Company Quick10K Filing
Quick10K
National Western Life Group
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-06-24 Shareholder Vote
8-K 2019-05-23 Officers
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-03-06 Officers, Exhibits
8-K 2019-03-01 Earnings, Exhibits
8-K 2019-02-05 M&A, Regulation FD, Exhibits
8-K 2018-12-14 Officers, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-10-22 Other Events
8-K 2018-10-04 Enter Agreement, Regulation FD
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-06-27 Shareholder Vote
8-K 2018-03-12 Officers
8-K 2018-02-28 Earnings, Exhibits
PUK Prudential PLC 85,156
MET Metlife 41,940
PRU Prudential Financial 31,826
VOYA Voya Financial 7,137
PRI Primerica 4,926
GNW Genworth Financial 2,250
IHC Independence Holding 565
GWGH GWG Holdings 54
AEG Aegon 0
FLF Federal Life Group 0
NWLI 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Quantitative and Qualitative Disclosures
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Removed and Reserved.
Item 6. Exhibits
EX-31.A nwlgi2019q210qex-31a.htm
EX-31.B nwlgi2019q210qex-31b.htm
EX-32.A nwlgi2019q210qex-32a.htm

National Western Life Group Earnings 2019-06-30

NWLI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OFTHE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-55522

NATIONAL WESTERN LIFE GROUP, INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
 
47-3339380
(State or Other Jurisdiction of Incorporation)
 
 
(IRS Employer Identification No.)
 
10801 N. Mopac Expy Bldg 3
 
 
Austin,
Texas
 
 
78759
 
(512)
836-1010
(Address of Principal Executive Offices) (Zip Code)
 
(Telephone Number, including area code)

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    No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). : Yes    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definition of "accelerated filer." "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer    Accelerated filer      Non-accelerated filer (Do not check if a smaller reporting company)    Smaller reporting company   Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 
As of August 7, 2019, the number of shares of Registrant's common stock outstanding was: Class A – 3,436,020 and  Class B - 200,000.



nwlgi-logoa53.jpg
TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
June 30, 2019 (Unaudited) and December 31, 2018
 
 
For the Three Months Ended June 30, 2019 and 2018 (Unaudited)
 
 
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
 
 
For the Three Months Ended June 30, 2019 and 2018 (Unaudited)
 
 
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
 
 
For the Three Months Ended June 30, 2019 and 2018 (Unaudited)
 
 
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
 
 
For the Six Months Ended June 30, 2019 and 2018 (Unaudited)
 
 
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

 
(Unaudited)
 
 
ASSETS
June 30,
2019
 
December 31,
2018
 
 
 
 
Investments:
 
 
 
Debt securities held to maturity, at amortized cost (fair value: $7,589,480 and $7,228,268)
$
7,342,359

 
7,285,254

Debt securities available for sale, at fair value (cost: $3,265,560 and $3,008,624)
3,375,105

 
2,946,059

Mortgage loans, net of allowance for possible losses ($675 and $675)
214,295

 
203,180

Policy loans
80,155

 
54,724

Derivatives, index options
89,900

 
14,684

Equity securities, at fair value (cost: $14,227 and $14,329)
19,324

 
17,491

Other long-term investments
62,214

 
56,851

 
 
 
 
Total investments
11,183,352

 
10,578,243

 
 
 
 
Cash and cash equivalents
140,802

 
131,976

Deferred policy acquisition costs
752,565

 
841,704

Deferred sales inducements
114,548

 
133,714

Value of business acquired
141,862

 

Accrued investment income
98,556

 
96,338

Federal income tax receivable
9,937

 
17,934

Other assets
171,328

 
131,782

 
 
 
 
Total assets
$
12,612,950

 
11,931,691


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

3

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
June 30,
2019
 
December 31,
2018
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Future policy benefits:
 
 
 
Universal life and annuity contracts
$
9,420,315

 
9,608,850

Traditional life reserves
827,693

 
135,436

Other policyholder liabilities
141,731

 
135,694

Deferred Federal income tax liability
47,470

 
39,384

Other liabilities
120,593

 
111,550

 
 
 
 
Total liabilities
10,557,802

 
10,030,914

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

 
 
 
 
Common stock:
 

 
 

Class A - $.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2019 and 2018
34

 
34

Class B - $.01 par value; 200,000 shares authorized, issued, and outstanding in 2019 and 2018
2

 
2

Additional paid-in capital
41,716

 
41,716

Accumulated other comprehensive income (loss)
43,462

 
(37,015
)
Retained earnings
1,969,934

 
1,896,040

 
 
 
 
Total stockholders’ equity
2,055,148

 
1,900,777

 
 
 
 
Total liabilities and stockholders' equity
$
12,612,950

 
11,931,691


Note:  The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Financial Statements as of that date.

