Conseco Announces 3Q01 Earnings.Business Editors INDIANAPOLIS--(BUSINESS WIRE)--Oct. 30, 2001 The attached "NEW Conseco Conseco (NYSE: CNO), originally Security Life of Indiana, is a financial services organization based in Carmel, Indiana. Conseco's insurance subsidiaries provide life insurance, annuity and supplemental health insurance products to more than 4 million customers in the Memo no. 17" from Conseco CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Gary Gary, city (1990 pop. 116,646), Lake co., NW Ind., a port of entry on Lake Michigan; inc. 1909. Gary was founded by the U.S. Steel Corporation, which purchased the land in 1905 and landscaped it for a city. C. Wendt There are many people who have the last name Wendt:
conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. electronically distributed to them today.
NEW Conseco Memo
No. 17
To: Conseco Shareholders
From: Gary Wendt, Chairman & CEO
Date: October 30, 2001
There isn't is·n't Contraction of is not. isn't is not isn't be much news left in reporting the financial results for the third quarter. You know from our statement last week that operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before per share for the quarter were 18 cents, up from 12 cents in the 3rd quarter a year ago. And, you know from my October October: see month. 2 memo that we are taking substantial non-operating charges that will result in a net loss for the quarter. In this memo, I will briefly summarize sum·ma·rize intr. & tr.v. sum·ma·rized, sum·ma·riz·ing, sum·ma·riz·es To make a summary or make a summary of. sum the quarter's operating results. As importantly, I want to address some recent comments about the company and to discuss where we are in the turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. process.
Summary points
-- Operating earnings for the quarter were up 49% over the 3rd
quarter a year ago, $60.6 million (18 cents per share) in 3Q01 vs.
$40.8 million (12 cents per share) for 3Q00. For the first 3
quarters, 2001 operating earnings were $184.2 million compared
with $110.7 million for 2000 - growth of 66%.
-- Various non-operating items resulted in a total after-tax charge
of $471 million resulting in a net loss for the quarter of $411
million ($1.21 per share).
-- The Finance segment continued to show strong earnings growth on a
year over year basis. Pretax operating income was $72.5 million
for 3Q01, up 81% from $40.0 million in 3Q00. The 9-month
year-to-date comparison of 2001 with 2000 shows pretax operating
earnings growth of 108%. On a sequential quarter basis, 3rd
quarter pretax operating earnings in the Finance segment declined
$8 million due to a $23 million increase in the quarter for
provision for loan loss expense.
-- Pretax operating earnings from the Insurance and fee-based segment
were down 5% in 3Q01 vs. 3Q00 due to adverse mortality experience
and the struggling market-linked annuity products. (Market-linked
annuity products include variable and equity-indexed annuities,
both of which are dependent to some extent on financial market
performance.) Year-to-date, however, pretax operating earnings are
up 4% for the first three quarters compared with 2000.
-- Interest and preferred dividend expense for the quarter was $33
million lower than 3Q00, a year over year reduction of 20%.
Interest expense savings of nearly $70 million year-to-date in
2001 compared with 2000, have been achieved primarily through debt
reduction under the turnaround plan.
