<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-9250
Conseco, Inc.
Indiana No. 35-1468632
______________________ ______________________________
State of Incorporation IRS Employer Identification No.
11825 N. Pennsylvania Street
Carmel, Indiana 46032 (317) 817-6100
______________________________________ _________
Address of principal executive offices Telephone
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 [ ]
Shares of common stock outstanding as of May 1, 1995: 20,208,095
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
March 31, December 31,
1995 1994
____ ____
(unaudited) (audited)
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value (amortized
cost: 1995 - $8,249.2; 1994 - $7,440.5) $ 8,178.4 $ 7,067.1
Equity securities at fair value (cost: 1995 - $44.6;
1994 - $43.0) 43.2 39.6
Mortgage loans 129.3 142.6
Credit-tenant loans 84.2 69.0
Policy loans 175.3 175.1
Investment in CCP Insurance, Inc. 224.8 195.4
Other invested assets 64.4 68.7
Trading account securities - 21.6
Short-term investments 182.5 295.4
Assets held in separate accounts 88.2 84.9
_________ _________
Total investments 9,170.3 8,159.4
Accrued investment income 146.6 126.3
Reinsurance receivables 48.4 45.5
Income taxes 95.9 195.2
Cost of policies purchased 909.6 1,021.6
Cost of policies produced 347.5 300.7
Goodwill (net of accumulated amortization: 1995 - $30.0;
1994 - $25.3) 684.0 687.7
Property and equipment (net of accumulated depreciation:
1995 - $29.1; 1994 - $27.1) 91.6 89.1
Securities segregated for the future redemption of redeemable
preferred stock of a subsidiary 36.9 36.2
Cash segregated for the redemption of subordinated debentures
of a subsidiary 23.2 24.2
Other assets 136.1 126.0
_________ _________
Total assets $11,690.1 $10,811.9
========= =========
(continued on next page)
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
/TABLE
<PAGE>
<PAGE> 3
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
(Dollars in millions)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1995 1994
____ ____
(unaudited) (audited)
<S> <C> <C>
Liabilities:
Insurance liabilities $ 8,723.4 $ 8,537.4
Investment borrowings 582.3 -
Other liabilities 338.3 318.0
Liabilities related to separate accounts 88.2 84.9
Notes payable of Conseco 221.4 191.8
Notes payable of Partnership II entities, not direct
obligations of Conseco 315.7 331.1
Notes payable of Bankers Life Holding Corporation, not
direct obligations of Conseco 280.2 280.0
_________ _________
Total liabilities 10,549.5 9,743.2
_________ _________
Minority interest 395.0 321.7
_________ _________
Shareholders' equity:
Preferred stock 283.5 283.5
Common stock, no par value, and additional paid-in
capital; 500,000,000 shares authorized; shares
issued and outstanding: 1995 - 20,203,705;
1994 - 22,184,850 152.0 165.8
Unrealized depreciation of securities (net of
applicable deferred income tax benefits: 1995 - $34.9;
1994 - $65.9) (67.2) (139.7)
Retained earnings 377.3 437.4
_________ _________
Total shareholders' equity 745.6 747.0
_________ _________
Total liabilities and shareholders' equity $11,690.1 $10,811.9
========= =========
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 4
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
(unaudited)
Three months ended
March 31,
____________________
1995 1994
____ ____
<S> <C> <C>
Revenues:
Insurance policy income $341.1 $321.1
Investment activity:
Net investment income 179.4 68.5
Net trading income 1.6 -
Net realized gains (losses) 1.1 (7.6)
Fee revenue 10.7 12.9
Equity in earnings of CCP Insurance, Inc. 6.4 8.0
Equity in earnings of Western National Corporation - 21.9
Restructuring income - 65.3
Other income 2.7 .1
______ ______
Total revenues 543.0 490.2
______ ______
Benefits and expenses:
Insurance policy benefits 255.8 232.3
Change in future policy benefits 6.6 11.1
Interest expense on annuities and financial products 87.4 14.6
Interest expense on notes payable 20.9 13.5
Interest expense on investment borrowings 2.2 2.2
Amortization related to operations 42.1 30.2
Amortization related to realized gains and losses 2.6 (.9)
Other operating costs and expenses 55.1 53.0
______ ______
Total benefits and expenses 472.7 356.0
______ ______
Income before income taxes, minority interest and
extraordinary charge 70.3 134.2
Income tax expense 26.1 39.8
______ ______
Income before minority interest and extraordinary charge 44.2 94.4
Minority interest 19.8 11.9
______ ______
Income before extraordinary charge 24.4 82.5
Extraordinary charge on extinguishment of debt, net of taxes
and minority interest - 2.4
______ ______
Net income 24.4 80.1
Less preferred stock dividends 4.6 4.7
______ ______
Net income applicable to common stock $ 19.8 $ 75.4
====== ======
(continued on next page)
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 5
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS, continued
(Dollars in millions, except per share data)
(unaudited)
Three months ended
March 31,
______________________
1995 1994
____ ____
<S> <C> <C>
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding 21,830,000 28,304,000
Net income before extraordinary charge $ .91 $2.76
Extraordinary charge - .09
_____ _____
Net income $ .91 $2.67
===== =====
Fully diluted:
Weighted average shares outstanding 21,830,000 32,814,000
Net income before extraordinary charge $ .91 $2.51
Extraordinary charge - .07
_____ _____
Net income $ .91 $2.44
===== =====
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 6
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(unaudited)
Three months ended
March 31,
______________________
1995 1994
____ ____
<S> <C> <C>
Preferred stock:
Balance, beginning and end of period $ 283.5 $ 287.5
======= =======
Common stock and additional paid-in capital:
Balance, beginning of period $ 165.8 $ 102.8
Amounts related to stock options and employee
benefit plans 1.1 17.4
Tax benefit related to issuance of shares under
employee benefit plans .1 67.5
Cost of shares acquired charged to common stock
and additional paid-in capital (15.0) (13.1)
_______ _______
Balance, end of period $ 152.0 $ 174.6
======= =======
Unrealized appreciation (depreciation) of securities:
Balance, beginning of period $(139.7) $ 97.5
Change in unrealized appreciation (depreciation) 72.5 (126.6)
_______ _______
Balance, end of period $ (67.2) $ (29.1)
======= =======
Retained earnings:
Balance, beginning of period $ 437.4 $ 654.8
Net income 24.4 80.1
Cost of shares acquired charged to retained earnings (77.4) (175.9)
Dividends on common stock (2.5) (3.2)
Dividends on preferred stock (4.6) (4.7)
_______ _______
Balance, end of period $ 377.3 $ 551.1
======= =======
Total shareholders' equity $ 745.6 $ 984.1
======= =======
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 7
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Three months ended
March 31,
______________________
1995 1994
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income $ 24.4 $ 80.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 46.7 31.1
Income taxes 17.1 34.2
Insurance liabilities 5.4 29.2
Interest credited to insurance liabilities 87.4 14.6
Fees charged to insurance liabilities (16.0) (8.9)
Accrual and amortization of investment income (59.5) (11.1)
Deferral of cost of policies produced (62.1) (31.6)
Restructuring income - (65.3)
Equity in undistributed earnings of Western
National Corporation - (21.9)
Equity in undistributed earnings of CCP Insurance, Inc. (6.2) (7.8)
Trading account securities 21.6 20.9
Minority interest 14.2 11.4
Extraordinary charge on extinguishment of debt - 2.4
Other 24.1 13.9
_________ _______
Net cash provided by operating activities 97.1 91.2
_________ _______
Cash flows from investing activities:
Sales of investments 470.4 562.2
Maturities and redemptions 35.6 56.5
Purchases of investments (1,283.1) (705.6)
Purchase of additional shares of Bankers Life
Holding Corporation (31.5) -
Cash held by Western National Corporation before
deconsolidation and the settlement of intercompany balances - (352.5)
Proceeds from sale of shares of Western National Corporation
and related transactions - 537.9
Other .2 (4.3)
_________ _______
Net cash provided (used) by investing activities (808.4) 94.2
_________ _______
Cash flows from financing activities:
Issuance of capital stock .3 16.0
Issuance of notes payable of Conseco, net 59.6 -
Payments on notes payable of Conseco (30.0) (220.3)
Payments on debt of subsidiaries - not direct
obligations of Conseco (15.0) (11.0)
Payments to repurchase equity securities of Conseco (92.4) (189.0)
Deposits to insurance liabilities 336.1 76.2
Investment borrowings 582.3 105.1
Withdrawals from insurance liabilities (235.4) (30.5)
Dividends paid (7.1) (7.9)
_________ _______
Net cash provided (used) by financing activities 598.4 (261.4)
_________ _______
Net decrease in short-term investments (112.9) (76.0)
Short-term investments, beginning of period 295.4 666.4
_________ _______
Short-term investments, end of period $ 182.5 $ 590.4
========= =======
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE> 8
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following notes should be read in conjunction with the notes
to consolidated financial statements included in the 1994 Form 10-K
of Conseco, Inc. ("We", "Conseco" or the "Company").
