Server: Microsoft-IIS/3.0 Date: Thu, 18 Dec 1997 09:13:57 GMT Content-Type: text/html Accept-Ranges: bytes Last-Modified: Fri, 14 Nov 1997 21:49:59 GMT Content-Length: 71230
Third quarter operating earnings jump 91 percent; operating EPS 44 percent
Company on track for 40+ percent operating EPS growth for full-year 1997
(Note to editors: As used throughout this release, "operating earnings" exclude investment gains (losses), nonrecurring items and extraordinary charges. "Operating earnings per fully diluted share" is the figure security analysts reference in their published earnings estimates. According to First Call, the consensus analyst estimate for Conseco's 3Q97 operating earnings per fully diluted share was 70 cents. All share and per-share data in this release have been adjusted to reflect the two-for-one stock splits distributed April 1, 1996, and Feb. 11, 1997.)
Conseco Chairman Stephen C. Hilbert said, "These strong results again demonstrate our ability to actively manage profitable internal growth, as well as to seek out, complete and consolidate accretive acquisitions. We are particularly pleased with the level of new sales in the quarter, which, despite the agent distractions which normally accompany acquisitions, rose by 5 percent overall and showed gains in all but one of our major product segments. Compared to third quarter 1996, first-year premiums were up 11 percent in our individual and group major medical segment, 7 percent in supplemental health, and 3 percent in annuities. New business in our life insurance segment declined, as expected, because of our decision to redesign our universal life products in order to meet higher profit standards. Total collected premiums, including renewals, reached a record $1.36 billion for the quarter and a record $4.03 billion for the nine months of 1997. And we believe that Conseco Marketing, under President Don Gongaware, is only beginning to tap the potential of our 190,000 agents.
"Another highlight of the quarter," Hilbert said, "was completing the acquisition of Colonial Penn Life Insurance Co., our 18th acquisition in 15 years as an operating company. Colonial Penn, with its technologically advanced direct-response marketing arm, is a key strategic addition to the Conseco family of companies. We plan to take full advantage of Colonial Penn's expertise in television advertising, direct mail, telemarketing and database management to generate leads for our agents and to help them cross-market the full range of Conseco products.
"In the coming quarters," Hilbert said, "our opportunity will be to translate Conseco's enormous product and distribution strength into real value for our shareholders, customers, agents and employees. To capitalize on this opportunity, we are strengthening our cross-marketing effort with the launch of Conseco brand advertising. In Phase One of the campaign (mid-October), the new brand and new logo (the Conseco "performance mark") were introduced to Conseco's employee associates. In Phase Two, which began October 23, we started introducing the Conseco brand in nationwide print ads aimed at increasing awareness of Conseco among current and prospective agents. Phase Three, to begin in the second quarter of 1998, will include print and broadcast ads designed to increase Conseco's profile and positive perception among consumers. Our goal is to make it even more productive for our agents to approach their prospects and customers with Conseco products.
"Results for the third quarter," Hilbert said, "keep us on track to equal or exceed the consensus analyst estimate (according to First Call) of $2.71 of operating earnings per share in 1997, an increase of approximately 43 percent over the $1.89 reported in 1996. As we contemplate our transformation into one of the nation's premier providers of annuities, universal life insurance and supplemental health insurance products, we couldn't be more excited about the future. Compared to any other time in its history, Conseco today is bigger, financially stronger, more diversified in its earnings sources (which should mean greater earnings stability and predictability), and better positioned to benefit from the growth of several of the industry's most attractive markets.
"Upon completion of the Washington National acquisition (expected in December)," Hilbert said, "Conseco will have approximately $36 billion of assets on its own balance sheet and $8 billion of annual premiums and revenues. With a debt/capital ratio near our 35 percent target, and more than $800 million of annual EBIT cash flow, we have the balance sheet flexibility we need in order to continue pursuing the most profitable opportunities we can find.
"We'll continue to rely," Hilbert said, "on the business disciplines that have made Conseco one of America's best-performing public companies over the past decade: efficient operations, active investment and capital management, high-quality customer service, and a bottom-line focus."
Third quarter results. Conseco has four primary business segments: life insurance, annuities, supplemental health and individual and group major medical. Third quarter operating earnings increased in 1997 primarily as a result of: (1) the acquisitions of Transport Holdings Inc. (December 1996), American Travellers Corp. (December 1996), Capitol American Financial Corp. (March 1997) and Pioneer Financial Services, Inc. (May 1997); (2) Conseco's purchase of the remaining equity stakes in American Life Holdings, Inc. (September 1996) and Bankers Life Holding Corp. (December 1996); and (3) increased business in force.