Chart 1
3rd Quarter 2001
Earnings from Operations
$ millions, except per share amounts
Full Year
Q1 `00 Q2 `00 Q3 `00 Q4 `00 2000
------ ------ ------ ------ ----
Insurance and
fee based $185.3 $211.7 $220.1 $226.6 $843.7
Finance 35.8 28.0 40.0 53.0 156.8
---- ---- ---- ---- -----
Subtotal 221.1 239.7 260.1 279.6 1,000.5
Corporate:
Interest and
dividends (158.4) (167.4) (164.0) (162.0) (651.8)
Expenses less
chgs to subs (15.8) (7.3) (23.9) (20.5) (67.5)
Int and div
allocated to CFC 42.2 38.4 36.3 10.0 126.9
---- ---- ---- ---- -----
Pre-tax 89.1 103.4 108.5 107.1 408.1
Taxes 33.6 37.8 39.9 39.3 150.6
---- ---- ---- ---- -----
Total after-tax
pre-goodwill 55.5 65.6 68.6 67.8 257.5
Goodwill
amortization (24.8) (26.4) (27.8) (26.7) (105.7)
------ ------ ------ ------ -------
Operating earnings 30.7 39.2 40.8 41.1 151.8
Non-operating
earnings, net
of tax 42.5 (446.4) (530.3) (419.8) (1,354.0)
---- ------- ------- ------- ---------
Net income (loss)
applicable
to common stock $73.2 ($407.2) ($489.5) ($378.7) ($1,202.2)
===== ======== ======== ======== ==========
Operating earnings
per share:
Pre-goodwill $0.17 $0.20 $0.21 $0.21 $0.79
Post-goodwill $0.10 $0.12 $0.12 $0.13 $0.47
Net income (loss)
per share $0.22 ($1.25) ($1.50) ($1.16) ($3.69)
Chart 1
3rd Quarter 2001
Earnings from Operations
$ millions, except per share amounts
(continued)
Q1 `01 Q2 `01 Q3 `01
------ ------ ------
Insurance and
fee based $203.2 $231.6 $208.3
Finance 63.6 80.1 72.5
---- ---- ----
Subtotal 266.8 311.7 280.8
Corporate:
Interest and
dividends (152.3) (138.2) (130.8)
Expenses less
chgs to subs 8.5 (9.3) (9.3)
Int and div
allocated to CFC 5.5 1.9 0.0
--- --- ---
Pre-tax 128.5 166.1 140.7
Taxes 47.7 68.1 51.8
---- ---- ----
Total after-tax
pre-goodwill 80.8 98.0 88.9
Goodwill
amortization (26.8) (28.4) (28.3)
------ ------ ------
Operating earnings 54.0 69.6 60.6
Non-operating
earnings, net
of tax 26.2 (99.9) (471.2)
---- ------ -------
Net income (loss)
applicable
to common stock $80.2 ($30.3) ($410.6)
===== ======= ========
Operating earnings
per share:
Pre-goodwill $0.23 $0.29 $0.26
Post-goodwill $0.16 $0.21 $0.18
Net income (loss)
per share $0.23 ($0.09) ($1.21)
Finance Segment
-- Year-over-year quarterly pre-tax operating earnings improved 81%,
driven by increased on-balance-sheet receivables, improved margins
and lower operating costs. Specifically, the average
on-balance-sheet portfolio from continuing operations grew 24%,
margins improved 113 bps and quarterly operating costs declined
$20 million.
-- On a sequential quarter basis, pre-tax operating earnings declined
by $8 million or 9%. Although revenue increased 3% and margins
improved 17 bps, these were more than offset by a $23 million
increase in provision expense as the Finance Company strengthened
reserves. Specifically on-balance-sheet loan reserves increased
from $318 million to $355 million at the end of the quarter.
-- The Finance segment continued the process of growing and
diversifying its on- balance-sheet portfolio of assets.
Specifically, 3Q originations were $3.1 billion, driven by a 31%
quarter-over-quarter increase in Home Equity lending. Manufactured
Housing (MH) originations of $707 million represented only 23% of
originations. Finally, the average on-balance-sheet portfolio of
$17.5 billion grew approximately 5% in the quarter.
-- Delinquencies increased slightly in the quarter. Total managed 60+
delinquencies rose 11 bps to 1.89%. For MH, 60+ delinquencies and
repo inventory increased 7 bps and 12 bps to 2.27% and 2.30%,
respectively. Like any company in the finance business, we remain
cautious about the overall direction of the economy and focused on
managing portfolio performance in the slowing market.
-- Finally, new issuance spreads, net proceeds from securitizations
and operating cash flow remain at or above 2Q01's strong levels.
In addition, the Finance Company retired $24 million of 2002
public debt.
-- MH repo inventory increased during the quarter from 13,607 to
14,333 (up 5%) primarily due to slower sales than in previous
quarters. Recovery rates held steady at 45%. 2001 repo sales are
up 10% year-to-date over 2000, and new units repossessed quarterly
are holding steady with the same periods last year. The chart
below updates the data we have been providing to you since early
this year.
Chart 2
MH Repossession Report
No. of MH units
3Q00 4Q00 1Q01 2Q01 3Q01
---- ---- ---- ---- ----
Beginning Inventory 6,766 8,471 11,967 13,790 13,607
Incurs 7,485 9,656 8,452 6,468 6,833
Sales 5,780 6,160 6,629 6,651 6,107
Ending Inventory 8,471 11,967 13,790 13,607 14,333
Sales/Incurs Ratio 0.77 0.64 0.78 1.03 0.89
Insurance segment
-- Although year-to-date operating earnings in the Insurance segment
have increased over the same period last year, variable and equity
indexed annuity and life product earnings are below our
expectations and prior year amounts. Year over year growth in
fixed annuity sales reflects the product migration away from
market-linked products. Volatility in the equity markets has had
an adverse effect on the sale of and earnings from our
market-linked products, and adverse mortality experience has
decreased life earnings (including approximately $5 million in
this quarter related to the September 11 attacks).