BASIS OF PRESENTATION
Our unaudited consolidated financial statements as of March 31,
1995 and 1994, reflect all adjustments, consisting only of normal
recurring items, which are necessary to present fairly Conseco's
financial position and results of operations on a basis consistent
with that of our prior audited consolidated financial statements.
We have reclassified certain amounts from the prior period to
conform to the 1995 presentation.
Consolidation issues. Prior to its initial public offering
("IPO") on February 15, 1994, Western National Corporation ("WNC")
was a wholly owned subsidiary of Conseco. We sold 60 percent of
our equity interest in WNC in the IPO. After the IPO, we no longer
had unilateral control of WNC and we ceased including the accounts
of WNC in our consolidated financial statements. We sold our
remaining 40 percent interest in WNC on December 23, 1994.
Therefore, we had no earnings from WNC in the first quarter of 1995
and our equity in earnings of WNC in the first quarter of 1994
reflected: (i) all of WNC's earnings for the period through
February 15, 1994; and (ii) 40 percent of WNC's earnings for the
remainder of the quarter.
Conseco Capital Partners II, L.P. ("Partnership II") acquired
The Statesman Group, Inc. ("Statesman") on September 29, 1994 (the
"Acquisition"). After the Acquisition, Partnership II owns 80
percent of the outstanding shares of Statesman's common stock.
Because Conseco Partnership Management, Inc., a wholly owned
subsidiary of Conseco, is the sole general partner of Partnership
II, Conseco controls Partnership II and Statesman, even though its
ownership interest is less than 50 percent. Because of this
control, Conseco's consolidated financial statements are required
to include the accounts of Partnership II and Statesman.
Immediately after the Acquisition, Conseco, through its direct
investment and through its equity interests in the investments made
by Bankers Life Holding Corporation ("BLH"), CCP Insurance, Inc.
("CCP") and WNC, had a 27 percent ownership interest in Statesman.
At March 31, 1995, Conseco's ownership interest in Statesman had
decreased to 25 percent as the net result of: (i) the sale of
Conseco's 40 percent equity interest in WNC on December 23, 1994;
(ii) the sale of a portion of CCP's investment in Statesman to an
unaffiliated company; and (iii) an increase in Conseco's percentage
ownership in BLH and CCP due to our stock purchases and the stock
purchases by BLH and CCP under their respective share repurchase
programs.
We accounted for the Acquisition of Statesman using the purchase
method of accounting. Under purchase accounting, we allocated the
total purchase cost of Statesman to the assets and liabilities
acquired, based on a preliminary determination of their fair
values. We may adjust this allocation when we make a final
determination of such values. We do not believe any adjustment
will be material, however.
ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITIES
We classify fixed maturity investments into three categories:
"actively managed" (which are carried at estimated fair value),
"trading account" (which are carried at estimated fair value) and
"held to maturity" (which are carried at amortized cost). We did
not classify any fixed maturity investments in the trading account
or held to maturity categories at March 31, 1995.
<PAGE>
<PAGE> 9
Adjustments to carry actively managed fixed maturity investments
at fair value have no effect on our earnings. We record them, net
of tax and other adjustments, as an adjustment to shareholders'
equity. The following table summarizes the effect of these
adjustments on Conseco's actively managed fixed maturities and on
Conseco's investment in CCP (as a result of similar adjustments
made by CCP) as of March 31, 1995.
<TABLE>
<CAPTION>
Effect of fair value
Balance adjustment to
before actively managed Reported
adjustment fixed maturities amount
__________ ________________ ______
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturities $8,249.2 $(70.8) $8,178.4
Investment in CCP Insurance, Inc. 247.7 (22.9) 224.8
Cost of policies purchased 910.8 (1.2) 909.6
Cost of policies produced 334.6 12.9 347.5
Income tax asset 70.4 25.5 95.9
Minority interest 382.9 12.1 395.0
Unrealized appreciation (depreciation)
of securities 1.4 (68.6) (67.2)
</TABLE>
PRO FORMA DATA
The pro forma data are presented as if the following
transactions had all occurred on January 1, 1994: (i) the
acquisition of Statesman by Partnership II; (ii) the IPO of WNC;
and (iii) the sale by Conseco of its remaining 40 percent equity
interest in WNC.
<TABLE>
<CAPTION>
Three months
ended
March 31, 1994(a)
_________________
(Dollars in millions,
except per share data)
<S> <C>
Revenues $495.0
Income before extraordinary charge 19.8
Income before extraordinary charge per common share:
Primary $ .54
Fully diluted .54
__________________
<FN>
(a) Excludes revenues, net income, net income per primary common
share and net income per fully diluted common share from
restructuring income related to the IPO of WNC of $65.3
million, $42.4 million, $1.50 and $1.29, respectively.
</TABLE>
CHANGES IN NOTES PAYABLE
Notes payable of Conseco
At March 31, 1995, we had drawn $30.0 million under our $200.0
million revolving credit agreements. The interest rate on this
amount was 6.88 percent at March 31, 1995.
Notes payable of Partnership II entities (not direct obligations
of Conseco)
During March 1995, Statesman made a scheduled $15.0 million
principal payment on its senior term loan. The interest rates on
this loan at March 31, 1995, were 8.5 percent for the $115.0
million borrowed under Tranche A and 9.0 percent for the $40.0
million borrowed under Tranche B.
<PAGE> 10
In connection with the Acquisition, cash was segregated for the
redemption of Statesman's subordinated debentures. During the
three months ended March 31, 1995, an additional $1.0 million
principal amount of such subordinated debentures was converted and
redeemed. Funds to pay such holders will be held in escrow until
the debentures are converted, redeemed or mature.
Notes payable of BLH (not direct obligations of Conseco)
During April 1995, BLH made a scheduled $16.0 million principal
payment on its senior term loan. The interest rate on this loan
was 8.5 percent at March 31, 1995.
CHANGES IN CAPITAL STOCK
We repurchased 2.0 million of our common shares during the first
three months of 1995 as part of our previously announced stock
repurchase program. The total cost of shares repurchased during
the first quarter of 1995 of $92.4 million was allocated to
shareholders' equity accounts as follows: (i) $15.0 million to
common stock and additional paid-in capital (such allocation was
based on the average common stock and paid-in capital balance per
share); and (ii) $77.4 million to retained earnings. In April
1995, we announced that we had terminated our common stock
repurchase program.
During the first three months of 1995, we issued 38,218 common
shares upon the exercise of stock options. Proceeds from the
exercise of options of $.3 million and the related tax benefit of
$.1 million were added to common stock and additional paid-in
capital.