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


4

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands, except per share amounts)
 
2019
 
2018
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
36,910

 
39,945

Traditional life premiums
23,810

 
4,928

Net investment income
128,424

 
121,802

Other revenues
3,966

 
5,287

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
(5,900
)
 
3

Portion of OTTI (gains) losses recognized in other comprehensive income
(2
)
 
(3
)
Net OTTI losses recognized in earnings
(5,902
)
 

Other net investment gains (losses)
5,477

 
2,696

Total net realized investment gains (losses)
(425
)
 
2,696

Total revenues
192,685

 
174,658

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
33,657

 
17,461

Amortization of deferred policy acquisition costs and value of business acquired
31,411

 
31,069

Universal life and annuity contract interest
60,139

 
60,990

Other operating expenses
25,334

 
24,795

 
 
 
 
Total benefits and expenses
150,541

 
134,315

 
 
 
 
Earnings before Federal income taxes
42,144

 
40,343

 
 
 
 
Federal income taxes
8,448

 
7,877

 
 
 
 
Net earnings
$
33,696

 
32,466

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
9.53

 
$
9.18

Class B
$
4.76

 
$
4.59

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
9.53

 
$
9.18

Class B
$
4.76

 
$
4.59


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


5

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands, except per share amounts)

 
2019
 
2018
 
 
 
 
Premiums and other revenues:
 
 
 
Universal life and annuity contract charges
$
74,863

 
78,465

Traditional life premiums
41,393

 
9,073

Net investment income
279,755

 
182,547

Other revenues
10,379

 
10,284

Net realized investment gains (losses):
 

 
 

Total other-than-temporary impairment (“OTTI”) gains (losses)
(5,897
)
 
6

Portion of OTTI (gains) losses recognized in other comprehensive income
(5
)
 
(6
)
Net OTTI losses recognized in earnings
(5,902
)
 

Other net investment gains (losses)
10,106

 
3,307

Total net realized investment gains (losses)
4,204

 
3,307

 
 
 
 
Total revenues
410,594

 
283,676

 
 
 
 
Benefits and expenses:
 

 
 

Life and other policy benefits
61,846

 
38,862

Amortization of deferred policy acquisition costs and value of business acquired
63,575

 
63,298

Universal life and annuity contract interest
141,055

 
59,172

Other operating expenses
51,383

 
48,428

 
 
 
 
Total benefits and expenses
317,859

 
209,760

 
 
 
 
Earnings before Federal income taxes
92,735

 
73,916

 
 
 
 
Federal income taxes
18,841

 
14,575

 
 
 
 
Net earnings
$
73,894

 
59,341

 
 
 
 
Basic earnings per share:
 

 
 

Class A
$
20.90

 
$
16.78

Class B
$
10.45

 
$
8.39

 
 
 
 
Diluted earnings per share:
 

 
 

Class A
$
20.90

 
$
16.78

Class B
$
10.45

 
$
8.39

 
 
 
 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


6

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
2019
 
2018
 
 
 
 
Net earnings
$
33,696

 
32,466

 
 
 
 
Other comprehensive income (loss), net of effects of deferred costs and taxes:
 

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains (losses) arising during period
35,401

 
(15,068
)
Net unrealized liquidity gains (losses)
1

 
2

Reclassification adjustment for net amounts included in net earnings
3,740

 
(1,564
)
 
 
 
 
Net unrealized gains (losses) on securities
39,142

 
(16,630
)
 
 
 
 
Foreign currency translation adjustments
(86
)
 
39

 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
(504
)
 
2,801

 
 
 
 
Other comprehensive income (loss)
38,552

 
(13,790
)
 
 
 
 
Comprehensive income (loss)
$
72,248

 
18,676


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).


