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, 1996
[ ] 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 1-11716
BANKERS LIFE
HOLDING CORPORATION
Delaware No. 51-0342500
State of Incorporation IRS Employer Identification No.
222 Merchandise Mart Plaza
Chicago, Illinois 60654 (312) 396-6000
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, 1996: 49,326,340
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except per-share amounts)
March 31, December 31,
1996 1995
---- ----
(unaudited) (audited)
ASSETS
<S> <C> <C>
Investments:
Actively managed fixed maturity securities at fair value (amortized cost:
1996-- $3,303.3; 1995-- $3,176.4).......................................... $ 3,241.0 $ 3,252.3
Mortgage loans............................................................... 4.8 5.2
Credit-tenant loans ......................................................... 93.6 88.9
Policy loans................................................................. 47.3 47.3
Short-term investments....................................................... 35.8 42.8
Other invested assets........................................................ 62.2 78.4
-------- --------
Total investments........................................................ 3,484.7 3,514.9
Accrued investment income....................................................... 55.0 49.5
Accounts receivable and uncollected premiums.................................... 38.1 43.9
Reinsurance receivables......................................................... 32.0 29.9
Cost of policies purchased...................................................... 558.0 515.6
Cost of policies produced....................................................... 284.6 244.2
Goodwill (net of accumulated amortization: 1996-- $20.0; 1995-- $17.5).......... 375.0 369.3
Other assets.................................................................... 16.9 17.9
-------- --------
Total assets............................................................. $4,844.3 $4,785.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance liabilities........................................................ $3,302.6 $3,265.7
Income tax liabilities....................................................... 45.9 59.8
Investment borrowings........................................................ 104.9 28.1
Notes payable................................................................ 299.9 301.5
Other liabilities............................................................ 116.6 98.2
-------- --------
Total liabilities........................................................ 3,869.9 3,753.3
-------- --------
Shareholders' equity:
Common stock and additional paid-in capital (par value $.001; 500,000,000
shares authorized; shares issued and outstanding: 1996 -- 49,326,340;
1995-- 50,597,758)......................................................... 731.8 748.8
Net unrealized appreciation (depreciation) of securities:
Fixed maturity securities (net of applicable deferred income taxes:
1996-- $(11.7); 1995-- $13.1)............................................ (16.1) 46.7
Other invested assets (net of applicable deferred income taxes:
1996-- $.6; 1995-- ($.1))................................................ 1.1 (.2)
Retained earnings............................................................ 257.6 236.6
-------- --------
Total shareholders' equity............................................... 974.4 1,031.9
-------- --------
Total liabilities and shareholders' equity............................... $4,844.3 $4,785.2
======== ========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per-share amounts)
(unaudited)
Three months ended
March 31,
--------------------
1996 1995
---- ----
(Prior basis)
<S> <C> <C>
Revenues:
Insurance policy income................................................... $ 319.7 $ 313.9
Investment activity:
Net investment income .................................................. 64.0 62.0
Net trading income (losses)............................................. (1.1) .1
Net realized gains (losses)............................................. 3.1 (1.3)
Restructuring income...................................................... 16.0 --
Other income (loss)....................................................... .6 (.1)
-------- --------
Total revenues.......................................................... 402.3 374.6
-------- --------
Benefits and expenses:
Insurance policy benefits ................................................ 245.8 239.8
Amortization related to operations........................................ 24.0 30.6
Amortization related to realized gains (losses)........................... 2.9 (.9)
Interest expense on annuities and financial products...................... 19.9 19.7
Interest expense on notes payable......................................... 7.1 8.2
Interest expense on investment borrowings................................. .8 .7
Other operating costs and expenses........................................ 38.6 34.7
-------- --------
Total benefits and expenses............................................. 339.1 332.8
-------- --------
Income before income tax and extraordinary charge....................... 63.2 41.8
Income tax expense........................................................... 23.2 15.0
-------- --------
Income before extraordinary charge...................................... 40.0 26.8
Extraordinary charge on extinguishment of debt, net
of income tax benefit..................................................... 10.0 --
-------- --------
Net income.............................................................. $ 30.0 $ 26.8
======== ========
Earnings per common share:
Weighted average common shares outstanding................................ 49,521,870 52,801,380
========== ==========
Income per share before extraordinary charge.............................. $.81 $.51
Extraordinary charge...................................................... .20 --
----- ----
Net income ............................................................. $.61 $.51
==== ====
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(unaudited)
Three months ended
March 31,
---------------------
1996 1995
---- ----
(Prior basis)
<S> <C> <C>
Common stock and additional paid-in capital:
Balance, beginning of period.............................................. $ 748.8 $ 371.1
Cost of shares acquired and effectively retired......................... (27.7) --
Issuance of common stock................................................ -- 1.1
Adjustment of balance due to push down accounting....................... 10.7 --
------- -------
Balance, end of period.................................................... $ 731.8 $ 372.2
======= ========
Net unrealized appreciation (depreciation)of securities:
Fixed maturity securities:
Balance, beginning of period............................................ $ 46.7 $(121.8)
Change in net unrealized appreciation (depreciation).................. (62.6) 54.9
Adjustment of balance due to push down accounting..................... (.2) --
------- -------
Balance, end of period.................................................. $ (16.1) $ (66.9)
======= =======
Other invested assets:
Balance, beginning of period............................................ $ (.2) $ 1.3
Change in net unrealized appreciation (depreciation).................. 1.3 (2.1)
------- -------
Balance, end of period.................................................. $ 1.1 $ (.8)
======= =======
Retained earnings:
Balance, beginning of period.............................................. $ 236.6 $ 227.6
Net income.............................................................. 30.0 26.8
Dividends on common stock............................................... (7.4) (7.9)
Adjustment of balance due to push down accounting....................... (1.6) --
-------- --------
Balance, end of period.................................................... $ 257.6 $ 246.5
======== ========
Total shareholders' equity............................................ $ 974.4 $ 551.0
======== ========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Three months ended
March 31,
----------------------
1996 1995
---- ----
(Prior basis)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 30.0 $ 26.8
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary charge on extinguishment of debt (before income tax)........... 15.4 --
Amortization and depreciation................................................ 27.2 30.4
Income taxes................................................................. 10.6 12.8
Insurance liabilities........................................................ 17.7 13.5
Interest credited to insurance liabilities................................... 19.9 19.7
Fees charged to insurance liabilities........................................ (4.4) (5.0)
Accrual and amortization of investment income................................ (4.8) (6.4)
Deferral of cost of policies produced........................................ (38.5) (39.8)
Other liabilities............................................................ 18.0 14.3
Realized (gains) losses and trading (income) losses on investments........... (2.0) 1.2
Other, net................................................................... 4.7 (1.2)
------- -------
Net cash provided by operating activities............................. 93.8 66.3
------- -------
Cash flows from investing activities:
Sales of investments...................................................... 533.4 82.7
Maturities and redemptions................................................ 34.4 21.6
Purchases of investments.................................................. (695.9) (437.2)
Other..................................................................... (.3) (.8)
------- -------
Net cash used by investing activities............................. (128.4) (333.7)
------- -------
Cash flows from financing activities:
Issuance of common stock, net............................................. -- 1.1
Issuance of notes payable................................................. 306.1 --
Payments on notes payable................................................. (323.2) --
Repurchase of common stock................................................ (27.7) --
Dividends paid on common stock............................................ (7.4) (7.9)
Deposits to insurance liabilities......................................... 54.0 81.7
Withdrawals from insurance liabilities.................................... (51.0) (43.3)
Investment borrowings..................................................... 76.8 269.4
------- -------
Net cash provided by financing activities......................... 27.6 301.0
------- -------
Net increase (decrease) in short-term investments................. (7.0) 33.6
Short-term investments, beginning of period.................................. 42.8 88.7
------- -------
Short-term investments, end of period........................................ $ 35.8 $ 122.3
======= =======
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
5
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following notes should be read in conjunction with the notes to the
consolidated financial statements contained in the 1995 Form 10-K of Bankers
Life Holding Corporation.
SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The consolidated financial statements include Bankers Life Holding
Corporation ("BLH") and its direct and indirect wholly owned insurance
subsidiaries, all of which are collectively referred to hereinafter as
"Bankers." Insurance subsidiaries include: Bankers Life and Casualty Company and
its wholly owned subsidiary, Certified Life Insurance Company (collectively
"BLC") and their parent, Bankers Life Insurance Company of Illinois ("BLI").
Bankers markets health and life insurance and annuity products primarily to
senior citizens through approximately 200 branch offices and 3,200 career
agents. Intercompany transactions have been eliminated in consolidation. The
unaudited consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles. However, in
the opinion of management, these statements include all adjustments, consisting
only of normal recurring items, which are necessary for a fair presentation of
the consolidated financial position at March 31, 1996, and the consolidated
results of operations for the three months ended March 31, 1996 and 1995.
In preparing financial statements in conformity with generally accepted
accounting principles, management must make estimates and assumptions that
significantly affect various reported amounts. For example, significant
estimates and assumptions are utilized in calculating the cost of policies
produced, the cost of policies purchased, goodwill, insurance liabilities,
liabilities related to litigation, guaranty fund assessment accruals and
deferred income taxes. If Bankers' future experience differs materially from
these estimates and assumptions, its financial statements could be affected.
During the first six months of 1995, Conseco Inc. ("Conseco") purchased
12.8 million shares of BLH representing 24 percent of the then outstanding
shares of BLH, increasing its ownership in BLH to 85 percent. During the last
six months of 1995, BLH repurchased 2.2 million shares of its common stock at a
cost of $42.1 million. Conseco's ownership in BLH was 88 percent at December 31,
1995. During the first quarter of 1996, BLH repurchased 1.3 million shares at a
cost of $27.7 million, increasing Conseco's ownership in BLH to 90.5 percent at
March 31, 1996.
As a result of Conseco's significant ownership interest in Bankers, a new
basis of accounting under the "push down" method was adopted effective June 30,
1995. Under this method, the assets and liabilities of Bankers were revalued to
reflect Conseco's cost basis, which is based on the fair values of such assets
and liabilities on the dates Conseco's ownership interests were acquired. The
new accounting basis was reflected in the consolidated balance sheet and
statement of shareholders' equity at June 30, 1995, and is reflected in the
statements of operations and cash flows for periods subsequent to June 30, 1995.
As a result, the assets and liabilities of Bankers included in the March 31,
1996, consolidated balance sheet represent the following combination of values:
(i) the portion of Bankers' net assets acquired by Conseco in the November 1992
acquisition is valued as of that acquisition date; (ii) the portion acquired in
September 1993 is valued as of that date; (iii) the portion acquired during 1995
and 1996 (including the increase in Conseco's ownership as a result of BLH's
common stock repurchases) is valued as of the date of their purchases and (iv)
the portion of Bankers' net assets owned by minority interests is valued based
on a combination of (i) above and the historical bases of net assets acquired in
the November 1992 acquisition.
6
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The effect of the use of push down accounting on BLHs' balance sheet
accounts as a result of the shares of BLH's common stock repurchased during the
first quarter of 1996 is as follows (dollars in millions):
<TABLE>
<CAPTION>
Debit
(Credit)
--------
<S> <C>
Cost of policies purchased........................................ $ 9.0
Cost of policies produced......................................... (5.0)
Goodwill.......................................................... 7.2
Insurance liabilities............................................. (1.4)
Income tax liabilities............................................ (1.1)
Notes payable..................................................... (.5)
Other liabilities................................................. 7
Common stock and additional paid-in capital....................... (10.7)
Net unrealized appreciation of securities......................... .2
Retained earnings................................................. 1.6
</TABLE>
Certain amounts in the 1995 financial statements were reclassified to
conform with the 1996 presentation.
ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITIES
The adjustment to carry actively managed fixed maturities at fair value
resulted in the following effects on balance sheet accounts as of March 31,
1996:
<TABLE>
<CAPTION>
Effect of fair value
Balance adjustment on actively
before managed fixed Reported
adjustment maturity securities amount
---------- ------------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturity securities................... $ 3,303.3 $ (62.3) $3,241.0
Other invested assets........................................ 56.7 5.5 62.2
Cost of policies purchased................................... 537.6 20.4 558.0
Cost of policies produced.................................... 276.0 8.6 284.6
Income tax liabilities ...................................... 57.6 (11.7) 45.9
Net unrealized depreciation of fixed maturities.............. -- (16.1) (16.1)
</TABLE>
CHANGES IN NOTES PAYABLE
In March 1996, BLH completed a tender offer pursuant to which it
repurchased $148.3 million principal balance of its 13 percent senior
subordinated notes for $173.2 million. The repurchased notes had a carrying
value of $157.8 million. In the first quarter of 1996, Bankers reported an
extraordinary charge of $10.0 million (net of applicable income tax) as a result
of the repurchase. The repurchase was made using the proceeds from a revolving
credit facility entered into in February 1996. In conjunction with the tender
offer, holders of the senior subordinated notes consented to amendments to the
indenture for such notes which eliminated substantially all restrictive
covenants of the notes, including covenants which limited Bankers' ability to
pay dividends, incur additional indebtedness, repurchase its common stock and
make certain investments.
Principal amounts which can be borrowed under the new revolving credit
facility total $400 million (including a competitive bid facility in the
aggregate principal amount of up to $100 million) and are due in 2001.
Borrowings accrue interest at a rate of LIBOR plus an applicable margin of 50 or
75 basis points, depending on Bankers' ratio of debt to consolidated net worth
(the weighted average rate at March 31, 1996, was 6.1 percent). At March 31,
1996,
7
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the total principal balance borrowed under the revolving credit agreement was
$270 million. In addition to the repurchase of the 13 percent senior
subordinated notes, proceeds were used to repay the existing $110 million
principal balance due under the bridge loan facility. The revolving credit
agreement contains a number of covenants, including among other things,
prohibitions or limitations on indebtedness, liens, mergers, acquisitions, sales
of assets outside of the normal course of business and certain transactions with
affiliates.
CHANGES IN CAPITAL STOCK
In January 1996, BLH completed the share repurchase program originally
announced in April 1994 and expanded in August 1995. During 1995, BLH
repurchased 2,240,000 shares for $42.1 million. During the first quarter of
1996, BLH repurchased 1,272,248 shares for $27.7 million.
See "Organization and Basis of Presentation" above for a discussion of the
change in basis resulting from Conseco's increased ownership of Bankers and the
adoption of the "push down" method of accounting.
During the first quarter of 1996, BLH issued 830 shares of common stock
upon the exercise of stock options.
RELATED PARTY TRANSACTIONS
Effective January 1, 1996, Bankers operates without home office employees
through service agreements with Conseco. Fees for such services are based on
Conseco's direct and directly allocable costs plus a 10 percent margin. Such
fees totaled $29.6 million during the first quarter of 1996.