Invested Assets. At Sept. 30, 1997, Conseco's consolidated $24.7 billion investment portfolio consisted primarily of investment-grade, publicly traded debt securities. Only 1 percent of investments were mortgages, only 5 percent were high-yield bonds, and there were no significant nonperforming investments.
Net income. Third quarter 1997 net income of $153.8 million, or 73 cents per fully diluted share, also included: (1) net investment gains of $42.8 million, or 20 cents per share; (2) an extraordinary charge of $0.7 million, or nil per share, related to early retirement of debt; and (3) nonrecurring charges totaling $40.5 million, or 19 cents per share, related to Conseco's Medicare supplement business in Massachusetts. The Massachusetts insurance department has been unwilling to approve reasonable rate increases to Medicare supplement providers. Conseco is discontinuing the sale of new Medicare supplement policies in Massachusetts and in the third quarter wrote down the cost of policies purchased and produced and accrued additional claim reserves related to its inforce Massachusetts Medicare supplement business. Conseco is appealing the department's rating actions to the supreme court of Massachusetts. Third quarter 1996 net income of $78.1 million, or 49 cents per share, included: (1) net investment losses of $0.3 million, or nil cents per share; and (2) an extraordinary charge of $1.2 million, or 1 cent per share, related to early retirement of debt.
Nine-month 1997 net income of $395.9 million, or $1.82 per fully diluted share, also included: (1) net investment gains of $39.0 million, or 18 cents per share; (2) an extraordinary charge of $6.2 million, or 3 cents per share, related to early retirement of debt; (3) a charge of 6 cents per share related to the induced conversion of preferred stock (treated as a preferred stock dividend); and (4) nonrecurring charges totaling $44.8 million, or 21 cents per share, related to the previously discussed third quarter actions on Conseco's Massachusetts Medicare supplement business and to the death of an executive officer in the second quarter. Nine-month 1996 net income of $174.5 million, or $1.29 per share, included: (1) net investment losses of $6.4 million, or 5 cents per share; (2) nonrecurring income of $17.7 million, or 13 cents per share, resulting from the sale of Conseco's investment in Noble Broadcast Group; and (3) an extraordinary charge of $18.6 million, or 14 cents per share, related to early retirement of debt.
Shares outstanding. Weighted average shares outstanding (the figure used in calculating fully diluted earnings per share) were 212.1 million for the third quarter of 1997, up 34 percent over third quarter 1996. Conseco's 1996 and 1997 acquisitions resulted in the issuance of 89.2 million Conseco common and common equivalent shares. Partially offsetting these issuances, Conseco purchased in the open market a total of 10.0 million of its common shares in the second and third quarters of 1997 (at an average price of $38.77). There were 188.0 million Conseco common shares issued and outstanding at Sept. 30, 1997.
Conseco, headquartered in Carmel, Ind., is a financial services holding company.