-- On a company-wide basis, the variable and equity-indexed annuity
products continue to inhibit Insurance segment progress. Excluding
these products, the insurance and fee-based segment has seen 7%
growth in premiums over 3Q00 and is down 2% compared with the 2nd
quarter of this year. Based on trends prior to and since the
September 11 attacks, we believe that this quarterly collections
data includes a temporary decline that can be isolated to those
events.
Total Collected Premium
$ millions
3Q00 2Q01 3Q01 Change Change
3Q00-3Q01 2Q01-3Q01
-----------------------------------------
Life 240 237 233 (3) % (2) %
Long Term Care 203 218 218 7 % --
Med Sup 218 237 232 6 % (2) %
Specified Disease 87 93 90 3 % (3) %
Other Sup Health 24 30 21 (13) % (30) %
Sub-total 772 815 794 3 % (3) %
Fixed Annuities 176 217 218 24 % --
Sub-total 948 1032 1012 7 % (2) %
Variable Annuities 190 114 79 (58) % (31) %
Equity indexed
annuities 114 100 94 (18) % (6) %
Total market-linked 304 214 173 (43) % (19) %
TOTAL 1252 1246 1185 (5) % (5) %
-------------------------------------------------
Non-operating charges The non-operating charges, which we estimated on October 2, were $471 million after taxes. For a description and explanation of these charges, you can refer to my Memo No.16. Listed below are the line items for the non-operating charges, the estimates we provided on October 2, and the actual after tax charge that was incurred.
$ Millions
(net of taxes)
------------
Estimate Actual
-------- ------
I/O Security $225.0 $224.4
Realized losses in bond portfolio 125.0 113.9
Major Medical discontinuation and other 40.0 49.0
TeleCorp mark-to-market 45.0 45.2
D & O plan reserve increase 40.0 38.7
------- -------
$475.0 $471.2
While there is no guarantee that these will be the last of such charges, we have taken steps to minimize In a graphical environment, to hide an application that is currently displayed on screen. For example, in Windows and Mac, the application's window is removed from the screen and represented by an icon on the Windows Taskbar. In the Mac, the icon is placed in the Dock. See Win Minimize windows. them going forward. For example, the volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the of the TeleCorp asset, which required a mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. charge of $45 million this quarter, will soon be behind us. Now that AT&T Wireless has agreed to acquire TeleCorp, we have dramatically increased liquidity in our 17.2 million shares, and we should have no difficulty selling them at the appropriate time. Additionally, I should note that the value of the shares has increased by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $20 million (after tax) in the month since we closed the books on the 3rd quarter. We should also see less volatility in the I/O (Input/Output) The transfer of data between the CPU and a peripheral device. Every transfer is an output from one device and an input to another. See PC input/output. I/O - Input/Output asset as a result of a transaction completed this quarter that bundles all the I/O pools into a single security. Going forward, we will be able to net the increases and decreases in value across all I/O pools, reducing future charges to the income statement. The Investor Supplement (available at the investor relations Investor relations The process by which the corporation communicates with its investors. section of the Conseco.com website) provides much more detail than I have summarized here. I hope you will take time to review it. By the way, you will see that we have added a new disclosure category in this quarter's Supplement. In addition to providing credit quality data for the entire portfolio of managed receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed , we have broken out the data for the on-balance-sheet portfolio. This disclosure is in direct response to your requests for the information. It should now be easier for those of you who model our financials to make your own estimates about credit quality and reserve adequacy. Recent comments As I noted last week, recent public comments suggesting a liquidity crisis in 2002 were overstated o·ver·state tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states To state in exaggerated terms. See Synonyms at exaggerate. o . We expect to meet our debt payments in 2002 and beyond by managing our balance sheet to achieve needed cash flows. Taking into account the repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. of $49 million of our public debt during the 3rd quarter, plus an additional $75 million repurchased during the past month, Conseco's 2002 public debt maturities and debt service commitments are as follows:
$ millions
-----------
Conseco Finance 10.25% sub notes due June 2002 149
Conseco Finance 6.5% notes due Sept 2002 206
Conseco 8.5% Notes due Oct 2002 385
Optional Bank Payment 150
Interest & Preferred Dividends 500
----------
1,390
==========
As sources of cash to meet this demand, we project the following
ranges of cash available for debt service:
$ millions
------------
Excess cash on hand 50 -- 60
Insurance segment 450 -- 500
Finance segment 310 -- 340
Corporate expenses (30) ( 30)
Telecorp (net of associated debt) 200 -- 220
Cash generation options, as necessary 300 -- 410
------------
1,390
Among the multiple options available for generating cash are:
-- Changes to operations
-- Reinsurance/coinsurance
-- Refinancing
-- Non-core asset sales
-- Non-core business line sales
-- Other capital market alternatives
In short, we have excellent and predictable cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses and we have multiple options to generate additional cash. We expect to meet our future debt obligations and, equally important, to provide sufficient cash to grow our businesses at targeted returns. Credit Quality On another subject, recent comments about credit quality have called into question the performance of 1999 and 2000 securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. pools because of their higher incidence of "problem loans." It is true that partial information about these pools causes them to appear worse than pools securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. in the past. This is an inaccurate conclusion because the more recent pools contain up to 4 times the proportion of "repo Repo An agreement in which one party sells a security to another party and agrees to repurchase it on a specified date for a specified price. See: Repurchase agreement. repo See repurchase agreement (RP). refis" as are contained in older pools. Repo refi loans are 2.5 times more likely to end up in the problem loan category, but our approach toward actively managing the repo inventory - rather than selling it wholesale - is clearly positive for the company. It is also important to understand that these loans are priced with higher spread to balance the expected higher default rate. On a return-adjusted basis, the performance of the more recent pools is actually better than that of older pools. This and other issues related to Conseco Finance will be discussed at length at the Investor Briefing that we postponed in September September: see month. . That briefing will take place in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of on November November: see month. 15, starting at 1 p.m. Registration information will be available tomorrow. Where are we in the Turnaround process? Our estimate today, is that 4th quarter operating earnings will be in the range of 17 cents to 20 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. , which will translate (1) To change one language into another; for example, assemblers, compilers and interpreters translate source language into machine language. (2) In computer graphics, to move an image on screen without rotating it. into 72 cents to 75 cents per share for the year.(1) I am disappointed that our original earnings expectations turned out to be too optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op . But our goals for the company are clearly achievable. We may be about twelve months behind the schedule outlined by our initial earnings projections, but we fully intend to achieve our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. financial objectives. And, in all likelihood, we will make up some of the delay we've we've Contraction of we have. we've have experienced this year. From the standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the of our Turnaround activities, the internal and external factors experienced this year caused me to recruit RECRUIT. A newly made soldier. Bill Shea as our new President and Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. . It was clear to me that the strain on earnings growth caused by these factors called for close operating management by a seasoned turnaround veteran. After only a few weeks Bill is deeply engaged in this work. In the next few weeks we will be building budgets and a financial plan for 2002. Bill has already begun to hammer out hammer out Verb to produce (an agreement) with great effort Verb 1. hammer out - discuss vehemently in order to reach a solution or an agreement; "The leaders of the various Middle Eastern countries are trying to hammer expense reductions. He has advanced the clock on the budget process by asking each business unit and staff area for expense reductions in November and December December: see month. of the current year so that we get a flying start in 2002. He is making certain that the Process Excellence projects, the Cost Out projects and the India India, officially Republic of India, republic (2005 est pop. 1,080,264,000), 1,261,810 sq mi (3,268,090 sq km), S Asia. The second most populous country in the world, it is also sometimes called Bharat, its ancient name. India's land frontier (c. initiative are tied into the budget to assure that promised savings find their way to the bottom line. It is important to note that the facts at Conseco still add up to creating substantial shareholder value. Even with some internal and external impediments IMPEDIMENTS, contracts. Legal objections to the making of a contract. Impediments which relate to the person are those of minority, want of reason, coverture, and the like; they are sometimes called disabilities. Vide Incapacity. 