During the first three months of 1995, we issued 3,137 shares of
common stock to employee benefit plans. As a result, we added
$.8 million to common stock and additional paid-in capital.
REINSURANCE
The cost of reinsurance ceded for policies containing mortality
or morbidity risks totaled $6.9 million and $6.0 million in the
first three months of 1995 and 1994, respectively. We deducted
this cost from insurance policy income. Reinsurance premiums
assumed on policies containing mortality risks totaled $.9 million
and $1.3 million in the first three months of 1995 and 1994,
respectively. Reinsurance recoveries netted against insurance
policy benefits totaled $5.8 million and $5.7 million in the first
three months of 1995 and 1994, respectively.
CHANGES IN MINORITY INTEREST
During the first quarter of 1995, Conseco purchased an
additional 1.5 million common shares of BLH for $31.5 million.
This increased our common equity ownership interest in BLH to 62
percent.
Changes in minority interest during the first three months of
1995 and 1994 are summarized below (dollars in millions):
<TABLE>
<CAPTION>
1995 1994
____ ____
<S> <C> <C>
Minority interest, beginning of period $321.7 $223.8
Purchase of equity securities of BLH by Conseco (31.5) -
Minority interests' equity in the change in financial
position of the Company's subsidiaries:
Net income before extraordinary charge 19.8 11.9
Unrealized appreciation (depreciation) of securities 87.8 (8.4)
Dividends (5.3) (4.1)
Other 2.5 -
______ ______
Minority interest, end of period $395.0 $223.2
====== ======
</TABLE>
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion highlights material factors affecting
our results of operations and the significant changes in our
balance sheet items. Changes in 1995 and 1994 balances in the
consolidated financial statements are largely affected by the
transactions described in the notes to the consolidated financial
statements included herein and the notes to the consolidated
financial statements included in our 1994 Form 10-K. This
discussion should be read in conjunction with both sets of
consolidated financial statements and notes.
RESULTS OF OPERATIONS
Conseco generates earnings by:
- Operating life insurance companies;
- Providing services to affiliates and non-affiliates for
fees; and
- Acquiring and restructuring life insurance companies in
partnership with other investors (currently conducted
through Partnership II).
<PAGE>
<PAGE> 12
The following table shows the sources of Conseco's net income
(after taxes and minority interest) for the first quarter of 1995
and 1994:
<TABLE>
<CAPTION>
Three months
ended March 31,
___________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Operations of life insurance companies:
BLH:
Operating earnings $13.5 $11.5
Net realized losses (.3) (.3)
______ _____
Net income 13.2 11.2
______ _____
Statesman:
Operating earnings 2.3 -
Net trading income .1 -
Net realized gains .1 -
______ _____
Net income 2.5 -
______ _____
WNC:
Operating earnings - 17.5
Net trading income - 2.6
Net realized gains - 1.6
______ _____
Net income - 21.7
______ _____
CCP:
Operating earnings 5.9 7.2
Net realized gains .1 .2
Extraordinary charge - (.5)
______ _____
Net income 6.0 6.9
______ _____
Wholly Owned Insurance Subsidiaries:
Operating earnings 5.0 6.3
Net realized losses (1.4) (5.0)
______ _____
Net income 3.6 1.3
______ _____
Total from operations of life insurance companies:
Operating earnings 26.7 42.5
Net trading income .1 2.6
Net realized losses (1.5) (3.5)
Extraordinary charge - (.5)
______ _____
Net income 25.3 41.1
______ _____
Services provided for fees 6.5 6.1
______ _____
Restructuring income:
Sale of 60 percent common equity interest in WNC - 42.4
______ _____
Corporate and other:
Operating expenses, net of revenues (3.8) (3.5)
Interest expense on notes payable (4.2) (5.1)
Net trading income .6 -
Net realized gains - 1.0
Extraordinary charge - (1.9)
______ _____
Net loss (7.4) (9.5)
______ _____
Consolidated earnings:
Operating earnings 25.2 40.0
Net trading income .7 2.6
Net realized losses (1.5) (2.5)
Restructuring income - 42.4
Extraordinary charge - (2.4)
______ _____
Net income $ 24.4 $80.1
====== =====
</TABLE>
<PAGE>
<PAGE> 13
The following table shows the source of Conseco's fully diluted
earnings per share for the first quarter of 1995 and 1994:
<TABLE>
<CAPTION>
Three months
ended March 31,
___________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Operations of life insurance companies:
BLH:
Operating earnings $ .54 $ .35
Net realized losses (.01) (.01)
_____ _____
Net income .53 .34
_____ _____
Statesman:
Operating earnings .09 -
Net trading income .01 -
_____ _____
Net income .10 -
_____ _____
WNC:
Operating earnings - .53
Net trading income - .08
Net realized gains - .05
_____ _____
Net income - .66
_____ _____
CCP:
Operating earnings .23 .23
Extraordinary charge - (.02)
_____ _____
Net income .23 .21
_____ _____
Wholly Owned Insurance Subsidiaries:
Operating earnings .19 .19
Net realized losses (.06) (.15)
_____ _____
Net income .13 .04
_____ _____
Total from operations of life insurance companies:
Operating earnings 1.05 1.30
Net trading income .01 .08
Net realized losses (.07) (.11)
Extraordinary charge - (.02)
_____ _____
Net income .99 1.25
_____ _____
Services provided for fees .26 .19
_____ _____
Restructuring income:
Sale of 60 percent common equity interest in WNC - 1.29
_____ _____
Corporate and other:
Operating expenses, net of revenues (.17) (.11)
Interest expense on notes payable (.19) (.16)
Net trading income .02 -
Net realized gains - .03
Extraordinary charge - (.05)
_____ _____
Net loss (.34) (.29)
_____ _____
Consolidated earnings:
Operating earnings .95 1.22
Net trading income .03 .08
Net realized losses (.07) (.08)
Restructuring income - 1.29
Extraordinary charge - (.07)
_____ _____
Net income $ .91 $2.44
===== =====
/TABLE
<PAGE>
<PAGE> 14
Additional Discussion of Consolidated Statement of Operations for
the First Quarter of 1995 Compared to the First Quarter of 1994:
The following tables and narratives summarize amounts reported
in the consolidated statement of operations. Many of the changes
from period to period resulted from: (i) changes in Conseco's
percentage ownership in BLH, WNC and CCP; and (ii) the acquisition
of Statesman on September 29, 1994.
Operations of Life Insurance Companies:
BLH:
<TABLE>
<CAPTION>
Three months
ended March 31,
____________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Revenues:
Insurance policy income $313.9 $303.6
Investment activity:
Net investment income 60.8 47.9
Net trading income .2 -
Net realized losses (1.7) (1.9)
Total revenues 374.1 349.6
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits 240.5 224.9
Interest expense on annuities and financial products 19.7 10.3
Interest expense on notes payable 8.0 7.6
Interest expense on investment borrowings .7 2.0
Amortization related to operations 30.2 28.7
Amortization related to realized losses (1.0) ( .9)
Other operating costs and expenses 35.9 38.7
Income before taxes and minority interest 40.1 38.3
Income tax expense 16.2 15.2
Income before minority interest 23.9 23.1
Minority interest 10.7 11.9
Net income 13.2 11.2
Summarized by component, all net of applicable expenses,
taxes and minority interest:
Operating earnings 13.5 11.5
Net realized losses (.3) (.3)
Net income 13.2 11.2
/TABLE
<PAGE>
<PAGE 15>
General. Conseco's first quarter 1994 earnings reflected a 57
percent ownership interest in BLH. During the last nine months of
1994, BLH acquired 1.8 million shares of its common stock at a cost
of $35.7 million. During the first quarter of 1995, Conseco
acquired 1.5 million common shares of BLH at a cost of $31.5
million. These transactions increased Conseco's average ownership
interest in BLH for the first quarter of 1995 to 60 percent. All
activities of BLH are included in Conseco's financial statements on
a consolidated basis. However, Conseco's minority interest
adjustment removes the portion of BLH's net income applicable to
other owners.
