Exhibit 99.1
NEWS
For Release Immediate
Contacts (News Media) Jim Rosensteele, SVP, Corporate Communications
317.817.4418
(Investors) Tammy Hill, SVP, Investor Relations
317.817.2893
Conseco Reports Second Quarter Results
Carmel, Ind., August 4, 2004 -- Conseco, Inc. (NYSE: CNO) today reported
financial results for the quarter ended June 30, 2004. The company emerged from
Chapter 11 bankruptcy on September 10, 2003. Results for periods following our
emergence from Chapter 11 reflect fresh-start accounting adjustments as required
by generally accepted accounting principles ("GAAP"). Accordingly, our financial
results for periods following our emergence from bankruptcy are not comparable
to our results prior to emergence. Activity of the company for periods after
September 1, 2003 is included in the post-bankruptcy or "successor company"
financial statements. Activity of the company for periods prior to September 1,
2003 is included in the pre-bankruptcy or "predecessor company" financial
statements.
Operating results
For the quarter ended June 30, 2004, Conseco reported net income (after
dividends on convertible exchangeable preferred stock and mandatorily
convertible preferred stock) of $44.6 million, or 34 cents per diluted common
share. Results for the quarter included net after-tax realized investment losses
of $2.4 million, or 2 cents per share.
As previously reported, the predecessor company reported a net loss for the
quarter ended June 30, 2003 of $20.6 million.
Results by segment were as follows ($ in millions):
Successor Predecessor
----------------------------------- -------------
Three Months Three Months Three Months
Ended Ended Ended
June 30, 2004 March 31, 2004 June 30, 2003
------------- -------------- -------------
Earnings (loss) before taxes:
Bankers Life $ 53.7 $ 56.4 $ 57.1
Conseco Insurance Group 68.6 60.5 32.9
Other Business in Run-off 15.6 14.9 (44.8)
Corporate Operations (27.5) (39.1) (98.3)
Realized gains (losses), net of related amortization,
and venture capital income (3.6) 19.7 13.8
------ ------ ------
Earnings (loss) before taxes and
discontinued operations 106.8 112.4 (39.3)
Tax expense (benefit) 38.5 39.6 (16.6)
------ ------ ------
Income (loss) before discontinued operations 68.3 72.8 (22.7)
Discontinued operations, net of income taxes - - 2.1
------ ------ ------
Net income (loss) 68.3 72.8 (20.6)
Preferred stock dividends:
10.50% Class A convertible exchangeable preferred
stock (retired June 11, 2004) 18.4 22.9 -
5.50% Class B mandatorily convertible preferred
stock (issued May 12, 2004) 5.3 - -
------ ------ ------
Net income (loss) applicable to common stock $ 44.6 $ 49.9 $(20.6)
====== ====== ======
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Conseco (2)
August 4, 2004
Pre-tax earnings from our insurance segments' operations were generally in line
with our expectations for the second quarter, and included a reduction to
amortization expense of $7.7 million, before tax, from the adjustment of
assumptions for investment income on value of policies in force. Pre-tax
earnings in our Corporate Operations segment improved from a loss of $(39.1)
million in the quarter ended March 31, to a loss of $(27.5) million in the
quarter ended June 30, due primarily to a reduction in interest expense and
related credit agreement fees.
As previously reported, in May the company completed the offering of 50.6
million shares of common stock at $18.25 per share and $690 million of
mandatorily convertible preferred stock. Also, as previously reported, on June
22 the company completed a new $800 million bank debt agreement. The company's
10.50% Class A cumulative convertible exchangeable preferred stock was redeemed
in full on June 11 with a portion of the proceeds from the offerings. Results
for the second quarter include preferred dividends on the Class A preferred
stock of $18.4 million for the period from April 1 to June 11.
