutory
income tax rate to earnings before Federal income taxes. The reasons for the
differences, and the tax effects thereof, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Income tax expense at
statutory rate $ 16,170 18,683 15,424
Dividends-received deduction (298) (333) (420)
Amortization of life interest in the
Libbie Shearn Moody Trust 98 97 96
Payment (recovery) of non-deductible
excise tax - 53 (368)
Adjustment to deferred tax assets and
liabilities for enacted changes
in tax rates - - 98
Tax benefit of discontinued
operations (5,669) (2,864) -
Other 265 571 (134)
Provision for Federal income taxes $ 10,566 16,207 14,696
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to earnings from continuing operations for the years ended
December 31, 1995, 1994, and 1993, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Deferred tax expense (benefit),
exclusive of adjustments for
changes in tax rates $ 926 (93) (5,408)
Adjustments to deferred tax
assets and liabilities for
enacted changes in tax rates - - 98
Total deferred tax expense (benefit) $ 926 (93) (5,310)
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995, 1994, and 1993, are presented below:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Future policy benefits, excess of
financial accounting liability
over tax liability $ 86,358 81,849
Mortgage loans, principally due
to valuation allowances for
financial accounting purposes 2,212 2,242
Real estate, principally due to
write-downs for financial
accounting purposes 2,089 2,382
Accrued and unearned investment
income recognized for tax purposes
and deferred for financial
accounting purposes 2,311 2,299
Accrued operating expenses recorded
for financial accounting purposes
not currently tax deductible 2,766 2,451
Accrued liabilities of discontinued
operations not currently tax deductible 1,368 -
Net unrealized losses on securities
availabe for sale - 1,184
Other 595 733
Total gross deferred tax assets 97,699 93,140
Less valuation allowance - -
Net deferred tax assets 97,699 93,140
Deferred tax liabilities:
Deferred policy acquisition costs,
principally expensed for tax
purposes (95,650) (92,884)
Debt securities, principally due
to deferred market discount for tax (4,482) -
Real estate, principally due to
differences in tax and financial
accounting for depreciation (1,622) (1,964)
Net unrealized gains on securities
available for sale (8,181) -
Other (51) (288)
Total gross deferred tax liabilities (109,986) (95,136)
Net deferred tax liabilities $ (12,287) (1,996)
</TABLE>
There was no valuation allowance for deferred tax assets at December 31,
1995 and 1994. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it
is more likely than not that the Company will realize the benefits of these
deductible differences.
Prior to the Tax Reform Act of 1984 (1984 Act), a portion of a life
insurance company's income was not subject to tax until it was distributed
to stockholders, at which time it was taxed at the regular corporate tax
rate. In accordance with the 1984 Act, this income, referred to as
policyholders' surplus, would not increase, yet any amounts distributed
would be taxable at the regular corporate rate. The balance of this account
as of December 31, 1995, is approximately $2,446,000. No provision for
income taxes has been made on this untaxed income, as management is of the
opinion that no distribution to stockholders will be made from
policyholders' surplus in the foreseeable future. Should the balance in the
policyholders' surplus account at December 31, 1995, become taxable, the
Federal income taxes computed at present rates would be approximately
$856,000.
The Company files a consolidated Federal income tax return with its
subsidiaries. Allocation of the consolidated tax liability is based on
separate return calculations pursuant to the "wait-and-see" method as
described in sections 1.1552-1(a)(2) and 1.1502-33(d)(2)(i) of the current
Treasury Regulations. Under this method, consolidated group members are not
given current credit for net losses until future net taxable income is
generated to realize such credits. In accordance with this consolidated tax
sharing agreement, tax benefits resulting from discontinued brokerage
operation losses totaling $5,669,000 and $2,864,000 for 1995 and 1994 were
included in earnings from continuing operations.
(6) TRANSACTIONS WITH CONTROLLING STOCKHOLDER AND AFFILIATES
(A) Life Interest in Libbie Shearn Moody Trust
The Company is the beneficial owner of a life interest (1/8 share), in the
trust estate of Libbie Shearn Moody which was previously owned by Mr. Robert
L. Moody, Chairman of the Board of Directors of the Company. The Company
has issued term insurance policies on the life of Mr. Robert L. Moody which
are reinsured through agreements with unaffiliated insurance companies. The
Company is the beneficiary of these policies for an amount equal to the
statutory admitted value of the Trust, which was $20,561,000 at December 31,
1995. The excess of $27,000,000 face amount of the reinsured policies over
the statutory admitted value of the Trust has been assigned to Mr. Robert L.
Moody. The recorded net asset values in the accompanying consolidated
financial statements for the Company's life interest in the Trust are as
follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Original valuation of life interest at
February 26, 1960 $ 13,793 13,793
Less accumulated amortization (8,587) (8,307)
Net asset value of life interest in the Trust $ 5,206 5,486
</TABLE>
Income from the Trust and related expenses reflected in the accompanying
consolidated statements of earnings are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Income distributions $ 3,085 2,937 2,596
Deduct:
Amortization (280) (279) (275)
Reinsurance premiums (212) (188) (162)
Net income from life interest
in the Trust $ 2,593 2,470 2,159
</TABLE>
(B) Common Stock
Mr. Robert L. Moody, Chairman of the Board of Directors, owns 198,074 of the
total outstanding shares of the Company's Class B common stock and 1,160,896
of the Class A common stock.
Holders of the Company's Class A common stock elect one-third of the Board
of Directors of the Company, and holders of the Class B common stock elect
the remainder. Any cash or in-kind dividends paid on each share of Class B
common stock shall be only one-half of the cash or in-kind dividends paid on
each share of Class A common stock. Also, in the event of liquidation of the
Company, the Class A stockholders shall first receive the par value of their
shares; then the Class B stockholders shall receive the par value of their
shares; and the remaining net assets of the Company shall be divided between
the stockholders of both Class A and Class B common stock, based on the
number of shares held.
(7) PENSION PLANS
The Company has a qualified noncontributory pension plan covering
substantially all full-time employees. The plan provides benefits based on
the participants' years of service and compensation. The Company makes
annual contributions to the plan that comply with the minimum funding
provisions of the Employee Retirement Income Security Act. A summary of plan
information is as follows:
Pension costs (credits) include the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Service cost-benefits earned
during the period $ 143 218 156
Interest cost on projected benefit 510 498 481
obligations
Actual return on plan assets (962) 112 (321)
Net amortization and deferral 427 (622) (258)
Net pension cost $ 118 206 58
</TABLE>
The following sets forth the plan's funded status and related amounts
recognized in the Company's balance sheet as of:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligations,
including vested benefits of
$7,562,000 and $5,565,000,
respectively $ (7,961) (5,906)
Projected benefit obligations for service
rendered to date $ (8,199) (6,317)
Plan assets at fair market value primarily
consisting of equity and fixed
income securities 6,557 5,513
Projected benefit obligations in excess
of plan assets (1,642) (804)
Unrecognized net transitional asset at
January 1, 1987 being recognized over
employees' average remaining
service of 15 years (319) (374)
Prior service cost not yet recognized in net
periodic pension cost (236) (266)
Unrecognized net losses from past experience
different from that assumed 2,174 1,058
Adjustment to recognize minimum liability (1,381) (7)
Accrued pension cost $ (1,404) (393)
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligations was 7.0% for 1995 and 8.75% for 1994. The
projected increase in future compensation levels was based on a rate of 5.0%
and 6.0% for 1995 and 1994, respectively. The projected long-term rate of
return on plan assets was 8.5% for 1995 and 1994.
The Company also has a non-qualified defined benefit plan primarily for
senior officers. The plan provides benefits based on the participants' years
of service and compensation. No minimum funding standards are required.
However, at the option of the Company, contributions may be funded into the
National Western Life Insurance Company Non-Qualified Plans Trust. There are
currently no plan assets in the trust. A summary of plan information is as
follows:
Pension costs include the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Service cost-benefits earned
during the period $ 71 91 63
Interest cost on projected benefit
obligations 153 158 98
Net amortization and deferral 78 129 68
Net pension cost $ 302 378 229
</TABLE>
The following sets forth the plan's funded status and related amounts
recognized in the Company's balance sheet as of:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In thousands)
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligations,
including vested benefits of
$1,545,000 and $640,000,
respectively $ (1,550) (670)
Projected benefit obligations for service
rendered to date (2,532) (1,749)
Plan assets at fair market value - -
Projected benefit obligations in excess of
plan assets (2,532) (1,749)
Unrecognized net transitional obligation at
January 1, 1991, being recognized over
employees' average remaining service
of 12 years 598 677
Unrecognized net losses from past experience
different from that assumed 582 22
Adjustment to recognize minimum liability (198) -
Accrued pension cost $ (1,550) (1,050)
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligations was 7.0% for 1995 and 8.75% for 1994. The
projected increase in future compensation levels was based on a rate of 5.0%
and 6.0% for 1995 and 1994, respectively.
In addition to the defined benefit plans, the Company has a qualified 401(k)
plan for substantially all full-time employees and a non-qualified deferred
compensation plan primarily for senior officers. The Company makes annual
contributions to the 401(k) plan of two percent of each employee's
compensation. Additional Company matching contributions of up to two percent
of each employee's compensation are also made each year based on the
employee's personal level of salary deferrals to the plan. All Company
contributions are subject to a vesting schedule based on the employee's
years of service. For the years ended December 31, 1995 and 1994, Company
contributions totaled $201,000 and $198,000.
The non-qualified deferred compensation plan was established to allow
eligible employees to defer the payment of a percentage of their
compensation and to provide for additional Company contributions. Company
contributions are subject to a vesting schedule based on the employee's
years of service. For the years ended December 31, 1995 and 1994, Company
contributions totaled $55,000 and $45,000, respectively.
(8) SHORT-TERM BORROWINGS
The Company has available a $60 million bank line of credit primarily for
cash management purposes relating to investment transactions. The Company is
required to maintain a collateral security deposit in trust with the bank
equal to 120% of any outstanding liability. The Company had no outstanding
liabilities or collateral security deposits with the bank at December 31,
1995 and 1994. The average interest rate on borrowings for the year ended
December 31, 1994 was 4.45%. The Company had no borrowings on the line of
credit during 1995.
(9) COMMITMENTS AND CONTINGENCIES
(A) Current Regulatory Issues
In December, 1995, the National Association of Insurance Commissioners
adopted for statutory accounting practices Actuarial Guideline 33,
previously referred to as Actuarial Guideline GGG. This reserve guideline,
which has not been adopted by any states at this time, helps define the
minimum reserves for policies with multiple benefit streams, such as
two-tier annuities.
As of December 31, 1995, the Company's statutory reserving practices for
two-tier annuities follow an agreement reached in 1993 with its state of
domicile, Colorado. This agreement requires the Company to phase-in a
different reserve basis by the end of 1996. The agreement states the
acceptable difference between the target reserve and the statutory reserve
held by the Company will meet the following schedule:
<TABLE>
<S> <C>
December 31, 1995 $5,000,000
December 31, 1996 -
</TABLE>
The Company has met the above scheduled difference for December 31, 1995.
However, in 1995, the Company entered into discussions with the Colorado
Division of Insurance (the Division) to implement Actuarial Guideline 33 and
to phase it in over a three-year period as allowed by the guideline. In
January, 1996, the Division approved the proposal for this three-year
phase-in. The effect on the Company's statutory financial statements will
not be significant, since the previous agreement with the Division was
similar to the final guideline. Also, the guideline does not affect the
Company's policy reserves which are prepared under generally accepted
accounting principles as reported in the accompanying consolidated financial
statements.
(B) Legal Proceedings
On March 28, 1994, the Community College District No. 508, County of Cook
and State of Illinois (The City Colleges) filed a complaint in the United
States District Court for the Northern District of Illinois, Eastern
Division, against National Western Life Insurance Company (the Company) and
subsidiaries of The Westcap Corporation. The suit seeks rescission of
securities purchase transactions by The City Colleges from Westcap between
September 9, 1993 and November 3, 1993, alleged compensatory damages,
punitive damages, injunctive relief, declaratory relief, fees, and costs.
National Western is named as a "controlling person" of the Westcap
defendants. On February 1, 1995, the complaint was amended to add a RICO
count for treble damages and claims under the Texas securities and consumer
fraud laws, and to add additional defendants. Westcap and the Company are
of the opinions that Westcap has adequate documentation to validate all such
securities purchase transactions by The City Colleges, and that Westcap and
the Company each have adequate defenses to the litigation. Although the
alleged damages would be material to the Company's and Westcap's financial
positions, a reasonable estimate of any actual losses which may result from
this suit cannot be made at this time. A judicial ruling favorable to
Westcap has been made requiring resolution of the suit against Westcap
through binding arbitration. The lawsuit against the Company was suspended
pending determination of the arbitration proceeding against Westcap.
Arbitration proceedings are currently set to begin in August, 1996.
On February 1, 1995, the San Antonio River Authority (SARA) filed a
complaint in the 285th Judicial District Court, Bexar County, Texas, against
Kenneth William Katzen (Katzen), Westcap Securities, L.P., The Westcap
Corporation (Westcap), and National Western Life Insurance Company (the
Company). The suit alleges that Katzen and Westcap sold mortgage-backed
security derivatives to SARA and misrepresented these securities to SARA.
The suit alleges violations of the Federal Securities Act, Texas Securities
Act, Deceptive Trade Practices Act, breach of fiduciary duty, fraud,
negligence, breach of contract, and seeks attorney's fees. The Company is
named as a "controlling person" of the Westcap defendants. Westcap and the
Company are of the opinions that Westcap has adequate documentation to
validate all securities purchases by SARA and that the Company and Westcap
have adequate defenses to such suit. Although the alleged damages would be
material to Westcap's financial condition, a reasonable estimate of any
actual losses which may result from this suit cannot be made at this time.
The Company and Westcap have denied all allegations and the parties have
initiated discovery. The case is set for trial on April 8, 1996.
On June 9, 1995, Charles McCutcheon, as Sheriff of Palm Beach County,
Florida, served The Westcap Corporation, Westcap Securities, Inc., Westcap
Government Securities, Inc., individual officers and directors of the
Westcap entities, and National Western Life Insurance Company as defendants
with a complaint filed in the U.S. District Court for the Southern District
of Florida. The Complaint alleges that the Westcap entities improperly sold
certain derivative securities to the Plaintiff and did not disclose the high
risk of these securities to the Plaintiff, who suffered financial losses
from the investments. The Company is sued as a "controlling person" of
Westcap, and it is alleged that the Company is responsible and liable for
the alleged wrongful conduct of Westcap. The suit seeks rescission of the
investments, alleged damages, punitive and exemplary damages, attorneys'
fees, and injunction. On October 13, 1995, the U.S. District Judge ordered
arbitration of Plaintiff's claims against the Westcap entities and stayed
all proceedings pending outcome of the arbitration. Although the alleged
damages would be material to Westcap's financial condition, a reasonable
estimate of any actual losses which may result from this suit cannot be
made at this time. The Company and Westcap deny the allegations and
believe they each have adequate defenses to such suit.
On July 5, 1995, San Patricio County, Texas, filed suit in the District
Court of San Patricio County, Texas, against National Western Life Insurance
Company (the Company) and its chief executive officer, Robert L. Moody. The
suit arises from derivative investments purchased by San Patricio County
from Westcap Securities, L.P. or Westcap Government Securities, Inc.,
affiliates of The Westcap Corporation, a wholly owned subsidiary of the
Company. The suit alleges that the Westcap affiliates were controlled by
the Company and Mr. Moody and that they are responsible for the alleged
wrongful acts of the Westcap affiliates in selling the securities to the
Plaintiff. Plaintiff alleges that the Westcap affiliates violated duties
and responsibilities owed to the Plaintiff related to its investment
recommendations and the decisions made by Plaintiff, and alleges that the
Plaintiff was financially damaged by such actions of Westcap. The suit
seeks rescission of the investments and actual and punitive damages of
unspecified amounts. Although the alleged damages would be material to
Westcap's financial condition, a reasonable estimate of any actual losses
which may result from this suit cannot be made at this time. The Company
believes that it has adequate defenses to such suit and denies the
allegations. The parties have initiated discovery.
On September 13, 1995, Michigan South Central Power Agency filed a
complaint in The United States District Court for the Western District of
Michigan against Westcap Securities Investment, Inc., Westcap Securities,
L.P., Westcap Securities Management, Inc., The Westcap Corporation, National
Western Life Insurance Company (the Company), and others. The suit alleges
that salesmen of Westcap sold mortgage-backed securities to the Plaintiff
and misrepresented these securities in violation of Federal and state
securities laws and common law. The Company is named as a "controlling
person" of the Westcap defendants. Westcap and the Company are of the
opinions that they have adequate defenses to the suit. Although the alleged
damages would be material to Westcap's financial condition, a reasonable
estimate of any actual losses which may result from the suit cannot be
made at this time. The Company and Westcap deny all allegations.
The Westcap Corporation and Westcap Securities, L.P. are also defendants in
several other pending lawsuits which have arisen in the ordinary course of
its business. Westcap Securities, L.P. has also been notified of several
arbitration claims filed with the National Association of Securities
Dealers. After reviewing the lawsuits and arbitration filings with outside
counsel, management believes it has adequate defenses to each of the claims.
Although the alleged damages for all of the above-described suits and
arbitration claims would be material to the financial positions of the
Company and The Westcap Corporation, a reasonable estimate of actual losses
which may result from any of these claims cannot be made at this time.
Accordingly, no provision for any liability that may result from these
actions has been recognized in the consolidated financial statements.
National Western Life Insurance Company is also currently a defendant in
several other lawsuits, substantially all of which are in the normal course
of business. In the opinion of management, the liability, if any, which may
rise from these lawsuits would not have a material adverse effect on the
Company's financial condition. The Company settled several lawsuits during
1994 and 1993. Other income totaling $955,000 and $1,720,000 from these
settlements has been reflected in the accompanying statements of earnings
for the years ended December 31, 1994 and 1993, respectively.
(C) Financial Instruments
In order to meet the financing needs of its customers in the normal course
of business, the Company is a party to financial instruments with
off-balance sheet risk. These financial instruments are commitments to
extend credit which involve elements of credit and interest rate risk in
excess of the amounts recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amounts, assuming that the amounts are fully
advanced and that collateral or other security is of no value. The Company
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Company
controls the credit risk of these transactions through credit approvals,
limits, and monitoring procedures.
The Company had commitments to extend credit relating to mortgage loans
totaling $211,000 at December 31, 1995. Commitments to extend credit are
legally binding agreements to lend to a customer that generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. These commitments do not necessarily represent future liquidity
requirements, as some of the commitments could expire without being drawn
upon. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The Company also had commitments to purchase investment
securities totaling $4,710,000 at December 31, 1995.