Conseco, Inc. (NYSE: CNC) | Quarter Ended | Nine Months Ended | ||
Financial Highlights | Sept. 30: | Sept. 30: | ||
1997 | 1996 | 1997 | 1996 | |
In millions: | ||||
Operating earnings(1) | $152.2 | $79.6 | $407.9 | $181.8 |
Net investment gains (losses), net of related costs, amortization and taxes | 42.8 | (0.3) | 39.0 | (6.4) |
Nonrecurring items, net of tax | (40.5) | 0.0 | (44.8) | 17.7 |
Extraordinary charge, net of tax | (0.7) | (1.2) | (6.2) | (18.6) |
Net income | $153.8 | $78.1 | $395.9 | $174.5 |
Per common share-primary: | ||||
Weighted average shares (in millions) | 211.0 | 143.2 | 209.7 | 115.9 |
Operating earnings(1) | $0.7 | $0.6 | $1.9 | $1.5 |
Net investment gains (losses), net of related costs, amortization and taxes | 0.2 | 0.0 | 0.2 | (0.1) |
Nonrecurring items, net of tax | (0.2) | 0.0 | (0.2) | 0.2 |
Charge related to induced conversion of preferred stock | 0.0 | 0.0 | (0.1) | 0.0 |
Extraordinary charge, net of tax | 0.0 | (0.0) | (0.0) | (0.2) |
Net income | $0.73 | $0.54 | $1.82 | $1.42 |
Per common share-fully diluted: | ||||
Weighted average shares (in millions) | 212.1 | 158.1 | 210.2 | 134.7 |
Operating earnings(1) | $0.72 | $0.50 | $1.94 | $1.35 |
Net investment gains (losses), net of related costs, amortization and taxes | 0.2 | 0.0 | 0.2 | (0.1) |
Nonrecurring items, net of tax | (0.2) | 0.0 | (0.2) | 0.1 |
Charge related to induced conversion of preferred stock | 0.0 | 0.0 | (0.1) | 0.0 |
Extraordinary charge, net of tax | 0.0 | (0.0) | (0.0) | (0.1) |
Net income | $0.73 | $0.49 | $1.82 | $1.29 |
Excluding SFAS 115(2): | ||||
Annualized operating return on common equity(1) | 18% | 23% | 14% | 23% |
Assets (in millions) | $33,050.8 | $23,226.0 | ||
Shareholders’ equity and minority interest (in millions) | $4,540.1 | $2,150.4 | ||
Book value per common share | $18.71 | $12.96 | ||
Book value per common share, assuming conversion of all convertible securities | $19.14 | $13.45 |
(1) Excludes investment gains (losses) and nonrecurring items.
(2) Before adjusting for the fair value of fixed maturity investments.
All share and per-share amounts have been adjusted to reflect the two-for-one stock splits distributed April 1, 1996, and Feb. 11, 1997.
Conseco, Inc. | At | At |
Consolidated Balance Sheet (in millions) | Sept. 30, 1997 | Dec. 31, 1996 |
(Unaudited) | (Audited) | |
Assets | ||
Investments: | ||
Actively managed fixed maturities at fair value | $21,065.3 | $17,307.1 |
Equity securities at fair value | 238.5 | 99.7 |
Mortgage loans | 308.8 | 356.0 |
Credit-tenant loans | 570.1 | 447.1 |
Policy loans | 634.7 | 542.4 |
Other invested assets | 449.3 | 259.6 |
Short-term investments | 773.6 | 281.6 |
Assets held in separate accounts | 606.7 | 337.6 |
Total investments | 24,647.0 | 19,631.1 |
Accrued investment income | 360.6 | 296.9 |
Cost of policies purchased | 2,581.8 | 2,015.0 |
Cost of policies produced | 841.8 | 544.3 |
Reinsurance receivables | 787.9 | 504.2 |
Income taxes | 87.4 | 8.8 |
Goodwill, net of accumulated amortization | 3,251.4 | 2,200.8 |
Property and equipment, net of accumulated depreciation | 157.7 | 110.5 |
Other assets | 422.4 | 301.1 |
Total assets | $33,138.0 | $25,612.7 |
Liabilities and shareholders' equity | ||
Liabilities: | ||
Insurance liabilities: | ||
Interest-sensitive products | $15,659.6 | $14,795.5 |
Traditional products | 5,347.9 | 3,180.1 |
Claims payable and other policyholder funds | 1,265.4 | 1,056.3 |
Unearned premiums | 442.6 | 272.4 |
Investment borrowings | 1,308.9 | 383.4 |
Other liabilities | 1,449.9 | 709.5 |
Liabilities related to separate accounts | 606.7 | 337.6 |
Commercial paper | 492.9 | 0.0 |
Notes payable | 1,876.8 | 1,094.9 |
Total liabilities | 28,450.7 | 21,829.7 |
Minority interest in consolidated subsidiaries | ||
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts | 900.0 | 600.0 |
Mandatorily redeemable preferred stock | 0.0 | 97.0 |
Common stock | 0.7 | 0.7 |
Shareholders' equity | ||
Preferred stock | 122.0 | 267.1 |
Common stock and additional paid-in capital | 2,452.5 | 2,029.6 |
Unrealized appreciation (depreciation) of investments, net: | ||
Fixed maturities | 147.2 | 39.8 |
Other investments | 2.6 | (0.9) |
Retained earnings | 1,062.3 | 749.7 |
Total shareholders' equity | 3,786.6 | 3,085.3 |