The table below compares actual second quarter results to the second quarter
presented on a pro forma basis assuming that the issuance of new common and
mandatorily convertible preferred stock and the completion of the new bank debt
agreement occurred at the beginning of the quarter ($ in millions, except per
share amounts):
Three Months
Three Months Ended
Ended June 30, 2004
June 30, 2004 (pro forma) (1)
------------- ---------------
Earnings before taxes:
Bankers Life $ 53.7 $ 53.7
Conseco Insurance Group 68.6 68.6
Other Business in Run-off 15.6 15.6
Corporate Operations (27.5) (20.2)
Realized losses, net of related amortization (3.6) (3.6)
------ ------
Earnings before taxes 106.8 114.1
Tax expense 38.5 41.2
------ ------
Net income 68.3 72.9
Preferred stock dividends:
10.50% Class A convertible exchangeable preferred
stock (retired June 11, 2004) 18.4 -
5.50% Class B mandatorily convertible preferred
stock (issued May 12, 2004) 5.3 9.5
------ ------
Net income applicable to common stock $ 44.6 $ 63.4
====== ======
Earnings per common share:
Basic:
Weighted average shares outstanding 127,048,000 150,715,000
Net income $.35 $.42
=== ===
Earnings per common share:
Diluted:
Weighted average shares outstanding 146,992,000 187,373,000
Net income $.34 $.39
=== ===
<FN>
(1) The pro forma financial information presented above is presented to give
effect to the following events as if they had occurred on April 1, 2004:
o the completion of Conseco's recapitalization, including its $800
million bank debt refinancing, the issuance of 50,600,000 shares of
its common stock at $18.25 per share and 27,600,000 shares of its
5.50% Class B mandatorily convertible preferred stock at $25 per
share.
</FN>
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Conseco (3)
August 4, 2004
o the use of net proceeds from the new bank debt and common and
mandatorily convertible preferred stock offerings, totaling
approximately $2.34 billion, to: (1) redeem all of the issued and
outstanding Class A cumulative convertible exchangeable preferred
stock; and (2) repay all of the $1.3 billion existing senior bank
debt.
The pro forma data are based on available information and on assumptions we
believe are reasonable. The pro forma data are provided for informational
purposes only and should not be construed to be indicative of our
consolidated results of operations had these transactions been consummated
on the dates assumed, and do not in any way represent a projection or
forecast of our consolidated results of operations for or as of any future
period or date.
Supplemental health product loss ratios
Loss ratios on major supplemental health lines of business in each of our
segments were as follows:
Successor Predecessor
--------------------------------------- -------------
Three Months Three Months Three Months
Ended Ended Ended
June 30, 2004 March 31, 2004 June 30, 2003
------------- -------------- -------------
Bankers Life segment:
Medicare Supplement:
Earned premium $161 million $162 million $159 million
Loss ratio 69.04% 65.56% 66.01%
Long-Term Care:
Earned premium $133 million $131 million $125 million
Loss ratio 89.12% 89.26% 81.66%
Interest-adjusted loss ratio(a) 62.39% 62.86% 64.80%
Conseco Insurance Group segment:
Medicare Supplement:
Earned premium $94 million $96 million $96 million
Loss ratio 62.87% 61.10% 65.72%
Specified Disease:
Earned premium $92 million $90 million $92 million
Loss ratio 64.35% 70.15% 77.77%
Other Business in Run-off segment:
Earned premium $101 million $103 million $148 million
Loss ratio 95.19% 98.06% 126.03%
Interest-adjusted loss ratio(a) 49.44% 59.99% 101.91%
<FN>
(a) Calculated as the product's: (i) insurance policy benefits less interest
income on the accumulated assets which back the insurance liabilities;
divided by (ii) earned premium.
</FN>
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Conseco (4)
August 4, 2004
Collected premiums
Collected premiums in each of our operating segments by product line were as
follows ($ in millions):
Successor Predecessor
--------------------------------------- -------------
Three Months Three Months Three Months
Ended Ended Ended
June 30, 2004 March 31, 2004 June 30, 2003
------------- -------------- -------------
Bankers Life segment:
Annuity products $230.4 $177.3 $289.0
Supplemental health products 299.0 303.2 289.5
Life products 33.3 37.8 38.3
------ ------ ------
Total collected premiums $562.7 $518.3 $616.8
====== ====== ======
Conseco Insurance Group segment:
Annuity products $ 15.9 $ 13.4 $ 24.7
Supplemental health products 181.8 190.9 200.5
Life products 90.2 101.8 101.0
------ ------ ------
Total collected premiums $287.9 $306.1 $326.2
====== ====== ======
Other Business in Run-off segment:
Long-term care products $92.1 $98.6 $100.5
Major medical products 5.4 6.0 63.0
Earnings guidance and outlook
We expect net income applicable to common stock for the year ended December 31,
2004 to be in the range of $210 million to $220 million. Our earnings guidance
is based on numerous assumptions and factors. If they prove incorrect, our
actual earnings could differ materially from our estimates (see note on
forward-looking statements below). Our guidance excludes any impact from
realized investment gains or losses. Our guidance for 2004 reflects the interest
expense and preferred dividend savings expected during the second half of 2004
from our completed recapitalization. The table below compares the components of
our actual results for the first half and our guidance for the second half of
2004 ($ in millions).