(D) Guaranty Association Assessments
National Western Life Insurance Company is subject to state guaranty
association assessments in all states in which it is licensed to do
business. These associations generally guarantee certain levels of benefits
payable to resident policyholders of insolvent insurance companies. Many
states allow premium tax credits for all or a portion of such assessments,
thereby allowing potential recovery of these payments over a period of
years. However, several states do not allow such credits.
The Company estimates its liabilities for guaranty association assessments
by using the latest information available from the National Organization of
Life and Health Insurance Guaranty Associations. The Company will continue
to monitor and revise its estimates for assessments as additional
information becomes available which could result in changes to the estimated
liabilities. Other insurance operating expenses related to state guaranty
association assessments totaled $2,371,000, $4,869,000, and $4,583,000 for
the years ended December 31, 1995, 1994, and 1993, respectively.
(10) STOCKHOLDERS' EQUITY
(A) Dividend Restrictions
The Company is restricted by state insurance laws as to dividend amounts
which may be paid to stockholders without prior approval from the Colorado
Division of Insurance. The restrictions are based on statutory earnings and
surplus levels of the Company. The maximum dividend payment which may be
made without prior approval in 1996 is $28,992,000. The Company has never
paid cash dividends on its common stock, as it follows a policy of retaining
any earnings in order to finance the development of business and to meet
increased regulatory requirements for capital.
(B) Regulatory Capital Requirements
The Colorado Division of Insurance imposes minimum risk-based capital
requirements on insurance companies that were developed by the National
Association of Insurance Commissioners (NAIC). The formulas for determining
the amount of risk-based capital (RBC) specify various weighting factors
that are applied to statutory financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance is
determined by a ratio of the Company's regulatory total adjusted capital to
its authorized control level RBC, as defined by the NAIC. Companies below
specific trigger points or ratios are classified within certain levels, each
of which requires specified corrective action. The Company's current
statutory capital and surplus is significantly in excess of the threshold
RBC requirements.
(C) Stock Bonus Plan
During 1993 the Company implemented a one-time stock bonus plan for all
officers of the Company. Class A common stock restricted shares totaling
13,496 were granted to officers based on their individual performance and
contribution to the Company. The shares are subject to vesting requirements
as reflected in the following schedule:
<TABLE>
<S> <C>
January 1, 1993 25%
December 31, 1993 25%
December 31, 1994 25%
December 31, 1995 25%
</TABLE>
All of the 13,496 shares that were granted have been issued and are
outstanding as of December 31, 1995.
(D) Stock and Incentive Plan
During 1995 the Company adopted the National Western Life Insurance Company
1995 Stock and Incentive Plan (the Plan). The Plan provides for the grant
of any or all of the following types of awards to eligible employees: (1)
stock options, including incentive stock options and non-qualified stock
options; (2) stock appreciation rights, in tandem with stock options or
freestanding; (3) restricted stock; (4) incentive awards; and (5)
performance awards.
The Plan is effective as of April 21, 1995, and will terminate on April 20,
2005, unless terminated earlier by the Board of Directors. The number of
shares of Class A, $1.00 par value, common stock which may be issued under
the Plan, or as to which stock appreciation rights or other awards may be
granted, may not exceed 300,000. These shares may be authorized and
unissued shares or treasury shares.
All of the employees of the Company and its subsidiaries are eligible to
participate in the Plan. In addition, directors of the Company, other than
Compensation and Stock Option Committee members, are eligible for restricted
stock awards, incentive awards, and performance awards. Non-employee
directors, including members of the Compensation and Stock Option Committee,
are eligible for non-discretionary stock options. On May 19, 1995, the
Committee approved the issuance of 52,500 non-qualified stock options to
selected officers of the Company. The Committee also granted 7,000
non-qualified, non-discretionary stock options to non-employee Company
directors. The stock options begin to vest following three full years of
service to the Company after date of grant, with 20% of the options to vest
at the beginning of the fourth year of service, and with 20% thereof to vest
at the beginning of each of the next four years of service. The exercise
price of the stock options was set at the fair market value of the common
stock on the date of grant, May 19, 1995, which was $38.125 per share.
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. It defines
a fair value based method of accounting for employee stock options or
similar equity instruments. However, it also allows an entity to continue
to measure compensation cost for plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to continue applying the accounting
methods in Opinion 25 must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined
in SFAS No. 123 had been applied.
Under the fair value based method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. For stock options,
fair value is determined using an option pricing model that takes into
account various information and assumptions regarding the Company's stock
and options. Under the intrinsic value based method, compensation cost is
the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock.
The Company anticipates that it will continue to apply the accounting
methods prescribed by Opinion 25 for its existing stock and incentive plan.
Therefore, the implementation of this statement will not affect the
Company's results of operations. However, as required by this statement,
disclosure information will be provided in the Company's financial statements
reflecting costs that would have been recorded under the fair value based
method. The statement will be implemented in 1996.
(11) FOREIGN SALES AND SIGNIFICANT AGENCY RELATIONSHIPS
Total direct premium revenues and universal life and annuity contract
deposits related to insurance written in foreign countries, primarily
Central and South America, were approximately $57,407,000, $53,846,000, and
$57,450,000, for the years ended December 31, 1995, 1994, and 1993,
respectively.
A significant portion of the Company's universal life and investment annuity
contracts are written through one agency. Such business accounted for
approximately 11%, 20%, and 44% of total direct premium revenues and
universal life and investment annuity contract deposits for 1995, 1994, and
1993, respectively.
(12) SEGMENT INFORMATION
A summary of financial information for the Company's two industry segments
follows:
<TABLE>
<CAPTION>
Life Discontinued
Insurance Brokerage (B) Consolidated
Operations Operations Adjustments Amounts
(In thousands)
<S> <C> <C> <C> <C> <C>
Gross revenues:
1995 $ 287,816 5,112 (A) (5,693) 287,235
1994 278,431 40,208 (A) (41,881) 276,758
1993 273,363 105,923 (A) (107,579) 271,707
Net earnings (losses):
1995 $ 35,634 (16,350) - 19,284
1994 37,172 (2,936) - 34,236
1993 34,892 21,832 - 56,724
Identifiable assets:
1995 $ 2,952,282 6,177 - 2,958,459
1994 2,702,184 232,057 (19,187) 2,915,054
1993 2,590,537 372,301 (21,787) 2,941,051
<FN>
Notes to Table:
(A) These amounts are not reported as revenues in the accompanying
consolidated financial statements, as the segment has been discontinued.
Instead, gross revenues are reported net of expenses and taxes as a separate
line item identified as discontinued operations. This reporting
classification is used to clearly separate discontinued operations from
continuing operations of the consolidated entity.
(B) These amounts include both consolidating eliminations and adjustments
for reporting discontinued brokerage operations as described in note (A)
above.
</FN>
</TABLE>
(13) UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly results of operations are summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
1995:
Revenues $ 70,506 72,058 69,930 74,741
Earnings from continuing
operations $ 7,057 8,894 11,784 7,899
Losses from discontinued
operations (1,733) (1,484) (13,133) -
Net earnings (losses) $ 5,324 7,410 (1,349) 7,899
Per Share:
Earnings from continuing
operations $ 2.03 2.54 3.38 2.27
Losses from discontinued
operations (0.50) (0.42) (3.77) -
Net earnings (losses) $ 1.53 2.12 (0.39) 2.27
1994:
Revenues $ 68,815 69,135 70,723 68,085
Earnings from continuing
operations $ 8,961 9,000 11,459 7,752
Earnings (losses) from
discontinued operations (450) 1,194 288 (3,968)
Net earnings $ 8,511 10,194 11,747 3,784
Per Share:
Earnings from continuing
operations $ 2.57 2.59 3.29 2.21
Earnings (losses) from
discontinued operations (0.13) 0.34 0.08 (1.13)
Net earnings $ 2.44 2.93 3.37 1.08
</TABLE>
The fourth quarter net earnings in 1995 reflect the following significant
items:
Continuing Operations: Earnings from insurance operations, excluding net
realized gains and losses on investments, for the quarter ended December 31,
1995, were $8,345,000 compared to $8,311,000 for the fourth quarter of 1994.
However, fourth quarter 1994 earnings included a $2.9 million tax benefit
resulting from the Company's subsidiary brokerage losses, whereas 1995
fourth quarter earnings do not include such a benefit because the total 1995
tax benefit had been recognized as of September 30, 1995. The tax benefit
was recognized in accordance with the Company's tax allocation agreement
with its subsidiaries. Excluding the tax benefit, 1995 fourth quarter
earnings were up $2.9 million over the comparable 1994 quarter.
Contributing to the increased earnings were insurance revenues, excluding
realized gains and losses on investments, which were up $6,482,000, or 9.4%,
from the 1994 fourth quarter. The increase in revenues was offset somewhat
by higher life insurance benefit claims and other policy and contract
related expenses.
Discontinued Operations: Third quarter 1995 losses from discontinued
brokerage operations included estimated future operating losses, as well as
estimated costs to cease brokerage operations, and resulted in the complete
write-off of the Company's investment in Westcap on a consolidated basis.
Accordingly, no earnings or losses were reported for the discontinued
operations for the fourth quarter of 1995, as the investment in Westcap was
previously written-off and there have been no significant changes in
estimated costs to close the brokerage operations.
The fourth quarter net earnings in 1994 reflect the following significant
items:
Continuing Operations: Other insurance operating expenses were up
significantly, as fourth quarter 1994 expenses included a charge of
$2,636,000, net of taxes, or $0.76 per share, for state guaranty fund
assessments relating to insolvent insurance companies.
Discontinued Operations: Fourth quarter 1994 net losses from the Company's
discontinued brokerage operations, The Westcap Corporation, totaled
$3,968,000, or $1.13 per share, compared to net earnings of $7,309,000, or
$2.10 per share, for the fourth quarter of 1993. Volatile bond market
conditions due to increasing market interest rates was the major factor for
lower production, coupled with adverse publicity about litigation which led
to the decline in sales and earnings.
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Investment securities: Fair values for investments in debt and equity
securities are based on quoted market prices, where available. For
securities not actively traded, fair values are estimated using values
obtained from various independent pricing services and the Securities
Valuation Office of the National Association of Insurance Commissioners. In
the cases where prices are unavailable from these sources, prices are
estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the
investments.
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Mortgage loans: The fair value of performing mortgage loans is estimated by
discounting scheduled cash flows through the scheduled maturities of the
loans, using interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Fair value for significant
nonperforming loans is based on recent internal or external appraisals. If
appraisals are not available, estimated cash flows are discounted using a
rate commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific
borrower information.
Policy loans: The fair value for policy loans is calculated by discounting
estimated cash flows using U.S. Treasury bill rates as of December 31, 1995
and 1994. The estimated cash flows include assumptions as to whether such
loans will be repaid by the policyholders or settled upon payment of death
or surrender benefits on the underlying insurance contracts. As a result,
these assumptions incorporate both Company experience and mortality
assumptions associated with such contracts.
Life interest in Libbie Shearn Moody Trust: The fair value of the life
interest is estimated based on assumptions as to future dividends from the
Trust over the life expectancy of Mr. Robert L. Moody. These estimated cash
flows were discounted at a rate consistent with uncertainties relating to
the amount and timing of future cash distributions. However, the Company has
limited the fair value to the statutory admitted value of the Trust, as this
is the maximum amount to be received by the Company in the event of Mr.
Moody's premature death.
Assets of discontinued operations: These assets consist of cash, trading
securities, and securities purchased under agreements to resell. Trading
securities are based on quoted market prices. The carrying amount and fair
value of securities purchased under agreements to resell are the amounts at
which the securities will be subsequently resold as specified in the
respective agreements.
Investment and supplemental contracts: Fair value of the Company's
liabilities for deferred investment annuity contracts is estimated to be
the cash surrender value of each contract. The cash surrender value
represents the policyholder's account balance less applicable surrender
charges. The fair value of liabilities for immediate investment annuity
contracts and supplemental contracts with and without life contingencies is
estimated by discounting estimated cash flows using U.S. Treasury bill rates
as of December 31, 1995 and 1994.
Fair value for the Company's insurance contracts other than investment
contracts is not required to be disclosed. This includes the Company's
traditional and universal life products. However, the fair values of
liabilities under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, which minimizes
exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance and investment contracts.
Liabilities of discontinued operations: These liabilities consist of
short-term borrowings, securities sold not yet purchased, and securities
sold under agreements to repurchase. The carrying amount of the Company's
borrowings approximates its fair value due to the short duration of the
borrowing periods. Securities sold not yet purchased are carried at fair
values determined in the same manner as investment securities described
above. The carrying amounts and fair values of securities sold under
agreements to repurchase are the amounts at which the securities will be
subsequently repurchased as specified in the respective agreements.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Carrying Fair Carrying Fair
Value Value Value Value
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Investments in debt and
equity securities:
Securities held to
maturity $ 1,643,211 1,726,469 1,605,813 1,488,063
Securities available
for sale 600,794 600,794 354,300 354,300
Cash and short-term
investments 10,024 10,024 17,723 17,723
Mortgage loans 191,674 202,512 189,632 200,696
Policy loans 147,923 171,816 151,487 147,858
Life interest in Libbie
Shearn Moody Trust 5,206 20,561 5,486 22,507
Assets of discontinued
operations:
Cash 5,646 5,646 3,524 3,524
Trading securities - - 69,666 69,666
Securities purchased
under agreements
to resell - - 153,971 153,971
LIABILITIES
Deferred investment
annuity contracts $ 1,843,793 1,607,360 1,681,797 1,458,303
Immediate investment
annuity and
supplemental contracts 137,254 145,644 117,234 116,943
Liabilities of
discontinued operations:
Short-term borrowings - - 29,698 29,698
Securities sold not
yet purchased - - 87,336 87,336
Securities sold under
agreements
to repurchase - - 91,781 91,781
</TABLE>
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(15) DISCONTINUED BROKERAGE OPERATIONS
(A) Plan to Cease Brokerage Operations
Effective July 17, 1995, The Westcap Corporation (Westcap), a wholly owned
brokerage subsidiary of National Western Life Insurance Company,
discontinued all sales and trading activities in its Houston, Texas, office.
In September, 1995, Westcap approved a plan to close its remaining sales
office in New Jersey and to cease all brokerage operations.
In connection with the plan, as of December 31, 1995, Westcap's assets are
being carried at their estimated fair value, and its liabilities include
estimated costs to dispose of assets and estimated future costs to cease
operations. These estimated costs consist primarily of operating and legal
expenses based on a reasonable time period to cease operations. The
preparation of Westcap's 1995 financial statements required assumptions by
management that included assumptions regarding the fair value of assets and
expenses to be incurred. Variations between these assumptions and actual
results could result in a change in the estimated fair value of assets
recorded in Westcap's 1995 financial statements. However, management
believes that, based on information currently available, any differences in
recoveries on its assets in the future from the existing carrying values
thereof will not have a material effect on the financial statements.
As a result of the plan and in accordance with generally accepted accounting
principles, the assets and liabilities of Westcap have been reclassified in
the accompanying consolidated balance sheets to separately identify them as
assets and liabilities of the discontinued operations. Earnings and losses
from the discontinued brokerage operations have also been reflected
separately from continuing operations of the Company in the accompanying
consolidated financial statements. The 1995 losses from discontinued
operations include estimated future operating losses as well as estimated
costs to cease brokerage operations totaling $6,381,000 and have resulted in
the complete write-off of National Western Life Insurance Company's
investment in Westcap on a consolidated basis.
(B) Summary Financial Statements and Significant Disclosures
A summary of Westcap's financial statements for the years ended September
30, 1995, 1994, and 1993 is provided below. Westcap's fiscal year-end is
September 30. Although reported in detail below, these assets and
liabilities have been aggregated and reported as assets and liabilities of
discontinued operations in the accompanying financial statements. Likewise,
all revenues and expenses have been netted and reported separately in the
accompanying financial statements as earnings or losses from discontinued
operations.
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash $ 5,646 3,524 8,514
Receivables from customers
and brokers - 675 55,163
Trading securities - 69,666 116,918
Securities purchased under
agreements to resell - 153,971 186,896
Other assets 531 4,221 4,810
$ 6,177 232,057 372,301
Liabilities and Stockholder's Equity:
Short-term borrowings $ - 29,698 82,852
Payables to customers and brokers - 3,692 39,422
Securities sold not yet purchased - 87,336 78,835
Securities sold under agreements
to repurchase - 91,781 127,971
Other liabilities 7,430 2,823 22,840
Stockholder's equity (1,253) 16,727 20,381
$ 6,177 232,057 372,301
Revenues $ 5,112 40,208 105,923
Expenses 22,715 43,144 84,091
Net earnings (losses) $ (17,603) (2,936) 21,832
</TABLE>
The following disclosures refer to the assets, liabilities, and operations
items of Westcap as detailed above.
Significant Accounting Policies: Trading securities are carried at fair
value. Unrealized gains and losses on trading securities are included in
revenues.
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are treated as financing transactions,
collateralized by negotiable securities, and carried at the amounts at which
the securities will be subsequently resold or repurchased as specified in
the respective agreements.
Receivables from and payables to customers and brokers and dealers represent
the contract value of securities which have not been delivered or received
as of settlement date. The receivables from customers and brokers and
dealers are collateralized by securities held by or due to subsidiaries of
The Westcap Corporation.
Securities transactions and related revenues and expenses, except trading
profits, are recorded on a settlement date basis. Trading profits are
recorded on a trade date basis. Other revenues and expenses related to
securities transactions executed but not yet settled as of year-end were not
material to the financial position and results of operations of Westcap.
Capital Requirements: The Westcap Corporation conducted its brokerage
operations through a limited partnership, Westcap Securities, L.P. (Westcap
L.P.). Westcap L.P. was subject to the Securities and Exchange Commission's
Uniform Net Capital Rule (Rule 15c3-1), which required the maintenance of
minimum net capital. The limited partnership elected to be subject to the
Alternative Net Capital requirement which required the partnership to, at
all times, maintain net capital equal to the greater of $250,000 or 2% of
aggregate debit items computed in accordance with the formula for the
determination of Reserve Requirements for Brokers and Dealers. At September
30, 1995, Westcap L.P. had a net capital deficit of $1,499,000 which was
$1,749,000 below its required net capital of $250,000.
In anticipation of an Order Instituting Public Administrative Proceedings,
Making Findings and Imposing Remedial Sanctions (Order) being entered
pursuant to Sections 15(b) and 19(h) of the Securities Exchange Act of 1934
by the Securities and Exchange Commission (Commission), on February 8, 1996,
Westcap L.P. submitted an offer of settlement to the Commission whereby it
consented, without admitting or denying the findings in the Order, to the
entry of an Order of the Commission making findings, revoking Westcap L.P.'s
registration with the Commission, and requiring payment to the Commission of
(i) $445,341 disgorgement, (ii) prejudgement interest of $83,879, and (iii)
civil penalty of $300,000. Such an Order was entered by the Commission on
February 14, 1996. In compliance with the Order, Westcap L.P. made payment
to the Commission of $829,220 on March 5, 1996.