BLH participated in the investment by Partnership II in
Statesman. Because a subsidiary of Conseco is the sole general
partner of Partnership II, Conseco controls Statesman.
Accordingly, Conseco accounts for its investment in Statesman using
the consolidation method. Conseco's ownership interest in
Statesman through BLH is included in the Statesman segment.
At March 31, 1995, the BLH shares owned by Conseco had a net
carrying value of $555.8 million, a fair value of $657.2 million
and a cost of $344.6 million.
Insurance policy income increased as a result of increases in
Medicare supplement and long-term care premiums, offset by the
anticipated decrease in comprehensive major medical product
premiums due to prior steps taken to improve the profitability of
this product.
Net investment income increased by 27 percent in the 1995
period. The increase was due to the growth of invested assets as
a result of: (i) recurring operations; and (ii) the recapture, on
April 1, 1994, of a reinsurance treaty with assets totaling $371.0
million.
Net realized losses often fluctuate from period to period. BLH
sold $81.9 million and $435.2 million of actively managed
securities during the first quarters of 1995 and 1994,
respectively. Net realized gains and losses arise when securities
are sold in response to changes in the investment environment which
create opportunities to enhance the total return of the investment
portfolio without adversely affecting either the quality of the
portfolio or the matching of expected maturities of assets and
liabilities.
Realized gains and losses affect the timing of the amortization
of cost of policies purchased and cost of policies produced. As
a result of realized gains and losses from the sales of fixed
maturity investments, amortization of the cost of policies
purchased and the cost of policies produced decreased by $1.0
million in the 1995 period and by $.9 million in the 1994 period.
Insurance policy benefits (including change in future policy
benefits) in the 1995 period reflect the increase in insurance
policy income and increased benefits incurred primarily in the
Medicare supplement line of business.
Interest expense on annuities and financial products increased
by 91 percent in the 1995 period. This reflects an increase in
annuity liabilities resulting from: (i) the reinsurance recapture
transaction described above; and (ii) increased annuity deposits.
Interest expense on notes payable increased by 5 percent in the
1995 period, due to increased interest rates on the senior term
loan partially offset by the $11.0 million reduction in notes
payable through a scheduled payment made in April 1994.
Interest expense on investment borrowings decreased by 65
percent in the 1995 period due to decreased investment borrowing
activities. BLH's average investment borrowings were $48.3 million
and $250.9 million in the first quarters of 1995 and 1994,
respectively. <PAGE>
<PAGE> 16
Statesman:
<TABLE>
<CAPTION> Three months ended
March 31,
_______________________________
1995 1994
______________ ______________
As included in Prior to
Conseco's Acquisition by
accounts Partnership II
________ _______________
(Dollars in millions)
<S> <C> <C>
Revenues:
Insurance policy income $ 14.6 $ 13.5
Investment activity:
Net investment income 102.1 80.3
Net trading income .6 -
Net realized gains 3.8 5.3
Total revenues 122.8 100.4
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits. 8.1 8.9
Interest expense on annuities and
financial products 64.1 50.4
Interest expense on notes payable 8.8 1.9
Interest expense on investment borrowings 1.5 1.5
Amortization related to operations 10.5 9.2
Amortization related to realized gains 2.4 2.8
Other operating costs and expenses 8.0 8.2
Income before taxes and minority interest 19.4 17.5
Income tax expense 7.8 5.7
Income before minority interest 11.6 11.8
Minority interest 9.1 2.2
Net income 2.5 9.6
Summarized by component, all net of applicable
expenses, taxes, and minority interest:
Operating earnings 2.3 8.0
Net trading income .1 -
Net realized gains .1 1.6
Net income 2.5 9.6
</TABLE>
General. Conseco, through both its direct investment and its
equity interests in the investments made by BLH and CCP, had a 25
percent ownership interest in Statesman in the first quarter of
1995. While all activities of Statesman are required to be
included in Conseco's financial statements on a consolidated basis
for all periods after September 29, 1994, the minority interest
adjustment removes from Conseco's net income the portion applicable
to other owners so that net income reflects only Conseco's
applicable ownership interest. To enhance comparability, the
amounts for the quarter ended March 31, 1994, are presented
separately. The 1994 amounts relate to periods which preceded the
Acquisition and do not reflect the application of purchase
accounting.
Insurance policy income consists of premiums received on
traditional life insurance products and policy fund and surrender
charges assessed against investment-type products. This account
increased by 8.1 percent during the 1995 period, primarily because
increased annuity policy withdrawals resulted in higher surrender
charges. The increase in withdrawals was due to: (i) the growth
of Statesman's annuity portfolio; and (ii) decisions by
policyholders in 1995 to surrender policies and incur a surrender
charge to invest funds in higher-yielding alternative investments.
Net investment income increased by 27 percent in the 1995
period. This occurred because: (i) invested assets increased; and
(ii) the application of purchase accounting caused yields on
invested assets to increase after the Acquisition. Redemption of
fixed maturity investments prior to their regularly scheduled
maturity dates resulted in additional investment income of
approximately $.4 million in the first quarter of 1994. Such
additional investment income was not material in the first quarter
of 1995.
<PAGE>
<PAGE> 17
Net realized gains often fluctuate from period to period.
Statesman sold approximately $.4 billion of fixed maturity
investments in the first quarters of both 1995 and 1994. Net
realized gains in 1994 were partially offset by a write-down of
$1.2 million on an equity security whose decline in fair value was
deemed to be other than temporary.
Net realized gains affect the timing of the amortization of cost
of policies purchased and cost of policies produced. As a result
of net realized gains from the sales of fixed maturity investments,
this amortization increased by $2.4 million in the 1995 period and
by $2.8 million in the 1994 period.
Insurance policy benefits (including change in future policy
benefits) decreased by 9.0 percent in the 1995 period, primarily
due to a decline in death benefits paid on annual renewable term
policies.
Interest expense on annuities and financial products increased
by 27 percent in the 1995 period, primarily due to a larger block
of annuity business in force in 1995 and higher crediting rates.
At March 31, 1995, the weighted average crediting rate for
Statesman's annuity liabilities was 5.9 percent, compared to 5.6
percent at March 31, 1994.
Interest expense on notes payable increased by 363 percent as a
result of additional interest on debt incurred to finance the
Acquisition. This increase was partially offset by a decrease in
interest expense resulting from: (i) the conversion and redemption
of $45.8 million of Statesman's convertible subordinated
debentures; and (ii) the repayment of bank debt in conjunction with
the Acquisition.
Amortization related to operations increased by 14 percent in
the 1995 period. The increase in this expense was principally
attributable to: (i) an increase in the amortization of the cost of
policies produced due to new sales; and (ii) the amortization of
goodwill and the cost of policies purchased established at the
Acquisition date.
Amortization related to realized gains decreased by 14 percent
in the 1995 period primarily as a result of the decrease in
realized gains.
Income tax expense increased by 37 percent during the 1995
period. This increase is partially due to the 11 percent increase
in pretax income. The effective tax rate for 1995 was 40 percent,
compared to 33 percent in 1994. The effective tax rate for 1995
exceeded the statutory corporate federal income tax rate (35
percent) because goodwill amortization is not deductible for
federal income tax purposes. The effective tax rate for 1994 was
less than the statutory corporate tax rate because of a reduction
in the valuation allowance for net operating loss carryforwards.
Minority interest in the first quarter of 1994 includes dividends
on preferred stock of a subsidiary of Statesman. Minority interest
in the first quarter of 1995 included such dividends, plus: (i)
dividends on preferred stock held by minority shareholders of
Statesman issued to finance a portion of the Acquisition; and (ii)
the portion of earnings applicable to minority shareholders.
