Conseco's operating earnings for 3Q01 rose 49% over the third quarter a year ago - to $60.6 million (18 cents per share) from $40.8 million (12 cents per share). For the first three quarters, 2001 operating earnings were $184.2 million, compared to $110.7 million in 2000 - growth of 66%.

Various non-operating items (explained in NEW Conseco Memo #16 on October 2) resulted in a total after-tax charge of $471 million, causing a net loss for the quarter of $411 million ($1.21 per share).

In the Insurance and Fee-based segment, pre-tax operating earnings were $208 million, down 5% compared to 3Q00. Volatility in the equity markets has had an adverse effect on the sale of and earnings from our market-linked annuity products, and adverse mortality experience has decreased life earnings (including approximately $5 million in this quarter related to the September 11 attacks). For the nine months, however, pre-tax operating earnings rose by 4%, to $643 million.

In the Finance segment, pre-tax operating income for 3Q01 was $72.5 million, up 81% over 3Q00, driven by increased on-balance-sheet receivables, improved margins and lower operating costs, but down by $8 million from 2Q01 due to a $23 million increase in the provision for loan loss expense. For the nine months, pre-tax operating income rose 108%, to $216 million. While new issuance spreads, net proceeds from securitizations and operating cash flow remained at or above 2Q01's strong levels, delinquencies increased slightly in the quarter. Total managed 60+ delinquencies rose 11 bps to 1.89%. For manufactured housing, 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.

Interest and preferred dividend expense for the quarter was down $33 million, or 20%. We've achieved interest expense savings of nearly $70 million year-to-date (compared with 2000), primarily by reducing debt under the turnaround plan.

We have excellent and predictable cash flow from operations 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.

Our estimate today is that 4Q01 operating earnings will be in the range of 17 cents to 20 cents per share, which will translate 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. But our goals for the company are clearly achievable. 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, 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 to our strategic focus, we are producing strong cash flow to reduce the company's debt burden.