Short-Term Borrowings: Certain subsidiaries of The Westcap Corporation have
arrangements with a financial institution whereby the institution performs
clearing functions for all securities transactions with customers and
brokers and dealers. These arrangements include revolving line of credit
agreements which bear interest at variable rates based on Federal funds
rates and are due on demand. Borrowings under these arrangements are
guaranteed by Westcap and collateralized by trading securities and certain
customers' and brokers' and dealers' unpaid securities, which at September
30, 1994, had aggregate market values of approximately $35,354,000. There
were no short-term borrowings outstanding at September 30, 1995. The
average interest rates on borrowings for the years ended September 30, 1995
and 1994, were 6.26% and 4.60%, respectively.
Securities Purchased under Agreements to Resell and Securities Sold under
Agreements to Repurchase: At September 30, 1994, securities purchased under
agreements to resell by Westcap were collateralized by U.S. Government and
agencies' securities with market values of approximately $152,753,000.
These agreements had maturity dates ranging from one to ninety days and
weighted average interest rates of 4.2%. There were no securities purchased
under agreement to resell at September 30, 1995. During the years ended
September 30, 1995 and 1994, the maximum month-end balance of outstanding
agreements was $136,906,000 and $270,854,000, and the average amount of
outstanding agreements was $68,876,000 and $197,327,000, respectively.
Risks arise from the possible inability of counterparties to meet the terms
of their agreements and from movements in securities' values.
At September 30, 1994, securities sold under agreements to repurchase by
Westcap were collateralized by U.S. Government and agencies' securities with
market values of approximately $93,025,000. These agreements had maturity
dates ranging from one to ninety days and weighted average interest rates of
4.8%. There were no securities sold under agreements to repurchase at
September 30, 1995. During the years ended September 30, 1995 and 1994, the
maximum month-end balance of outstanding agreements was $125,864,000 and
$245,564,000, and the average amount of outstanding agreements was
$54,322,000 and $169,187,000, respectively.
When-Issued and Forward Contracts: In the normal course of business,
Westcap entered into when-issued and forward contracts principally related to
mortgage-backed and U.S. Government securities issues. These contracts are
for delayed delivery of securities in which the seller agrees to make
delivery at a specified future date of a specified instrument, at a
specified price. These securities issues may have settlement dates ranging
from several weeks to several months after trade date. Revenues and
expenses related to such contracts are recognized on settlement date. Risks
arise from the possible inability of counterparties to meet the terms of
their contracts and from movements in securities values and interest rates.
At September 30, 1994, the approximate amount of unsettled when-issued and
forward purchase and sale contracts were $73,009,000 and $73,431,000,
respectively. These contracts principally related to obligations of the
U.S. Government and its agencies. There were no unsettled when-issued and
forward purchase and sale contracts at September 30, 1995.
During the year ended September 30, 1994, Westcap adopted the provisions of
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," which requires disclosure of certain fair
value information regarding derivative financial instruments. During 1994,
the average fair value of when-issued purchase and sale contracts were
approximately $4,789,000 and $2,602,000, respectively. At September 30,
1994, the fair value of when-issued and forward purchase and sale contracts
were approximately $68,146,000 and $68,632,000, respectively. For the year
ended September 30, 1994, Westcap recognized a net gain of approximately
$12,079,000 from such transactions. There were no significant transactions
during 1995 in when-issued purchase and sale contracts.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Balance
(1) Market Sheet
Type of Investment Cost Value Amount
<S> <C> <C> <C>
Fixed maturity bonds:
Securities held to maturity:
United States government and
government agencies and
authorities $ 35,764 36,026 35,764
States, municipalities, and
political subdivisions 47,574 51,311 47,574
Foreign governments 48,286 51,316 48,286
Public utilities 227,449 239,529 227,449
Corporates 771,716 815,002 771,716
Mortgage-backed 510,004 530,867 510,004
Total securities held to
maturity 1,640,793 1,724,051 1,640,793
Securities available for sale:
United States government and
government agencies and
authorities 2,948 3,311 3,311
Public utilities 54,677 57,430 57,430
Corporates 103,884 115,337 115,337
Mortgage-backed 375,219 398,856 398,856
Total securities available
for sale 536,728 574,934 574,934
Total fixed maturity bonds 2,177,521 2,298,985 2,215,727
Equity securities:
Securities available for sale:
Common stocks:
Public utilities 192 263 263
Banks, trust and
insurance companies 195 1,716 1,716
Industrial and other 87 198 198
Preferred stocks 23,925 23,683 23,683
Total equity securities 24,399 25,860 25,860
Mortgage loans 183,506 177,838
Policy loans 147,923 147,923
Other long-term investments 33,122 (2) 30,970
Cash and short-term investments 10,024 10,024
Total investments other than
investments in related parties $ 2,576,495 2,608,342
<FN>
(Continued on next page)
</FN>
</TABLE>
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I, CONTINUED
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1995
(In thousands)
Notes to Schedule I
(1) Fixed maturity bonds are shown at amortized cost, mortgage loans are
shown at unpaid principal balances before allowances for possible losses of
$5,668,000, and real estate is stated at cost before allowances for possible
losses of $2,152,000. The following investments in related parties have been
excluded: fixed maturity bonds - $2,418,000 and mortgage loans -
$13,836,000.
(2) Real estate acquired by foreclosure included in other long-term
investments totaled approximately $6,260,000.
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994, and 1993
(In thousands)
<TABLE>
<CAPTION>
(1)
Balance Charged Balance
at to at
Beginning Costs and (2) (3) End of
Description of Period Expenses Reductions Transfer Period
<S> <C> <C> <C> <C> <C> <C>
Valuation accounts
deducted from
applicable assets:
Allowance for possible
losse on brokerage
trade receivables:
December 31, 1995 $ 1,000 - (1,000) - -
December 31, 1994 $ 123 877 - - 1,000
December 31, 1993 $ 125 - (2) - 123
Allowance for possible
losses on mortgage loans:
December 31, 1995 $ 5,929 - (261) - 5,668
December 31, 1994 $ 6,849 307 (927) (300) 5,929
December 31, 1993 $ 6,000 2,152 (702) (601) 6,849
Allowance for possible
losses on real estate:
December 31, 1995 $ 1,803 882 (533) - 2,152
December 31, 1994 $ 1,556 318 (371) 300 1,803
December 31, 1993 $ 9,950 1,208 (10,203) 601 1,556
<FN>
(1) Except for expenses related to brokerage trade receivables, which were
charged to discontinued operations, these amounts were charged to realized
gains and losses on investments.
(2) These amounts were related to charge off of assets against the
allowances.
(3) These amounts were transferred to real estate.
</FN>
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Registrant)
/S/ Robert L. Moody /S/ Ross R. Moody
By: Robert L. Moody By: Ross R. Moody
Chairman of the Board, Chief President, Chief Operating
Executive Officer, Director Officer, Director
/S/ Robert L. Busby, III
By: Robert L. Busby, III
Senior Vice President -
Chief Administrative Officer,
Chief Financial Officer
and Treasurer
March 28, 1996
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/S/ Arthur O. Dummer
Arthur O. Dummer, Frances A. Moody,
Director Director
/S/ Harry L. Edwards
Harry L. Edwards, Russell S. Moody,
Director Director
/S/ E. Douglas McLeod /S/ Louis E. Pauls, Jr.
E. Douglas McLeod, Louis E. Pauls, Jr.,
Director Director
/S/ Charles D. Milos, Jr.
Charles D. Milos, Jr., E. J. Pederson,
Director Director
March 28, 1996
Date
EXHIBIT 3(a) - ARTICLES OF INCORPORATION
RESTATED ARTICLES OF INCORPORATION
OF
NATIONAL WESTERN LIFE INSURANCE COMPANY
Pursuant to the provisions of Section 60 of the Colorado Corporation Act,
the undersigned corporation adopts the following Restated Articles of
Incorporation:
FIRST: The corporate name and style of our said corporation shall be
NATIONAL WESTERN LIFE INSURANCE COMPANY.
SECOND: The objects for which said corporation is formed and incorporated
are as follows:
A. To make insurance or reinsurance upon the lives of persons, and
every insurance appertaining thereto or connected therewith, including
health and accident insurance, and to grant, purchase or dispose of
annuities.
B. To reinsure with any company or association as provided by laws any
risks undertaken by this corporation; to enter into contracts or reinsurance
upon any lawful terms; to make such contracts and agreements with other
insurance companies or associations for the purchase of the assets and the
assumption and guarantee of their liabilities or the reinsurance of their
risks as provided by law and deemed by the Directors advantageous and for
the best interest of this corporation.
C. To acquire, hold, pledge, encumber, assign, lease and dispose of
such real estate and personal property as may be permitted by law.
D. To invest such moneys as may come into its possession in the course
of its business in real or personal property in any manner not inconsistent
with, nor prohibited by the laws of the State of Colorado, and to loan such
money upon mortgages or other security or securities.
E. To do any or all of the aforementioned things in any part of the
world; and to do all acts and things and possess all such powers as are in
any manner incident or necessary to conduct the business for which our said
company is formed; and to have, enjoy and exercise all rights, powers,
franchises and privileges now conferred by law or which may hereafter be
lawfully conferred or acquired.
THIRD: The term of existence of our said corporation is perpetual.
FOURTH: The amount of the total authorized capital stock of the company is
SEVEN MILLION, SEVEN HUNDRED THOUSAND DOLLARS ($7,700,000.00) divided into
Seven Million, Five Hundred Thousand (7,500,000) shares of Class A common
stock with a par value of One Dollar ($1.00) each, and Two Hundred Thousand
(200,000) shares of Class B common stock with a par value of One Dollar
($1.00) each. Class A common stock and Class B common stock shall be alike
in all respects except that:
(a) Class A common stock shall have the exclusive right to elect One Third
(1/3) of the total number of directors constituting the whole Board of
Directors (treating any fraction as an additional director) and Class B
common stock shall have the exclusive right to elect the remaining
directors.
(b) The cash or in kind dividends to be paid on each share of the Class B
common stock per annum shall be only one-half (1/2) of the cash or in kind
dividends to be paid on each share of the Class A common stock per annum.
(c) In the event of the dissolution or winding up of the corporation,
whether voluntary or involuntary, the assets shall be distributed among the
Class A and Class B stockholders in the following manner:
(i) the Class A stockholders shall first receive the par value of their
shares;
(ii) the Class B stockholders shall then receive the par value of their
shares;
(iii) the remaining assets of the corporation shall then be divided and
distributed to and among the holders of all the stock of the corporation
in proportion to the number of shares of stock held by each, without
preference of any one class of stock over any other class.
In the event of a vacancy on the Board of Directors, such vacancy shall be
filled by a vote of the majority of the remaining directors elected by the
class who elected the directors whose position is being filled. In the
event that there is no majority of such directors, then such vacancy shall
be filled at a special meeting of the shareholders who elected the director
whose position is being filled.
Said Classes of stock shall be fully paid and non-assessable. No holder of
any stock of the company shall, as such, have any preemptive right to
purchase or subscribe for any shares of the capital stock or any other
securities of the company which it may issue or sell, whether out of the
number of shares authorized by the Articles of Incorporation of the company
as originally filed or by any amendment thereof, or out of the shares of the
capital stock of the company acquired by it after the issuance thereof, nor
shall any holder of any such stock, as such, have any right to purchase or
subscribe for any obligation which the company may issue or sell that shall
be convertible into or exchangeable for any shares of the capital stock of
the company, or to which shall be attached or appertained any warrant or
warrants or any instrument or instruments that shall confer upon the owner
of such obligation, warrant or instrument the right to subscribe for, or
purchase from the company, any shares of its capital stock. Article IV (b)
and (c) shall not be subject to amendment except upon the affirmative vote
of the holders of 75% of the issued and outstanding Class A common stock.
FIFTH: The affairs and management of our said company shall be under the
control of a Board of Directors consisting of not less than seven (7) nor
more than twenty-seven (27) persons who shall be stockholders of this
company, and who, upon being duly elected and qualified, shall manage the
affairs and concerns of our said company until their successors are chosen
and qualified, and
A. Vaughn Ayers 4680 West Mexico Ave.
Denver, Colorado
Stanford L. Hyman 421 Magnolia Street
Denver, Colorado
James A. Matson 4960 S. Lafayette St.
Englewood, Colorado
Harold M. Quiat 788 Milwaukee Street
Denver, Colorado
Lars O. Prestrud 118 Krameria Street
Denver, Colorado
are hereby designated as the Directors of this company to serve until such
time as a complete Board of Directors shall be elected by the stockholders
and enter upon the duties of their office. The Directors are to be elected
by the holders of Class A common stock and Class B common stock as provided
for in Article IV hereof.
SIXTH: The location of the principal office of our company in the State of
Colorado is 5670 E. Evans, Suite 103, Denver, Colorado. The registered
office of the company is 1900 First National Bank Building, Denver,
Colorado, and Arthur K. Underwood, Jr., is hereby designated as the
registered agent of the company at said address.
SEVENTH: The operations of our said company are to be carried on in the
State of Colorado and in such other states and territories of the United
States and in such foreign countries as the Board of Directors may from time
to time determine.
EIGHTH: The Board of Directors shall have the power to make, alter, and
repeal such prudential bylaws as they may determine proper for the
management of the affairs of this company in accordance with the statutes in
such case made and provided.
NINTH: Cumulative voting shall not be allowed.
TENTH: Meetings of the Board of Directors and meetings of the stockholders
of said company may be held beyond the limits of the State of Colorado
whenever and at such place or places as may be directed by the bylaws of
this company, or by the Board of Directors.
ELEVENTH: One half (1/2) of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at any meeting of the
shareholders. If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on the subject
matter shall be the act of the shareholders, unless the vote of a greater
number of shares is required by law. In the election of Directors a
quorum shall consist of one half (1/2) of the shares of Class A common
stock entitled thereat and one half (1/2) of the shares of Class B common
stock entitled to vote thereat. Whenever, with respect to any action to
be taken by the shareholders, the vote or concurrence of the holders of
more than one half (1/2) of the shares as required by law with respect
to such action, the provision of the law shall control.
TWELFTH: The Restated Articles of Incorporation correctly set forth without
change the corresponding provisions of the Articles of Incorporation as
heretofore amended, and supersede the original Articles of Incorporation and
all amendments thereto.
Dated April 10, 1968.
NATIONAL WESTERN LIFE INSURANCE COMPANY
By /s/ Harold E. Riley
Its President
and /s/ R. F. Varnado
Its Secretary
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
I, Jan M. McDonald, a Notary Public, do hereby certify that on this
10th day of April, 1968, personally appeared before me Harold E. Riley , who
being by me first duly sworn, declared that he is the President of National
Western Life Insurance Company, that he signed the foregoing document as the
President of said corporation, and that the statements therein contained are
true.
/s/ Jan M. McDonald
Notary Public
EXHIBIT 3(b) - ARTICLES OF INCORPORATION
AMENDMENT TO THE ARTICLES OF INCORPORATION OF
NATIONAL WESTERN LIFE INSURANCE COMPANY
PURSUANT to the provisions of the Colorado Insurance Code and the Colorado
Corporation Act, the undersigned corporation adopts the following Articles
of Amendment to its Articles of Incorporation:
1. The name of the corporation is National Western Life Insurance Company.
2. The following amendment to the Articles of Incorporation was duly
submitted to and adopted by the shareholders of the corporation on April 27,
1971. The amendment alters and changes Article VI of the original Articles
of Incorporation by removing any specific street address for the Home Office
of the Company in Denver, Colorado. Article VI is hereby amended to read
and provide as follows:
ARTICLE VI
"The location of the Home Office of the Company shall be in Denver,
Colorado. The registered office of the Company is 1900 First National Bank
Building, Denver, Colorado, and Arthur K. Underwood, Jr., is hereby
designated as the initial resident agent of the Company at said address."
3. The number of shares of the corporation outstanding and entitled to vote
at the date of such adoption was 3,508,283, being 3,308,283 Class A shares
and 200,000 Class B shares.
4. The number of shares voted "for" and "against" such amendment was as
follows:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
Class A: 2,403,357 24,889
Class B: 200,000 -0-
</TABLE>
5. The amendment does not affect the stated capital of the Company.
National Western Life Insurance Company
/s/ Harry L. Edwards
By: President
/s/ R. F. Varnado
Secretary
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
I, a Notary Public, do hereby certify that on this 29th day of July, 1971,
personally appeared before me Harry L. Edwards who declared that he is the
President of the Corporation executing the foregoing instrument, and being
first duly sworn acknowledged that he signed the foregoing instrument in the
capacity therein set forth and declared that the statements therein
contained are true and correct.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day and
year above written.
/s/ Mary L. Stacks
NOTARY PUBLIC in and for Travis
County, Texas
EXHIBIT 3(c) - ARTICLES OF INCORPORATION
AMENDMENT TO THE ARTICLES OF INCORPORATION OF
NATIONAL WESTERN LIFE INSURANCE COMPANY
PURSUANT to the provisions of the Colorado Insurance Code and the Colorado
Corporation Act, the undersigned corporation adopts the following Articles
of Amendment to its Articles of Incorporation:
1. The name of the corporation is National Western Life Insurance Company.
2. The following amendment to the Articles of Incorporation was duly
submitted to and adopted by the shareholders of the corporation on April 29,
1975. The amendment alters and changes Article VI of the original Articles
of Incorporation by changing the street address of the registered office of
the Company in Denver, Colorado. Article VI is hereby amended to read and
provide as follows:
ARTICLE VI
"The location of the Home Office of the Company shall be in Denver,
Colorado. The registered office of the Company is 2900 First of Denver
Plaza, Denver, Colorado, and Arthur K. Underwood, Jr., is hereby designated
as the initial resident agent of the Company at said address."
3. The number of shares of the corporation outstanding and entitled to vote
at the date of such adoption was 3,337,568, being 3,137,568 Class A shares
and 200,000 Class B shares.
4. The number of shares voted "for" and "against" such amendment was as
follows:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
Class A: 2,255,341 19,332
Class B: 200,000 -0-
</TABLE>
5. The amendment does not affect the stated capital of the Company.
National Western Life Insurance Company
/s/ Harry L. Edwards
By: President
/s/ Mary L. Smith
Assistant Secretary
STATE OF TEXAS )
)
COUNTY OF TRAVIS )
I, a Notary Public, do hereby certify that on this 10th day of May, 1976,
personally appeared before me Harry L. Edwards who declared that he is the
President of the Corporation executing the foregoing instrument, and being
first duly sworn acknowledged that he signed the foregoing instrument in the
capacity therein set forth and declared that the statements therein
contained are true and correct.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day and year
before written.
