FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994 Commission File Number 1-8052
TORCHMARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-0780404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 3rd Avenue South, Birmingham, Alabama 35233
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (205) 325-4200
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No____
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 31, 1994
Common Stock, $1.00 Par Value 71,555,630
<PAGE>
TORCHMARK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Cash Flow
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
TORCHMARK CORPORATION
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
June 30, December 31
----------- -----------
1994 1993
Assets ----------- -----------
- - ------
Investments:
Fixed maturities, available for sale, at fair
value (amortized cost: 1994 - $4,437,073
1993 - $4,387,026) $4,302,892 $4,579,034
Equity securities, at fair value
(cost: 1994 - $33,352; 1993 - $31,221) 46,766 40,961
Mortgage loans, at cost (estimated fair
value: 1994 - $3,469; 1993 - $4,024) 3,571 4,147
Investment real estate, at depreciated cost 116,635 110,730
Policy loans 153,032 149,890
Energy investments 337,436 345,805
Other long-term investments (at fair value) 33,541 26,989
Short-term investments 147,412 183,166
----------- ----------
Total investments 5,141,285 5,440,722
Cash 4,392 53,408
Investment in unconsolidated subsidiaries 83,295 79,319
Accrued investment income 59,854 56,801
Other receivables 167,115 152,910
Deferred acquisition costs 943,683 901,565
Value of insurance purchased 124,185 131,602
Property and equipment 98,491 80,511
Goodwill 176,136 178,645
Other assets 42,056 26,432
Separate account assets 613,123 544,327
----------- ----------
Total assets $7,453,615 $7,646,242
=========== ==========
Liabilities and Shareholders' Equity
- - ------------------------------------
Liabilities:
Future policy benefits $3,831,391 $3,745,416
Unearned and advance premiums 96,878 96,206
Policy claims and other benefits payable 151,682 159,451
Other policyholders' funds 4,554 4,313
----------- ----------
Total policy liabilities 4,084,505 4,005,386
Accrued income taxes 267,511 413,072
Short-term debt 69,612 107,108
Long-term debt (estimated fair value:
1994 - $779,210; 1993 - $857,715) 792,550 792,335
Other liabilities 374,936 366,759
Separate account liabilities 613,123 544,327
----------- ----------
Total liabilities 6,202,237 6,228,987
Shareholders' equity:
Preferred stock 0 1,000
Common stock 73,784 73,784
Additional paid-in capital 138,919 232,432
Unrealized investment gains, net of tax (59,316) 120,138
Retained earnings 1,179,666 1,082,031
Treasury stock, at cost (81,675) (92,130)
----------- ----------
Total shareholders' equity 1,251,378 1,417,255
----------- ----------
Total liabilities and shareholders' equity $7,453,615 $7,646,242
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
Revenues:
Life premium $144,418 $139,365 $288,382 $276,791
Health premium 191,182 201,849 391,616 407,348
Other premium 4,566 40,422 8,316 68,937
--------- --------- --------- ---------
Total premium 340,166 381,636 688,314 753,076
Financial services revenue 35,572 34,817 72,116 68,825
Net investment income 81,092 101,467 164,893 198,110
Energy revenues 16,147 24,064 33,450 45,478
Realized investment gains (9,304) 416 3,291 1,486
Other income 756 888 1,046 1,584
--------- --------- --------- ---------
Total revenue 464,429 543,288 963,110 1,068,559
Benefits and expenses:
Life policy benefits 101,388 96,166 200,368 187,964
Health policy benefits 110,989 122,926 233,922 248,508
Other policy benefits 10,547 29,159 21,116 52,679
--------- --------- --------- ---------
Total policy benefits 222,924 248,251 455,406 489,151
Amortization of deferred
acquisition costs 40,106 46,891 89,928 93,546
Commissions and premium taxes 34,701 47,081 70,580 88,817
Financial services expense 10,712 12,235 22,052 24,787
Energy operations expense 3,550 11,301 5,340 18,763
Other operating expense 41,667 43,820 81,108 90,658
Nonoperating expenses 0 0 0 34,500
Interest expense 18,159 14,553 36,156 28,139
--------- --------- --------- ---------
Total benefits and expenses 371,819 424,132 760,570 868,361
--------- --------- --------- ---------
Pre-tax operating income 92,610 119,156 202,540 200,198
Income tax (29,989) (37,532) (66,212) (64,251)
Equity in earnings of
unconsolidated subsidiaries 2,282 560 4,147 815
Minority interest in earnings