During the first quarter of 1995, Conseco provided data processing,
executive management and investment management services to Bankers for $4.0
million.
Conseco Capital Partners II, L.P. ("Partnership II") is a partnership
formed by Conseco to invest in privately negotiated acquisitions of specialized
annuity, life and accident and health insurance companies and related
businesses. Bankers participated in Partnership II's only acquisition, American
Life Holdings, Inc. ("AGP") in September 1994 and made additional investments in
November 1995. In March 1996, Conseco announced that it would be dissolving
Partnership II. Accordingly, the partners (including Bankers) have no further
commitment to make additional contributions of capital to Partnership II. In
accordance with the partnership agreement, all of Partnership II's assets
(primarily its investment in AGP) will be distributed to its partners subject to
the conditions contained in the partnership agreement. In any event, Partnership
II's assets must be distributed within two years of the effective date of
dissolution. Bankers' investments in Partnership II and AGP have a cost of $31.7
million and a carrying value of $52.2 million at March 31, 1996. Such
investments are reported in other invested assets on the consolidated balance
sheet.
8
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Financial data for periods subsequent to June 30, 1995 reflect the adoption
of a new basis of accounting under the "push down" method and, accordingly, data
for the 1995 quarter may not be comparable with data for the 1996 quarter.
Significant accounting adjustments recorded as a result of the adoption of the
new basis are described in the notes to the consolidated financial statements in
Bankers' 1995 Form 10-K. These adjustments impact the comparability of operating
data principally by replacing a portion of amortization expense for the cost of
policies produced with amortization expense for the cost of policies purchased
and goodwill, which have different amortization assumptions and bases.
First Quarter of 1996 Compared to the First Quarter of 1995
Insurance policy income increased 1.8 percent to $319.7 million during 1996
as a result of increases in Medicare supplement and long-term care premiums,
which were largely 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 3.2 percent to $64.0 million in 1996 on a
4.3 percent increase in average invested assets (amortized cost basis). The
percentage increase in net investment income was less than the percentage
increase in average invested assets because the yield earned on average invested
assets declined to 7.3 percent in 1996 from 7.4 percent in 1995. Invested assets
grew as a result of operations.
Restructuring income in 1996, represents the gain realized as a result of
the sale of Bankers' investment in Noble Broadcast Group, Inc., a private
company that owns and operates 12 radio stations.
Net realized gains (losses) and net trading gains (losses) often fluctuate
from period to period. Bankers sold $531.4 million of investments during 1996
compared to $81.7 million in 1995 which sales resulted in net realized gains of
$3.1 million and trading losses of $1.1 million in 1996 compared to net realized
gains of $.9 million and trading income of $.1 million in 1995. Net realized
gains in 1995 were net of a $2.2 million writedown of certain
exchange-rate-linked securities as a result of foreign currency fluctuations.
Selling securities at a gain and reinvesting the proceeds at a lower yield
may, absent other management action, tend to decrease future investment yields.
Bankers believes, however, that the following factors would mitigate the adverse
effect of such decreases on net income: (i) Bankers recognizes additional
amortization of the cost of policies purchased and the cost of policies produced
in the same period as the gain in order to reflect reduced future yields thereby
reducing such amortization in future periods (see amortization related to
realized gains (losses) below); (ii) Bankers can reduce interest rates credited
to some products thereby diminishing the effect of the yield decrease on the
investment spread; and (iii) the investment portfolio grows as a result of
reinvesting the realized gains.
Other income (loss) is comprised primarily of experience rating refunds
related to group accident and health contracts which often fluctuate from period
to period.
Insurance policy benefits increased 2.5 percent to $245.8 million in 1996.
Such increase reflects: (i) higher incidence of claims in the long-term care and
comprehensive health lines; and (ii) the increased amount of business in force
on which benefits are incurred.
Amortization related to operations decreased 22 percent to $24.0 million in
1996. Amortization related to operations in 1996 reflects the different
amortization assumptions and bases as a result of the adoption of a new basis of
accounting.
9
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
Cost of policies produced represents the cost of producing new business
(primarily commissions and certain costs of policy issuance and underwriting)
which varies with and is primarily related to the production of new business.
Costs deferred may represent amounts paid in the period new business is written
(such as underwriting costs and first year commissions) or in periods after the
business is written (such as commissions paid in subsequent years in excess of
ultimate commissions paid). Cost of policies purchased represents the portion of
Conseco's cost to acquire Bankers that is attributable to the right to receive
cash flows from insurance contracts in force at the acquisition dates.
Some costs incurred subsequent to the adoption of the new accounting basis
on policies issued prior to such date, which otherwise would have been deferred
had it not been for the change in accounting basis (because they vary with and
are primarily related to the production of the acquired interests in policies),
are expensed. Such costs are primarily comprised of certain commissions paid in
excess of ultimate commissions which totaled approximately $3.0 million and have
been expensed as operating expense in the three months ended March 31, 1996.
However, such amounts were considered in determining the cost of policies
purchased and its amortization.
Amortization related to realized gains (losses) fluctuates as a result of
the change in realized gains (losses) discussed above.
Interest expense on annuities and financial products increased 1.0 percent
to $19.9 million in 1996. Such increase reflects the increase in annuity
liabilities. At March 31, 1996 and 1995, the weighted average crediting rate for
Bankers' annuity liabilities, excluding interest bonuses guaranteed for the
first year of the annuity contract, was 5.4 percent.
Interest expense on notes payable decreased 13 percent to $7.1 million in
1996. Such decrease reflects the reduction in interest expenses resulting from
the repurchase of $148.3 million principal balance of Bankers' 13 percent senior
subordinated notes in March 1996 using the proceeds from a revolving credit
facility. The weighted average interest rate on borrowings under the revolving
credit facility was 6.1 percent at March 31, 1996.
Interest expense on investment borrowings in 1996 and 1995 reflects changes
in investment borrowing activities and the interest rates paid on such
borrowings. Bankers' average investment borrowings were $61 million and $48
million in the first quarters of 1996 and 1995, respectively.
Income tax expense increased 55 percent to $23.2 million in 1996 primarily
due to the increase in pretax income. The effective tax rate of 37 percent for
1996 and 36 percent for 1995 exceeded the statutory corporate income tax rate
(35 percent) primarily because goodwill amortization is not deductible for
federal income tax purposes.
Extraordinary charge in 1996 represents the loss recognized on the early
extinguishment of $148.3 million principal balance of BLH's 13 percent senior
subordinated notes.
SALES
In accordance with generally accepted accounting principles, the insurance
policy income shown in Bankers' consolidated statement of operations consists
primarily of premiums received for policies which have life contingencies or
morbidity features. For annuity contracts without such features, accounting
rules dictate that premiums collected are not reported as revenues, but rather
as deposits to insurance liabilities. Revenues for these products are recognized
over time in the form of investment income and surrender or other charges.