7

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
2019
 
2018
 
 
 
 
Net earnings
$
73,894

 
59,341

 
 
 
 
Other comprehensive income, net of effects of deferred costs and taxes:
 

 
 

Unrealized gains (losses) on securities:
 

 
 

Net unrealized holding gains (losses) arising during period
78,144

 
(49,822
)
Net unrealized liquidity gains (losses)
2

 
2

Reclassification adjustment for net amounts included in net earnings
2,872

 
(1,597
)
 
 
 
 
Net unrealized gains (losses) on securities
81,018

 
(51,417
)
 
 
 
 
Foreign currency translation adjustments
467

 
1,207

 
 
 
 
Benefit plans:
 

 
 

Amortization of net prior service cost and net gain (loss)
(1,008
)
 
5,602

 
 
 
 
Other comprehensive income (loss)
80,477

 
(44,608
)
 
 
 
 
Comprehensive income (loss)
$
154,371

 
14,733

 
 
 
 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).







8

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
2019
 
2018
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
36

 
36

Shares exercised under stock option plan

 

 
 
 
 
       Balance at end of period
36

 
36

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
41,716

 
41,716

Shares exercised under stock option plan

 

 
 
 
 
       Balance at end of period
41,716

 
41,716

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains (losses) on non-impaired securities:
 

 
 

Balance at beginning of period
11,589

 
(5,537
)
Change in unrealized gains (losses) during period, net of tax
39,141

 
(16,632
)
Cumulative effect of change in accounting principle, net of tax

 

 
 
 
 
   Balance at end of period
50,730

 
(22,169
)
 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(6
)
 
(10
)
Amortization
2

 
3

Other-than-temporary impairments, non-credit, net of tax

 

Additional credit loss on previously impaired securities

 

Change in shadow deferred policy acquisition costs
(1
)
 
(1
)
 
 
 
 
   Balance at end of period
(5
)
 
(8
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(2
)
 
(1
)
Other-than-temporary impairments, non-credit, net of tax

 

Change in shadow deferred policy acquisition costs

 

Recoveries, net of tax

 

 
 
 
 
  Balance at end of period
(2
)
 
(1
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 
 
 
 
 

9

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
For the Three Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
 
 
 
 
2019
 
2018
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
5,130

 
4,391

Change in translation adjustments during period
(86
)
 
39

 
 
 
 
  Balance at end of period
5,044

 
4,430

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(11,801
)
 
(19,794
)
Amortization of net prior service cost and net loss, net of tax
(504
)
 
2,801

 
 
 
 
  Balance at end of period
(12,305
)
 
(16,993
)
 
 
 
 
Accumulated other comprehensive income (loss) at end of period
43,462

 
(34,741
)
 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,936,238

 
1,807,430

   Net earnings
33,696

 
32,466

 
 
 
 
   Balance at end of period
1,969,934

 
1,839,896

 
 
 
 
Total stockholders' equity
$
2,055,148

 
1,846,907


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



10

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
2019
 
2018
 
 
 
 
Common stock:
 
 
 
Balance at beginning of period
$
36

 
36

Shares exercised under stock option plan

 

 
 
 
 
       Balance at end of period
36

 
36

 
 
 
 
Additional paid-in capital:
 

 
 

Balance at beginning of period
41,716

 
41,716

Shares exercised under stock option plan

 

 
 
 
 
       Balance at end of period
41,716

 
41,716

 
 
 
 
Accumulated other comprehensive income:
 

 
 

Unrealized gains (losses) on non-impaired securities:
 

 
 

Balance at beginning of period
(30,286
)
 
33,664

Change in unrealized gains (losses) during period, net of tax
81,016

 
(51,419
)
Cumulative effect of change in accounting principle, net of tax

 
(4,414
)
 
 
 
 
   Balance at end of period
50,730

 
(22,169
)
 
 
 
 
Unrealized losses on impaired held to maturity securities:
 

 
 

Balance at beginning of period
(7
)
 
(10
)
Amortization
4

 
5

Other-than-temporary impairments, non-credit, net of tax

 

Additional credit loss on previously impaired securities

 

Change in shadow deferred policy acquisition costs
(2
)
 
(3
)
 
 
 
 
   Balance at end of period
(5
)
 
(8
)
 
 
 
 
Unrealized losses on impaired available for sale securities:
 

 
 

Balance at beginning of period
(2
)
 
(1
)
Other-than-temporary impairments, non-credit, net of tax

 

Change in shadow deferred policy acquisition costs

 

Recoveries, net of tax

 

 
 
 
 
  Balance at end of period
(2
)
 
(1
)
 
 
 
 
 
Continued on Next Page
 
 
 
 
 
 
 
 
 
 
 
 
 