2. , our operating earnings are expected to exceed 72 cents per share this year. Even with the pain of this quarter's large non-operating charge, we are making progress toward "clean quarters". And, most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially to our strategic focus, we are producing strong cash flow to reduce the company's debt burden. (1) The number of shares used in this calculation is dictated dic·tate v. dic·tat·ed, dic·tat·ing, dic·tates v.tr. 1. To say or read aloud to be recorded or written by another: dictate a letter. 2. a. by GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). . Since we will have a net loss for the year, we will be required to show EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. for the year based on basic shares outstanding. However, if the 4th quarter produces a net profit, as we anticipate, that would require a quarterly EPS calculation on a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis. If we did not have the non-operating charges this year dragging dragging - drag us into a net loss position, the 72 cents to 75 cents operating earnings per share for the year would translate into 68 cents to 71 cents. Note on forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. : All statements, trend analyses and other information contained in this release and elsewhere (such as in filings by Conseco with the Securities and Exchange Commission, press releases, presentations by Conseco or its management or oral statements) relative to markets for Conseco's products and trends in Conseco's operations or financial results, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "projected," "intend," "should," "could," "goal," "target," "on track," "comfortable with," "optimistic" and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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: (1) general economic conditions and other factors, including prevailing interest rate levels, stock and credit market performance and health care inflation, which may affect (among other things) Conseco's ability to sell its products, its ability to make loans and access capital resources and the costs associated therewith there·with adv. 1. With that, this, or it. 2. In addition to that. 3. Archaic Immediately thereafter. Adv. 1. , the market value of Conseco's investments, the lapse rate lapse rate n. The rate of decrease of atmospheric temperature with increase in altitude. lapse rate The rate of change of any meteorological phenomenon, especially atmospheric temperature with altitude. and profitability of policies, and the level of defaults and prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. of loans made by Conseco; (2) Conseco's ability to achieve anticipated synergies and levels of operational efficiencies; (3) customer response to new products, distribution channels and marketing initiatives; (4) mortality, morbidity morbidity /mor·bid·i·ty/ (mor-bid´it-e) 1. a diseased condition or state. 2. the incidence or prevalence of a disease or of all diseases in a population. mor·bid·i·ty n. , usage of health care services and other factors which may affect the profitability of Conseco's insurance products; (5) performance of our investments; (6) changes in the Federal income tax laws and regulations which may affect the relative tax advantages of some of Conseco's products; (7) increasing competition in the sale of insurance and annuities and in the finance business; (8) regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. changes or actions, including those relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc regulation of financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. affecting (among other things) bank sales and underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. of insurance products, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; (9) the outcome of Conseco's efforts to sell assets and reduce, refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. or modify indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. and the availability and cost of capital in connection with this process; (10) actions by rating agencies and the effects of past or future actions by these agencies on Conseco's business; and (11) the risk factors or uncertainties listed from time to time in Conseco's filings with the Securities and Exchange Commission. World Wide Web http://www.conseco.com Investor Hotline 1. (company) Hotline - Hotline Communications Ltd.. 2. (messaging) Hotline - Hotline Connect. 800.4.CONSECO Fax-on-Demand 800.344.6452
Conseco, Inc. (NYSE: CNC)
Financial Highlights
Quarter Ended Nine Months Ended
Sept. 30: Sept. 30:
2001 2000 2001 2000
---------------------------------------------------------------------
Consolidated income
analysis (in millions)
Operating earnings from
continuing operations