/s/ Lynette Weber
NOTARY PUBLIC in and for Travis
County, Texas
EXHIBIT 3(d) - ARTICLES OF INCORPORATION
AMENDMENT TO THE ARTICLES OF INCORPORATION OF
NATIONAL WESTERN LIFE INSURANCE COMPANY
PURSUANT to the provisions of the Colorado Insurance Code and the Colorado
Corporation Act, the undersigned corporation adopts the following Articles
of Amendment to its Articles of Incorporation:
Article One. The name of the corporation is NATIONAL WESTERN LIFE INSURANCE
COMPANY.
Article Two. The following amendment to the Articles of Incorporation was
duly submitted to and adopted by the stockholders of the corporation on
April 25, 1978. Article IV of the Articles of Incorporation of the Company
is amended by the addition thereto of subparagraph "(d)", and said
subparagraph "(d)" of Article IV shall read and provide as follows:
"(d) In the event of any 'spin-off' or distribution 'in-kind' of the shares
of a subsidiary corporation of the Corporation, and which subsidiary
corporation has only one class of stock issued and outstanding, each share
of Class B common stock shall receive only one-half (1/2) of the number of
shares of the subsidiary corporation as are to be received by each share of
the Class A common stock; and, in the event that such subsidiary corporation
has two classes of stock which are similar in rights and privileges to the
Class A common stock and Class B common stock of the Corporation provided
for in this Article, then the Class A common stock shall receive 'in-kind'
only that class of shares of the subsidiary corporation which is similar to
the Class A common shares, and the Class B common stock shall receive
'in-kind' only that class of shares of the subsidiary corporation which is
similar to the Class B common shares."
Article Three. The total number of shares of the corporation outstanding
and entitled to vote at the date of such adoption was 3,411,682, consisting
of 3,211,682 Class A shares and 200,000 Class B shares. All of the shares
of each class of stock were entitled to vote thereon within each class as a
separate class.
Article Four. The number of shares voted for such amendment was 2,520,409
(78.48%) of the Class A shares and 200,000 (100%) of the Class B shares; and
the number of shares voted against such amendment was 48,454 (1.51%) of the
Class A shares. None of the Class B shares voted against the amendment.
DATED this 28 day of April, 1978.
NATIONAL WESTERN LIFE INSURANCE COMPANY
/s/ Harry L. Edwards
Harry L. Edwards, President
/s/ James V. Robinson
James V. Robinson, Secretary
THE STATE OF TEXAS )
)
COUNTY OF TRAVIS )
BEFORE ME, the undersigned authority, on this 28 day of April, 1978,
personally appeared HARRY L. EDWARDS and JAMES V. ROBINSON, who being first
duly sworn, declared they are the President and Secretary, respectively, of
the Corporation executing the foregoing document, and that they had signed
the foregoing document in the capacity therein set forth, and declared that
the statements therein contained are true and correct.
TO CERTIFY WHICH, I have hereunto set my hand and seal of office this day
and year above written.
/s/ Margaret M. Simpson
Notary Public in and for
Travis County, T E X A S
( S E A L )
EXHIBIT 3(e) - ARTICLES OF INCORPORATION
AMENDMENT TO THE ARTICLES OF INCORPORATION OF
NATIONAL WESTERN LIFE INSURANCE COMPANY
PURSUANT to the provisions of the Colorado Insurance Code and the Colorado
Corporation Act, the undersigned corporation adopts the following Articles
of Amendment to its Articles of Incorporation:
Article One. The name of the corporation is NATIONAL WESTERN LIFE INSURANCE
COMPANY.
Article Two. The following amendment to the Articles of Incorporation was
duly submitted to and adopted by the stockholders of the corporation on
April 24, 1979. Article Eight of the Articles of Incorporation of the
Company is amended to hereafter read and provide as follows:
"ARTICLE EIGHT: The Board of Directors shall have the power to (a) adopt,
amend, and repeal such bylaws as they may determine to be proper for the
management of the affairs of this Company and which are in accordance with
the statutes of Colorado, and (b) to adopt plans relating to dividends and
distributions in partial liquidation, to declare dividends, and to
distribute to the shareholders in partial liquidation, out of the capital
surplus of the company, a portion of its assets in cash or property, subject
only to the statutes of Colorado relating to the payment of such dividends
or distributions in partial liquidation."
Article Three. The total number of shares of the corporation outstanding
and entitled to vote at the date of such adoption was 3,411,390, consisting
of 3,211,390 Class A shares and 200,000 Class B shares. All of the shares
of each class of stock were entitled to vote thereon within each class as a
separate class.
Article Four. The total number of shares voted for such amendment was
2,366,406 (69.37%). 2,166,406 (67.46%) of the Class A shares and 200,000
(100%) of the Class B shares voted for such amendment. 16,022 (0.50%) of
the Class A shares voted against such amendment. None of the Class B shares
voted against the amendment.
DATED this 1 day of May, 1979.
NATIONAL WESTERN LIFE INSURANCE COMPANY
/s/ Harry L. Edwards
Harry L. Edwards, President
/s/ James V. Robinson
James V. Robinson, Secretary
THE STATE OF TEXAS )
)
COUNTY OF TRAVIS )
BEFORE ME, the undersigned authority, on this 1 day of May, 1979,
personally appeared HARRY L. EDWARDS and JAMES V. ROBINSON, who being first
duly sworn, declared they are the President and Secretary, respectively, of
the Corporation executing the foregoing document, and that they had signed
the foregoing document in the capacity therein set forth, and declared that
the statements therein contained are true and correct.
TO CERTIFY WHICH, I have hereunto set my hand and seal of office this
day and year above written.
/s/ Margaret M. Simpson
Notary Public in and for
Travis County, T E X A S
My commission expires: 3-31-81
( S E A L )
EXHIBIT 3(f) - BYLAWS
BYLAWS OF
NATIONAL WESTERN LIFE INSURANCE COMPANY
ARTICLE I
Offices
Section 1.01. Home Office.
The Home Office of the Company shall be in Denver, Colorado.
Section 1.02. Other Offices.
The Corporation may also have offices at such other places, both within and
without the State of Colorado, as the Board of Directors may from time
to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 2.01. Place.
Meetings of shareholders for any purpose may be held at such time and place,
within or without the State of Colorado, as shall be stated in the notice of
the meeting or in a duly executed waiver of notice thereof, except as may be
provided by law.
Section 2.02. Annual Meetings.
An annual meeting of the stockholders shall be held after March 31 but not
later than July 31 of each calendar year, at a date to be selected by the
Board of Directors, at which time the stockholders shall elect a Board of
Directors and transact such other business as may properly be brought before
the meeting.
Section 2.03. Special Meetings.
Special meetings of the shareholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Articles of Incorporation
or by these Bylaws, may be called by the Chairman of the Board of
Directors or the President, the Board of Directors, or the holders of not
less than one-fourth of all the shares entitled to vote at the meeting.
Section 2.04. Notice.
Written or printed notice stating the place, day, and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than forty
days before the date of the meeting, either personally or by mail, by or at
the direction of the President, the Secretary, or the officer or person
calling the meeting, to each shareholder of record entitled to vote at the
meeting.
Section 2.05. Quorum.
The shareholders present in person or represented by proxy at any meeting,
whether or not there shall be a quorum, shall have power to adjourn or
recess the meeting from time to time, without notice other than
announcement at the meeting. At such adjourned or recessed meeting at
which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.06. Majority Vote.
When a quorum is present at any meeting, the vote of the holders of a
majority of the shares having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the statutes or of the
Articles of Incorporation or of these Bylaws, a different vote is required,
in which case such express provision shall govern and control the decision
of such question. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 2.07. Stockholders Entitled to Vote.
Each outstanding share, regardless of class, shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders, except to
the extent that the voting rights of the shares of any class or classes are
limited or denied by the Articles of Incorporation. At any meeting of the
shareholders, every shareholder having the right to vote shall be entitled
to vote in person, or by proxy appointed by an instrument in writing
subscribed by such shareholder, or by his duly authorized attorney-in-fact.
Such proxy shall be filed with the Secretary of the Corporation prior to or
at the time of the meeting. The Board of Directors may fix in advance a
record date for the purpose of determining shareholders entitled to notice
of or to vote at a meeting of shareholders, such record date to be not less
than ten nor more than forty-five days prior to such meeting, or the Board
of Directors may close the stock transfer books for such purpose for a
period of not less than ten nor more than forty-five days prior to such
meeting. In the absence of any action by the Board of Directors, the date
upon which the notice of the meeting is mailed shall be the record date.
ARTICLE III
Directors
Section 3.01. Authority.
The business and affairs of the Corporation shall be managed by its Board of
Directors, who may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or
done by the shareholders.
Section 3.02. Number and Election.
The Board of Directors shall consist of not less than seven (7) and not more
than twenty-seven (27) Directors, none of whom need be residents of the State
of Colorado. The Directors shall be elected at the annual meeting of the
shareholders, except as hereinafter provided, and each Director elected
shall hold office until his successor shall be elected and shall qualify.
Section 3.03. Removal.
Any Director may be removed, either for or without cause, at any special
meeting of shareholders by the affirmative vote of a majority in number of
shares of the shareholders present in person or by proxy at such meeting and
entitled to vote for the election of such Director, if notice of the
intention to act upon such matter shall have been given in the notice
calling such meeting. Any Director may be removed, either for or without
cause, at any meeting of Directors by the affirmative vote of two-thirds of
all members of the Board of Directors. If any vacancies occur in the Board
of Directors because of death, resignation, retirement, disqualification, or
removal from office of any Director or otherwise, a majority of the
Directors then in office, though less than a quorum, may choose a successor
or successors, or a successor or successors may be chosen at a special
meeting of shareholders called for that purpose; and each successor Director
so chosen shall be elected for the unexpired term of his predecessor in
office. Any directorship to be filled by reason of an increase in the
number of Directors may be filled by election at any meeting of
shareholders, or may be filled by affirmative vote of a majority of all
members of the Board of Directors then in office.
Section 3.04. Method of Election.
Directors shall be elected by plurality vote. Cumulative voting shall not
be permitted.
Section 3.05. Place of Meetings.
Directors of the Corporation may hold their meetings, both regular and
special, either within or without the State of Colorado, except as may be
provided by law.
Section 3.06. First Meeting.
The first meeting of each newly-elected Board shall be held without further
notice immediately following the annual meeting of shareholders, and at the
same place, unless by unanimous consent of the Directors then elected and
serving such time or place shall be changed.
Section 3.07. Regular Meetings.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
Section 3.08. Special Meetings.
Special meetings of the Board of Directors may be called by either the
Chairman of the Board or President or Secretary, on three days' notice to
each Director, either personally or by mail or by telegram. Special
meetings shall be called by either the Chairman of the Board, President, or
Secretary, in like manner and on like notice, on the written request of four
or more Directors. Except as may be otherwise expressly provided by statute
or by the Articles of Incorporation or by these Bylaws, neither the business
to be transacted at, nor the purpose of, any special meeting of Directors
need be specified in a notice or waiver of notice.
Section 3.09. Quorum.
At all meetings of the Board of Directors, the presence of a majority of the
Directors shall be necessary and sufficient to constitute a quorum for the
transaction of any business except any matter which, under these Bylaws, is
to be done or performed by a majority of all members of the Board of
Directors. If a quorum shall not be present at any meeting of Directors,
the Directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present.
Section 3.10. Executive Committee.
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate an Executive Committee to consist of Directors of the
Corporation, one of whom shall be either the Chairman of the Board of
Directors or the President. The Executive Committee shall have and may
exercise all the authority of the Board of Directors in the management of
the business and affairs of the corporation, except where action of a
majority of all members of the Board of Directors is required by statute or
by the Articles of Incorporation or by these Bylaws, and shall have power to
authorize the seal of the corporation to be affixed to all papers which may
require it.
Section 3.11. Executive Committee Minutes.
The Executive Committee shall keep regular minutes of its proceedings and
report the same to the Board when required.
Section 3.12. Compensation.
Directors, by resolution of the Board, shall receive a fixed sum, and
expenses of attendance if any, for attendance at each regular or special
meeting of the Board and, in addition thereto, may receive a retainer for
their services, the amount to be authorized by resolution of the Board of
Directors; provided that nothing herein contained shall be construed to
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of the Executive Committee may, by
resolution of the Board of Directors, be allowed a fixed sum, and expenses
of attendance if any, for attendance at the Committee's meetings.
Section 3.13. Other Committees.
The Board may name and appoint such other special committees composed of
Directors, officers, or employees of the Company as it deems necessary and
important to the affairs of the Company, and may vest in such committees
such authority as it deems appropriate to the functions of the Company.
ARTICLE IV
Officers
Section 4.01. Number.
The officers of the Corporation shall be elected by the Directors and shall
be a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary, and a Treasurer. The Board of Directors may also choose one or
more Assistant Vice Presidents and one or more Assistant Secretaries and
Assistant Treasurers. Any two or more offices may be held by the same
person, except that the offices of President and Secretary shall not be held
by the same person.
Section 4.02. Election.
The Board of Directors at its first meeting after each annual meeting of
shareholders shall elect the said officers, and the Chairman of the Board
and the President shall be elected by the Board from its members.
Section 4.03. Additional Officers.
The Board of Directors may appoint such other officers as its shall deem
necessary, who shall be appointed for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by
the Board.
Section 4.04. Salaries.
The salaries of all officers of the Corporation shall be fixed by the Board
of Directors.
Section 4.05. Removal.
Each officer of the Corporation shall hold office until his successor is
chosen and qualified in his stead or until his death or until his
resignation or removal from office. Any officer elected or appointed by the
Board of Directors may be removed at any time by the vote of the Board of
Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
Section 4.06. Chairman of the Board.
The Chairman of the Board shall be the Chief Executive Officer of the
Company and shall preside at all meetings of the Board of Directors and
shareholders. He shall have general and active management responsibilities
of the business and affairs of the Company, and shall see that all orders
and resolutions of the Board are carried into effect, and shall perform
such other duties and have such other powers as the Bylaws, Board of
Directors, or Executive Committee may prescribe.
Section 4.07. The President.
The President, in the absence or disability of the Chairman of the Board,
shall perform the duties and exercise the powers of the Chairman of the
Board. He shall be the principal administrative officer of the company, his
activities as such subject to the direction and approval of the Chief
Executive Officer, and shall be responsible for the implementation of the
details of managing the administrative affairs of the Company, and shall
perform such other duties and have such other powers as the Bylaws, Board of
Directors, or Executive Committee may prescribe.
Section 4.08. Vice Presidents.
Each Vice President shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe or as the Chief Executive
Officer or President may from time to time delegate to him.
Section 4.09. Secretary.
The Secretary shall attend all sessions of the Board of Directors and all
meetings of the shareholders and record all votes and the minutes of all
proceedings in a book to be kept for the purpose and shall perform like
duties for the Executive Committee. He shall give, or cause to be given,
notice of all meetings of the shareholders and shall perform such other
duties as may be prescribed by the Board of Directors or Chief Executive
Officer or President, under whose supervision he shall be. He shall keep in
safe custody the minute book and seal of the corporation and affix the seal
to any instrument requiring it, and, when so affixed, it shall be attested
by his signature or by the signature of the Treasurer or an Assistant
Secretary.
Section 4.10. Assistant Secretaries.
Each Assistant Secretary shall have such powers and perform such duties as
the Board of Directors may from time to time prescribe or as the Chief
Executive Officer or President may from time to time delegate to him.
Section 4.11. Treasurer.
The Treasurer shall have the custody of the corporate funds and securities,
and shall keep full and accurate accounts of receipts and disbursements of
the Corporation, and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Chief
Executive Officer or President and Directors, at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation, and shall
perform such other duties as the Board of Directors may prescribe.
Section 4.12. Assistant Treasurers.
Each Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time prescribe or as the Chief
Executive Officer or President may from time to time delegate to him.
ARTICLE V
Stock and Stock Certificates
Section 5.01. Form and Execution.
Certificates in such form as may be determined by the Board of Directors
shall be delivered representing all shares to which shareholders are
entitled. Such certificates shall be consecutively numbered and shall
be entered in the books of the Corporation as they are issued. Each
certificate shall state on the face thereof the holder's name, the number
and class of shares, and the par value of such shares or a statement that
such shares are without par value. They shall be signed by the President or
a Vice President and the Secretary or an Assistant Secretary and may be
sealed with the seal of the Corporation or a facsimile thereof. If any
certificate is countersigned by a transfer agent, or an assistant transfer
agent or a transfer clerk, the signature of any such officer may be
facsimile.
Section 5.02. Lost Certificates.
The Board of Directors may direct a new certificate representing shares to
be issued in place of any certificate theretofore issued by the Corporation
alleged to have been lost or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificates to be lost or destroyed.
When authorizing such issue of a new certificate, the Board of Directors,
in its discretion and as a condition precedent to the issuance thereof, may
require the owner of such lost or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may
be made against the Corporation with respect to the certificate alleged to
have been lost or destroyed.
Section 5.03. Transfer of Shares.
Shares of stock shall be transferable only on the books of the Corporation
by the holder thereof in person or by his duly authorized attorney. Upon
surrender to the Corporation, or the Transfer Agent of the Corporation, of a
certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it shall be
the duty of the Corporation or the Transfer Agent of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate, and record the transaction upon its books.
Section 5.04. Registered Shareholders.
The Corporation shall be entitled to treat the holder of record of any share
or shares of stock as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
General Provisions
Section 6.01. Dividends.
Dividends upon the outstanding shares of the Corporation, subject to the
provisions of the Articles of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting. Dividends may be paid
in cash, in property, or in shares of the Corporation, subject to the
provisions of the statutes and the Articles of Incorporation. The Board of
Directors may fix in advance a record date for the purpose of determining
shareholders entitled to receive payment of any dividend, such record date
to be not more than forty days prior to the payment date of such dividend,
or the Board of Directors may close the stock transfer books for such
purpose for a period of not more than forty days prior to the payment date
of such dividend. In the absence of any action by the Board of
Directors, the date upon which the Board of Directors adopts the resolution
declaring such dividend shall be the record date.
Section 6.02. Reserves.
There may be created by resolution of the Board of Directors out of the
earned surplus of the Corporation such reserve or reserves as the Directors
from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any
property of the corporation, or for such other purpose as the Directors
shall think beneficial to the Corporation, and the Directors may modify or
abolish any such reserve in the manner in which it was created.
Section 6.03. Checks.
All checks or demands for money and notes of the Corporation shall be signed
by such officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 6.04. Seal.