11

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
 
 
 
 
2019
 
2018
 
 
 
 
Foreign currency translation adjustments:
 

 
 

Balance at beginning of period
4,577

 
3,223

Change in translation adjustments during period
467

 
1,207

 
 
 
 
  Balance at end of period
5,044

 
4,430

 
 
 
 
Benefit plan liability adjustment:
 

 
 

Balance at beginning of period
(11,297
)
 
(22,595
)
Amortization of net prior service cost and net loss, net of tax
(1,008
)
 
5,602

 
 
 
 
  Balance at end of period
(12,305
)
 
(16,993
)
 
 
 
 
Accumulated other comprehensive income (loss) at end of period
43,462

 
(34,741
)
 
 
 
 
Retained earnings:
 
 
 
   Balance at beginning of period
1,896,040

 
1,776,141

Cumulative effect of change in accounting principle, net of tax

 
4,414

   Net earnings
73,894

 
59,341

 
 
 
 
   Balance at end of period
1,969,934

 
1,839,896

 
 
 
 
Total stockholders' equity
$
2,055,148

 
1,846,907


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



12

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NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 
 
 
Net earnings
$
73,894

 
59,341

Adjustments to reconcile net earnings to net cash from operating activities:
 

 
 

Universal life and annuity contract interest
141,055

 
59,172

Surrender charges and other policy revenues
(16,975
)
 
(19,138
)
Realized (gains) losses on investments
(4,204
)
 
(3,307
)
Accretion/amortization of discounts and premiums, investments
1,362

 
(150
)
Depreciation and amortization
5,464

 
5,932

(Increase) decrease in value of equity securities
(2,338
)
 
107

(Increase) decrease in value of derivatives
(59,830
)
 
34,102

(Increase) decrease in deferred policy acquisition and sales inducement costs, and value of business acquired
42,652

 
21,304

(Increase) decrease in accrued investment income
3,899

 
(1,861
)
(Increase) decrease in other assets
(2,757
)
 
(8,071
)
Increase (decrease) in liabilities for future policy benefits
769

 
1,389

Increase (decrease) in other policyholder liabilities
(7,831
)
 
5,335

Increase (decrease) in Federal income tax liability
7,895

 
(16,472
)
Increase (decrease) in deferred Federal income tax
(13,306
)
 
11,367

Increase (decrease) in other liabilities
(5,862
)
 
(3,890
)
 
 
 
 
Net cash provided by operating activities
163,887

 
145,160

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from sales of:
 

 
 

Debt securities available for sale
80,528

 

Other investments
34,984

 
2,220

Proceeds from maturities and redemptions of:
 

 
 

Debt securities held to maturity
310,618

 
275,670

Debt securities available for sale
137,823

 
105,678

Derivatives, index options
21,405

 
105,615

Property and equipment

 
8

Purchases of:
 

 
 

Debt securities held to maturity
(103,710
)
 
(343,145
)
Debt securities available for sale
(77,118
)
 
(161,416
)
Equity securities
(295
)
 
(406
)
Derivatives, index options
(37,089
)
 
(44,943
)
Other investments
(11,953
)
 
(586
)
Property and equipment
(1,002
)
 
(2,988
)
Payment to acquire businesses, net of cash acquired
(189,121
)
 

 
 
 
 
 
Continued on Next Page
 
 
 
 
 

13

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
(In thousands)
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
Principal payments on mortgage loans
22,252

 
21,521

Cost of mortgage loans acquired
(33,247
)
 
(9,895
)
Decrease (increase) in policy loans
2,697

 
802

 
 
 
 
Net cash provided by/(used in) investing activities
156,772

 
(51,865
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Deposits to account balances for universal life and annuity contracts
187,377

 
316,906

Return of account balances on universal life and annuity contracts
(499,801
)
 
(502,834
)
 
 
 
 
Net cash provided by (used in) financing activities
(312,424
)
 
(185,928
)
 
 
 
 
Effect of foreign exchange
591

 
1,528

 
 
 
 
Net increase (decrease) in cash and cash equivalents
8,826

 
(91,105
)
Cash and cash equivalents at beginning of period
131,976

 
217,624

 
 
 
 
Cash and cash equivalents at end of period
$
140,802

 
126,519

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 

 
 

 
 
 
 
Cash paid (received) during the period for:
 

 
 

Interest
$
29

 
20

Income taxes
$
24,150

 
19,680

 
 
 
 
Noncash operating activities:
 
 
 
   Deferral of sales inducements
$
(8,822
)
 
(6,177
)
 
 
 
 
Noncash investing activities:
 
 
 
Contingent consideration to acquire businesses

$
3,871

 


See accompanying notes to Condensed Consolidated Financial Statements (unaudited).