(Actual) (Guidance) (Guidance)
Six months ended Six months ended Year Ended
June 30, 2004 December 31, 2004 December 31, 2004
------------- ----------------- -----------------
Earnings before realized gains,
corporate interest expense, and taxes $249 $250 - $265 $499 - $514
Corporate interest expense (46) (23) (69)
---- ----------- -----------
Earnings before realized gains
and taxes 203 227 - 242 430 - 445
Taxes 72 82 - 87 154 - 159
---- ----------- -----------
Earnings before realized gains 131 145 - 155 276 - 286
Preferred stock dividends:
10.50% Class A convertible exchangeable preferred
stock (retired June 11, 2004) 42 - 42
5.50% Class B mandatorily convertible preferred
stock (issued May 12, 2004) 5 19 24
---- ----------- -----------
Earnings applicable to common stock
before realized gains $ 84 $126 - $136 $210 - $220
Realized investment gains, net of tax 10
----
Net income applicable to common stock $ 94
====
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Conseco (5)
August 4, 2004
Comments from CEO Bill Shea
"We are very pleased to have accomplished several key objectives during the
second quarter:
o Our recapitalization reduced our debt-to-total-capital ratio to 20%,
which gives us a solid balance sheet on which to grow our business
going forward.
o The recapitalization also reduced our annualized, after-tax cost of
interest and preferred dividends by approximately $90 million.
o We received upgrades on the ratings of our corporate debt and key
insurance companies' financial strength. On June 25, A.M. Best
upgraded the financial strength ratings of our key insurance
subsidiaries by two notches from B ("Fair") to B++ ("Very Good").
o The operating earnings of our insurance segments increased during the
quarter, including the aforementioned reduction to amortization
expense from the adjustment of assumptions.
Our statutory-basis results continued to be consistent with our expectations:
o Our consolidated statutory earnings (before realized investment gains
and before interest expense paid to the parent company on surplus
notes) (a non-GAAP measure) were an estimated $125 million for the six
months ended June 30, 2004, compared to $5 million for the same period
in 2003.
o Our consolidated Company Action Level risk-based capital (RBC) ratio
(a non-GAAP measure) was an estimated 315% at June 30, 2004, up from
297% at March 31, 2004 and 287% at year-end 2003.
"Second quarter new annualized premium sales of supplemental health and life
products at Bankers Life continued to be in line with our operating plan and
totaled $47 million, up 7% from 2Q03. Sales of supplemental health and life
products at Conseco Insurance totaled approximately $18 million, down 27% from
2Q03, driven primarily by a $6 million decrease in Medicare supplement sales
through independent agents. First-year annuity deposits for the quarter were
$230.4 million and $9.0 million at Bankers Life and Conseco Insurance Group,
respectively.
"During the second quarter, we continued to make progress on our other major
operating initiatives for 2004:
o Expanding our career agent segment (Bankers Life) into new geographic
markets. Bankers has opened 21 new branches so far this year, bringing
the total number of branch offices to 155, and has also improved the
quality of leadership at certain under-performing branches by
replacing branch managers.
o Further reducing operating expenses and improving the efficiency of
our operations. Operating expenses for the first six months of 2004
were in line with our plan, and we are making significant progress on
our multi-year systems simplification effort.
o Continuing our focus on the acquired blocks of long-term care business
in the Other Business in Run-off segment. This business is continuing
to perform within our expectations, thanks to the work of the team we
have dedicated to managing its runoff.
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Conseco (6)
August 4, 2004
"Completion of our recapitalization allows us to focus all of our efforts on our
primary strategic goal, which is to become a premier insurance company serving
middle-income Americans throughout their working careers and retirement. We
believe we can achieve that goal by capitalizing on what we believe to be our
key advantages:
o A valuable franchise uniquely focused on the growing senior and
middle-income markets
o A diverse and relevant product portfolio
o A diverse distribution network
o A very strong balance sheet
About Conseco
Conseco, Inc.'s insurance companies help protect working American families and
seniors from financial adversity: Medicare supplement, long-term care, cancer,
heart/stroke and accident policies protect people against major unplanned
expenses; annuities and life insurance products help people plan for their
financial futures. For more information, visit Conseco's web site at
www.conseco.com.
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend
analyses and other information contained in this press release relative to
markets for Conseco's products and trends in Conseco's operations or financial
results, as well as other statements contain forward-looking statements, within
the meaning of the federal securities laws and the Private Securities Litigation
Reform Act of 1995. Forward-looking statements typically are identified by the
use of terms such as "anticipate," "believe," "plan," "estimate," "expect,"
"project," "intend," "may," "will," "would," "contemplate," "possible,"
"attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable
with," "optimistic" and similar words, although some forward-looking statements
are expressed differently. You should consider statements that contain these
words carefully because they describe our expectations, plans, strategies and
goals and our beliefs concerning future business conditions, our results of
operations, financial position, and our business outlook or they state other
"forward-looking" information based on currently available information.