10
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
Premiums collected for the first quarter of 1996 were $385.1 million, of
which $54.0 million were recorded as deposits to policy liability accounts. This
compares to $407.3 million collected and $81.7 million recorded as deposits to
policy liability accounts in the first quarter of 1995. Collected premiums by
business segment are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Individual health
Medicare supplement.......................................................... $163.1 $159.9
Long-term care............................................................... 45.8 37.6
Other........................................................................ 20.9 25.9
------ ------
Total individual health.................................................. 229.8 223.4
Annuities....................................................................... 53.8 80.0
Individual life................................................................. 24.4 24.0
Group and other................................................................. 77.1 79.9
------ ------
Total.................................................................... $385.1 $407.3
====== ======
</TABLE>
Medicare supplement premiums increased 2.0 percent in the first quarter of
1996 compared to the same period in 1995. Such premiums accounted for 42 percent
of total collected premiums in 1996 compared to 39 percent in 1995. The number
of new Medicare supplement policies sold in the first quarter of 1996 totaled
13,421, down 23 percent compared to the number of policies sold in the first
quarter of 1995. Annualized new business premiums from such new sales totaled
$12.9 million in the first quarter of 1996 compared to $15.7 million in the
first quarter of 1995.
Long-term care premiums increased 22 percent in the first quarter of 1996
compared to the same period in 1995. Such premiums accounted for 12 percent of
total collected premiums in 1996 compared to 9.2 percent in 1995. The continued
growth in this product line reflects new product introductions, the
competitiveness of Bankers' products, the success of agent cross-selling
activities, increased consumer awareness and demand and improved persistency on
a larger basis of renewal premiums. Annualized new business premiums from new
sales were $9.9 million in the first quarter of 1996, up 19 percent over the
same period in 1995.
Annuity premiums decreased 33 percent in the first quarter of 1996 compared
to the same period in 1995. The decrease reflects the increased competition from
alternative investment products.
Collected premiums for other individual health policies decreased 19
percent in the first quarter of 1996 compared to the same period in 1995. The
decrease, which was anticipated, follows steps taken previously to improve the
profitability of the comprehensive major medical product included in this
category.
LIQUIDITY AND CAPITAL RESOURCES
Changes in the consolidated balance sheet between December 31, 1995, and
March 31, 1996, reflect: (i) the growth in Bankers' assets and liabilities from
operating activities; (ii) the notes payable and capital stock transactions
described in the accompanying notes to the consolidated financial statements;
(iii) the increase in investment borrowings; (iv) the change in the net
unrealized appreciation (depreciation) of fixed maturity securities and (v) the
change in basis resulting from the increase in Conseco's ownership of Bankers
during the first quarter of 1996 and the use of the "push down" method of
accounting.
Excluding the mark-to-market adjustment, the book value per share of
common stock was $20.08 at March 31, 1996, and $19.47 at December 31, 1995; and
the ratio of debt to shareholders' equity was .30-to-1 at March 31, 1996, and
.31-to-1 at December 31, 1995. Including the mark-to-market adjustment, the book
value per share of common stock was $19.75 at March 31, 1996, and $20.39 at
December 31, 1995; and the ratio of debt to shareholders' equity was .31-to-1 at
March 31, 1996, and .29-to-1 at December 31, 1995.
Dividends declared on common stock during the first quarter of 1996 were
$0.15 per share.
11
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
INVESTMENTS
At March 31, 1996, the amortized cost and estimated fair value of fixed
maturity securities (all of which were actively managed) were as follows:
<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.. $ 34.9 $ .3 $ .7 $ 34.5
Obligations of states and political subdivisions....... 15.3 .6 .1 15.8
Debt securities issued by foreign governments.......... 27.5 .1 .7 26.9
Public utility securities.............................. 500.4 2.1 24.4 478.1
Other corporate securities............................. 1,684.4 17.6 33.1 1,668.9
Mortgage-backed securities............................. 1,040.8 2.0 26.0 1,016.8
-------- ----- ------- ---------
Total........................................... $3,303.3 $22.7 $ 85.0 $ 3,241.0
======== ===== ======= =========
</TABLE>
The following table sets forth the investment ratings of fixed maturity
securities at March 31, 1996 (designated categories include securities with "+"
or "-" modifiers). The category assigned is the highest rating by a nationally
recognized statistical rating organization, or as to $49.7 million fair value of
fixed maturity securities not rated by such firms, the rating assigned by the
National Association of Insurance Commissioners ("NAIC"). For the purposes of
this table, NAIC Class 1 securities are included in the "A" rating; Class 2,
"BBB"; Class 3, "BB"; and Classes 4-6, "B and below":
<TABLE>
<CAPTION>
Percent of
---------------------------
Fixed Total
Investment rating maturities investments
----------------- ---------- -----------
<S> <C> <C>
AAA............................... 37% 34%
AA................................ 11 10
A ............................... 21 20
BBB............................... 25 23
---- ----
Investment-grade............... 94 87
---- ----
BB................................ 5 5
B and below....................... 1 1
---- ----
Below investment-grade......... 6 6
---- ----
Total actively managed
fixed maturities.......... 100% 93%
=== ===
</TABLE>
At March 31, 1996, Bankers' below investment-grade fixed maturities had an
amortized cost of $203.5 million and estimated fair value of $199.1 million.
During the first three months of 1995, writedowns of exchange-rate-linked
securities totaled $2.2 million due to foreign currency fluctuations which
indicated that the full amount of these investments would not be realized.
Bankers had no exchange-rate-linked securities at March 31, 1996.
12
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
Investments in mortgage-backed securities at March 31, 1996, included
collateralized mortgage obligations ("CMOs") of $474.1 million and
mortgage-backed pass-through securities of $542.7 million. 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 retirement of principal on a pro rata basis, which
occurs through regular monthly principal payments on pass-through securities.
The following table sets forth the par value, amortized cost and estimated
fair value of investments in mortgage-backed securities including CMOs at March
31, 1996, summarized by interest rates on the underlying collateral:
<TABLE>
<CAPTION>
Par Amortized Estimated
value cost fair value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Below 7 percent........................................... $ 525.2 $ 513.7 $ 496.1
7 percent - 8 percent..................................... 433.6 428.7 423.2
8 percent - 9 percent..................................... 75.3 75.3 75.4
9 percent and above....................................... 22.7 23.1 22.1
-------- -------- --------
Total mortgage-backed securities..................... $1,056.8 $1,040.8 $1,016.8
======== ======== ========
</TABLE>
Reverse repurchase agreements and dollar-roll transactions are entered into
to increase return on investments and improve liquidity. These transactions
generally terminate after 30 days and are accounted for as short-term borrowings
collateralized by pledged securities with book values approximately equal to the
loan value. Such borrowings averaged approximately $61 million during the first
quarter of 1996, compared to approximately $48 million during the same period of
1995.
STATUTORY INFORMATION
Bankers' life insurance subsidiaries are required to follow statutory
accounting practices ("SAP") prescribed or permitted by state insurance
regulators. SAP differs in many respects from generally accepted accounting
principles. After appropriate eliminations of intercompany accounts, Bankers'
life insurance subsidiaries reported combined statutory net income of $12.7
million for the three months ended March 31, 1996 and the following amounts on
their combined balance sheet at that date (dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
Statutory capital and surplus (a).......................................... $329.9
Asset valuation reserve ("AVR") (b)........................................ 25.6
Interest maintenance reserve ("IMR") (b)................................... 59.2
------
Total................................................................. $414.7
======
<FN>
(a) In connection with the acquisition of its life insurance subsidiaries,
BLH increased the capital of BLI by providing $500.0 million of cash in
exchange for a surplus debenture. As required by the regulatory
authorities, the remaining unpaid principal of $400.0 million at March
31, 1996 ($430.0 million at December 31, 1995), is considered a part of
statutory capital and surplus of BLI. BLI made a scheduled principal
payment of $30.0 million plus accrued interest on the surplus debenture
on March 29, 1996.
(b) Statutory accounting practices classify certain segregated portions of
surplus, called AVR and IMR, as liabilities. The purpose of these
accounts is to stabilize statutory net income and surplus against
fluctuations in the market value and creditworthiness of investments.