14

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NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(1)
 CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position of National Western Life Group, Inc. ("NWLGI") and its wholly owned subsidiaries (“Company”) as of June 30, 2019, and the results of its operations and its cash flows for the three and six months ended June 30, 2019 and June 30, 2018. Such adjustments are of a normal recurring nature. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year. It is recommended that these Condensed Consolidated Financial Statements be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 which is accessible free of charge through the Company's internet site at www.nwlgi.com or the Securities and Exchange Commission internet site at www.sec.gov. The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited consolidated financial statements as of that date.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of NWLGI and its wholly owned subsidiaries: National Western Life Insurance Company ("NWLIC" or "National Western"), Regent Care San Marcos Holdings, LLC, NWL Services, Inc., and N.I.S. Financial Services, Inc. ("NIS"). National Western's wholly owned subsidiaries include The Westcap Corporation, NWL Financial, Inc., NWLSM, Inc., Braker P III, LLC, and Ozark National Life Insurance Company ("Ozark National"). The results of operations for Ozark National and NIS include the five months ended June 30, 2019, subsequent to their acquisition effective January 31, 2019. All significant intercorporate transactions and accounts have been eliminated in consolidation.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying Condensed Consolidated Financial Statements include: (1) liabilities for future policy benefits, (2) valuation of derivative instruments, (3) recoverability and amortization of deferred policy acquisition costs, (4) valuation allowances for deferred tax assets, (5) other-than-temporary impairment losses on debt securities, (6) commitments and contingencies, and (7) valuation allowances for mortgage loans and real estate. During the first six months of 2019, the Company incorporated accounting estimates for business combinations, value of business acquired, and fair value measurement as a result of its acquisition of Ozark National and NIS.

The table below shows the unrealized gains and losses on available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and six months ended June 30, 2019 and June 30, 2018.

Affected Line Item in the
Statements of Earnings
 
Amount Reclassified From Accumulated Other Comprehensive Income
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
Other net investment gains (losses)
 
$
1,168

 
1,981

 
2,267

 
2,021

Net OTTI losses recognized in earnings
 
(5,902
)
 

 
(5,902
)
 

Earnings before Federal income taxes
 
(4,734
)
 
1,981

 
(3,635
)
 
2,021

Federal income taxes
 
(994
)
 
417

 
(763
)
 
424

 
 
 
 
 
 
 
 
 
Net earnings
 
$
(3,740
)
 
1,564

 
(2,872
)
 
1,597



15

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2)
 NEW ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements not yet adopted

On April 25, 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this Update add clarification and correction to various aspects of the following guidance previously issued related to financial instruments, based on feedback from stakeholders.

A. ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments Areas for improvement. The amendments clarify guidance and implementation around accrued interest, transfers between classifications or categories for loans and debt securities, consideration of recoveries in estimating allowances, reinsurance recoveries, consideration of prepayments and estimated costs to sell when foreclosure is probable. Additionally, the amendments correct certain cross-references.

B. ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities. The amendments clarify the scope of the original Update, and add clarification on the guidance and implementation around fair value disclosure requirements for nonpublic entities, measurement alternatives for equity securities without readily determinable fair values at nonrecurring fair value measurement, remeasurement of equity securities without readily determinable fair values at historical exchange rates, and associated disclosure requirements.

C. ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments clarify the guidance and implementation around partial-term fair value hedges of interest rate risk, amortization of fair value hedge basis adjustments, disclosure of fair value hedge basis adjustments, consideration of the hedged contractually specified interest rate under the hypothetical derivative method, scope for nonpublic entities, and application of a first-payments-received cash flow hedging technique to overall cash flows on a group of variable interest payments.

The amendments contained in this update will be effective for the same fiscal years in which the original ASU becomes effective, or, if already implemented, annual periods beginning after the issuance of this update. The Company will be primarily affected by the clarifications provided to ASU 2016-13, which is still pending adoption.