Total liabilities and shareholders' equity | $33,138.0 | $25,612.7 |
Conseco, Inc. | Quarter Ended | Nine Months Ended | ||
Consolidated Statement of Operations (in millions) | Sept. 30: | Sept. 30: | ||
1997 | 1996 | 1997 | 1996 | |
Revenues | ||||
Insurance policy income | ||||
Traditional products | $778.8 | $351.0 | $2,121.3 | $1,033.4 |
Interest sensitive products | 107.0 | 100.8 | 319.6 | 159.8 |
Net investment income | 460.6 | 364.8 | 1,314.7 | 926.7 |
Net investment gains | 116.4 | 6.9 | 137.3 | 9.8 |
Fee revenue and other income | 20.7 | 10.8 | 50.1 | 38.5 |
Nonrecurring income | 0.0 | 0.0 | 0.0 | 30.4 |
Total revenues | 1,483.5 | 834.3 | 3,943.0 | 2,198.6 |
Benefits and expenses | ||||
Insurance policy benefits | 594.8 | 313.8 | 1,581.7 | 858.3 |
Change in future policy benefits | 23.6 | 3.9 | 105.2 | 15.9 |
Amounts added to annuities and financial policyholder account balances | 208.8 | 184.7 | 588.6 | 474.4 |
Interest expense on notes payable | 24.7 | 30.4 | 76.0 | 84.6 |
Interest expense on short-term investment borrowings | 9.4 | 6.5 | 17.7 | 15.1 |
Amortization related to operations | 92.3 | 61.2 | 310.8 | 160.7 |
Amortization related to investment gains | 43.8 | 3.3 | 70.4 | 15.6 |
Nonrecurring charges | 62.4 | 0.0 | 71.7 | 0.0 |
Other operating costs and expenses | 148.5 | 99.0 | 419.1 | 221.0 |
Total benefits and expenses | 1,208.3 | 702.8 | 3,241.2 | 1,845.6 |
Income before income taxes, minority interest and extr. charge | 275.2 | 131.5 | 701.8 | 353.0 |
Income tax expense | 106.9 | 49.8 | 261.8 | 134.1 |
Income before minority interest and extraordinary charge | 168.3 | 81.7 | 440.0 | 218.9 |
Minority interest: | ||||
Distributions on company-obligated mandatorily | ||||
redeemable preferred securities of subsidiary trusts | 13.0 | 0.0 | 34.6 | 0.0 |
Dividends on preferred stock of subsidiaries | 0.8 | 2.3 | 3.3 | 7.4 |
Equity in earnings of subsidiary | 0.0 | 0.1 | 0.0 | 18.4 |
Income before extraordinary charge | 154.5 | 79.3 | 402.1 | 193.1 |
Extraordinary charge on extinguishment of debt, net of | ||||
taxes and minority interest | 0.7 | 1.2 | 6.2 | 18.6 |
Net income | 153.8 | 78.1 | 395.9 | 174.5 |
Less amounts applicable to preferred stock: | ||||
Charge related to induced conversions | 0.0 | 0.0 | 13.2 | 0.0 |
Preferred stock dividends | 2.2 | 5.5 | 6.7 | 22.7 |
Earnings applicable to common stock | $151.6 | $72.6 | $376.0 | $151.8 |
Note on forward-looking statements: All statements, trend analyses and other information contained in this report and elsewhere (such as in other filings by the Company with the Securities and Exchange Commission, press releases, presentations by the Company or its management or oral statements) relative to markets for the Company's products and trends in the Company's operations or financial results, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, among other things: (i) general economic conditions and other factors, including prevailing interest rate levels, stock market performance and health care inflation, which may affect the ability of the Company to sell its products, the market value of the Company's investments and the lapse rate and profitability of the Company's policies; (ii) the Company's ability to achieve anticipated levels of operational efficiencies at recently acquired companies, as well as through other cost-saving initiatives; (iii) customer response to new products, distribution channels and marketing initiatives; (iv) mortality, morbidity, usage of health care services and other factors which may affect the profitability of the Company's insurance products, (v) changes in the federal income tax laws and regulations which may affect the relative tax advantages of some of the Company's products; (vi) increasing competition in the sale of the Company's products; (vii) regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) bank sales and underwriting of insurance products, regulation of the sale, underwriting and pricing of insurance products, and health care regulation affecting the Company's health insurance products; (viii) the availability and terms of future acquisitions; and (ix) the risk factors or uncertainties listed from time to time in the Company's other filings with the Securities and Exchange Commission.