The IMR captures all realized investment gains and losses resulting
from changes in interest rates and provides for subsequent amortization
of such amounts into statutory net income on a basis reflecting the
remaining life of the assets sold. The AVR captures investment gains
and losses related to changes in creditworthiness and is also adjusted
each year based on a formula related to the quality and loss experience
of the investment portfolio.
</FN>
</TABLE>
13
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
Statutory regulations restrict the amount of capital and surplus of life
insurance subsidiaries that may be transferred to the parent in the form of
dividends, loans or advances. Payments to BLH by BLI of principal and interest
on the surplus debenture may be made by BLI from its available funds only when
the Illinois Department of Insurance ("DOI") 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 statutory surplus at March 31, 1996, was $329.9 million. All
dividend payments by BLI are subject to prior written approval of the DOI. In
March 1996, BLI declared an extraordinary dividend of $10.0 million to BLH,
which was paid on April 1, 1996.
BLI's ability to service its obligation under the surplus debenture is
dependent upon its ability to receive dividends and tax sharing payments from
BLC. BLC may, upon prior notice to the DOI, pay dividends in any twelve-month
period up to the greater of: (i) statutory net income 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 was greater than twice its
total RBC at March 31, 1996. Dividends in excess of maximum amounts prescribed
by the state statutes may not be paid without DOI approval. On April 1, 1996,
BLC paid regular dividends of $16.0 million to BLI. During the remainder of
1996, BLC may pay additional dividends up to $70.0 million without DOI approval.
14
<PAGE>
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
10.10 Conseco, Inc. Second Amended and Restated Deferred Compensation
Plan
11 Computation of Earnings Per Share
27 Financial Data Schedule
b) Reports on Form 8-K
A report on Form 8-K dated January 29, 1996, was filed with the
Commission to report under Item 5, the tender offer by BLH to
purchase all of its outstanding 13% Senior Subordinated Notes due
2002.
A report on Form 8-K dated February 12, 1996, was filed with the
Commission to report under Item 5: (i) the February 12, 1996
release of fourth quarter 1995 and full year 1995 results of
Bankers; and (ii) BLH's new bank credit facility entered into on
February 16, 1996.
15
<PAGE>
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.
BANKERS LIFE HOLDING CORPORATION
Dated: May 14, 1996 By: /s/ ROLLIN M. DICK
------------------
Rollin M. Dick
Executive Vice President and
Chief Financial Officer
(authorized officer and principal
financial officer)
16
CONSECO, INC. SECOND
AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
Effective as of January 1, 1995
Article I. Introduction and Purpose of Plan
1.1 Establishment of the Plan. Effective January 1, 1995, Conseco,
Inc., an Indiana corporation (the "Company"), established a deferred
compensation plan for certain of its eligible Employees known as the "CONSECO,
INC. DEFERRED COMPENSATION PLAN" (the "Plan"), which Plan was amended and
restated effective as of the same date and, on May 30, 1995, was amended.
Effective January 1, 1995, Bankers Life Holding Corporation, a Delaware
corporation ("Bankers"), established a deferred compensation plan for certain of
its eligible Employees known as the "Bankers Life Holding Corporation Deferred
Compensation Plan" which was amended on May 30, 1995 (the "Merged Plan").
Effective October 1, 1995, the Company and Bankers authorized the
merger of the Merged Plan into the Plan. This document constitutes an amendment
and restatement, and reflects the merger, of the Plan and the Merged Plan.
Except as otherwise noted below, this amendment, restatement and
merger, shall be effective as of January 1, 1995. The provisions of the Plan, as
set forth herein, shall apply only to the Participants who terminate employment
on or after October 1, 1995. The rights and benefits of all former employees
shall be determined in accordance with the provisions of the Plan as in effect
on the date his employment terminated.
1.2 Purpose. The purpose of the Plan is to provide a Participant with a
retirement income based on Employer Contributions and Participant salary
deferrals. The Plan is intended to provide unfunded, deferred compensation
benefits to a select group of management or highly compensated employees within
the meaning of Section 201(2) of the Employee Retirement Income Security Act of
1974, as amended.
1.3 Application of the Plan. The provisions of this Plan are applicable
only for Participants who are in the active employ of an Employer on or after
January 1, 1995.
Article II. Definitions
Whenever used in the Plan, the following terms shall have the meanings
as set forth in this Article II.
2.1 "Administrator" means a committee consisting of the Chief Financial
Officer, Chief Operations Officer and General
1
<PAGE>
Counsel of the Company or such other directors or officers of the Company who
may be appointed by the Committee.
2.2 "Beneficiary" means the person, persons, or legal entity entitled
to receive benefits under this Plan which become payable in the event of the
Participant's death, as provided in Article VIII.
2.3 "Board" means the Board of Directors of the Company.
2.4 "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 such section and any regulations under
such section.
2.5 "Committee" means a committee of the Board which shall be (i)
appointed by the Board; (ii) constituted so as to permit the Plan to comply with
Rule 16b-3; and (iii) constituted solely of "outside directors," within the
meaning of Section 162(m) of the Code and applicable interpretive authority
thereunder. No member of the Committee shall be eligible to be a Participant
under the Plan or shall have been granted or awarded equity securities pursuant
to any other plan of the Company or any of its affiliates in the preceding year
from the date of any service on such committee unless Rule 16b-3 permits
disinterested directors to participate in such plans. The Committee may exercise
any and all authority of the Administrator provided for herein and take any and
all action the Administrator is permitted to take hereunder.
2.6 "Company Stock" means the shares of common stock of the Company.
2.7 "Compensation" means the total amount of authorized base salary
plus cash bonuses earned by an Employee for personal services rendered to an
Employer for the calendar year.
2.8 "Deferral" means the annual amount of Compensation that a
Participant elects to defer pursuant to a properly executed Voluntary Salary
Deferral Agreement.
2.9 "Disability" means a Participant's total and permanent disability,
as determined in accordance with the long term disability plan applicable to the
Participant; provided, however, that in no event shall disability be deemed to
have occurred if it results from a Participant's engagement in a criminal
activity, habitual drunkenness, addiction to narcotics, or from an intentionally
self-inflicted injury.
2.10 "Early Retirement" means the Participant's termination of
employment following attainment of age fifty-five (55) and completion of five
(5) years of service with an Employer.
2
<PAGE>
2.11 "Employee" means any common law employee of an Employer.
2.12 "Employer" means the Company and such Subsidiaries of the Company
as are named as Employers by the Committee and have adopted the Plan.
2.13 "Employer Contribution Account" means an account established for
bookkeeping purposes only to reflect Employer Contributions for each Participant
pursuant to Section 5.1 of this Plan. Employer Contributions for each
Participant for each Plan Year shall be converted to Units as of the last day of
such Plan Year by dividing the total amount of Employer Contributions for the
calendar year by the average price of one share of Company Stock for the
calendar year. Such average price shall be determined by averaging the closing
price of one share of Company Stock each day to obtain a monthly average price,
and averaging the monthly average prices to obtain an annual average price. Such
Employer Contributions shall thereafter be accounted for solely in Units. In the
event the Company declares cash dividends with respect to Company Stock, the
Employer Contribution Account for each Participant shall be credited with
additional Units equal to the number determined by dividing the dollar value of
the cash dividend that would have been attributable to the number of Units in
the Employer Contribution Account for such Participant had the Units in fact
been Company Stock by the value of the Company Stock on the date the cash
dividend was paid.