In August 2018, the FASB issued ASU 2018-12 Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts. This update is aimed at improving the Codification as it relates to long-duration contracts which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. Amendments include the following:
A. Require insurance entity to (1) review and update assumptions used to measure cash flows at least annually (with changes recognized in net income) and (2) update discount rate assumption at each reporting date (with changes recognized in other comprehensive income).
B. Require insurance entity to measure all market risk benefits associated with deposit (i.e. account balance) contracts at fair value, with change in fair value attributable to change in instrument-specific credit risk recognized in other comprehensive income.
C. Simplify amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins and require those balances be amortized on constant level basis over expected term of related contract. Deferred acquisition costs are required to be written off for unexpected contract terminations but are not subject to impairment test.
D. Require insurance entity to add disclosures of disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. Insurance entity must also disclose information about significant inputs, judgments, assumptions, and methods used in measurement, including changes in those inputs, judgments, and assumptions, and the effect of those changes on measurement.

16

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

These updates are required to be applied retrospectively to the earliest period presented in the financial statements for periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In August 2018, the FASB issued a new Concepts Statement No. 8 Conceptual Framework for Financial Reporting - Chapter 8, Notes to Financial Statements. This was issued as part of a disclosure framework project aimed at improving disclosures in financial statements. This issuance provides conceptual guidance that may be followed when determining items to include as disclosures in the notes to financial statements. In conjunction with this issuance, the FASB also issued two accounting standard updates (“ASU”) which identified a particular FASB Topic and evaluated its disclosures through the new conceptual framework of Concepts Statement No. 8, Chapter 8. This process resulted in the issuance of the following two ASUs.
In August 2018, FASB issued ASU 2018-13 Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure requirements for Fair Value Measurement. This update removed disclosures for 1) amount of and reasons for transfers between Level 1 and Level 2 for fair value hierarchy, 2) policy for timing of transfers between levels, 3) valuation process for Level 3 fair value measurements. This update also added disclosure requirement as follows: 1) changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at end of reporting period; 2) range and weighted average (or other reasonable quantitative measurement) of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments will be effective for interim periods beginning after December 15, 2019. Adoption of the guidance is not expected to have a material effect on the Company’s results of operations or financial position.
In August 2018, FASB issued ASU 2018-14 Compensation-Retirement Benefits - Defined Benefit Plans-General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This update removed disclosures for 1) amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year, 2) amount and timing of plan assets expected to be returned to the employer, 3) related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan, 4) the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of the net periodic benefit costs and (b) benefit obligation for postretirement health care benefits. This update also added disclosures as follow: 1) weighted-average interest crediting rates for cash balance plans and other plans with promised crediting rates, 2) explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. Finally, this update clarified that the following information for defined benefit pension plans should be disclosed: 1) projected benefit obligation (PBO) and fair value of plan assets for plans with PBO in excess of plan assets, 2) accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments will be effective for fiscal periods ending after December 31, 2020. Adoption of the guidance is not expected to have a material effect on the Company’s results of operations or financial position.
In June 2016, the FASB released ASU 2016-13, Financial Instruments-Credit Losses, which revises the credit loss recognition criteria for certain financial assets measured at amortized cost. The new guidance replaces the existing incurred loss recognition model with an expected loss recognition model. The objective of the expected credit loss model is for the reporting entity to recognize its estimate of expected credit losses for affected financial assets in a valuation allowance deducted from the amortized cost basis of the related financial assets that results in presenting the net carrying value of the financial assets at the amount expected to be collected. The guidance is effective for interim and annual periods beginning after December 15, 2019, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained income. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
Recent accounting pronouncements adopted
In August 2018, the SEC released a final rule updating disclosure requirements, Disclosure Update and Simplification, which resulted in the additional interim disclosure of an analysis of changes in stockholders’ equity to be required for the current and comparative quarter and year-to-date interim periods. Registrants are required to provide an analysis of changes in each caption of stockholders’ equity and noncontrolling interests, which will be accompanied by dividends per share and in the aggregate for each class of shares. The disclosure must be presented in the form of a reconciliation, either as a separate statement or in the footnotes. The adoption of this ASU in 2019 did not have a material effect on the results of operations or financial position of the Company as this information in year-to-date format is already provided.

17

Table of Contents

NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities, which amends the amortization period for certain purchased callable debt securities held at a premium. The amortization period for premiums is being shortened to the earliest call date. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The adoption of this ASU in 2019 did not have a material effect on the results of operations or financial position of the Company.
In February 2016, the FASB issued new guidance on leasing transactions (ASU 2016-02,