<PAGE>
<PAGE> 18
CCP:
<TABLE>
<CAPTION> Three months ended March 31,
________________________________________________
1995 1994
____________________ ____________________
Included in Included in
Total Conseco's Total Conseco's
CCP Accounts CCP Accounts
___ ________ ___ ________
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income $ 26.6 $ - $ 30.1 $ -
Investment activity:
Net investment income 92.3 - 95.2 -
Net trading income .1 - - -
Net realized gains .4 - 1.5 -
Equity in earnings of CCP - 6.4 - 8.0
Total revenues 119.4 6.4 126.8 8.0
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 16.3 - 16.9 -
Interest expense on annuities and
financial products 50.8 - 53.8 -
Interest expense on notes payable 5.3 - 2.8 -
Interest expense on investment borrowings 1.2 - 1.6 -
Amortization related to operations 9.2 - 6.8 -
Amortization related to realized gains .1 - .9 -
Other operating costs and expenses 12.9 - 12.3 -
Income before taxes and extraordinary charge 23.6 6.4 31.7 8.0
Income tax expense 8.9 .4 11.3 .6
Income before extraordinary charge 14.7 6.0 20.4 7.4
Extraordinary charge - - (1.3) (.5)
Net income 14.7 6.0 19.1 6.9
Summarized by component, all net of applicable expenses
and taxes:
Operating earnings 14.5 5.9 20.0 7.2
Net realized gains .2 .1 .4 .2
Extraordinary charge - - (1.3) (.5)
Net income 14.7 6.0 19.1 6.9
</TABLE>
CCP's earnings during the first quarter of 1995 were affected
by: (i) increased interest expense, resulting from a higher average
note payable balance and higher interest rates; (ii) increased
amortization related to operations due to an increase in annuities
in force, an increase in expected profits from existing business,
and a rescheduling of amortization on certain blocks of business as
a result of revised surrender assumptions; (iii) decreased
investment income, due to lower income provided by reverse
repurchase agreements and dollar-roll transactions; and (iv)
increased operating expenses.
Conseco's equity in the earnings of CCP was affected by these
factors, and also by changes in Conseco's ownership interest in CCP
resulting from CCP's share repurchase program. Under this program,
CCP repurchased 5.2 million shares at a cost of $104.7 million
since March 31, 1994. Conseco's equity in the earnings of CCP in
the first three months of 1994 included a $.5 million extraordinary
charge related to CCP's prepayment of debt. At March 31, 1995,
Conseco owned 49 percent of the common stock of CCP (compared to 40
percent at March 31, 1994). At March 31, 1995, the shares owned by
Conseco had a net carrying value of $224.8 million, a fair value of
$245.6 million and a total cost of $102.8 million.<PAGE>
<PAGE> 19
CCP participated in the investment by Conseco Capital Partners,
L.P. ("Partnership I") in BLH. In conjunction with BLH's IPO,
CCP's investment in Partnership I was exchanged for approximately
2.8 percent of the common stock of BLH. Since the IPO, CCP carries
its investment in BLH at fair value, with any unrealized gain or
loss, net of income tax, included directly in shareholders' equity.
Conseco's direct ownership in BLH, together with its indirect
ownership through CCP, represents a controlling interest in BLH.
Accordingly, Conseco accounts for its investment in BLH using the
consolidation method. Conseco's ownership interest in BLH through
CCP is included in the BLH segment.
CCP also participated in the investment by Partnership II in
Statesman. Because a subsidiary of Conseco is the sole general
partner of Partnership II, Conseco controls Statesman.
Accordingly, Conseco also accounts for its investment in Statesman
using the consolidation method. Conseco's ownership interest in
Statesman through CCP is included in the Statesman segment.
WNC:
Prior to the completion of its IPO, WNC was a wholly owned
subsidiary of Conseco. Conseco sold 60 percent of WNC in the IPO.
On December 23, 1994, Conseco sold its remaining 40 percent equity
interest in WNC. Amounts included in Conseco's accounts for the
first quarter of 1994, therefore include: (i) all of WNC's earnings
from January 1 through February 15, 1994, the date the IPO was
completed; and (ii) 40 percent of WNC's earnings for the period
from February 15 through March 31, 1994.
<TABLE>
<CAPTION>
Three months
ended March 31,
_________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Equity in earnings of WNC $ - $21.9
Income tax expense - .2
Net income - 21.7
Summarized by component, all net of applicable
expenses and taxes:
Operating earnings - 17.5
Net trading income - 2.6
Net realized gains - 1.6
Net income - 21.7
/TABLE
<PAGE>
<PAGE> 20
Wholly Owned Insurance Subsidiaries:
<TABLE>
<CAPTION>
Three months
ended March 31,
__________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Revenues:
Insurance policy income $12.6 $17.5
Investment activity:
Net investment income 17.1 20.6
Net realized losses (1.0) (7.6)
Total revenues 28.7 30.5
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits 13.8 18.5
Interest expense on annuities and financial products 3.6 4.3
Amortization related to operations 1.2 1.4
Other operating costs and expenses 2.9 3.8
Income before taxes 6.3 2.4
Income tax expense 2.7 1.1
Net income 3.6 1.3
Summarized by component, all net of applicable expenses
and taxes:
Operating earnings 5.0 6.3
Net realized losses (1.4) (5.0)
Net income 3.6 1.3
</TABLE>
Insurance policy income relates primarily to premiums from
products with mortality and morbidity features. Recent declines
resulted from decreased emphasis on generating new premiums from
these products.
Net investment income decreased by 17 percent in the 1995
period, primarily due to a reduction in income from other invested
assets.
Net realized losses often fluctuate from period to period. The
wholly owned subsidiaries sold fixed maturity investments of $9.6
million and $100.4 million in the first quarters of 1995 and 1994,
respectively. Such securities were sold in response to changes in
the investment environment which created opportunities to enhance
the total return of the investment portfolio without adversely
affecting the quality of the portfolio or the matching of expected
maturities of assets and liabilities.
Insurance policy benefits (including change in future policy
benefits) relate solely to policies with mortality and morbidity
features. These benefits decreased by 25 percent in the 1995
period primarily as a result of a decrease in premiums from such
products.
Interest expense on annuities and financial products decreased
by 16 percent in the 1995 period as a result of a smaller block of
business in force. The average rate credited on all insurance
liabilities was approximately 7.0 percent at both March 31, 1995
and 1994.
<PAGE>
<PAGE> 21
Services Provided for Fees:
<TABLE>
<CAPTION>
Three months
ended March 31,
__________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Revenues:
Investment management $11.1 $ 9.6
Commissions 3.0 3.3
Administrative services, net of directly related expenses 2.3 1.5
Total revenues 16.4 14.4
Less intercompany eliminations (5.7) (1.5)
Revenues reported 10.7 12.9
Net income attributable to:
Investment management 5.0 4.9
Commissions - .2
Administrative services 1.5 1.0
Net income 6.5 6.1
</TABLE>
Conseco's fee revenues include: (i) fees for investment
management and mortgage origination and servicing; (ii) commissions
earned for insurance and investment product marketing and
distribution; (iii) administrative fees for policy administration,
data processing, product marketing and executive management
services; and (iv) fees for financing services provided to
Partnership II. Fees earned from services provided to consolidated
entities are eliminated.
Total revenue growth in the first quarter of 1995 was the result
of an increase in fee-producing activities provided to Statesman
and other affiliated clients, partially offset by a reduction in
the rates charged to WNC for investment management services.
Restructuring Activities:
<TABLE>
<CAPTION>
Three months
ended March 31,
__________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Gain on sale of stock $ - $65.3
Income tax expense - 22.9
Net income - 42.4
</TABLE>
Gain on sale of stock in the 1994 period related to the sale of
a 60 percent common equity interest in WNC.