The Corporation seal shall have inscribed thereon the name of the
Corporation and the words "Corporate Seal." Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced.
Section 6.05. Indemnification.
Subsection 6.05.1. Definitions. In this Section:
(a) "Indemnitee" means (i) any present or former Director or officer of the
Corporation, while serving in any of the capacities referred to in
clause (I) hereof, served at the Corporation's request as a director,
officer, partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise, and (iii) any
person nominated or designated by (or pursuant to authority granted by)
the Board of Directors or any committee thereof to serve in any of the
capacities referred to in clauses (i) and (ii) hereof.
(b) "Official Capacity" means (i) when used with respect to a Director,
the office of Director of the Corporation, and (ii) when used with
respect to a person other than a Director, the elective or appointive
office of the Corporation held by such person or the employment or agency
relationship undertaken by such person on behalf of the Corporation,
but in each case does not include service for any other foreign or
domestic corporation or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise.
(c) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, any appeal in such an action, suit, or proceeding, and any
inquiry or investigation that could lead to such an action, suit, or
proceeding.
Subsection 6.05.2. Indemnification.
The Corporation shall indemnify every indemnitee against all judgments,
penalties (including excise and similar taxes), fines, amounts paid in
settlement, and reasonable expenses actually incurred by the Indemnitee
in connection with any proceeding to which he was, is, or is threatened
to be named defendant or respondent, or in which he was or is a witness
without being named a defendant or respondent, by reason, in whole or
in part, of his serving or having served, or having been nominated or
designated to serve, in any of the capacities referred to in Subsection
6.05.1., if it is determined in accordance with Subsection 6.05.4.
that the Indemnitee (i) conducted himself in good faith, (ii)
reasonably believed, in the case of conduct in his official capacity, that
his conduct was in the Corporation's best interests and, in all other
cases, that his conduct was at least not opposed to the Corporation's
best interests, and (iii) in the case of any criminal proceeding, had
no reasonable cause to believe that his conduct was unlawful; provided,
however, that in the event a determination is made that a person is entitled
to indemnification pursuant to this Subsection 6.05.2. in connection with a
proceeding brought by or on behalf of the Corporation, such
indemnification shall be limited to the reasonable expenses (including court
costs and attorney's fees) actually incurred by the Indemnitee in connection
with the proceeding. No indemnification shall be made under this Subsection
6.05.2. in respect of any judgment, penalty, fine, or amount paid in
settlement in connection with any proceeding in which such Indemnitee shall
have been (a) found liable on the basis that personal benefit was improperly
received by him, whether or not the benefit resulted from an action taken in
the Indemnitee's official capacity, or (b) found liable to the Corporation.
The termination of any proceeding by judgment, order, settlement, or
conviction, or on a plea of nolo contendere or its equivalent, is not of
itself determinative that the Indemnitee did not meet the requirements set
forth in clauses (i), (ii), or (iii) in the first sentence of this
Subsection 6.05.2.
Subsection 6.05.3. Successful Defense. Without limitation of Subsection
6.05.2. and in addition to the indemnification provided for in Subsection
6.05.2., the Corporation shall indemnify every Indemnitee against reasonable
expenses incurred by such person in connection with any proceeding in which
he is a witness or a named defendant or respondent because he served in any
of the capacities referred to in Section 6.05.1., if such person has been
wholly successful, on the merits or otherwise, in defense of the proceeding.
Subsection 6.05.4. Determinations. Any indemnification under Subsection
6.05.2. (unless ordered by a court of competent jurisdiction) shall be made
by the Corporation only upon a determination that indemnification of the
Indemnitee is proper in the circumstances because he has met the applicable
standard of conduct. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of Directors who, at the
time of such vote, are not named defendants or respondents in the
proceeding; (b) if such a quorum cannot be obtained, then by a majority vote
of a committee of the Board of Directors, duly designated to act in the
matter by a majority vote of all Directors (in which designation Directors
who are named defendants or respondents in the proceeding may participate),
such committee to consist solely of two or more Directors who, at the time
of the committee vote, are not named defendants or respondents in the
proceeding; (c) by special legal counsel selected by the Board of Directors
or a committee thereof by vote as set forth in clauses (a) or (b) of this
Subsection 6.05.4., or, if the requisite quorum of all of the Directors
cannot be obtained therefor and such committee cannot be established, by a
majority vote of all of the Directors (in which Directors who are named
defendants or respondents in the proceeding may participate); or (d) by the
shareholders in a vote that excludes the shares held by Directors that are
named defendants or respondents in the proceeding. Determination as to
reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible, except that, if the
determination that indemnification is permissible is made by special legal
counsel, determination as to reasonableness of expenses must be by special
legal counsel. In the event a determination is made under this Subsection
6.05.4. that the Director or officer has met the applicable standard of
conduct as to some matters but not as to others, amounts to be indemnified
may be reasonably prorated.
Subsection 6.05.5. Advancement of Expenses. Reasonable expenses (including
court costs and attorneys' fees) incurred by an Indemnitee who was or is a
witness or was, is, or is threatened to be made a named defendant or
respondent in a proceeding shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such proceeding after a
determination is made in the manner specified by Subsection 6.05.4. that the
facts then known to those making the determination (without undertaking
further investigation for purposes thereof) do not establish that
indemnification would be impermissible under Subsection 6.05.2. and upon
receipt by the Corporation of (i) a written affirmation by such Indemnitee
of his good faith belief that he has met the standard of conduct necessary
for indemnification by the Corporation under this Article and (ii) a written
undertaking by or on behalf of such Indemnitee to repay the amount paid or
reimbursed by the Corporation if it shall ultimately be determined that he
is not entitled to be indemnified by the Corporation as authorized in this
Article. Such written undertaking shall be an unlimited obligation of the
Indemnitee but need not be secured, and it may be accepted without reference
to financial ability to make repayment. Notwithstanding any other provision
of this Section, the Corporation may pay or reimburse expenses incurred by
an Indemnitee in connection with his appearance as a witness or other
participation in a proceeding at a time when he is not named a defendant or
respondent in the proceeding.
Subsection 6.06.6. Employee Benefit Plans. For purposes of this Section,
the Corporation shall be deemed to have requested an Indemnitee to serve an
employee benefit plan whenever the performance by him of his duties to the
Corporation also imposes duties on or otherwise involves services by him to
the plan or participants or beneficiaries of the plan. Excise taxes
assessed on an Indemnitee with respect to an employee benefit plan pursuant
to applicable law shall be deemed fines. Action taken or omitted by an
Indemnitee with respect to an employee benefit plan in the performance of
his duties for a purpose reasonably believed by him to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Corporation.
Subsection 6.05.7. Other Indemnification and Insurance. The
indemnification provided by this Section shall (i) not be deemed exclusive
of, or to preclude, any other rights to which those seeking indemnification
may at any time be entitled under the Corporation's Articles of
Incorporation, any law, agreement, or vote of shareholders or disinterested
Directors, or otherwise, or under any policy or policies of insurance
purchased and maintained by the Corporation on behalf of any Indemnitee,
both as to action in his official capacity and as to action in any other
capacity, (ii) continue as to a person who has ceased to be in the capacity
by reason of which he was an Indemnitee with respect to matters arising
during the period he was in such capacity, and (iii) inure to the benefit of
the heirs, executors, and administrators of such a person.
Subsection 6.05.8. Notice. Any indemnification of or advance of expenses
to a present or former Director of the Corporation in accordance with this
Article shall be reported in writing to the shareholders of the Corporation
with or before the notice or waiver of notice of the next shareholders'
meeting or with or before the next submission to shareholders of a consent
to action without a meeting and, in any case, within the twelve-month period
immediately following the date of the indemnification or advance.
Subsection 6.05.9. Construction. The indemnification provided by this
Section shall be subject to all valid and applicable laws, including,
without limitation, Article 73101.5 of the Colorado Corporation Code, and,
in the event this Section or any of the provisions hereof or the
indemnification contemplated hereby are found to be inconsistent with or
contrary to any such valid laws, the latter shall be deemed to control, and
this Section shall be regarded as modified accordingly, and, as so modified,
to continue in full force and effect.
Subsection 6.05.10. Continuing Offer, Reliance, etc. The provisions of
this Section (i) are for the benefit of, and may be enforced by, each
Director and officer of the Corporation, the same as if set forth in their
entirety in a written instrument duly executed and delivered by the
Corporation and such Director or officer and (ii) constitute a continuing
offer to all present and future Directors and officers of the Corporation.
The Corporation, by its adoption of these Bylaws, (i) acknowledges and
agrees that each present and future Director and officer of the Corporation
has relied upon and will continue to rely upon the provisions of this
Article in accepting and serving in any of the capacities referred to in
Subsection 6.05.1. of this Section, (ii) waives reliance upon, and all
notices of acceptance of, such provisions by such Directors and officers,
and (iii) acknowledges and agrees that no present or future Director or
officer of the Corporation shall be prejudiced in his right to enforce the
provisions of this Section in accordance with their terms by any act or
failure to act on the part of the Corporation.
Subsection 6.05.11. Effect of Amendment. No amendment, modification, or
repeal of this Section or any provision hereof shall in any manner
terminate, reduce, or impair the right of any past, present, or future
Director or officer of the Corporation to be indemnified by the Corporation,
nor the obligation of the Corporation to indemnify any such Director or
officer, under and in accordance with the provisions of the Section as in
effect immediately prior to such amendment, modification, or repeal with
respect to claims arising from or relating to matters occurring, in whole or
in part, prior to such amendment, modification, or repeal, regardless of
when such claims may arise or be asserted.
Section 6.06. Notices.
Whenever, under the provisions of the statutes or of the Articles of
Incorporation or of these Bylaws, notice is required to be given to any
Director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean personal notice, but any
such notice may be given in writing, by mail, postage prepaid, addressed
to such Director or shareholder at such address as appears on the books of
the Corporation. Any notice required or permitted to be given by mail shall
be deemed to be given at the time when the same shall be thus deposited in
the United States mail as aforesaid.
Section 6.07. Waiver of Notice.
Whenever any notice is required to be given to any shareholder or Director
of the Corporation under the provisions of the statutes or of the Articles
of Incorporation or of these Bylaws, a waiver thereof in writing signed by
the person or persons entitled to such notice, whether before or after the
time stated in such notice, shall be deemed equivalent to the giving of such
notice.
Section 6.08. Bond.
Each officer and each employee shall give the Corporation a bond in such
form, in such sum, and with such surety or sureties as shall be satisfactory
to the Board for the faithful performance of the duties of his office and
for the restoration to the Corporation in case of his death, resignation,
retirement, or removal from office of all books, papers, vouchers, money,
and other property, of whatever kind, in his possession or under his control
belonging to the Corporation. The Corporation shall pay all insurance
premiums for such bonds.
Section 6.09. Approval of Acts.
The Corporation shall be deemed to have waived any claim against any officer
of the Corporation for any act or deed approved or ratified by the Board of
Directors, and the Corporation and all stockholders shall be deemed to have
waived any claim against any Director or officer of the Corporation for any
act or deed approved or ratified by a majority of the stockholders present
in person or by proxy at any meeting of stockholders of the Corporation,
whether or not such meeting was called for such purpose and whether or not
the notice of such meeting specified that such matter is to be considered or
voted upon.
ARTICLE VII
Amendments
Section 7.01. By Stockholders.
These Bylaws may be altered, amended, or repealed at any meeting of the
shareholders at which a quorum is present or represented, by the affirmative
vote of the holders of a majority of the shares present or represented at
such meeting and entitled to vote thereat.
Section 7.02. By Directors.
These Bylaws may be altered, amended, or repealed at any meeting of the
Board of Directors at which a quorum is present, by the affirmative vote of
a majority of the Directors present at such meeting, provided notice of the
proposed alteration, amendment, or repeal be contained in the notice of such
meeting.
As Amended April 27, 1971
And on June 21, 1972
And on November 13, 1974
And on November 15, 1979
And on May 21, 1980
And on December 30, 1986
And on April 24, 1987
EXHIBIT 10(a) - MATERIAL CONTRACTS
NATIONAL WESTERN LIFE INSURANCE COMPANY
NON-QUALIFIED DEFINED BENEFIT PLAN
Effective
January 1, 1991
Table of Contents
ARTICLE I - Purpose, Definitions and Construction
1.1 Purpose of the Plan
1.2 Definitions
1.3 Construction
ARTICLE II - Eligibility
2.1 Eligibility Requirements
ARTICLE III - Funding
3.1 Funding
ARTICLE IV - Benefits Under the Plan
4.1 Normal Retirement Benefit
4.2 Late Retirement Benefit
4.3 Early Retirement Benefit
4.4 Disability Retirement Benefit
4.5 Benefit At Termination of Employment
4.6 Pre-Retirement Death Benefit
ARTICLE V - Determination of Payment of Account
5.1 Form of Payment
5.2 Special Payment Provision
ARTICLE VI - Miscellaneous
6.1 Administration of the Plan
6.2 Amendment of the Plan
6.3 Termination of the Plan
6.4 Notices to Participants
6.5 Non-Alienation
ARTICLE I
PURPOSE, DEFINITIONS AND CONSTRUCTION
1.1 Purpose of the Plan
This Plan is established by the Employer to provide an additional benefit
for certain select management employees, who are defined below, to augment
the retirement benefit which is otherwise provided to such employees under
the tax qualified defined benefit plan maintained by the Employer. This
Plan is not intended to, and does not, qualify under Sections 401(a) and
501(a) of the Internal Revenue Code, and is designed to be exempt from the
requirements of the Employee Retirement Income Security Act.
1.2 Definitions
The following terms, when found in the Plan, shall have the meanings set
forth below:
(a) Accrued Benefit: The benefit determined under Article IV hereof,
payable at the Participant's Normal Retirement Date, which has accrued at
any time under the provisions of the Plan, determined as if the Participant
had then terminated his employment with the Employer.
(b) Actuarial Equivalent: The equivalent in value of amounts expected to
be received under the Plan under different forms of payment, determined
based upon an interest assumption of eight and one-half percent (8.5%) and a
mortality assumption based on the 1984 Unisex Pension (UP84) Mortality
Table.
(c) Beneficiary: The person(s) and/or the trust(s) created for the benefit
of a person or persons who are the natural object of the Participant's
bounty, or the Participant's estate, whichever is designated by the
Participant to receive the benefits payable hereunder upon his death.
(d) Code: The Internal Revenue Code of 1986, as it may be amended from
time to time, including any successor.
(e) Compensation: Compensation shall be the total cash remuneration paid
by the Employer during each Plan Year, as reported on Form W-2 or its
subsequent equivalent, including bonuses, fees, commissions, amounts
deferred under Code Sections 401(k) and 125, and amounts deferred under any
other non-qualified program of salary reduction, but excluding any NWAMI
Compensation. Compensation hereunder shall not be subject to any
limitations applicable to tax-qualified plans, such as pursuant to Code
Sections 401(a)(17) or 415.
(f) Disability: A physical or mental condition of a Participant resulting
from bodily injury, disease or mental disorder which renders him incapable
of continuing any gainful occupation. The determination of Disability shall
be made either as a result of the Participant qualifying for a pension under
the federal Social Security Act, or based upon such evidence as is
determined to be applicable by the Employer in its sole discretion.
(g) Early Retirement Date: The first day of the month which is prior to a
Participant's Normal Retirement Date, but follows his attainment of age
fifty-five (55), completion of fifteen (15) Years of Service, and his
termination of employment from the Employer.
(h) Effective Date: January 1, 1991.
(i) Eligible Employee: A person employed by the Employer in the position
of Senior Vice President or above, or a person who has been designated by
the President of the Employer, by name, position, or in any other manner, as
being in the class of persons who are eligible to participate in the Plan.
Such latter designation shall be made in writing by the President of the
Employer. However, no person who is an employee of the Employer shall be
selected as an Eligible Employee except a member of the select group of
management or highly compensated employees of the Employer, as such term is
defined under Section 201 of the Employee Retirement Income Security Act of
1974, and regulations and rulings promulgated thereunder by the Department
of Labor.
(j) Employer: National Western Life Insurance Company, a corporation
organized and existing under the laws of the State of Texas, and any
successor or successors.
(k) Normal Retirement Age: The date on which a Participant attains age
sixty-five (65).
(l) Normal Retirement Date: The first day of the month coincident with or
next following a Participant's Normal Retirement Age.
(m) Participant: An Eligible Employee who has met the requirements
Section 2.1 hereof, and whose participation has not been terminated.
(n) Plan: The National Western Life Insurance Company Non-Qualified Defined
Benefit Plan, as set forth herein, and as it may be amended from time to
time.
(o) Plan Year: The twelve month period beginning on January 1 and ending
on December 31 each year.
(p) Qualified Plan: The National Western Life Insurance Company Pension
Plan, as it may be amended from time-to-time.
(q) Service: The period of a Participant's employment considered in the
determination of his eligibility hereunder and in the calculation of the
vested amount of his benefits. A Participant's Service shall be determined
in twelve (12) month periods, commencing with the twelve (12) month period
that begins on his date of hire with the Employer, and thereafter based on
Plan Years, including the Plan Year within which falls his date of hire.
During such twelve (12) month periods, a Year of Service will be granted if
the Participant completes at least one thousand (1,000) Hours of Service.
An Hour of Service is each hour of which the Participant is paid by virtue
of his employment with the Employer, including hours paid but not worked,
and including hours completed prior to the date he actually becomes a
Participant hereunder.
1.3 Construction
The masculine gender, where appearing in the Plan, shall be deemed to
include the feminine gender, and the singular may indicate the plural,
unless the context clearly indicates the contrary. The words "hereof",
"herein", "hereunder" and other similar compounds of the word "here" shall,
unless otherwise specifically stated, mean and refer to the entire Plan, not
to any particular provision or Section. Article and Section headings are
included for convenience of reference and are not intended to add to, or
subtract from, the terms of the Plan.
ARTICLE II
ELIGIBILITY
2.1 Eligibility Requirements
An Eligible Employee shall become a Participant hereunder as of the first
January 1 or July 1 which is coincident with or next follows his completion
of one (1) Year of Service.
ARTICLE III
FUNDING
3.1 Funding
The Employer is under no obligation to earmark or set aside any funds toward
the funding of this Plan. However, it is intended that the benefits to be
provided to each Participant hereunder shall be paid from the assets of the
National Western Life Insurance Company Non-Qualified Plans Trust, designed
to be an irrevocable grantor trust under Code Section 671. However, if the
assets of such trust are not available or are insufficient to pay such
benefits, then benefits hereunder shall be paid from the general assets of
the Employer.