Assumptions and other important factors that could cause our actual results to
differ materially from those anticipated in our forward-looking statements
include, among other things: (i) the potential adverse impact of our
predecessor's Chapter 11 petition on our business operations, and relationships
with our customers, employees, regulators, distributors and agents; (ii) our
ability to operate our business under the restrictions imposed by our senior
bank credit facility or future credit facilities; (iii) our ability to improve
the financial strength ratings of our insurance company subsidiaries and the
impact of prior rating downgrades on our business; (iv) our ability to obtain
adequate and timely rate increases on our supplemental health products including
our long-term care business; (v) 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) our ability to
sell products and access capital on acceptable terms, the market value of our
investments, and the lapse rate and profitability of policies; (vi) our ability
to achieve anticipated expense reductions and levels of operational
efficiencies; (vii) customer response to new products, distribution channels and
marketing initiatives; (viii) mortality, morbidity, usage of health care
services, persistency and other factors which may affect the profitability of
our insurance products; (ix) performance of our investments; (x) changes in the
Federal income tax laws and regulations which may affect or eliminate the
relative tax advantages of some of our products; (xi) increasing competition in
the sale of insurance and annuities; (xii) regulatory changes or actions,
including those relating to regulation of the financial affairs of our insurance
companies, including the payment of dividends to us, regulation of financial
services affecting (among other things) bank sales and underwriting of insurance
products, regulation of the sale, underwriting and pricing of products, and
health care regulation affecting health insurance products; (xiii) the ultimate
outcome of lawsuits filed against us and other legal and regulatory proceedings
to which we are subject; and (xiv) the risk factors or uncertainties listed from
time to time in our filings with the Securities and Exchange Commission.
Other factors and assumptions not identified above are also relevant to the
forward-looking statements, and if they prove incorrect, could also cause actual
results to differ materially from those projected. All written or oral
forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing cautionary statement. Our forward-looking statements
speak only as of the date made. We assume no obligation to update or to publicly
announce the results of any revisions to any of the forward-looking statements
to reflect actual results, future events or developments, changes in assumptions
or changes in other factors affecting the forward-looking statements.
- Tables Follow -
Conseco (7)
August 4, 2004
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
Successor
--------------------------------
June 30, December 31,
2004 2003
---- ----
(unaudited)
ASSETS
Investments:
Actively managed fixed maturities at fair value (amortized cost:
June 30, 2004 - $20,583.6; December 31, 2003 - $19,470.7)......................... $20,492.3 $19,840.1
Equity securities at fair value (cost: June 30, 2004 - $69.0;
December 31, 2003 - $71.8)........................................................ 72.4 74.5
Mortgage loans...................................................................... 1,109.1 1,139.5
Policy loans........................................................................ 477.8 503.4
Trading securities.................................................................. 899.8 915.1
Other invested assets .............................................................. 168.1 324.1
--------- ---------
Total investments................................................................. 23,219.5 22,796.7
Cash and cash equivalents:
Unrestricted........................................................................ 865.1 1,228.7
Restricted.......................................................................... 12.9 31.9
Accrued investment income............................................................. 310.9 315.5
Value of policies in force at the Effective Date......................................... 2,886.0 2,949.5
Cost of policies produced................................................................ 256.6 101.8
Reinsurance receivables.................................................................. 925.4 930.5
Income tax assets........................................................................ 12.5 24.6
Goodwill................................................................................. 873.1 952.2
Other intangible assets.................................................................. 151.4 155.2
Assets held in separate accounts......................................................... 33.6 37.7
Other assets............................................................................. 388.7 395.8
--------- ---------
Total assets...................................................................... $29,935.7 $29,920.1
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance and asset accumulation products:
Interest-sensitive products........................................................ $12,417.2 $12,480.4
Traditional products............................................................... 11,473.3 11,431.8
Claims payable and other policyholder funds........................................ 907.5 892.3
Liabilities related to separate accounts........................................... 33.6 37.7
Other liabilities.................................................................... 590.6 573.0
Investment borrowings................................................................ 548.8 387.3
Notes payable - direct corporate obligations......................................... 790.0 1,300.0
--------- ---------
Total liabilities.............................................................. 26,761.0 27,102.5
--------- ---------
Commitments and Contingencies
Shareholders' equity:
Preferred stock...................................................................... 667.8 887.5
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and
outstanding: June 30, 2004 - 150,715,772; December 31, 2003 - 100,115,772)......... 1.5 1.0