before goodwill
amortization and taxes:
Insurance and
fee-based segment
operating earnings $208.3 $220.1 $643.1 $617.1
Finance segment
operating earnings 72.5 40.0 216.2 103.8
----------------------------------------------------------------------
Subtotal 280.8 260.1 859.3 720.9
----------------------------------------------------------------------
Holding company activities:
Corporate expenses,
less charges to
subsidiaries
for services provided (9.3) (23.9) (10.1) (47.0)
Interest and dividends,
net of corporate
investment income (130.8) (164.0) (421.3) (489.8)
Allocation of interest
and dividends to
finance segment 0.0 36.3 7.4 116.9
----------------------------------------------------------------------
Pre-tax operating earnings
from continuing operations
before goodwill
amortization 140.7 108.5 435.3 301.0
Taxes (51.8) (39.9) (167.6) (111.3)
----------------------------------------------------------------------
After-tax operating earnings
from continuing operations
before goodwill
amortization 88.9 68.6 267.7 189.7
Goodwill amortization (28.3) (27.8) (83.5) (79.0)
----------------------------------------------------------------------
Operating earnings from
continuing operations
applicable to common
stock 60.6 40.8 184.2 110.7
----------------------------------------------------------------------
Non-operating items,
net of tax
Net realized losses (113.9) (42.7) (195.0) (127.3)
Venture capital income
(loss) (45.2) (107.6) (41.9) (107.2)
Gain on sale of interest
in Riverboat 0.0 0.0 122.6 0.0
Impairment charge
related to
interest-only
securities (224.4) (129.2) (250.4) (136.8)
Provision for losses
related to loan guarantees (38.7) (12.7) (38.7) (72.0)
Discontinued lines and
other non-recurring items (49.0) (238.1) (141.5) (490.9)
-------------------------------------------------------------------
Total non-operating items,
net of tax (471.2) (530.3) (544.9) (934.2)
----------------------------------------------------------------------
Net loss applicable
to common stock ($410.6) ($489.5) ($360.7) ($823.5)
----------------------------------------------------------------------
Conseco, Inc. (NYSE: CNC)
Financial Highlights
Quarter Ended Nine Months Ended
Sept. 30: Sept. 30:
2001 2000 2001 2000
----------------------------------------------------------------------
Earnings per diluted
share analysis
Operating earnings per
diluted share before
goodwill amortization:
Insurance and fee-based
segment operating earnings $0.39 $0.43 $1.20 $1.21
Finance segment
operating earnings 0.14 0.08 0.40 0.20
----------------------------------------------------------------------
Subtotal 0.53 0.51 1.60 1.41
----------------------------------------------------------------------
Holding company activities:
Corporate expenses,
less charges to subsidiaries
for services provided (0.02) (0.05) (0.02) (0.09)
Interest and dividends,
net of corporate investment
income (0.25) (0.32) (0.79) (0.97)
Allocation of interest
and dividends to finance
segment 0.00 0.07 0.01 0.23
----------------------------------------------------------------------
Operating earnings per
diluted share from
continuing operations
before goodwill
amortization 0.26 0.21 0.80 0.58
Goodwill amortization (0.08) (0.09) (0.25) (0.24)
----------------------------------------------------------------------
Operating earnings per
diluted share from
continuing operations
applicable to
common stock 0.18 0.12 0.55 0.34
----------------------------------------------------------------------
Non-operating items,
net of tax
Net realized losses (0.34) (0.13) (0.58) (0.39)
Venture capital loss (0.13) (0.33) (0.12) (0.33)
Gain on sale of
interest in Riverboat 0.00 0.00 0.36 0.00
Impairment charge
related to interest-only
securities (0.66) (0.40) (0.74) (0.42)
Provision for losses
related to loan
guarantees (0.11) (0.04) (0.12) (0.22)
Discontinued lines
and other non-recurring
items (0.15) (0.72) (0.42) (1.50)
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Total non-operating items,
net of tax (1.39) (1.62) (1.62) (2.86)
----------------------------------------------------------------------
Loss per diluted share ($1.21) ($1.50) ($1.07) ($2.52)
----------------------------------------------------------------------
Diluted common shares
outstanding (in millions) 340.3 325.3 336.4 326.2
----------------------------------------------------------------------
Conseco, Inc.
Consolidated Balance Sheet (in millions)
At At
Sept. 30, 2001 Dec. 31, 2000
----------------------------------------------------------------------
Assets
Investments:
Actively managed fixed
maturities at fair value $22,734.2 $21,755.1
Interest-only securities
at fair value 172.4 432.9
Equity securities
at fair value 234.5 248.3
Mortgage loans 1,197.4 1,238.6
Policy loans 635.9 647.2
Venture capital investment
in TeleCorp PCS, Inc. 174.6 258.6
Other invested assets 297.1 436.9
-------------------------------------------------------------------
Total investments 25,446.1 25,017.6
Cash and cash equivalents:
Held by the parent company 182.9 294.0
Held by the parent company
in segregated accounts 52.4 81.9