Corporate and Other:
<TABLE>
<CAPTION>
Three months
ended March 31,
__________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Net investment income $ 1.4 $ 1.7
Total revenues 2.2 3.5
Interest expense on notes payable 6.4 7.9
Other operating costs and expenses 7.9 7.0
Income tax benefit 4.7 3.8
Loss before extraordinary charge 7.4 7.6
Extraordinary charge on extinguishment of debt - 1.9
Net loss 7.4 9.5
</TABLE>
<PAGE>
<PAGE> 22
Corporate and other includes financing costs of notes payable
for which Conseco is directly liable and the costs associated with
the holding company operations.
Net investment income decreased by 18 percent in the 1995 period
primarily as a result of lower average invested assets.
Interest expense on notes payable decreased by 19 percent in the
1995 period as a result of the repayment of: (i) a $200 million
note in February 1994; and (ii) notes payable with book values
totaling $19.2 million in March 1994. These notes were repaid with
the proceeds from the sale of shares of WNC and resulted in an
extraordinary charge in the first quarter of 1994 of $1.9 million
(net of a $1.0 million tax benefit).
SALES
In accordance with generally accepted accounting principles,
insurance policy income shown in Conseco's consolidated statement
of operations consists of premiums received for policies which have
life contingencies or morbidity features. For annuity and
universal life contracts without such features, premiums collected
are not reported as revenues, but rather are reported as deposits
to insurance liabilities. We recognize revenues for these products
over time in the form of investment income and surrender or other
charges.
Premiums collected by BLH for the first quarter of 1995 were
$407.3 million, of which $81.7 million were recorded as deposits to
policy liability accounts. This compared to $385.0 million
collected and $63.1 million recorded as deposits to policy
liability accounts in the first quarter of 1994. Collected
premiums by type are provided in the following table:
<TABLE>
<CAPTION>
Three months
ended March 31,
__________________
1995 1994
____ ____
(Dollars in millions)
<S> <C> <C>
Individual health:
Medicare supplement $159.9 $157.9
Long-term care 37.6 32.1
Other 25.9 32.4
_____ ______
Total individual health 223.4 222.4
Annuities 80.0 61.7
Individual life 24.0 23.3
Group and other 79.9 77.6
______ ______
Total $407.3 $385.0
====== ======
</TABLE>
Medicare supplement premiums collected increased slightly in the
1995 period. Long-term care collected premiums increased by 17
percent in the 1995 period, due to growth in new business and a
larger base of renewal premiums.
Collected premiums for other individual health products
decreased by 20 percent in the 1995 period. This decrease, which
was anticipated, follows steps previously taken by BLH to improve
the profitability of its comprehensive major medical product
included in this category.
Annuity premiums increased by 30 percent in the 1995 period due
to increased sales of single premium deferred annuities. BLH sold
more single premium deferred annuities because of an increased
marketing emphasis placed on such sales.
Premiums collected by Statesman in the first quarter of 1995
were $249.6 million, of which $241.9 million were recorded as
deposits to liability accounts. This compares to $253.6 million
collected and $245.7 million recorded as deposits to liability
accounts in the first quarter of 1994. Of the premiums collected
in the first quarters of 1995 and 1994, 97 percent were from sales
of single and flexible premium deferred annuities; 3 percent were
from life insurance products and less than 1 percent were from
accident and health insurance.
<PAGE>
<PAGE> 23
Premiums collected by Conseco's wholly owned insurance
subsidiaries decreased by 19 percent to $21.0 million in the first
quarter of 1995 from $26.0 million in the first quarter of 1994.
Conseco's wholly owned subsidiaries are not actively marketing new
products.
LIQUIDITY AND CAPITAL RESOURCES
Changes in the consolidated balance sheet between December 31,
1994, and March 31, 1995, reflect growth in Conseco's assets and
liabilities from the three earnings activities previously
discussed, together with the notes payable and capital stock
transactions described in the accompanying notes to the
consolidated financial statements.
The decrease in shareholders' equity in the first three months
of 1995 resulted from the stock repurchase program described in the
notes to the consolidated financial statements, largely offset by:
(i) earnings; and (ii) the change in unrealized depreciation to
reflect the increase in the estimated fair value of Conseco's
investments. The change in unrealized depreciation of securities
is recorded consistent with the requirements of Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"). The change
in unrealized depreciation resulted from a decreasing interest rate
environment which generally caused the fair value of fixed
maturities to increase.
The ratio of debt (for which the Company is directly liable) to
total capital increased to .23 to 1 at March 31, 1995, from .20 to
1 at December 31, 1994, as a result of borrowings under the
Company's revolving credit agreement. The ratio of debt (for which
the Company is directly liable) to total capital excluding
unrealized depreciation of securities recorded consistent with the
requirements of SFAS 115 increased to .21 to 1 at March 31, 1995,
from .18 to 1 at December 31, 1994. Book value per common share
was $22.87 at March 31, 1995, compared to $20.89 at December 31,
1994. This increase was due to the decrease in shares outstanding
and the change in unrealized depreciation of securities. Excluding
unrealized depreciation of securities recorded consistent with the
requirements of SFAS 115, the book value per common share was
$26.27 at March 31, 1995, compared to $27.10 at December 31, 1994.
The return on average common equity was 17 percent (annualized) for
the three months ended March 31, 1995, compared to 22 percent for
the year ended December 31, 1994. This decrease occurred primarily
because of the difference in restructuring income during these
periods.
Dividends declared on common stock for the three months ended
March 31, 1995, were $.125 per share. On March 3, 1995, the
Company announced that its Board of Directors intends to reduce its
quarterly cash dividend to $.02 per share, effective with the
dividend to be paid in July 1995.
INVESTMENTS
The amortized cost and estimated fair value of fixed maturities
(all of which were actively managed) were as follows at March 31,
1995:<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
____ ____ ______ _____
(Dollars in millions)
<S> <C> <C> <C> <C>
United States Treasury securities and
obligations of United States government
corporations and agencies. $ 301.4 $ 6.2 $ 4.8 $ 302.8
Obligations of states and political
subdivisions 30.1 1.2 .5 30.8
Debt securities issued by
foreign governments 61.4 .3 1.7 60.0
Public utility securities 1,538.3 34.3 58.9 1,513.7
Other corporate securities 3,442.4 60.4 85.3 3,417.5
Mortgage-backed securities 2,875.6 62.7 84.7 2,853.6
________ ______ ______ ________
Total fixed maturities $8,249.2 $165.1 $235.9 $8,178.4
======== ====== ====== ========
</TABLE>
<PAGE>
<PAGE> 24
The following table sets forth fixed maturity investments at
March 31, 1995, classified by rating categories. The category
assigned is the highest rating by a nationally recognized
statistical rating organization or, as to $224.3 million fair value
of fixed maturities not rated by such firms, the rating assigned by
the National Association of Insurance Commissioners ("NAIC"). For
purposes of the table, NAIC Class 1 is included in the "A" rating;
Class 2, "BBB-"; Class 3, "BB-" and Classes 4 to 6, "B+ and below."
<TABLE>
<CAPTION>
Investment Percent of Percent of
rating fixed maturities total investments
______ ________________ _________________
<S> <C> <C>
AAA 39% 35%
AA 8 7
A 27 24
BBB+ 7 6
BBB 9 8
BBB- 7 6
___ __
Investment grade 97 86
___ __
BB+ 1 1
BB - -
BB- 1 1
B+ and below 1 1
___ __
Below investment grade 3 3
___ __
Total fixed maturities 100% 89%
=== ==
</TABLE>
Fixed maturities which were below investment grade had an
amortized cost of $291.3 million and an estimated fair value of
$285.0 million at March 31, 1995.