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
2.15 "Normal Retirement" means the Participant's termination of
employment following attainment of age sixty (60).
2.16 "Participant" means an Employee or former Employee who has been
enrolled in this Plan and who has an account under the Plan.
2.17 "Plan" means the Conseco, Inc. Deferred Compensation Plan as set
forth herein and as it may be amended from time to time.
2.18 "Plan Year" means the period from January 1 through December 31.
2.19 "Retirement" means Early Retirement or Normal Retirement.
2.20 "Rule 16b-3" means Securities and Exchange Commission Rule 16b-3
promulgated under the Exchange Act, as such may be amended from time to time,
and any successor rule, regulation or statute fulfilling the same or a similar
function.
2.21 "Salary Deferral Account" means an account established for
bookkeeping purposes only to reflect each Participant's
3
<PAGE>
Deferrals under this Plan. Each Participant's Salary Deferral Account will earn
a rate of return each calendar year which is determined with reference to an
index to be selected by the Committee prior to the beginning of that year. Such
interest will be credited to each Participant's Salary Deferral Account monthly.
2.22 "Subsidiary" means any entity that is more than fifty percent
(50%) owned, directly or indirectly, by the Company.
2.23 "Units" means an amount of deferred compensation having reference
to Company Stock with one Unit referencing one share of Company Stock. The
maximum number of Units that may be allocated to the Employer Contribution
Account of all Participants under the Plan in the aggregate shall be 300,000
Units. Such maximum number shall be adjusted as appropriate to reflect any stock
dividend, stock split, recapitalization, merger or other similar event affecting
the Company.
2.24 "Voluntary Salary Deferral Agreement" means the agreement between
a Participant and an Employer to defer receipt by the Participant of
Compensation not yet earned. Such agreement shall state the Deferral amount to
be withheld from a Participant's pay and shall become effective no earlier than
the first day of the Plan Year following the execution of such agreement except
as otherwise designated by the Administrator.
Article III. Participation in the Plan
3.1 Eligibility. Each Employee who received Compensation in the prior
Plan Year in excess of an amount determined prior to the beginning of each Plan
Year by the Committee, in its complete discretion, (provided, however, that such
amount shall not be less than $100,000) shall be eligible to participate in the
Plan on the first day of the Plan Year. Notwithstanding the forgoing, any
Employee designated by the Committee shall be eligible to participate in the
Plan on such date as is designated by the Committee.
3.2 Enrollment. An eligible person under Section 3.1 of the Plan may
enroll in the Plan by completing an annual Voluntary Salary Deferral Agreement
and submitting it to the Administrator. Except as specifically so designated by
the Administrator, each annual Voluntary Salary Deferral Agreement must be
submitted prior to the first day of the Plan Year to which it relates in order
to be effective for that year, and shall be irrevocable for such Plan Year, once
made.
3.3 Duration of Participation. An Employee who becomes a Participant
shall be eligible to continue to actively participate in the Plan and elect to
make Deferrals until such person's termination of employment, or until the first
day of any Plan Year
4
<PAGE>
following a Plan Year in which the Participant does not receive Compensation in
excess of $100,000 (or such other figure as is determined by the Committee prior
to the beginning of any Plan Year); provided, however, the Committee may
continue eligibility to participate at its discretion.
Article IV. Deferral of Compensation
4.1 Deferrals. By completing a Voluntary Salary Deferral Agreement, an
eligible Participant may defer any whole percentage of Compensation for the Plan
Year. Amounts deferred shall be allocated to the Participant's Salary Deferral
Account on the last day of each month.
4.2 Modifications to Amount Deferred. A Participant may change
Deferrals with respect to Compensation for the next Plan Year by submitting a
new properly executed Voluntary Salary Deferral Agreement to the Administrator
prior to the first day of that Plan Year; provided, however, that
notwithstanding any term or provision of the Plan to the contrary, on or prior
to June 23, 1995, a Participant may make a one-time election to change Deferrals
effective July 1, 1995.
Article V. Employer Contributions
5.1 Employer Contributions.
(a) Fixed Contribution.
For the 1995 Plan Year, the Employer shall make a matching
contribution on behalf of each Participant for the period from January 1, 1995
through June 30, 1995 equal to one hundred percent (100%) of the Participant's
Deferrals not in excess of three percent (3%) of the Participant's Compensation
for that period.
(b) Profit Sharing Contribution.
Prior to the first day of 1995, the Committee shall
establish two performance goals (hereinafter sometimes referred to as Target I
and Target II) for the 1995 Plan Year based on the Company's targeted operating
results. Once established, the Committee, in its sole discretion, may revise
such performance goals at any time to take into account occurrences other than
those occurrences in the ordinary course of business for the year. If a
performance goal for 1995 is reached, the Employer shall make a matching
contribution on behalf of each Participant for the period from January 1, 1995
through June 30, 1995 as follows:
(1) For each such Class 1 Participant, a matching
contribution equal to one hundred percent (100%) of the
5
<PAGE>
Participant's Deferrals for such period not in excess of five percent (5%) of
the Participant's Compensation for such period if Target I is reached and an
additional matching contribution of one hundred percent (100%) of the
Participant's Deferrals for such period not in excess of five percent (5%) of
the Participant's Compensation for such period if Target II is reached.
(2) For each such Class 2 Participant, a matching
contribution equal to one hundred percent (100%) of the Participant's Deferrals
for such period not in excess of three and three-fourths percent (3.75%) of the
Participant's Compensation for such period if Target I is reached and an
additional matching contribution of one hundred percent (100%) of the
Participant's Deferrals for such period not in excess of three and three-fourths
percent (3.75%) of the Participant's Compensation for such period if Target II
is reached.
(3) For each such Class 3 Participant, a matching
contribution of one hundred percent (100%) of the Participant's Deferrals for
such period not in excess of two and one-half percent (2.5%) of the
Participant's Compensation for such period if Target I is reached and an
additional matching contribution of one hundred percent (100%) of the
Participant's Deferrals for such period not in excess of two and one-half
percent (2.5%) of the Participant's Compensation for such period if Target II is
reached.
Participants shall be assigned to Classes 1 - 3 by
the Committee in its sole discretion prior to the beginning of 1995, subject to
modification at any time by the Committee in its sole discretion.
(c) Timing of Allocation of Contributions.
Employer Contributions shall be allocated to each eligible
Participant's Employer Contribution Account effective as of the last day of the
Plan Year to which the contributions relate.
Article VI. Vesting
Each Employer Contribution made on behalf of a Participant pursuant to
Section 5.1 shall vest on the earlier of the following: (i) the Participant's
death, (ii) the Participant's Disability, (iii) the Participant's Retirement, or
(iv) the fourth anniversary of the last day of the Plan Year for which that
contribution was made, provided that the Participant has been an Employee of the
Employer or an affiliate of the Employer continuously from the date when the
contribution was made until that date. Each Participant's Salary Deferral
Account shall be one hundred percent (100%) vested at all times.
6
<PAGE>
Article VII. Distribution of Benefits
7.1 Commencement of Payment.
(a) Distribution of a Participant's Salary Deferral Account
shall be made in cash beginning as soon as administratively feasible following
the earlier of (i) Separation from Service, or (ii) the fourth anniversary of
the last day of the Plan Year in which the Deferrals were made unless the
Participant elects an additional four (4)-year deferral in writing prior to that
date and immediately preceding each subsequent four (4)-year anniversary of that
date thereafter.