ARTICLE IV
BENEFITS UNDER THE PLAN
4.1 Normal Retirement Benefit
The benefit to be paid pursuant to this Plan to a Participant who retires at
his Normal Retirement Date shall be equal to a. less b. less c., but in no
event greater than d., where:
(a) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, and
(b) equals the benefit which actually becomes payable under the terms of
the Qualified Plan at the Participant's Normal Retirement Date, and
(c) equals the Actuarially Equivalent life annuity which may be provided by
an accumulation of two percent (2%) of the Participant's Compensation for
each year of Service on and after the Effective Date hereunder, accumulated
at an assumed interest rate of eight and one-half percent (8.5%) to his
Normal Retirement Date, and
(d) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, except
that the proration over fifteen (15) years shall instead be calculated over
thirty (30) years (i. e. the benefit shall equal fifty percent (50%) of
Final Average Compensation less fifty percent (50%) of Primary Insurance
Amount as defined under the Qualified Plan, for thirty (30) or more years of
service at Normal Retirement Date or, alternatively, each portion of the
formula shall be determined as One and two-thirds percent (1.667%) for each
year of service to the maximum thirty (30) years of service), and except
that NWAMI Compensation normally excluded by reason of Section 1.2(e) hereof
shall be included, less the benefit provided under the Qualified Plan.
The foregoing benefit shall be payable as of the Participant's Normal
Retirement Date, in accordance with Article V hereof as to form and duration
of payment.
4.2 Late Retirement Benefit
The benefit to be paid pursuant to this Plan to a Participant who retires
after his Normal Retirement Date shall be equal to a. less b. less c.,
but not greater than d., where:
(a) equals the Actuarial Equivalent of the benefit which would have been
payable at the Participant's Normal Retirement Date under the terms of the
Qualified Plan as of December 31, 1990, as if that plan had continued
without change, and without regard to limitations applicable under Code
Sections 401(a)(17) and 415, and
(b) equals the benefit which actually becomes payable under the terms of
the Qualified Plan at the Participant's Late Retirement Date, and
(c) equals the Actuarially Equivalent life annuity which may be provided by
an accumulation of two percent (2%) of the Participant's Compensation for
each year of Service on and after the Effective Date hereunder, accumulated
at an assumed interest rate of eight and one-half percent (8.5%) to his Late
Retirement Date, and
(d) equals the benefit which would have been payable at the Participant's
Late Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, except
that the proration over fifteen (15) years shall instead be calculated over
thirty (30) years (i. e. the benefit shall equal fifty percent (50%) of
Final Average Compensation less fifty percent (50%) of Primary Insurance
Amount as defined under the Qualified Plan, for thirty (30) or more years of
service at Late Retirement Date or, alternatively, each portion of the
formula shall be determined as One and two-thirds percent (1.667%) for each
year of service to the maximum thirty (30) years of service), and except
that NWAMI Compensation normally excluded by reason of Section 1.2(e) hereof
shall be included, less the benefit provided under the Qualified Plan.
The foregoing benefit shall be payable as of the first day of the month
following the Participant's termination of employment from the Employer, in
accordance with Article V hereof as to form and duration of payment.
4.3 Early Retirement Benefit
The benefit to be paid pursuant to this Plan to a Participant who retires
after his Normal Retirement Date shall be equal to a. less b. less c., but
not greater than d., where:
(a) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, multiplied
by a fraction, the numerator of which is his years of Service as of his
Early Retirement Date, and the denominator of which is his years of Service
he would have earned had his employment continued uninterrupted to his
Normal Retirement Date, and
(b) equals the benefit which would be payable under the terms of the
Qualified Plan if his retirement under such plan were effective as of the
same date, and
(c) equals the Actuarially Equivalent life annuity which may be provided by
an accumulation of two percent (2%) of the Participant's Compensation for
each year of Service on and after the Effective Date hereunder, accumulated
at an assumed interest rate of eight and one-half percent (8.5%) to his
Early Retirement Date; and
(d) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, except
that the proration over fifteen (15) years shall instead be calculated over
thirty (30) years (i. e. the benefit shall equal fifty percent (50%) of
Final Average Compensation less fifty percent (50%) of Primary Insurance
Amount as defined under the Qualified Plan, for thirty (30) or more years of
service at Early Retirement Date or, alternatively, each portion of the
formula shall be determined as One and two-thirds percent (1.667%) for each
year of service to the maximum thirty (30) years of service), and except
that NWAMI Compensation normally excluded by reason of Section 1.2(e) hereof
shall be included, less the benefit provided under the Qualified Plan. Such
benefit shall then be multiplied by a fraction, the numerator of which is
his years of Service as of his Early retirement Date, and the denominator of
which is his years of Service he would have earned had his employment
continued uninterrupted to his Normal Retirement Date.
The foregoing benefit shall be payable as of the Participant's Early
Retirement Date, in accordance with Article V hereof as to form and duration
of payment. Such benefit shall be reduced to reflect earlier commencement,
by one fifteenth (1/15th) for each of the first five (5) years and one
thirtieth (1/30th) for each of the next five (5) years by which the Early
Retirement Date precedes the Participant's Normal Retirement Date, with such
reduction interpolated between whole years of completed months.
4.4 Disability Retirement Benefit
If a Participant who has completed five (5) years of Service becomes
Disabled, the benefit to be paid pursuant to this Plan shall be equal to a.
less b. less c., but not greater than d., where:
(a) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, and
(b) equals the benefit which actually becomes payable under the terms of
the Qualified Plan at the Participant's Disability Retirement Date, and
(c) equals the Actuarially Equivalent life annuity which may be provided by
an accumulation of two percent (2%) of the Participant's Compensation
(assuming his Compensation continues unchanged from his last complete year
of employment) for each year of Service on and after the Effective Date
hereunder, accumulated at an assumed interest rate of eight and one-half
percent (8.5%) to his Normal Retirement Date, and
(d) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, except
that the proration over fifteen (15) years shall instead be calculated over
thirty (30) years (i. e. the benefit shall equal fifty percent (50%) of
Final Average Compensation less fifty percent (50%) of Primary Insurance
Amount as defined under the Qualified Plan, for thirty (30) or more years of
service at Normal Retirement Date or, alternatively, each portion of the
formula shall be determined as One and two-thirds percent (1.667%) for each
year of service to the maximum thirty (30) years of service), and except
that NWAMI Compensation normally excluded by reason of Section 1.2(e) hereof
shall be included, less the benefit provided under the Qualified Plan.
The foregoing benefit shall be payable as of the Participant's Normal
Retirement Date, in accordance with Article V hereof as to form and duration
of payment.
4.5 Benefit at Termination of Employment
The benefit to be paid pursuant to this Plan to a Participant who terminates
his employment at a time when he is not entitled to a Normal Retirement,
Late Retirement, Early Retirement, Disability Retirement, or Death Benefit
shall be equal to a. less b. less c., but not greater than d., multiplied
by e., where:
(a) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, multiplied
by a fraction, the numerator of which is his years of Service as of his date
of termination of employment with the Employer, and the denominator of which
is his years of Service he would have earned had his employment continued
uninterrupted to his Normal Retirement Date, and
(b) equals the benefit which would be payable under the terms of the
Qualified Plan if his retirement under such plan were effective as of the
same date, and
(c) equals the Actuarially Equivalent life annuity which may be provided by
an accumulation of two percent (2%) of the Participant's Compensation for
each year of Service on and after the Effective Date hereunder, accumulated
at an assumed interest rate of eight and one-half percent (8.5%) to his date
of termination of employment with the Employer.
(d) equals the benefit which would have been payable at the Participant's
Normal Retirement Date under the terms of the Qualified Plan as of December
31, 1990, as if that plan had continued without change, and without regard
to limitations applicable under Code Sections 401(a)(17) and 415, except
that the proration over fifteen (15) years shall instead be calculated over
thirty (30) years (i. e. the benefit shall equal fifty percent (50%) of
Final Average Compensation less fifty percent (50%) of Primary Insurance
Amount as defined under the Qualified Plan, for thirty (30) or more years of
service at Normal Retirement Date or, alternatively, each portion of the
formula shall be determined as One and two-thirds percent (1.667%) for each
year of service to the maximum thirty (30) years of service), less the
benefit provided under the Qualified Plan, and except that NWAMI
Compensation normally excluded by reason of Section 1.2(e) hereof shall be
included, such benefit multiplied by a fraction, the numerator of which is
his years of Service as of his date of termination of employment with the
Employer, and the denominator of which is his years of Service he would have
earned had his employment continued uninterrupted to his Normal Retirement
Date, and
(e) is one hundred percent (100%) if the Participant is at a level equal to
or higher than Executive Vice President, and in all other cases is
determined based on the following:
<TABLE>
<CAPTION>
Year of Service Percent
<S> <C>
Less than 3 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years or more 100%
</TABLE>
The foregoing benefit shall be payable as of the Participant's Normal
Retirement Date, unless at his date of termination of employment with the
Employer he had completed at least fifteen (15) years of Service, in which
event it shall be payable as of the first day of the month coincident with
or following his fifty-fifth (55th) birthday, reduced in accordance with the
provisions of Section 4.3 hereof. The benefit shall be paid in accordance
with Article V hereof as to form and duration of payment.
4.6 Pre-Retirement Death Benefit
If a Participant dies while in the active service of the Employer, his
Beneficiary shall be entitled to receive the Actuarial Equivalent of his
Accrued Benefit that would have been payable at his Normal Retirement Date.
Such benefit shall be payable as of the first day of the month coinciding
with or next following the date of the Participant's death, in accordance
with Article V hereof as to form and duration of payment.
If a Participant dies following his termination of employment at a time when
he is entitled to a deferred benefit under Section 4.5 hereof, his
Beneficiary shall be entitled to receive the Actuarial Equivalent of his
vested Accrued Benefit that would have been payable at his Normal Retirement
Date. Such benefit shall be payable as of the first day of the month
coinciding with or next following the date of the Participant's death, in
accordance with Article V hereof as to form and duration of payment.
ARTICLE V
DETERMINATION OF PAYMENT OF ACCOUNT
5.1 Form of Payment
A Participant or Beneficiary entitled to payment shall receive his vested
Accrued Benefit payable in the form of an annuity purchased from a
commercial insurer, in a form as available from such insurer, and based on
the applicable market rates at that time. The election of a specific form
of payment under the annuity contract shall be made in writing, prior to
receipt of first payment, and shall be irrevocable.
5.2 Special Payment Provision
As to the Participants whose position with the Employer is that of either
Chairman of the Board or President, an election shall be made available to
such person, as of the date of execution of this Plan, relative to the
payment of his benefit in the form of an Actuarially Equivalent single sum
value. Such election shall provide that payment of the Participant's
benefit, at whatever date it becomes payable, shall either be made as
permitted under Section 5.1 hereof, or in the alternative lump sum.
Further, such election shall allow such Participants to elect to receive
payment, notwithstanding any other provisions of this Plan, either at the
earlier of date of termination of employment from the Employer or Normal
Retirement Date, or the later of date of termination of employment from the
Employer or Normal Retirement Date. The election shall be provided only one
time, shall be made in writing, and shall be irrevocable.
ARTICLE VI
MISCELLANEOUS
6.1 Administration of the Plan
The Plan shall be administered by the Employer. The books and records of
the Plan shall be maintained by the Employer at its expense, and no member
of the Board of Directors of the Employer, or any employee of the Employer
acting on its behalf, shall be liable to any person for any action taken or
omitted in connection with the administration of the Plan, unless
attributable to his own fraud or willful misconduct.
6.2 Amendment of the Plan
The Plan may be amended, in whole or in part, from time-to-time, by the
Board of Directors of the Employer, without the consent of any other party.
6.3 Termination of the Plan
The Plan may be terminated, at any time, by action of the Board of
Directors, without the consent of any other party. The termination of this
Plan shall not result in the granting of any additional rights to any
Participant, such as full vesting of his Account, except as already provided
under the terms of Article IV hereof.
6.4 Notices to Participants
From time-to-time, the Employer shall provide a Participant with a statement
regarding his Accrued Benefit. Further, a Participant will be provided
written notice of any amendment of the Plan that affects his rights herein,
and of the termination of the Plan.
6.5 Non-Alienation
To the extent permitted by law, the right of any Participant or Beneficiary
in any Account balance hereunder shall not be subject in any manner to
attachment or other legal process for the debts of such Participant or
Beneficiary, and any such Account balance shall not be subject to
anticipation, alienation, sale, transfer, assignment or encumbrance.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising the National Western Life Insurance Company
Non-Qualified Defined Benefit Plan, NATIONAL WESTERN LIFE INSURANCE COMPANY,
as the Employer, has caused its seal to be affixed hereto and these presents
to be duly executed in its name and behalf by its proper officers thereunto
authorized this 26th day of July, 1991.
ATTEST: NATIONAL WESTERN LIFE
INSURANCE COMPANY
/S/ Margaret M. Simpson /S/ William P. Tedrow
Asst. Secretary Name:
Title:
EXHIBIT 10(c) - MATERIAL CONTRACTS
NATIONAL WESTERN LIFE INSURANCE COMPANY
NON-QUALIFIED DEFERRED COMPENSATION PLAN
Effective
April 1, 1995
Table of Contents
ARTICLE I - Purpose, Definitions and Construction
1.1 Purpose of the Plan
1.2 Definitions
1.3 Construction
ARTICLE II - Eligibility
2.1 Initial Eligibility Requirements
2.2 Eligibility Requirements for Subsequent Plan Years
ARTICLE III - Contributions to the Plan
3.1 Participant Contributions
3.2 Employer Mandatory Matching Contributions
3.3 Employer Discretionary Matching Contributions
3.4 Employer Mandatory Non-Matching Contributions
3.5 Establishment of Account
ARTICLE IV - Allocation and Investment
4.1 Allocation
4.2 Establishment of Trust
4.3 Allocation of Investment Earnings
ARTICLE V - Determination of Payment of Account
5.1 Vesting of Account
5.2 Determination of Account
5.3 Timing of Payment
5.4 Form of Payment
ARTICLE VI - Miscellaneous
6.1 Administration of the Plan
6.2 Amendment of the Plan
6.3 Termination of the Plan
6.4 Notices to Participants
6.5 Non-Alienation
ARTICLE I
PURPOSE, DEFINITIONS AND CONSTRUCTION
1.1 Purpose of the Plan
This Plan is established by the Employer to permit certain select management
employees, who are defined below, to defer the payment of a percentage of
their Compensation, and in addition thereto, to provide for certain Employer
contributions to augment such employees' retirement income. This Plan is
not intended to, and does not, qualify under Sections 401(a) and 501(a) of
the Internal Revenue Code, and is designed to be exempt from the
requirements of the Employee Retirement Income Security Act.
1.2 Definitions
The following terms, when found in the Plan, shall have the meanings set
forth below:
(a) Account Balance: At any time, the total of all amounts credited under
the terms of the Plan to a Participant, the rights to which are determined
under the Plan.
(b) Beneficiary: The person(s) and/or the trust(s) created for the benefit
of a person or persons who are the natural object of the Participant's
bounty, or the Participant's estate, whichever is designated by the
Participant to receive the benefits payable hereunder upon his death.
(c) Code: The Internal Revenue Code of 1986, as it may be amended from
time to time, including any successor.
(d) Committee: The individuals appointed by the Board of Directors of the
Employer, and know as the Administrative Committee, to manage and direct the
operation and administration of the Plan.
(e) Compensation: Compensation shall be the total cash remuneration paid
by the Employer during each Plan Year, as reported on Form W-2 or its
subsequent equivalent, including bonuses, fees, commissions, amounts
deferred under Code Sections 401(k) and 125, and amounts deferred under any
other non-qualified program of salary reduction. Compensation hereunder
shall not be subject to any limitations applicable to tax-qualified plans,
such as pursuant to Code Sections 401(a)(17) or 415.
(f) Disability: A physical or mental condition of a Participant resulting
from bodily injury, disease or mental disorder which renders him incapable
of continuing any gainful occupation. The determination of Disability shall
be made either as a result of the Participant qualifying for a pension under
the federal Social Security Act, or based upon such evidence as is
determined to be applicable by the Employer in its sole discretion.
(g) Effective Date: April 1, 1995.
(h) Eligible Employee: A person employed by the Employer in the position
of Senior Vice President or above, or a person who has been designated by
the President of the Employer, by name, position, or in any other manner, as
being in the class of persons who are eligible to participate in the Plan.
Such latter designation shall be made in writing by the President of the
Employer. However, no person who is an employee of the Employer shall be
selected as an Eligible Employee except a member of the select group of
management or highly compensated employees of the Employer, as such term is
defined under Section 201 of the Employee Retirement Income Security Act of
1974, and regulations and rulings promulgated thereunder by the Department
of Labor.
(i) Employer: National Western Life Insurance Company, a corporation
organized and existing under the laws of the State of Texas, and any
successor or successors.
(j) Hours of Service: An Hour of Service is each hour for which the
Participant is paid by virtue of his employment with the Employer, including
hours paid but not worked, and including hours completed prior to the date
he actually becomes a Participant hereunder.
(k) Initial Participation Period: The time period beginning when the
Eligible Employee first completes an Hour of Service until the first January
1 or July 1 which is coincident with or next follows his completion of one
(1) year of service.
(l) Normal Retirement Age: The date on which a Participant attains age
sixty-five (65).
(m) Normal Retirement Date: The first day of the month coincident with or
next following a Participant's Normal Retirement Age.
(n) Participant: An Eligible Employee who has met the requirements
Section 2.1 hereof, and whose participation has not been terminated.
(o) Plan: The National Western Life Insurance Company Non-Qulified
Deferred Compensation Plan, as set forth herein, and as it may be amended
from time to time.
(p) Plan Quarter: The three month period beginning on January 1, April 1,
July 1 or October 1 and ending on March 31, June 30, September 30 or
December 31.
(q) Plan Year: The twelve month period beginning on January 1 and ending
on December 31 each year.
(r) Valuation Date: The date as of which the Plan is valued and gains or
losses allocated, which shall be March 31, June 30, September 30 and
December 31 of each Plan Year. However, the Committee may use more frequent
Valuation Dates if it so desires.
(s) Years of Service: The period of an Eligible Employee's employment
considered in the calculation of the vested amount of his benefits. An
Eligible Employee's service shall be determined in twelve (12) month
periods, based on Plan Years, including the Plan Year within which falls
his date of hire. During such twelve (12) month periods, a Year of Service
will be granted if the Eligible Employee completes at least one thousand
(1,000) Hours of Service.
1.3 Construction
The masculine gender, where appearing in the Plan, shall be deemed to
include the feminine gender, and the singular may indicate the plural,
unless the context clearly indicates the contrary. The words "hereof",
"herein", "hereunder" and other similar compounds of the word "here" shall,
unless otherwise specifically stated, mean and refer to the entire Plan, not
to any particular provision or Section. Article and Section headings are
included for convenience of reference and are not intended to add to, or
subtract from, the terms of the Plan.