During the first three months of 1995 and 1994, the Company
recorded writedowns of fixed maturity investments of $2.2 million
and $.2 million, respectively. These writedowns were the result of
changes in conditions which caused us to conclude that a decline in
fair value of the investments was other than temporary. At March
31, 1995, fixed maturity investments in default as to the payment
of principal or interest had an aggregate amortized cost of $9.8
million and a fair value of $11.1 million.
Proceeds from the sales of invested assets were $473.1 million
for the three months ended March 31, 1995. Such sales resulted in
net realized gains of $1.1 million and trading gains of $1.6
million. Proceeds from sales of invested assets during the first
three months of 1994 were $554.6 million. These sales resulted in
net realized losses of $7.6 million.
At March 31, 1995, fixed maturity investments included $2,853.6
million (35 percent of Conseco's fixed maturity investment
portfolio) of mortgage-backed securities, of which $2,106.9 million
were collateralized mortgage obligations ("CMOs") and $746.7
million were pass-through securities. CMOs are securities backed
by pools of pass-through securities and/or mortgages that are
segregated into sections or "tranches." These securities provide
for sequential retirement of principal, rather than the pro-rata
share of principal return which occurs through regular monthly
principal payments on pass-through securities.
The yield characteristics of mortgage-backed securities differ
from those of traditional fixed income securities. Interest and
principal payments occur more frequently, often monthly, and
mortgage-backed securities are subject to risks associated with
variable prepayments. Prepayment rates are influenced by a number
of factors which cannot be predicted with certainty, including the
relative sensitivity of the underlying mortgages backing the assets
to changes in interest rates, a variety of economic, geographic and
other factors and the repayment priority of the securities in the
overall securitization structures.
<PAGE>
<PAGE> 25
In general, prepayments on the underlying mortgage loans, and
the securities backed by these loans, increase when the level of
prevailing interest rates declines significantly below the interest
rates on such loans. Mortgage-backed securities purchased at a
discount to par will experience an increase in yield when the
underlying mortgages prepay faster than expected. Those securities
purchased at a premium that prepay faster than expected will incur
a reduction in yield. When declines in interest rates occur, the
proceeds from the prepayment of mortgage-backed securities are
likely to be reinvested at lower rates than the Company was earning
on the prepaid securities. As the level of prevailing interest
rates increases, prepayments on mortgage-backed securities decrease
as fewer underlying mortgages are refinanced. When this occurs,
the average maturity and duration of the mortgage-backed securities
increase, which decreases the yield on mortgage-backed securities
purchased at a discount because the discount is realized as income
at a slower rate and increases the yield on those purchased at a
premium as a result of a decrease in annual amortization of the
premium.
The following table sets forth the par value, amortized cost and
estimated fair value of investment in mortgage-backed securities at
March 31, 1995, summarized by the interest rates on the underlying
collateral.
<TABLE>
<CAPTION>
Par Amortized Estimated
value cost fair value
_____ ____ _________
(Dollars in millions)
<S> <C> <C> <C>
Pass-through securities:
Below 7% $ 314.6 $ 313.6 $ 289.0
7% - 8% 243.5 241.8 234.5
8% - 9% 218.0 216.9 218.8
9% and above 4.2 4.3 4.4
Planned amortization class CMO instruments:
Below 7% 425.2 384.7 368.8
7% - 8% 348.9 330.3 313.1
8% - 9% 78.0 78.3 75.0
9% and above 14.8 15.3 15.4
Targeted amortization class CMO instruments:
7% - 8% 79.5 67.6 70.4
8% - 9% 33.6 30.6 31.1
9% and above 30.8 31.5 30.5
Other CMO instruments:
Below 7% 276.3 222.9 230.2
7% - 8% 698.4 568.2 586.6
8% - 9% 276.9 249.2 262.5
9% and above 136.5 120.4 123.3
________ ________ ________
Total mortgage-backed securities $3,179.2 $2,875.6 $2,853.6
======== ======== ========
</TABLE>
We limit our exposure to prepayment risk by: (i) generally
avoiding securities whose cost significantly exceeds par; (ii)
purchasing securities which are backed by collateral with lower
prepayment sensitivity (such as higher dollar mortgages included in
mortgage-backed securities issued by non-government entities and
mortgages that are seasoned); (iii) limiting investments in
securities whose values are heavily influenced by changes in
prepayments (such as interest only strips and accrual bonds); and
(iv) concentrating on intermediate-tranche CMOs and securities with
prepayment-protected structures (such as planned amortization class
("PAC") or targeted amortization class ("TAC") CMOs). PAC and TAC
investments are designed to amortize in a more predictable manner
by shifting the primary risk of prepayment of the underlying
collateral to other CMO tranches. PACs and TACs have more stable
cash flows than other CMO tranches because they have better call
protection in a declining interest rate environment and less
extension risk in a rising interest rate environment. PAC and TAC
instruments represented 31 percent of the Company's mortgage-backed
securities at March 31, 1995.
<PAGE>
<PAGE> 26
Included in the Company's CMO holdings at March 31, 1995, were
accrual bonds with a carrying value of $267.5 million. Accrual
bonds are CMOs structured such that the payment of coupon interest
is deferred until principal payments begin on these bonds. On each
accrual date, the principal balance is increased by the amount of
the interest (based upon the stated coupon rate) that otherwise
would have been payable. As such, these securities act much the
same as zero coupon bonds until cash payments begin. Cash payments
typically do not commence until earlier classes in the CMO
structure have been retired, which can be significantly influenced
by the prepayment experience of the underlying mortgage loan
collateral in the CMO structure. Because of the zero coupon
element of these securities and the potential uncertainty as to the
timing of cash payments, their market values and yields are more
sensitive to changing interest rates than other CMOs, pass-through
securities and coupon bonds.
At March 31, 1995, the balance of mortgage loans was comprised
of 91 percent commercial loans, 7 percent residual interests in
collateralized mortgage obligations and 2 percent residential
loans. Less than 1 percent of mortgage loans were noncurrent at
March 31, 1995. There were no realized losses on mortgage loans
during the three months ended March 31, 1995 and 1994. At March
31, 1995, the Company had a loan loss reserve of $2.2 million.
Borrowings under reverse repurchase agreements and dollar-roll
transactions were $582.3 million at March 31, 1995. These
borrowings were collateralized by pledged securities with fair
values approximately equal to the borrowings. Such borrowings
averaged approximately $154 million during the first three months
of 1995, compared to approximately $266 million during the same
period of 1994.
STATUTORY INFORMATION
Statutory accounting practices prescribed or permitted for the
Company's insurance subsidiaries by regulatory authorities differ
from generally accepted accounting principles. The Company's life
insurance subsidiaries that are included on a consolidated basis in
these financial statements reported the following amounts to
regulatory agencies at March 31, 1995, after appropriate
eliminations of intercompany accounts among such subsidiaries
(dollars in millions):
<TABLE>
<S> <C>
Statutory capital and surplus $555.1
Asset valuation reserve ("AVR") 66.5
Interest maintenance reserve ("IMR") 85.5
______
Total $707.1
======
</TABLE>
At March 31, 1995, the ratio of such consolidated statutory
account balances to consolidated statutory liabilities (excluding
AVR, IMR, liabilities from separate account business and short-term
collateralized borrowings) was 8.4 percent, compared to a ratio of
9.1 percent at December 31, 1994. The decline in the ratio is
primarily due to $67.3 million of dividend payments made by the
life insurance subsidiaries to non-life parent companies, partially
offset by statutory earnings of such life subsidiaries.
In connection with BLH's acquisition, BLH increased the capital
of one of its life insurance subsidiaries (Bankers Life Insurance
Company of Illinois "BLI") by providing cash in exchange for a
surplus debenture. The remaining balance of the surplus debenture
of $460.0 million at March 31, 1995, is considered a part of BLI's
statutory capital and surplus. Payments to BLH of principal and
interest on the surplus debenture may be made from available funds
only with the approval of the Illinois Department of Insurance
("DOI") when its Director is satisfied that the financial condition
of BLI warrants that action. Such approval may not be withheld
provided the surplus of BLI exceeds, after such payment,
approximately $128.0 million. BLI's surplus at March 31, 1995, was
$332.1 million. During April 1995, BLI made a scheduled principal
payment on the surplus debenture of $30.0 million plus accrued
interest.
