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Non-Tech : Conseco Insurance (CNO) -- Ignore unavailable to you. Want to Upgrade?

To: Tunica Albuginea who wrote (3799)	11/30/2000 2:39:01 PM
From: AustinPowersIII	Read Replies (1) \| Respond to of 4155

CNC TURNAROUND by Gary Wendt! Turnaround Memo #4 November 29, 2000 To: Conseco Shareholders From: Gary Wendt Chairman & CEO Carmel, Ind.: Nov. 29, 2000 - Far and away the biggest news since my last update is A.M. Best’s decision on November 7 to upgrade our rating to A-. The loss of this rating in mid-June had prompted the following kinds of conclusions from various analysts: July 28: “The A.M. Best rating is of particular importance as 94% of all life insurance, 96% of all annuities and 84% of all health insurance is sold by companies with an A- rating or better.” September 28: “… we suspect that CNC will need to demonstrate continued progress in its stabilization plan before ratings upgrades would be rewarded.” November 1: “ … we caution investors about assuming that [an upgrade to A-] will occur by the end of 1Q01.” So, securing the upgrade this quickly was a very welcome event. Shortly after joining Conseco, I identified three near-term goals: (1) restructure the bank debt; (2) implement a business model at Conseco Finance to produce cash instead of use it; and (3) restore the A- Best rating. With the recovery of the A- rating, Phase 1 of the Conseco turnaround is clearly on track. As we noted in our 3rd quarter earnings release, the loss of this rating for nearly four months did depress sales of annuities and life insurance products and put some pressure on insurance margins. Now, however, we are positioned to start 2001 with no ratings impediment to sales or earnings. Let me update you on a few other Turnaround developments that have occurred since our 3rd quarter earnings release. Cash generation and debt repayment. As you know, our Restoration Plan calls for the retirement of $2 billion in debt. In September, we repaid $650 million of bank debt. On December 15, we will retire $132 million in public debt. These two repayments alone will reduce Conseco’s annual interest expense by approximately $68 million. Fully diluted and after tax, that is approximately 11 cents per common share! Progress continues on the sale or monetization of non-core assets. We expect to announce the sale of one of our assets in the next 10 days. But, please also keep in mind that the original list of assets to be monetized was a conservative list at conservative valuations. Conseco is a large and vibrant company with a short-range motto of “Cash is King.” You should expect that we will be generating cash from sources not anticipated when we put our asset list together last summer. Just last week, we recovered $30 million from Lehman Brothers as a refund of a deposit against anticipated fees during the company’s attempt to sell Conseco Finance in the spring. The transaction has no net effect on the income statement or balance sheet, but it is a “new” source of cash for debt repayment. Recent press articles about two of the assets we are in the process of selling probably caught your attention. A quick word on each: Tritel has completed its merger with Telecorp with analysts giving positive reports on the combination. (Conseco holds 17.18 million shares of the merged entity, TLCP.) This asset is scheduled for sale later in 2001. Our effort to realize maximum value for the Argosy gambling boat continues to wind through the courts. Recently, the Illinois Supreme Court ordered that Argosy may not halt our actions in Indiana, where our pleadings are pending. Given the vast valuation differences between the majority owner and ourselves, we think enforcing our contracts in the courts is in Conseco’s interests. Insurance Restructuring. In my last Turnaround Memo, I described the “de-layering” of Conseco’s management structure. The second phase of restructuring our insurance operations is shifting staff responsibilities from the corporate level to the business operating level. We have been moving rapidly during the past month to move these key business professionals into positions at the operating level. So far, we have moved approximately 400 accounting, finance, actuarial, marketing, compliance and market conduct staff from corporate staff to positions in operating businesses. A large centralized bureaucracy at the parent company level is a bad idea. My experience is that high returns and high quality will be achieved when business staffs are as close to the front lines as possible. Brand awareness. I thought you would be interested in the following information just in. In its target markets, Conseco’s brand has reached a record 65% (October ‘00) awareness level, up from just 8% in February ‘98. The study was conducted in October by Communicus (CCS), a third party research firm that also monitors brands for IBM, Quaker Oats, and BMW. The study measured awareness, favorability, purchase intent, reputation and other factors. Conseco continues to make steady progress on all fronts. Interestingly, there is no indication that our target market, middle income Americans, has been affected at all by news of this past year’s difficulties at Conseco. Investor Briefing. On December 14 we will host an investor briefing here in Indianapolis. We will use this occasion to release earnings guidance for 2001. That information will be publicly released simultaneously. The briefing will begin at 10:30 a.m. and end at 12:30 p.m., followed by lunch here at our conference center. Obviously our focus is on prospective investors in Conseco, but we will be pleased to accommodate as many current shareholders as possible. Contact our investor relations department for more information.