of consolidated subsidiaries 0 (3,938) 0 (7,471)
--------- --------- --------- ---------
Income before cumulative effect of
of changes in accounting
principles 64,903 78,246 140,475 129,291
Cumulative effect of changes in
accounting principles 0 0 0 22,444
--------- --------- --------- ---------
Net income $64,903 $78,246 $140,475 $151,735
========= ========= ========= =========
Net income per share before
cumulative effect of changes
in acccounting principles $0.90 $1.05 $1.92 $1.73
Cumulative effect of changes in
in accounting principles 0.00 0.31
--------- --------- --------- ---------
Net income per share $0.90 $1.05 $1.92 $2.04
========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
(Amounts in thousands)
Six Months Ended
June 30,
---------------------
1994 1993
-------- ---------
Cash provided from operations $130,928 $216,543
Cash provided from (used for) investment activities:
Investments sold or matured:
Fixed maturities available for sale - sold 383,995 107,327
Fixed maturities available for sale - matured 564,258 110,892
Fixed maturities held to maturity - sold 0 15,256
Fixed maturities held to maturity - matured 0 372,054
Other long-term investments 29,468 13,950
--------- ---------
Total investments sold or matured 977,721 619,479
Investments acquired:
Fixed maturities - available for sale (970,469) (887,383)
Other long-term investments (52,887) (21,715)
--------- ---------
Total investments acquired (1,023,356) (909,098)
Net decrease (increase) in short-term investments 35,755 (42,458)
Sale of stock in affiliate 0 27,110
Repayments of loans to affiliates 0 425
Additions to properties held for resale (13,124) 0
Disposition of properties 1,691 221
Additions to properties (29,048) (15,305)
Dividends from unconsolidated affiliates 171 0
--------- ---------
Cash provided from (used for) investment activities (50,190) (319,626)
Cash provided from (used for) financing activities:
Issuance of common stock 3,889 4,401
Issuance of 7 7/8% Notes 0 195,775
Other borrowings 24,900 20,300
Repayments of debt (62,453) (133,767)
Acquisition of treasury stock (89,660) 0
Cash dividends paid to shareholders (42,167) (42,867)
Net receipts from deposit product operations 35,737 47,320
--------- ---------
Cash provided from (used for) financing activities (129,754) 91,162
Net increase (decrease) in cash (49,016) (11,921)
Cash at beginning of year 53,408 18,706
--------- ---------
Cash balance at end of period $4,392 $6,785
========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TORCHMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
NOTE A - Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q, and, therefore,
do not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements include
all adjustments, consisting of normal recurring accruals, which are
necessary for a fair presentation of the consolidated financial position at
June 30, 1994 and the consolidated results of operations for the periods
ended June 30, 1994 and 1993.
NOTE B - Acquisition of Preferred Stock
On March 31, 1994, Torchmark acquired the remaining outstanding shares
of its adjustable rate preferred stock at a price of $100 per share plus
accrued dividends. The acquisition was completed at an aggregate price of
$47 million. The preferred treasury stock was immediately retired.
NOTE C - Registration of Securities
In July, 1994, the Securities and Exchange Commission declared
effective Torchmark's and Torchmark Capital L.L.C.'s Form S-3 registering up
to $200 million in securities in the form of preferred stock, monthly income
preferred securities together with backup undertakings, depositary shares,
or some combination thereof. Currently, no securities have been issued
pursuant to that registration statement. It is expected that the net
proceeds from the sale of any such securities will be used for general
corporate purposes, which may include repayment of bank debt, the repurchase
of shares of Torchmark's common stock, and possible acquisitions.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating Results
Torchmark Corporation's ("Torchmark's") net income per share for the
first six months of 1994 was $1.92, declining 6% over per-share earnings for
the same period of 1993 of $2.04. Net income was $140 million in the first
six months of 1994, falling 7% over the prior period. After exclusion of
realized investment gains in both periods, net of taxes and related items, per
share earnings were $1.96 in 1994 compared to $2.03 in 1993, a decline of 3%.