<PAGE>
<PAGE> 27
BLI's ability to service its obligations under the surplus
debenture is dependent upon its ability to receive dividends and
tax sharing payments from its subsidiary, Bankers Life & Casualty
Insurance Company ("BLC"). BLC may, upon prior notice to the DOI,
pay dividends in any twelve-month period up to the greater of: (i)
statutory net gain from operations for the prior year; or (ii) 10
percent of statutory capital and surplus at the end of the prior
year. Additionally, as a condition to its 1992 acquisition, BLC
agreed not to pay dividends if, immediately after such payment,
BLC's ratio of adjusted capital to risk-based capital ("RBC")
would be less than 100 percent. Calculations using the RBC formula
indicate that BLC's adjusted capital is twice its total RBC at
March 31, 1995. Dividends in excess of maximum amounts prescribed
by the state statutes may not be paid without DOI approval. During
March 1995, BLC paid regular dividends of $25.0 million. During
the remainder of 1995, BLC may pay additional dividends up to $68.4
million without regulatory approval.
The surplus of Statesman's primary life insurance subsidiary
(American Life and Casualty Insurance Company) includes surplus
notes with a balance of $50.2 million at March 31, 1995. Each
payment of interest or principal on the surplus notes requires the
prior approval of the Iowa Insurance Division. The Iowa insurance
law also provides that payments of dividends on capital stock and
interest and principal on surplus notes may be made only out of an
insurer's earned surplus. At March 31, 1995, the subsidiary had
earned surplus of $112.1 million. During the first quarter of
1995, the subsidiary made a scheduled principal payment on a
surplus note of $1.0 million and paid cash dividends of $20.3
million to another subsidiary of Statesman (American Life Holding
Company). During the remainder of 1995, American Life and Casualty
Insurance Company can pay cash dividends to American Life Holding
Company of approximately $15.0 million (reduced by any surplus note
principal or interest payments) without prior approval of the Iowa
Insurance Division.
During the first quarter of 1995, our wholly owned life
insurance subsidiaries paid $40.0 million of ordinary dividends to
Conseco. During the remainder of 1995, our wholly owned insurance
subsidiaries may pay additional dividends up to $8.4 million
without the permission of state regulatory authorities.
PROPOSED ACQUISITIONS
On February 27, 1995, Conseco announced that its Board of
Directors had approved proposals to acquire, in separate
transactions, the outstanding shares of CCP and BLH that Conseco
does not already own. Under the proposals, CCP and BLH would merge
into Conseco, with Conseco being the surviving corporation. Each
holder of CCP shares other than Conseco would receive $22.50 per
share in cash. Each holder of BLH shares other than Conseco would
receive $22.00 per share in cash. Each proposed merger transaction
would require the approval of holders of a majority of outstanding
shares of the company being acquired (other than shares held by
Conseco) voting at a special stockholders' meeting.
<PAGE>
<PAGE> 28
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
11.1 Computation of Earnings Per Share - Primary.
11.2 Computation of Earnings Per Share - Fully Diluted.
27.0 Financial Data Schedule
b) Reports on Form 8-K.
None.
<PAGE>
<PAGE> 29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONSECO, INC.
Dated: May 12, 1995 By:/s/ ROLLIN M. DICK
____________________
Rollin M. Dick,
Executive Vice President and
Chief Financial Officer
(authorized officer and principal
financial officer)
<PAGE> 1
EXHIBIT 11.1
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
(unaudited)
Three months
ended March 31,
_________________________
1995 1994
____ ____
<S> <C> <C>
Shares outstanding, beginning of period 22,184,850 25,311,773
Weighted average shares issued (acquired) during
the period:
Treasury stock acquired (1,482,542) (1,396,021)
Exercise of stock options 26,169 2,977,213
Common equivalent shares related to:
Stock options at average market price 692,756 995,079
Employee stock plans 408,843 416,312
___________ ___________
Weighted average primary shares outstanding 21,830,076 28,304,356
=========== ===========
Net income for primary earnings per share:
Net income as reported $24,422,000 $80,144,000
Less preferred stock dividends (4,607,000) (4,672,000)
___________ ___________
Net income for primary earnings per share $19,815,000 $75,472,000
=========== ===========
Net income per primary common share $ .91 $2.67
===== =====
</TABLE>
<PAGE> 1
EXHIBIT 11.2
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
(unaudited)
Three months
ended March 31,
______________________
1995 1994
____ ____
<S> <C> <C>
Weighted average primary shares outstanding 21,830,076 28,304,356
Incremental common equivalent shares:
Related to options and employee stock
plans based on market price at the end
of the period - 13
Related to convertible preferred stock (a) - 4,509,509
___________ ___________
Weighted average fully diluted shares outstanding 21,830,076 32,813,878
=========== ===========
Net income for fully diluted earnings per share:
Net income as reported $24,422,000 $80,144,000
Less preferred stock dividends (4,607,000) -
___________ ___________
Net income for fully diluted earnings per share $19,815,000 $80,144,000
=========== ===========
Net income per fully diluted common share $.91 $2.44
==== =====
_______________________
<FN>
(a) The effect of the assumed conversion of convertible preferred
stock on the computation of fully diluted earnings per share
was antidilutive in the 1995 period.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM FORM 10-Q FOR CONSECO,
INC. DATED MARCH 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 8,178,400
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 43,200
<MORTGAGE> 213,500 <F1>
<REAL-ESTATE> 0
<TOTAL-INVEST> 9,170,300
<CASH> 0 <F2>
<RECOVER-REINSURE> 48,400
<DEFERRED-ACQUISITION> 1,257,100 <F3>
<TOTAL-ASSETS> 11,690,100
<POLICY-LOSSES> 8,068,500
<UNEARNED-PREMIUMS> 204,100
<POLICY-OTHER> 223,400
<POLICY-HOLDER-FUNDS> 227,400
<NOTES-PAYABLE> 817,300 <F4>
<COMMON> 152,000
0
283,500
<OTHER-SE> 310,100 <F5>
<TOTAL-LIABILITY-AND-EQUITY> 11,690,100
341,100
<INVESTMENT-INCOME> 179,400
<INVESTMENT-GAINS> 2,700 <F6>
<OTHER-INCOME> 19,800 <F7>
<BENEFITS> 349,800 <F8>
<UNDERWRITING-AMORTIZATION> 40,000 <F9>
<UNDERWRITING-OTHER> 55,100
<INCOME-PRETAX> 70,300
<INCOME-TAX> 26,100
<INCOME-CONTINUING> 44,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,400
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes $84,200 of credit-tenant loans.
<F2> Cash and cash equivalents are classified as short-term investments, which are
included in total investments.
<F3> Includes $909,600 of cost of policies purchased.
<F4> Includes notes payable of Bankers Life Holding Corporation of $280,200 and
Partnership II entities of $315,700 which are not direct obligations of Conseco.
<F5> Includes retained earnings of $377,300, offset by net unrealized depreciation
of securities of $67,200.
<F6> Includes net realized gains of $1,100 and net trading income of $1,600.
<F7> Includes fee revenue of $10,700, equity in earnings of CCP Insurance, Inc. of $6,400
and other income of $2,700.
<PAGE>
<F8> Includes insurance policy benefits of $255,800, change in future policy
benefits of $6,600 and interest expense on annuities and financial products
of $87,400.
<F9> Includes amortization of cost of policies purchased of $20,700 and cost
of policies produced of $16,700 and amortization related to realized losses of
$2,600.
</TABLE
</TABLE>