ARTICLE II
ELIGIBILITY
2.1 Initial Eligibility Requirements
An Eligible Employee may elect to become a Participant hereunder on the date
the Eligible Employee first completes an Hour of Service for the Employer.
An election to become a Participant shall be made no later than 30 days
after the date the Eligible Employee first completes an Hour of Service for
the Employer.
2.2 Eligibility Requirements for Subsequent Plan Years
An Eligible Employee who does not become a Participant when first eligible
under the provisions of Section 2.1 may elect to become a Participant
hereunder as of the first day of any subsequent Plan Year by executing an
enrollment form at least 30 days prior to the beginning of such Plan Year.
ARTICLE III
CONTRIBUTIONS TO THE PLAN
3.1 Participant Contributions
Each Employee who becomes a Participant in accordance with Article II hereof
may elect to make contributions to the Plan on a pre-tax basis equal to full
percentage increments of his Compensation for the quarter, from one percent
(1%) to fifty percent (50%).
Each Participant's pre-tax salary deferral agreement shall be made in
writing on such forms as the Committee shall prescribe, and shall be
effective on a Plan Year basis, or until changed in accordance with
subsequent provisions of this Section 3.1. A Participant's election
hereunder may be completely discontinued at any time, and may be changed as
of any Valuation Date, provided that notice of such change is received at
least thirty (30) days prior to such Valuation Date for Compensation to be
earned for services rendered following such date, or within such time frame
as is approved by the Committee. If, as of any Valuation Date, a
Participant does not submit a new election, his previous election shall be
deemed to continue.
3.2 Employer Mandatory Matching Contributions
The Employer shall make an Employer mandatory matching contribution each
Plan Quarter equal to fifty percent (50%) of the Participant's contributions
made under Section 3.1 of this Plan, limited to no more than two percent
(2%) of the Participant's Compensation for the quarter, that exceeds, on a
year to date basis, the OBRA'93 annual compensation limit ($150,000 in
1995), as adjusted by the Commissioner for increases in the cost of living
in accordance with Section 401(a)(17)(B) of the Code.
However, during any Participant's Initial Participation Period, the Employer
shall make an Employer mandatory matching contribution each Plan Quarter
equal to fifty percent (50%) of the Participant's contributions made under
Section 3.1 of this Plan, limited to no more than two percent (2%) of the
Participant's Compensation for the quarter.
3.3 Employer Discretionary Matching Contributions
The Employer may make an additional matching contribution each Plan Quarter,
to be known as an Employer discretionary matching contribution, equal to
fifty percent (50%) of the Participant's contributions made under Section
3.1 of this Plan, limited to no more than two percent (2%) of the
Participant's Compensation for the quarter.
The determination as to whether an Employer discretionary matching
contribution shall be made is in the sole discretion of the President of the
Employer, determined on an quarterly basis.
3.4 Employer Mandatory Non-Matching Contributions
The Employer shall make an Employer mandatory non-matching contribution each
Plan Quarter equal to two percent (2%) of the participant's Compensation for
the quarter that exceeds, on a year to date basis, the OBRA'93 annual
compensation limit ($150,000 in 1995), as adjusted by the Commissioner for
increases in the cost of living in accordance with Section 401(a)(17)(B) of
the Code.
However, during any Participant's Initial Participation Period, the Employer
shall make an Employer mandatory non-matching contribution each Plan Quarter
equal to two percent (2%) of the Participant's Compensation for the quarter.
3.5 Establishment of Account
Each Participant herein shall have maintained in his name an Account, to
which shall be credited his salary reduction contributions, as well as his
allocable share of Employer contributions made under the terms of this
Article. A Participant's Account shall reflect his share of such
contributions, including his allocable share of any gains and losses
pursuant to Section 4.3 hereof.
ARTICLE IV
ALLOCATION AND INVESTMENT
4.1 Allocation
Contributions made pursuant to Section 3.1 hereof shall be allocated to the
Account of the Participant from whose Compensation such amounts were
reduced, as soon as practicable following the date of actual salary
reduction.
Any contribution made pursuant to Section 3.2, 3.3 and 3.4 hereof shall be
allocated to each participant who is in the active employ of the Employer as
of the last day of the Plan Quarter for which such contribution was made,
unless that Participant's termination of employment is as a result of his
death, Disability, attainment of Normal Retirement Age, or such other cause
as shall be deemed as acceptable by the Board of Directors of the Employer.
4.2 Establishment of Trust
The Employer shall establish a trust fund with regard to the Accounts
hereunder, designed to be an irrevocable grantor trust under Code Section
671.
4.3 Allocation of Investment Earnings
Investment earnings shall be credited as of the last day of each calendar
quarter, based on the actual investment results for such quarter. The
earnings to be allocated will be allocated to each Participant's Account in
the proportion that the Participant's Account balance at the beginning of
the quarter, less any withdrawals during the quarter, plus one-half (1/2) of
any additions made to the Account during the quarter, bears to the total of
all such Accounts.
If more than one investment fund is maintained, each Participant shall
provide an election as to the investment of his Accounts. Each
Participant's investment election shall be made in writing, on such forms as
the Committee shall prescribe, and shall remain effective hereunder until
changed. A Participant's election hereunder may be changed as of any
Valuation Date, provided that notice of such change is received at least
thirty (30) days prior to such Valuation Date, or within such time frame as
is approved by the Committee.
ARTICLE V
DETERMINATION OF PAYMENT OF ACCOUNT
5.1 Vesting of Account
The Participant's Account derived from contributions made under Section 3.1
hereof shall be one hundred percent (100%) vested and non-forfeitable at all
times.
As to a Participant who is at the level of Executive Vice President or
above, his total Account shall be one hundred percent (100%) vested and
non-forfeitable at all times.
As to all other Participants, and as to the amount of such a Participant's
Account other than that derived from contributions made pursuant to Section
3.1 hereof, such Account shall become one hundred percent (100%) vested and
non-forfeitable in accordance with the following:
(a) Upon the retirement of a Participant at or after his Normal Retirement
Date.
(b) Upon a determination of Disability in accordance with Section 1.2(e)
hereof.
(c) Upon the death of a Participant.
Prior to the occurrence of any of the foregoing, such a Participant shall
become vested in his Account in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service
With the Employer Vested Percentage
<S> <C>
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
5.2 Determination of Account
As of the date of a Participant's termination of employment with the
Employer (including termination due to any of the events specified under
Section 5.1 hereof), his vested Account balance shall be determined in
accordance with the provisions of Section 5.1 above. Thereafter, as of the
last day of the Plan Quarter coincident with or next following his
termination of employment, the non-vested portion of his Account shall be
forfeited. Such forfeited amount shall be used to first reduce the Employer
contributions specified under Sections 3.2, 3.3 and 3.4 hereof and any
remaining amounts shall be reallocated among all Participants eligible to
receive Employer contributions as of such date under Section 4.1 hereof, in
the proportion that such Participant's Compensation for the Plan Quarter
bears to the Compensation for the Plan Quarter of all Participants eligible
for such contribution.
5.3 Timing of Payment
A Participant, or in the case of a benefit due to the death of a
Participant, his Beneficiary, shall be entitled to payment of his vested
Account balance immediately following the termination of his employment
status with the Employer.
Payment shall be made as soon as administratively feasible following such
event, based on the Participant's Account balance as of the last day of the
calendar quarter next preceding the date of distribution. However, if the
Employer determines that such payment would not be in the best interest of
remaining participants due to fluctuations in the value of the trust, no
distribution shall be made until a subsequent value of the trust is
determined, as of the last day of the calendar quarter in which the event
requiring distribution occurs.
5.4 Form of Payment
A Participant or Beneficiary entitled to payment shall receive a single lump
sum payment.
ARTICLE VI
MISCELLANEOUS
6.1 Administration of the Plan
The Plan shall be administered by the Employer. The books and records of
the Plan shall be maintained by the Employer at its expense, and no member
of the Board of Directors of the Employer, or any employee of the Employer
acting on its behalf, shall be liable to any person for any action taken or
omitted in connection with the administration of the Plan, unless
attributable to his own fraud or willful misconduct.
6.2 Amendment of the Plan
The Plan may be amended, in whole or in part, from time-to-time, by the
Board of Directors of the Employer, without the consent of any other party.
6.3 Termination of the Plan
The Plan may be terminated, at any time, by action of the Board of
Directors, without the consent of any other party. The termination of this
Plan shall not result in the granting of any additional rights to any
Participant, such as, to the extent not funded, full vesting of his
Account, except as already provided under the terms of Section 5.1 hereof.
6.4 Notices to Participants
From time-to-time, the Employer shall provide a Participant with an
accounting of the value of his Account. Further, a Participant will be
provided written notice of any amendment of the Plan that affects his rights
herein, and of the termination of the Plan.
6.5 Non-Alienation
To the extent permitted by law, the right of any Participant or Beneficiary
in any Account balance hereunder shall not be subject in any manner to
attachment or other legal process for the debts of such Participant or
Beneficiary, and any such Account balance shall not be subject to
anticipation, alienation, sale, transfer, assignment or encumbrance.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising the National Western Life Insurance Company
Non-Qualified Deferred Compensation Plan as amended and restated effective
April 1, 1995, NATIONAL WESTERN LIFE INSURANCE COMPANY, as the Employer, has
caused its seal to be affixed hereto and these presents to be duly executed
in its name and behalf by its proper officers thereunto authorized this 27th
day of March, 1995.
ATTEST: NATIONAL WESTERN LIFE
INSURANCE COMPANY
/S/ James P. Payne /S/ Ross R. Moody
Secretary Name:
Title:
EXHIBIT 10(d) - MATERIAL CONTRACTS
FIRST AMENDMENT TO THE
NATIONAL WESTERN LIFE INSURANCE COMPANY
NON-QUALIFIED DEFERRED COMPENSATION PLAN
WHEREAS, the Plan was originally established effective April 1, 1995; and
WHEREAS, Section 6.2 of the Plan permits the Company to amend the Plan at
anytime; and
WHEREAS, the Company desires to change certain provisions of the Plan;
NOW THEREFORE, the Plan is hereby amended as follows:
1. Section 1.2(k), Initial Participation Period, is hereby replaced with the
following, effective July 1, 1995:
"The time period beginning when the Eligible Employee first completes and Hour
of Service until the first January 1, April 1, July 1 or October 1 which is
coincident with or next follows the earlier of (i) six (6) months after the
date the Employee first completes an Hour of Service for the Employer,
provided the Employee completes five hundred (500) Hours of Service during
such six (6) month period or (ii) the date he completes one (1) Year of
Service."
IN WITNESS WHEREOF, National Western Life Insurance Company has
executed this First Amendment.
ATTEST: National Western Life Insurance Company
By: /S/ Ross R. Moody
Its: President
EXHIBIT 10(e) - MATERIAL CONTRACTS
NATIONAL WESTERN LIFE INSURANCE COMPANY 1995 STOCK AND INCENTIVE PLAN
I. PURPOSE
PLAN (the "Plan") is to provide a means through which National Western Life
Insurance Company, a Colorado corporation (the "Company"), and its
subsidiaries may attract able persons to enter the employ or become
directors of the Company and to provide a means whereby those persons upon
whom the responsibilities of the successful administration and management of
the Company rest, and whose present and potential contributions to the
welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the
Company and their desire to remain in its employ or as directors. A further
purpose of the Plan is to provide such persons with additional incentive and
reward opportunities designed to enhance the profitable growth of the
Company. Accordingly, the Plan provides for granting Incentive Stock
Options, options which do not constitute Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Performance Awards, Incentive
Awards, or any combination of the foregoing, as is best suited to the
circumstances of the particular person as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Performance Award, Incentive Award, or Stock Appreciation
Right.
(b) "Board" means the Board of Directors of the Company.
(c) A "Change of Control" of the Company occurs if: (1) any "person," as
such term is used in Sections 13(d) and 14(d)(2) of the 1934 Act, becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's outstanding securities then entitled to vote for the election of
directors; or (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof; or (iii) the Board shall
approve the sale of all or substantially all of the assets of the Company;
or (iv) the Board shall approve any merger, consolidation, issuance of
securities or purchase of assets, the result of which would be the
occurrence of any event described in clause (i) or (ii) above.
(d) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to any section and any regulations under
such section.
(e) "Committee" means not less than two members of the Board who are
selected by the Board as provided in paragraph IV(a).
(f) "Common Stock" means the Class A common stock, par value $1.00 per
share, of the Company.
(g) "Company" means National Western Life Insurance Company.
(h) "Director" means an individual elected to the Board by the stockholders
of the Company or by the Board under applicable corporate law who is serving
on the Board on the date the Plan is adopted by the Board or is elected to
the Board after such date.
(i) An "employee" means any person (including a Director) in an employment
relationship with the Company or any subsidiary corporation (as defined in
section 424 of the Code).
(j) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(k) "Fair Market Value" means, if the Common Stock is traded over the
counter at the time a determination of its fair market value is required to
be made hereunder, its fair market value shall be deemed to be equal to the
average between the reported high and low or closing bid and asked prices of
Common Stock on the most recent date on which Common Stock was publicly
traded. In the event Common Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in
such manner as it deems appropriate.
(l) "Holder" means an employee or a nonemployee Director who has been
granted an Award.
(m) "Incentive Award" means an Award granted under paragraph XI of the
Plan.
(n) "Incentive Award Agreement" means a written agreement between the
Company and a Holder with respect to an Incentive Award.
(o) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422 of the Code.
(p) "Option" means an Award granted under paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options
which do not constitute Incentive Stock Options to purchase Common Stock.
(q) "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
(r) "Performance Award" means an Award granted under paragraph X of the
Plan.
(s) "Performance Award Agreement" means a written agreement between the
Company and a Holder with respect to a Performance Award.
(t) "Plan" means National Western Life Insurance Company 1995 Stock and
Incentive Plan, as amended from time to time.
(u) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(v) "Restricted Stock Award" means an Award granted under paragraph IX of
the Plan.
(w) "Rule 16b3" means SEC Rule 16b3 promulgated under the 1934 Act, as such
may be amended from time to time, and any successor rule, regulation, or
statute fulfilling the same or a similar function.
(x) "Spread" means, in the case of a Stock Appreciation Right, an amount
equal to the excess, if any, of the Fair Market Value of a share of Common
Stock on the date such right is exercised over the exercise price of such
Stock Appreciation Right.
(y) "Stock Appreciation Right" means an Award granted under paragraph VIII
of the Plan.
(z) "Stock Appreciation Rights Agreement" means a written agreement between
the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective as of April 21, 1995, the date of its adoption
by the Board, provided the Plan is approved by the shareholders of the
Company within twelve months thereafter and on or prior to the date of the
first annual meeting of shareholders of the Company held subsequent to the
acquisition of an equity security by a Holder hereunder for which exemption
is claimed under Rule 16b3. No further Awards may be granted under the Plan
after April 20, 2005. The Plan shall remain in effect until all Awards
granted under the Plan have been satisfied or expired.
IV. ADMINISTRATION
(a) Composition of Committee. The Plan shall be administered by a
committee which shall be (i) appointed by the Board; (ii) constituted so as
to permit the Plan to comply with Rule 16b3; and (iii) constituted solely of
"outside directors," within the meaning of section 162(m) of the Code and
applicable interpretive authority thereunder. Except for Awards described
in paragraph VII(h), no member of the Committee shall be eligible to receive
an Award under the Plan and no person who has received an Award in the
preceding year shall be eligible to serve on the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees or
Directors shall receive an Award, the time or times when such Award shall be
made, whether an Incentive Stock Option, nonqualified Option or Stock
Appreciation Right shall be granted, the number of shares of Common Stock
which may be issued under each Option, Stock Appreciation Right, or
Restricted Stock Award, and the value of each Performance Award and
Incentive Award. In making such determinations the Committee may take into
account the nature of the services rendered by the respective individuals,
their present and potential contribution to the Company's success, and such
other factors as the Committee in its discretion shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective agreements executed thereunder, to prescribe such
rules and regulations relating to the Plan as it may deem advisable to carry
out the Plan, and to determine the terms, restrictions, and provisions of
each Award, including such terms, restrictions, and provisions as shall be
requisite in the judgment of the Committee to cause designated Options to
qualify as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in
any agreement relating to an Award in the manner and to the extent it shall
deem expedient to carry it into effect. The determinations of the Committee
on the matters referred to in this Article IV shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS,
PERFORMANCE AWARDS AND INCENTIVE AWARDS;
SHARES SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to time grant
Awards to one or more individuals determined by it to be eligible for
participation in the Plan in accordance with the provisions of paragraph VI.
Subject to paragraph XII, the aggregate number of shares of Common Stock
that may be issued under the Plan shall not exceed 300,000 shares. Shares
shall be deemed to have been issued under the Plan only (i) to the extent
actually issued and delivered pursuant to an Award or (ii) to the extent an
Award granted under paragraph VII, VIII, IX, or XI is settled in cash. To
the extent that an Award lapses or the rights of its Holder terminate, any
shares of Common Stock subject to such Award shall again be available for
the grant of an Award. Separate stock certificates shall be issued by the
Company for those shares acquired pursuant to the exercise of an Incentive
Stock Option and for those shares acquired pursuant to the exercise of any
Option which does not constitute an Incentive Stock Option. Notwithstanding
any provision in the Plan to the contrary, the maximum number of shares of
Common Stock that may be subject to Awards granted to any one individual
during any calendar year is 30,000 shares of Common Stock (subject to
adjustment in the same manner as provided in paragraph XII with respect to
shares of Common Stock subject to Awards then outstanding). The limitation
set forth in the preceding sentence shall be applied in a manner which will
permit compensation generated in connection with the exercise of Options and
Stock Appreciation Rights to constitute "performance-base" compensation for
purposes of section 162(m) of the Code, including, without limitation,
counting against such maximum number of shares, to the extent required under
section 162(m) of the Code and applicable interpretive authority thereunder,
any shares subject to Options or Stock Appreciation Rights that are
cancelled or repriced.
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards made pursuant to paragraphs IX, X and XI may be granted only to
persons who, at the time of grant, are employees or Directors. Awards made
pursuant to paragraphs VII and VIII may be granted only to persons who, at
the time of grant, are employees or (only as set forth in the following
sentence) Directors. Except as set forth in paragraph VII(h), Awards
pursuant to paragraphs VII and VIII may not be granted to any Director who
is not an employee of the Company. An award made pursuant to paragraphs
VII, VIII, IX, X, or XI may be granted on more than one occasion to the same
person, and, subject to the limitations set forth in the Plan, such Award
may include an Incentive Stock Option or an Option which is not an Incentive
Stock Option, a Stock Appreciation Right, a Restricted Stock Award, a
Performance Award, an Incentive Award or any combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the
Committee.