(b) Distribution of one-half (1/2) of each Employer
Contribution shall be made in Company Stock and cash in lieu of fractional
shares (or all in cash if so determined by the Administrator in its complete
discretion or in the event no exemption from registration has been obtained or
no registration has been made of the Company Stock under applicable federal or
any state securities laws) beginning as soon as administratively feasible
following the earlier of (i) the later of the Participant's Separation from
Service or attainment of age sixty (60), or (ii) the fourth anniversary of the
last day of the Plan Year for which the Employer Contribution was made unless
the Participant elects an additional four (4)-year deferral in writing prior to
that date and immediately preceding each subsequent four (4)-year anniversary of
that date thereafter.
(c) Distribution of the vested portion of a Participant's
Employer Contribution Account not distributed pursuant to Section 7.1(b) shall
be made in Company Stock and cash in lieu of fractional shares (or all in cash
if so determined by the Administrator in its complete discretion or in the event
no exemption from registration has been obtained or no registration has been
made of the Company Stock under applicable federal or any state securities laws)
beginning as soon as administratively feasible following the later of the
Participant's Separation from Service or attainment of age sixty (60).
(d) "Separation from Service" means the severance of a
Participant's employment with the Employer for any reason, including Retirement,
Disability or death. The non-vested portion of a Participant's Employer
Contribution Account shall be forfeited upon a Participant's Separation from
Service for reasons other than the Participant's Retirement, Disability or
death.
7.2 Manner of Distributions.
(a) Distribution of a Participant's Salary Deferral Account
from the Plan shall be made in a lump sum; provided, however, that if
distribution is made as a result of a Participant's Separation from Service, the
Participant may
7
<PAGE>
irrevocably elect equal annual installments over a period of up to ten (10)
years in writing prior to the Participant's Separation from Service.
(b) Distribution of the vested portion of a Participant's
Employer Contribution Account shall be made in a lump sum at the times and in
the amounts specified in Section 7.1; provided, however, that if distribution is
made as a result of a Participant's Separation from Service, the Participant may
irrevocably elect equal annual installments over a period of up to ten (10)
years in writing prior to the Participant's Separation from Service or, for a
Participant whose Separation from Service occurs for reasons other than
Retirement or Disability, prior to the later of: (i) the Participant's
Separation from Service, or (ii) the Participant's fifty-ninth (59th) birthday.
However, notwithstanding anything herein to the contrary, distributions
resulting from Early Retirement shall be made in a lump sum at age sixty (60)
unless the Participant irrevocably elects equal annual installments over a
period of not less than five (5) years nor more than ten (10) years in writing
prior to the Participant's Early Retirement; provided, however, that if the
Participant shall obtain a position with a competing company or with a company
in a competing industry prior to the Participant's attainment of age sixty (60),
the Participant shall forfeit that portion of his Employer Contribution Account
which would not have been vested upon the Participant's Separation from Service
but for the Participant's Early Retirement.
7.3 Death Distributions. In the event a Participant dies prior to
distribution of his or her benefit pursuant to Section 7.2, the Participant's
Salary Deferral Account and the Participant's Employer Contribution Account
shall be distributed to the Participant's Beneficiary in a lump sum as soon as
administratively feasible following the Participant's death. Distribution of the
Participant's Salary Deferral Account shall be made in cash while the vested
portion of the Participant's Employer Contribution Account shall be distributed
in Company Stock and cash in lieu of fractional shares (or all in cash if so
determined by the Administrator in its complete discretion or in the event no
exemption from registration has been obtained or no registration has been made
of the Company Stock under applicable federal or any state securities laws) as
soon as administratively feasible.
7.4 Early Distribution. Notwithstanding any other term or provision of
this Plan, a Participant shall have the one time right to elect that the
Participant's Salary Deferral Account be distributed to the Participant on
January 1, 1996. Such election must be made on or prior to June 23, 1995. In the
event such election is made, such Participant shall not be entitled to and shall
not receive any employer contribution under Sections 5.1(a) and (b) of the Plan
and shall forever waive his or her claim to any such employer contribution.
8
<PAGE>
Article VIII. Beneficiary Information
8.1 Designation. A Participant shall have the right to designate a
Beneficiary and amend or revoke such designation at any time, in writing. Such
designation, amendment or revocation shall be effective upon receipt by the
Administrator. If no Beneficiary is designated as provided above, the person,
persons or legal entity designated by the Participant to receive benefits under
the ConsecoSave Plan shall be considered the designated Beneficiary.
8.2 Failure to Designate a Beneficiary. If no designated Beneficiary
survives the Participant and benefits are payable following the Participant's
death, the Administrator shall direct that payment of benefits be made to the
person or persons in the first of the following classes of successive preference
Beneficiaries.
The Participant's:
(a) spouse,
(b) children, per stirpes,
(c) parents,
(d) brothers and sisters,
(e) estate.
Article IX. Administration and General Provisions.
9.1 Administration. The Administrator shall be charged with the
administration and interpretation of the Plan but may delegate the ministerial
duties hereunder to such persons as it determines. The Administrator may adopt
such rules as may be necessary or appropriate for the proper administration of
the Plan. The decision of the Administrator in all matters involving the
interpretation and application of the Plan shall be final and shall be given the
maximum possible deference allowed by law.
9.2 Funding of the Plan. Benefits under the Plan shall be paid out of
the general assets of the Employer employing or that employed the Participant.
Benefits payable under the Plan shall be reflected on the account records of the
Employer but shall not be construed to create or require the creation of a
trust, custodial, or escrow account. No Employee or Participant shall have any
right, title, or interest whatever in or to any investment reserves, accounts,
or funds that the Employer may purchase, establish, or accumulate to aid in
providing benefits under the Plan. Nothing contained in the Plan, and no action
taken pursuant to its provisions, shall create a trust or fiduciary relationship
of any kind between the Employer and an Employee or any other person. Neither a
Participant nor survivor or beneficiary of a Participant shall acquire any
interest greater than that of an
9
<PAGE>
unsecured creditor of the Employer employing or that employed the Participant.
9.3 Payment of Expenses. The expenses of administering the Plan shall
be paid by the Employer employing or that employed the Participant.
9.4 Indemnity for Liability. The Company shall indemnify members of the
committee comprising the Administrator, and each other person acting at the
direction of the Administrator, against any and all claims, losses, damages,
expenses, including counsel fees, incurred by such persons and any liability,
including any amounts paid in settlement with the Administrator's approval,
arising from such person's action or failure to act, except when the same is
judicially determined to be attributable to the gross negligence or willful
misconduct of such person.
9.5 Incompetence. Every person receiving or claiming benefits under the
Plan shall be conclusively presumed to be mentally competent until the date on
which the Administrator receives a written notice, in a form and manner
acceptable to the Administrator, that such person is incompetent, and that a
guardian, conservator, or other person legally vested with the care of such
person's person or estate has been appointed; provided, however, that if the
Administrator shall find that any person to whom a benefit is payable under the
Plan is unable to care for such person's affairs because of incompetency, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed legal representative) may be paid as provided in the ConsecoSave Plan.
Any such payment so made shall be a complete discharge of liability therefor
under the Plan.
9.6 Nonalienation. No benefit payable at any time under the Plan shall
be subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment, garnishment, or encumbrance of any kind, and shall not be subject to
or reached by any legal or equitable process (including execution, garnishment,
attachment, pledge, or bankruptcy) in satisfaction of any debt, liability, or
obligation, prior to receipt. Any attempt to alienate, sell, transfer, assign,
pledge, or otherwise encumber any such benefit, whether presently or thereafter
payable, shall be void.