Additional paid-in-capital........................................................... 2,531.3 1,641.9
Accumulated other comprehensive income (loss)........................................ (188.9) 218.7
Retained earnings.................................................................... 163.0 68.5
--------- ---------
Total shareholders' equity....................................................... 3,174.7 2,817.6
--------- ---------
Total liabilities and shareholders' equity ...................................... $29,935.7 $29,920.1
========= =========
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Conseco (8)
August 4, 2004
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Successor Predecessor
------------ ------------
Three months Three months
ended ended
June 30, June 30,
2004 2003
---- ----
Revenues:
Insurance policy income..................................................... $ 737.0 $ 813.9
Net investment income:
General account assets................................................... 318.4 348.6
Policyholder and reinsurer accounts...................................... (14.8) 41.5
Venture capital income related to investment in
AT&T Wireless Services, Inc............................................ - 6.0
Net realized investment gains (losses)...................................... (5.6) 7.2
Fee revenue and other income................................................ 4.5 12.9
-------- --------
Total revenues........................................................... 1,039.5 1,230.1
-------- --------
Benefits and expenses:
Insurance policy benefits................................................... 666.5 872.6
Provision for losses........................................................ - 15.8
Interest expense (contractual interest of $97.2 for the three
months ended June 30, 2003).............................................. 23.1 73.5
Amortization................................................................ 82.3 138.6
Gain on extinguishment of debt.............................................. (2.8) -
Other operating costs and expenses.......................................... 163.6 154.5
Reorganization items........................................................ - 14.4
-------- ---------
Total benefits and expenses.............................................. 932.7 1,269.4
-------- --------
Income (loss) before income taxes and discontinued operations............ 106.8 (39.3)
Income tax expense (benefit) on period income (loss)............................ 38.5 (16.6)
-------- --------
Income (loss) before discontinued operations............................. 68.3 (22.7)
Discontinued operations, net of income taxes.................................... - 2.1
-------- --------
Net income (loss)........................................................ 68.3 (20.6)
Preferred stock dividends....................................................... 23.7 -
-------- --------
Net income (loss) applicable to common stock............................. $ 44.6 $ (20.6)
======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding...................................... 127,048,000
===========
Net income............................................................... $.35
====
Diluted:
Weighted average shares outstanding...................................... 146,992,000
===========
Net income............................................................... $.34
====
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Conseco (9)
August 4, 2004
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS, continued
(Dollars in millions, except per share data)
(unaudited)
Successor Predecessor
---------- -----------
Six months Six months
ended ended
June 30, June 30,
2004 2003
---- ----
Revenues:
Insurance policy income..................................................... $1,485.4 $1,687.5
Net investment income:
General account assets................................................... 630.4 695.9
Policyholder and reinsurer accounts...................................... .9 18.4
Venture capital income related to investment in
AT&T Wireless Services, Inc........................................... - 8.5
Net realized investment gains............................................... 21.5 30.5
Fee revenue and other income................................................ 11.9 26.5
-------- --------
Total revenues........................................................... 2,150.1 2,467.3
-------- --------
Benefits and expenses:
Insurance policy benefits................................................... 1,386.2 1,731.3
Provision for losses........................................................ - 31.1
Interest expense (contractual interest of $194.8 for the six
months ended June 30, 2003).............................................. 52.2 147.1
Amortization................................................................ 180.5 296.6
Gain on extinguishment of debt.............................................. (2.8) -
Other operating costs and expenses.......................................... 314.8 315.5
Reorganization items........................................................ - 32.5
-------- --------
Total benefits and expenses.............................................. 1,930.9 2,554.1
-------- --------
Income (loss) before income taxes and discontinued operations............ 219.2 (86.8)
Income tax expense (benefit) on period income (loss)............................ 78.1 (31.2)
-------- --------
Income (loss) before discontinued operations............................. 141.1 (55.6)
Discontinued operations, net of income taxes.................................... - 16.0
-------- --------
Net income (loss)........................................................ 141.1 (39.6)
Preferred stock dividends....................................................... 46.6 -
--------- --------
Net income (loss) applicable to common stock............................. $ 94.5 $ (39.6)
======== ========
Earnings per common share:
Basic:
Weighted average shares outstanding...................................... 113,582,000
===========
Net income............................................................... $.83
====
Diluted:
Weighted average shares outstanding...................................... 123,790,000
===========
Net income............................................................... $.81
====
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