Held by subsidiaries 1,307.4 1,287.7
Accrued investment income 518.0 467.1
Finance receivables 3,840.2 3,865.0
Finance receivables - securitized 13,750.6 12,622.8
Cost of policies purchased 1,663.6 1,954.8
Cost of policies produced 2,548.0 2,480.5
Reinsurance receivables 609.1 669.4
Goodwill, net of accumulated amortization 3,729.9 3,800.8
Income tax assets 700.5 647.2
Assets held in separate accounts
and investment trust 2,200.9 2,610.1
Cash held in segregated
accounts for investors 528.0 551.3
Cash held in segregated accounts
related to servicing agreements and
securitization transactions 833.8 866.7
Other assets 1,715.4 1,372.3
----------------------------------------------------------------------
Total assets 59,626.8 58,589.2
----------------------------------------------------------------------
Liabilities and shareholders' equity
Liabilities:
Liabilities for insurance and
asset accumulation products:
Interest-sensitive products 15,846.9 16,123.2
Traditional products 8,118.2 7,875.1
Claims payable and other
policyholder funds 976.1 1,026.1
Liabilities related
to separate accounts
and investment trust 2,200.9 2,610.1
Liabilities related to
certificates of deposit 1,992.4 1,873.3
Investor payables 528.0 551.3
Other liabilities 1,854.4 1,565.5
Investment borrowings 928.8 219.8
Notes payable:
Direct corporate obligations 4,237.2 5,055.0
Direct finance obligations:
Master repurchase agreements 1,288.2 1,802.4
Credit facility collateralized
by retained interests
in securitizations 562.5 590.0
Other borrowings 393.8 418.5
Related to securitized finance
receivables structured as
collateralized borrowings 13,841.1 12,100.6
-------------------------------------------------------------------
Total liabilities 52,768.5 51,810.9
----------------------------------------------------------------------
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts 1,912.7 2,403.9
----------------------------------------------------------------------
Shareholders' equity:
Preferred stock 498.4 486.8
Common stock and additional
paid-in capital 3,481.5 2,911.8
Accumulated other
comprehensive loss (300.4) (651.0)
Retained earnings 1,266.1 1,626.8
----------------------------------------------------------------------
Total shareholders' equity 4,945.6 4,374.4
----------------------------------------------------------------------
Total liabilities and shareholders' equity $59,626.8 $58,589.2
----------------------------------------------------------------------
Conseco, Inc.
Consolidated Statement of Operations (in millions)
Quarter Ended Nine Months Ended
Sept. 30: Sept. 30:
2001 2000 2001 2000
----------------------------------------------------------------------
Revenues
Insurance policy income 1,005.2 $1,074.1 $3,058.0 $3,195.2
Net investment income 847.7 830.6 2,787.1 2,773.9
Gain on sale of
finance receivables 6.0 1.9 21.6 4.5
Gain on sale of interest
in Riverboat 0.0 0.0 192.4 0.0
Net investment losses (180.1) (74.4) (333.7) (227.9)
Fee revenue and other income 107.4 123.1 340.8 380.7
----------------------------------------------------------------------
Total revenues 1,786.2 1,955.3 6,066.2 6,126.4
----------------------------------------------------------------------
Benefits and expenses
Insurance policy benefits 836.0 1,000.0 2,611.1 3,086.7
Provision for losses 200.6 110.8 440.3 345.5
Interest expense 397.5 410.2 1,223.5 1,006.5
Amortization 212.8 128.7 641.5 512.2
Other operating costs
and expenses 345.0 418.9 1,044.3 1,234.9
Special charges 14.7 253.3 70.5 580.5
Impairment charges 345.2 205.0 386.9 217.1
----------------------------------------------------------------------
Total benefits and expenses 2,351.8 2,526.9 6,418.1 6,983.4
----------------------------------------------------------------------
Loss before income taxes,
minority interest, extraordinary
gain (loss) and cumulative effect
of accounting change (565.6) (571.6) (351.9) (857.0)
Income tax expense (benefit) (186.5) (179.8) (97.2) (212.7)
----------------------------------------------------------------------
Loss before minority interest,
extraordinary gain (loss) and
cumulative effect of
accounting change (379.1) (391.8) (254.7) (644.3)
Minority interest - distributions
on Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts, net of
income taxes 29.1 35.3 90.4 110.0
-------------------------------------------------------------------
Loss before extraordinary
gain (loss) and cumulative
effect of accounting change (408.2) (427.1) (345.1) (754.3)
Extraordinary (gain) loss on
extinguishment of debt, net of
income taxes (0.7) 4.9 4.0 5.0
Cumulative effect of accounting
change, net of income taxes 0.0 55.3 0.0 55.3
----------------------------------------------------------------------
Net loss (407.5) (487.3) (349.1) (814.6)
Less preferred
stock dividends 3.1 2.2 11.6 8.9
----------------------------------------------------------------------
Net loss applicable
to common stock ($410.6) ($489.5) ($360.7) ($823.5)
----------------------------------------------------------------------
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