9.7 Employer-Employee Relationship. The establishment of this Plan
shall not be construed as conferring any legal or other rights upon any Employee
or any person for a continuation of employment, nor shall it interfere with the
rights of the Employer to discharge any Employee or otherwise act with relation
to the Employee. The Employer may take any action (including discharge) with
respect to any Employee or other person and may treat such person without regard
to the effect which such action or treatment might have upon such person as a
Participant of this Plan.
10
<PAGE>
9.8 Tax Liability. The Employer may withhold from any payment of
benefits hereunder any taxes required to be withheld and such sum as the
Employer may reasonably estimate to be necessary to cover any taxes for which
the Employer may be liable and which may be assessed with regard to such payment
except the Employer's portion of Federal Insurance Contributions Act ("FICA")
taxes.
9.9 Adjustment in Number of Units. In the event of any stock dividend
of the Company Stock or any split-up or combination of shares of the Company
Stock, appropriate adjustment shall be made by the Administrator in the number
of Units standing to the credit of each Participant in the Employer Contribution
Account.
9.10 Section 16 Compliance. With respect to persons subject to Section
16 of the Exchange Act, transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Exchange
Act. To the extent any provision of the Plan or action by the Administrator or
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
9.11 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 Employer
contributions and distributions of Company Stock and cash in lieu thereof shall
constitute "performance-based" 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 with Section 162(m); provided
that no such construction or amendment shall have an adverse effect on the
economic value to a Participant of any benefit previously accrued hereunder.
Article X. Amendment and Termination
10.1 Amendment and Termination. The Company reserves the right to
change or discontinue this Plan by action of the Board in its discretion;
provided, however, that in the case of any person to whom benefits under this
Plan had accrued upon termination of employment prior to such Board action, or
in the case of any Participant who would have been entitled to benefits under
this Plan had the Participant's employment ceased prior to such change or
discontinuance, the benefits such person had accrued under this Plan prior to
such change or discontinuance shall not be adversely affected thereby (unless
such change is required in order to cause the benefits under the Plan to qualify
as performance-based 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 of the Company,
amend the Plan:
G:\LEGAL\PLAN\DEFMERGE.CNC
11
<PAGE>
(a) to increase the maximum number of shares which may be
issued pursuant to the Plan;
(b) to materially modify the requirements as to eligibility
for participation in the Plan or materially increase the
benefits accruing to Participants under the Plan; or
(c) to decrease any authority granted to the Administrator
hereunder in contravention of Rule 16b-3.
Notwithstanding anything herein to the contrary, nothing contained herein shall
restrict the Company's right to terminate the Plan and immediately distribute
all benefits accrued hereunder in a single lump sum payment.
G:\LEGAL\PLAN\DEFMERGE.CNC
12
<PAGE>
IN WITNESS WHEREOF, the Company and the Employers have caused this
Second Amended and Restated Plan to be signed by their respective duly
authorized officers as of October 1, 1995.
CONSECO, INC.
By:/s/ Stephen C. Hilbert
----------------------------
Stephen C. Hilbert,
Chairman of the Board,
President and Chief
Executive Officer
BANKERS NATIONAL LIFE INSURANCE
COMPANY
By:/s/ Donald F. Gongaware
----------------------------
Donald F. Gongaware,
President and Chief
Operating Officer
CONSECO CAPITAL MANAGEMENT, INC.
By:/s/ Maxwell E. Bublitz
-----------------------------
Maxwell E. Bublitz, President
and Chief Executive Officer
CONSECO RISK MANAGEMENT, INC.
By:/s/ Donald M. Collins
-----------------------------
Donald M. Collins, President
CONSECO MORTGAGE CAPITAL, INC.
By:/s/ Thomas A. Meyers
-----------------------------
Thomas A. Meyers, Senior
Vice President
G:\LEGAL\PLAN\DEFMERGE.CNC
13
<PAGE>
MDS OF NEW JERSEY, INC.
By:/s/ Robert C. Leonard
-----------------------------
Robert C. Leonard, President
and Chief Executive Officer
CBC INSURANCE AGENCY SERVICES,
INC.
By:/s/ Robert C. Leonard
-----------------------------
Robert C. Leonard, President
and Chief Executive Officer
BANKERS LIFE HOLDING CORPORATION
By:/s/ Fred E. Crosley
------------------------------
Fred E. Crosley,
Executive Vice President
and Chief Financial Officer
BANKERS LIFE AND CASUALTY
INSURANCE COMPANY
By:/s/ Barth T. Murphy
-----------------------------
Barth T. Murphy,
President
G:\LEGAL\PLAN\DEFMERGE.CNC
14
<TABLE>
<CAPTION>
EXHIBIT 11
BANKERS LIFE HOLDING CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
(unaudited)
Three months ended
March 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Shares outstanding, beginning of period...................................... 50,597,758 52,782,700
Weighted average shares issued (retired) during the period:
Employee defined contribution plan....................................... -- 18,680
Stock options (1)........................................................ 98
Shares acquired and effectively retired (2).............................. (1,095,762) --
Common stock equivalents related to stock options........................ 19,776 --
----------- -----------
Weighted average shares outstanding (3)................................ 49,521,870 52,801,380
=========== ===========
Net income ................................................................ $30,048,000 $26,805,000
=========== ===========
Net income per common share............................................ $.61 $.51
==== ====
<FN>
(1) Bankers issued 830 shares during the three months ended March 31, 1996 upon the exercise of stock options.
(2) Bankers purchased 1,272,248 common shares in the three months ended March 31, 1996.
(3) Additional shares from the assumed exercise of stock options are not material.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-Q FOR BANKERS LIFE HOLDING
CORPORATION, DATED MARCH 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 3,241,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 98,400 <F1>
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,484,700
<CASH> 0
<RECOVER-REINSURE> 32,000
<DEFERRED-ACQUISITION> 842,600 <F2>
<TOTAL-ASSETS> 4,844,300
<POLICY-LOSSES> 2,786,400
<UNEARNED-PREMIUMS> 197,100
<POLICY-OTHER> 208,800
<POLICY-HOLDER-FUNDS> 110,300
<NOTES-PAYABLE> 299,900
<COMMON> 731,800
0
0
<OTHER-SE> 242,600 <F3>
<TOTAL-LIABILITY-AND-EQUITY> 4,844,300
319,700
<INVESTMENT-INCOME> 64,000
<INVESTMENT-GAINS> 2,000 <F4>
<OTHER-INCOME> 16,600 <F5>
<BENEFITS> 265,700 <F6>
<UNDERWRITING-AMORTIZATION> 24,400 <F7>
<UNDERWRITING-OTHER> 63,200
<INCOME-PRETAX> 23,200
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 0
<DISCONTINUED> (10,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,000
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes $93,600 of credit-tenant loans.
<F2> Includes $558,000 of cost of policies purchased.
<F3> Includes retained earnings of $257,600, offset by net
unrealized depreciation of securities of $15,000.
<F4> Includes net realized gains of $3,100 and a net trading loss of $1,100
<F5> Includes restructuring income of $16,000 and other income of $600.
<F6> Includes insurance policy benefits of $245,800 and interest expense on
annuities and financial products of $19,900.
<F7> Includes amortization of cost of policies purchased of $11,200 and
cost of policies produced of $10,300 and amortization related to
realized gains of $2,900.
</FN>
</TABLE>