(c) Special Limitations on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Common Stock with respect to which Incentive
Stock Options granted after the effective date hereof are exercisable for
the first time by an individual during any calendar year under all incentive
stock option plans of the Company and its parent and subsidiary
corporations, if any, exceeds $100,000, such Incentive Stock Options shall
be treated as options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the
Code, Treasury Regulations and other administrative pronouncements, which of
an optionee's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the optionee of such
determination as soon as practicable after such determination. No Incentive
Stock Option shall be granted to an individual if, at the time the Option is
granted, such individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its
parent or subsidiary corporation, if any, within the meaning of section
422(b)(6) of the Code, unless (i) at the time such Option is granted the
option price is at least 110% of the Fair Market Value of the Common Stock
subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant.
(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with
the provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock
Option under section 422 of the Code. An Option Agreement may provide for
the payment of the option price, in whole or in part, by the delivery of a
number of shares of Common Stock (plus cash if necessary) having a Fair
Market Value equal to such option price. Each Option Agreement shall
provide that the Option may not be exercised earlier than six months from
the date of grant and shall specify the effect of termination of employment
on the exercisability of the Option. Moreover, an Option Agreement may
provide for a "cashless exercise" of the Option by establishing procedures
whereby the Holder, by a properly executed written notice, directs (i) an
immediate market sale or margin loan respecting all or a part of the shares
of Common Stock to which he is entitled upon exercise pursuant to an
extension of credit by the Company to the Holder of the Option price, (ii)
the delivery of the shares of Common Stock from the Company directly to a
brokerage firm, and (iii) the delivery of the option price from sale or
margin loan proceeds from the brokerage firm directly to the Company. Such
Option Agreement may also include, without limitation, provisions relating
to (i) subject to the provisions hereof accelerating such vesting on a
Change of Control, vesting of Options, (ii) tax matters (including
provisions covering any applicable employee wage withholding requirements
and requiring additional "gross-up" payments to Holders to meet any excise
taxes or other additional income tax liability imposed as a result of a
Change of Control payment resulting from the operation of the Plan or of
such Option Agreement), and (iii) any other matters not inconsistent with
the terms and provisions of this Plan that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Option
Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee, but such purchase price (i) shall not be less than the Fair
Market Value of a share of Common Stock on the date such Option is granted
and (ii) shall be subject to adjustment as provided in paragraph XII. The
Option or portion thereof may be exercised by delivery of an irrevocable
notice of exercise to the Company. The purchase price of the Option or
portion thereof shall be paid in full in the manner prescribed by the
Committee. Separate stock certificates shall be issued by the Company for
those shares acquired pursuant to the exercise of an Incentive Stock Option
and for those shares acquired pursuant to the exercise of any Option which
does not constitute an Incentive Stock Option.
(f) Shareholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a shareholder only with respect to such shares
of Common Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by Other
Corporations. Options and Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or any
subsidiary, or the acquisition by the Company or a subsidiary of the assets
of the employing corporation, or the acquisition by the Company or a
subsidiary of stock of the employing corporation with the result that such
employing corporation becomes a subsidiary.
(h) Fixed Grants to Non-Employee Directors. Each individual who is a
non-employee Director of the Company on the date of the approval of the Plan
by the Directors shall receive an Option to purchase 1,000 shares of Common
Stock at the Fair Market Value thereof on the date of grant. Each
individual who thereafter becomes a non-employee Director of the Company upon
election to such office shall receive an Option to purchase 1,000 shares of
Common Stock at the Fair Market Value thereof on the date of grant. Each
Option granted under this paragraph VII(h) shall (i) not constitute an
Incentive Stock Option, (ii) not have Stock Appreciation Rights granted in
connection therewith, (iii) have a term of ten years, (iv) vest twenty
percent (20%) per year on each of the first five anniversary dates of grant
subject to acceleration and vesting pursuant to paragraph XII(c), and (v)
cease to be exercisable after the date which is three months after the
termination of such individual's service as a Director (provided that such
exercise period shall be extended to one year in the event of the death of
the non-employee Director). Any non-employee Director holding Options granted
under this paragraph VII(h) who is a member of the Committee shall not
participate in any action of the Committee with respect to any claim or
dispute involving such non-employee Director.
VIII. STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Common
Stock upon the exercise of such Stock Appreciation Right. Stock
Appreciation Rights may be granted in connection with the grant of an
Option, in which case the Option Agreement will provide that exercise of
Stock Appreciation Rights will result in the surrender of the right to
purchase the shares under the Option as to which the Stock Appreciation
Rights were exercised. Alternatively, Stock Appreciation Rights may be
granted independently of Options, in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights
Agreement which shall contain such terms and conditions as may be approved
by the Committee including without limitation all applicable matters set
forth with specificity in paragraph VII(d) with respect to Option
Agreements. The terms and conditions of the respective Stock Appreciation
Rights Agreements need not be identical. The Spread with respect to a Stock
Appreciation Right may be payable either in cash, shares of Common Stock
with a Fair Market Value equal to the Spread or in a combination of cash and
shares of Common Stock. With respect to Stock Appreciation Rights that are
subject to Section 16 of the 1934 Act, however, the Committee shall, except
as provided in paragraph XII(c), retain sole discretion (i) to determine the
form in which payment of the Stock Appreciation Right will be made (i.e.,
cash, securities or any combination thereof) or (ii) to approve an election
by a Holder to receive cash in full or partial settlement of Stock
Appreciation Rights. Each Stock Appreciation Rights Agreement shall provide
that the Stock Appreciation Rights may not be exercised earlier than six
months from the date of grant and shall specify the effect of termination of
employment on the exercisability of the Stock Appreciation Rights.
(b) Exercise Price. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not
be less than the Fair Market Value of a share of Common Stock on the date
the Stock Appreciation Right is granted (or such greater exercise price as
may be required if such Stock Appreciation Right is granted in connection
with an Incentive Stock Option that must have an exercise price equal to
110% of the Fair Market Value of the Common Stock on the date of grant
pursuant to paragraph VII(c)) and (ii) shall be subject to adjustment as
provided in paragraph XII.
(c) Exercise Period. The term of each Stock Appreciation Right shall be as
specified by the Committee at the date of grant.
(d) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and
at such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) Restriction Period To Be Established by the Committee. At the time a
Restricted Stock Award is made, the Committee shall establish a period of
time (the "Restriction Period") applicable to such Award. Each Restricted
Stock Award may have a different Restriction Period, in the discretion of
the Committee. The Restriction Period applicable to a particular Restricted
Stock Award shall not be changed except as permitted by paragraph IX(b) or
paragraph XII.
(b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate
registered in the name of the Holder of such Restricted Stock Award. The
Holder shall have the right to receive dividends during the Restriction
Period, to vote Common Stock subject thereto and to enjoy all other
shareholder rights, except that (i) the Holder shall not be entitled to
delivery of the stock certificate until the Restriction Period shall have
expired, (ii) the Company shall retain custody of the stock during the
Restriction Period, (iii) the Holder may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of the stock during the
Restriction Period, and (iv) a breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock Agreement
shall cause a forfeiture of the Restricted Stock Award. At the time of such
Award, the Committee may, in its sole discretion, prescribe additional
terms, conditions, or restrictions relating to Restricted Stock Awards,
including, but not limited to, rules pertaining to the termination of
employment or service as a Director (by retirement, disability, death, or
otherwise) of a Holder prior to expiration of the Restriction Period. Such
additional terms, conditions, or restrictions shall be set forth in a
Restricted Stock Agreement made in conjunction with the Award. Such
Restricted Stock Agreement may also include, without limitation, provisions
relating to (i) subject to the provisions hereof accelerating vesting on a
Change of Control, vesting of Awards, (ii) tax matters (including provisions
(x) covering any applicable employee wage withholding requirement, (y)
prohibiting an election by the Holder under section 83(b) of the Code and
(z) requiring additional "grossup" payments to Holders to meet any excise
taxes or other additional income tax liability imposed as a result of a
Change of Control payment resulting from the operation of the Plan or of
such Restricted Stock Agreement), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee
shall in its sole discretion determine. The terms and conditions of the
respective Restricted Stock Agreements need not be identical.
(c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a Holder
shall not be required to make any payment for Common Stock received pursuant
to a Restricted Stock Award, except to the extent otherwise required by law.
(d) Agreements. At the time any Award is made under this paragraph IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters contemplated hereby and such other matters as the
Committee may determine to be appropriate. The terms and provisions of the
respective Restricted Stock Agreements need not be identical.
X. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with respect to and
at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) Performance Awards. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award.
(c) Performance Measures. A Performance Award shall be awarded to an
employee or a Director contingent upon future performance of the Company or
any subsidiary, division, or department thereof by or in which is he
employed (if applicable) during the performance period. The Committee shall
establish the performance measures applicable to such performance prior to
the beginning of the performance period but subject to such later revisions
as the Committee shall deem appropriate to reflect significant, unforeseen
events or changes.
(d) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account an individual's responsibility level,
performance, potential, other Awards, and such other considerations as it
deems appropriate.
(e) Payment. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of a performance Award may be made in
cash, Common Stock or a combination thereof, as determined by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee. Any payment to be made in Common Stock shall be based on the
Fair Market Value of the Common Stock on the payment date.
(f) Termination of Employment. A Performance Award shall terminate if the
Holder does not remain continuously in the employ of the Company (or in
service as a Director) at all times during the applicable performance
period, except as may be determined by the Committee or as may otherwise be
provided in the Award at the time granted.
(g) Agreements. At the time any Award is made under this paragraph X, the
Company and the Holder shall enter into a Performance Award Agreement
setting forth each of the matter contemplated hereby and, in addition, such
matters as are set forth in paragraph 1X(b) as the Committee may determine
to be appropriate. The terms and provisions of the respective agreements
need not be identical.
XI. INCENTIVE AWARDS
(a) Incentive Awards. Incentive Awards are rights to receive shares of
Common Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Common Stock (or portion thereof) over a specified period of time,
which vest over a period of time or upon the occurrence of an event
(including without limitation a Change of Control) as established by the
Committee, without payment of any amounts by the Holder thereof (except to
the extent otherwise required by law) or satisfaction of any performance
criteria or objectives. Each Incentive Award shall have a maximum value
established by the Committee at the time of such Award.
(b) Award Period. The Committee shall establish, with respect to and at
the time of each Incentive Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Incentive Awards, the
Committee shall take into account an individual's responsibility level,
performance, potential, other Awards, and such other considerations as it
deems appropriate.
(d) Payment. Following the end of the vesting period for an Incentive
Award, the Holder of an Incentive Award shall be entitled to receive payment
of an amount, not exceeding the maximum value of the Incentive Award, based
on the then vested value of the award. Payment of an Incentive Award may be
made in cash, Common Stock, or a combination thereof as determined by the
Committee. Payment shall be made in a lump sum or in installments as
prescribed by the Committee in its sole discretion. Any payment to be made
in Common Stock shall be based on the Fair Market Value of the Common Stock
on the payment date. Cash dividend equivalents may be paid during or after
the vesting period with respect to an Incentive Award, as determined by the
Committee.
(e) Termination of Employment. An Incentive Award shall terminate if the
Holder does not remain continuously in the employ of the Company (or in
service as a Director) at all times during the applicable vesting period,
except as may be otherwise determined by the Committee or as set forth in
the Award at the time of grant.
(f) Agreements. At the time any Award is made under this paragraph XI, the
Company and the Holder shall enter into an Incentive Award Agreement setting
forth each of the matters contemplated hereby and, in addition, such matters
as are set forth in paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not
be identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Common Stock as presently constituted, but if, and whenever, prior to the
expiration of an Award theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the
Company, the number of shares of Common Stock with respect to which such
Award may thereafter be exercised or satisfied, as applicable, (i) in the
event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number
of outstanding shares shall be proportionately reduced, and the purchase
price per share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of
an Award theretofore granted, the Holder shall be entitled to (or entitled
to purchase, if applicable) under such Award in lieu of the number of shares
of Common Stock then covered by such Award, the number and class of shares
of stock and securities to which the Holder would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to such
recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Award.
(c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a
Change of Control, each Award outstanding hereunder shall terminate within a
specified number of days after notice to the Holder, and such Holder shall
receive, with respect to each share of Common Stock subject to such Award,
cash in an amount equal to the excess of (i) the higher of (x) the Fair
Market Value of such share of Common Stock immediately prior to the
occurrence of such Change of Control or (y) the value of the consideration
to be received in connection with such Change of Control for one share of
Common Stock over (ii) the exercise price per share, if applicable, of
Common Stock set forth in such Award. The provisions contained in the
preceding sentence shall be inapplicable to an Award granted within six (6)
months before the occurrence of a Change of Control if the Holder of such
Award is subject to the reporting requirements of Section 16(a) of the 1934
Act. If the consideration offered to shareholders of the Company in any
transaction described in this paragraph consists of anything other than
cash, the Committee shall determine the fair cash equivalent of the portion
of the consideration offered which is other than cash. The provisions
contained in this paragraph shall not terminate any rights of the Holder to
further payments pursuant to any other agreement with the Company following
a Change of Control.
(d) In the event of changes in the outstanding Common Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the
date of the grant of any Award and not otherwise provided for by this
paragraph XII, any outstanding Awards and any agreements evidencing such
Awards shall be subject to adjustment by the Committee at its discretion as
to the number and price of shares of Common Stock or other consideration
subject to such Awards. In the event of any such change in the outstanding
Common Stock, the aggregate number of shares available under the Plan may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization,
reorganization, or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Common Stock or the rights thereof,
the dissolution or liquidation of the Company or any sale, lease, exchange,
or other disposition of all or any part of its assets or business or any
other corporate act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above
shall be subject to any required shareholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such
shares or other securities, and in any case whether or not for fair value,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Common Stock subject to Awards
theretofore granted or the purchase price per share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from
time to time; provided that no change in any Award theretofore granted may
be made which would impair the rights of the Holder without the consent of
the Holder (unless such change is required in order to cause the benefits
under the Plan to qualify as performancebased compensation within the
meaning of section 162(m) of the Code and applicable interpretive authority
thereunder) and provided, further, that the Board may not, without approval
of the shareholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in paragraph XII;
(b) to change the Option price;
(c) to change the class of individuals eligible to receive Awards or
materially increase the benefits accruing to employees and Directors under
the Plan;
(d) to extend the maximum period during which Awards may be granted under
the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b3.
XIV. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an
employee any right to be granted an Award to purchase Common Stock, a right
to a Stock Appreciation Right, a Restricted Stock Award, a Performance
Award, or an Incentive Award, or any of the rights hereunder except as may
be evidenced by an Award or by an Option Agreement, Stock Appreciation
Rights Agreement, Restricted Stock Agreement, a Performance Award Agreement
or an Incentive Award Agreement duly executed on behalf of the Company, and
then only to the extent and on the terms and conditions expressly set forth
therein. The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
funds or assets to assure the payment of any Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way
with the right of the Company or any subsidiary to terminate his or her
employment (or service as a Director, in accordance with applicable
corporate law) at any time.
(c) Other Laws; Withholding. The Company shall not be obligated to issue
any Common Stock pursuant to any Award granted under the Plan at any time
when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for
the issuance and sale of such shares. No fractional shares of Common Stock
shall be delivered, nor shall any cash in lieu of fractional shares be paid.
The Company shall have the right to deduct in connection with all Awards any
taxes required by law to be withheld and to require any payments required to
enable it to satisfy its withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have
an adverse effect on the Plan or any Award made under the Plan. No
employee, beneficiary or other person shall have any claim against the
Company or any subsidiary as a result of any such action.
(e) Restrictions on Transfer. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution and may be exercisable
during the lifetime of the Holder only by such Holder or the Holder's
guardian or legal representative.
(f) Rule 16b3. It is intended that the Plan and any grant of an Award made
to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b3. If any provision of the Plan or any such Award
would disqualify the Plan or such Award under, or would otherwise not comply
with, Rule 16b3, such provision or Award shall be construed or deemed
amended to conform to Rule 16b3.
(g) Section 162(m). It is intended that the Plan comply fully with and
meet all the requirements of Section 162(m) of the code so that options and
Stock Appreciation Rights granted hereunder with an exercise price not less
than Fair Market Value of a share of Common Stock on the date of grant shall
constitute "performancebased" compensation within the meaning of such
section. If any provision of the Plan would disqualify the Plan or would
not otherwise permit the Plan to comply with section 162(m) as so intended,
such provision shall be construed or deemed amended to conform to the
requirements or provisions of Section 162(m); provided that no such
construction or amendment shall have an adverse effect on the economic value
to a Holder of any Award previously granted hereunder.
(h) Governing Law. The Plan shall be construed in accordance with the laws
of the State of Texas, except to the extent that it implicates matters which
are the subject of the General Corporation Law of the State of Colorado
which matters shall be governed by the latter law.
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
National Western Life Insurance Company has one subsidiary which meets the
definition of significant subsidiary according to Regulation S-X. The
subsidiary is The Westcap Corporation incorporated in the State of Delaware,
and it conducts business under the same name.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 574,934
<DEBT-CARRYING-VALUE> 1,643,211
<DEBT-MARKET-VALUE> 1,726,469
<EQUITIES> 25,860
<MORTGAGE> 191,674
<REAL-ESTATE> 19,066
<TOTAL-INVEST> 2,624,596
<CASH> 10,024
<RECOVER-REINSURE> 1,339
<DEFERRED-ACQUISITION> 270,167
<TOTAL-ASSETS> 2,958,459
<POLICY-LOSSES> 2,576,044
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,908
<POLICY-HOLDER-FUNDS> 9,925
<NOTES-PAYABLE> 2,781
0
0
<COMMON> 3,491
<OTHER-SE> 308,496
<TOTAL-LIABILITY-AND-EQUITY> 2,958,459
87,173<F1>
<INVESTMENT-INCOME> 201,816
<INVESTMENT-GAINS> (2,415)
<OTHER-INCOME> 661
<BENEFITS> 180,276<F2>
<UNDERWRITING-AMORTIZATION> 33,675
<UNDERWRITING-OTHER> 27,084
<INCOME-PRETAX> 46,200
<INCOME-TAX> 10,566
<INCOME-CONTINUING> 35,634
<DISCONTINUED> (16,350)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,284
<EPS-PRIMARY> 5.53
<EPS-DILUTED> 5.53
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Consists of $17,390 revenues from traditional contracts subject to FAS 60
accounting treatment and $69,783 revenues from universal life and investment
annuity contracts subject to FAS 97 accounting treatment.
<F2>Consists of $39,823 benefits paid to policyholders, $(2,487) decrease in
reserves on traditional contracts and $142,940 interest on universal life and
investment annuity contracts.
</FN>
</TABLE>
