The following table shows the sources of Conseco's net income (after tax and minority interest) for the last three years:
Statesman relies on dividends from ALHC to fund its operating expenses, dividends and interest expense. Statesman is not expected to pay dividends on its common stock in the near future. Statesman is obligated to continue to pay interest to holders of its 6-1/4% Convertible Subordinated Debentures due 2003 ("Debentures") who have not converted such securities. An aggregate of $24.2 million principal amount of such Debentures remains outstanding at December 31, 1994. Statesman expects a substantial amount of its remaining Debentures to be converted in 1995, reducing its debt service costs. Amounts required to pay all outstanding Debentures, including the optional conversion consideration, are held in escrow until the Debentures are converted, redeemed or mature.
In addition, depending on the outcome of the Statesman Litigation as described in note 2 to the consolidated financial statements, dividends may be payable on the Government Preferred Stock. The Government Preferred Stock provides for cumulative annual dividends of approximately $1.1 million; as of December 31, 1994, an aggregate of $5.8 million of such dividends had been accrued but had not been paid.
We evaluate annually the recoverability of the cost of policies purchased. We compare our current estimate of expected future cash flows (discounted at the rate earned on our invested assets) to the unamortized asset balance by line of insurance business. If our current estimate indicates that the existing insurance liabilities, together with the present value of future net cash flows from the blocks of business purchased, will be insufficient to recover the cost of policies purchased, we charge the difference to expense.
In the normal course of business, Conseco seeks to limit its exposure to loss on any single insured and to recover a portion of the benefits paid. We do this by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts. We limit how much risk per policy we will retain. This retention limit does not exceed $.8 million on any of our policies.
Mortgage loans, credit-tenant loans and policy loans. We discount future expected cash flows based on interest rates currently being offered for similar loans to borrowers with similar credit ratings. We aggregate loans with similar characteristics in our calculations.
The shares sold by Conseco represented a 60 percent interest in WNC. Net pre-tax proceeds to Conseco from the repayment of the Conseco Note and the sale of WNC shares totaled $537.3 million. These proceeds were used to repay a $200 million senior unsecured loan and for other general corporate purposes. In the first quarter of 1994, Conseco reported a gain of approximately $42.4 million (net of taxes of $22.9 million) as a result of these transactions.
On December 23, 1994, Conseco sold its remaining 40 percent interest in WNC to American General Corporation for $274.4 million in cash, or $11.00 for each of the 24,947,500 WNC shares owned by Conseco. Conseco recognized a gain from the sale of approximately $4.1 million, net of taxes of $11.4 million. Net cash proceeds from the sale were used for general corporate purposes, including the repurchase of common stock of Conseco (see note 10).
The carrying value of investments not accruing investment income totaled $11.2 million, $19.6 million and $24.8 million at December 31, 1994, 1993 and 1992, respectively.
In 1994, CCP repaid its senior loan using a portion of the proceeds of a public offering of $200 million 10.5 percent senior notes due 2004. This repayment resulted in an extraordinary charge of $2.1 million to Conseco in 1994. In 1992, CCP repaid notes payable with a balance of $230.7 million in conjunction with its IPO. This repayment resulted in an extraordinary charge of $3.9 million to Conseco in 1992.
In June 1989, the Company, as partial acquisition financing for National Fidelity, executed a senior promissory note payable in the amount of $34.0 million. This note was repaid in full in March 1994, resulting in an extraordinary charge of $.8 million (net of a $.4 million tax benefit).
Some officers of the Company are employed pursuant to long-term employment agreements. One of these agreements provides for a base salary plus an annual bonus equal to 3 percent of the Company's consolidated defined pretax profits. This agreement renews annually for a five-year period unless either party notifies the other, in which case the agreement expires five years from the last renewal date. Additionally, a $1.9 million interest-free loan has been granted to the officer. Repayment is due two years after termination of the officer's employment contract.
In addition, these contracts subject Statesman to the risk that the counterparty will fail to perform. The potential credit loss is limited to the periodic net settlement amounts due to Statesman under the agreements and nonperformance is not anticipated.