In comparing period-over-period results, an adjustment should be made to take
into account certain nonrecurring energy-related items that added
approximately $.07 per share to 1993 earnings. Consideration should also be
given to the increase in Federal income taxes imposed in the third quarter of
1993 which caused corporate income tax rates to rise from 34% to 35%. Had
this tax legislation been in effect in the first quarter of 1993, adjusted
per-share earnings for the first six months of 1993 would have been $.02 lower
than reported.
Because of the disposition of approximately 73% of Vesta Insurance
Group, Inc. ("Vesta") in the fourth quarter of 1993, Vesta's operations
should be removed from Torchmark's 1993 operations when making comparisons
with 1993. Prior to the disposition, Vesta was a wholly-owned subsidiary of
Torchmark and Vesta's operations were consolidated with Torchmark's. Since
that time, Torchmark's remaining 27% of Vesta operations has been reported
on the equity method. Also, in comparing year-over-year results of
operations, three other unusual items should be noted. Operations in 1993
included a $34.5 million pretax charge, or $22.8 million after-tax, for
nonoperating expense consisting of directors' and officers' liability, legal
and litigation costs, and guaranty fund assessments. Results for 1993 also
included an increase in after-tax earnings of $22.4 million for the adoption
of two required accounting standards concerning income taxes and
post-retirement health benefits. A final item was Torchmark's acquisition,
on October 1, 1993, of the remaining shares of United Investors Management
Company ("UIMCO"), representing approximately 17% of that company. Minority
interests in the earnings of UIMCO, which amounted to $7.5 million in the
1993 six months, were not deducted after the acquisition date.
Torchmark's revenues declined 10%, from $1.1 billion to $963 million.
After exclusion of Vesta's revenues in 1993, revenues declined 4% from $1.0
billion to $963 million. Adjusting for Vesta's operations, premium was down
slightly from $691 million to $688 million. Net investment income declined
from $194 million to $165 million, or 15%. The decline in net investment
income resulted from lower returns on energy investments, a significant
increase in tax-exempt securities, which have lower pretax yields, and lower
yields on invested assets. Energy operations revenues declined 26% to $33
million because of a sale of a large energy property in late 1993. A more
in-depth discussion of investment and energy operations follows under the
appropriate captions. The issuance of two new debt offerings in 1993 caused
interest expense to increase 28% to $36 million in the 1994 period.
Life Insurance. Premium for life insurance, Torchmark's highest profit
margin insurance product line, grew 4% to $288 million in the first six
months of 1994. Annualized life premium in force also rose 5% over the
prior year and stood at $635 million at June 30, 1994. Sales of life
insurance as measured by annualized premium issued increased 11% to $72
million. The profit margin for life insurance remained steady at 29% of
premium. Acquisition expense as a percentage of premium was 14.4% in 1994,
after a $5.8 million adjustment to deferred acquisition expense in
recognition of realized investment gains related to interest-sensitive life
insurance products. Acquisition expense as a percentage of premium was
15.0% in 1993. Life insurance in force was $63.8 billion at June 30, 1994,
an increase of 6% over the prior year.
Health insurance. The combined health insurance premium of Torchmark's
subsidiaries declined 4% to $392 million for the 1994 six months. Annualized
health insurance premium in force declined $34 million to $802 million at June
30, 1994, or 4% compared to the same date in 1993. Medicare Supplement
annualized premium, which represented over 73% of total annualized health
premium at June 30, 1994, declined from $600 million to $590 million over the
same period. Annualized premium in force for under-age-65 health insurance
declined $24 million or 19% because Torchmark's subsidiaries have reduced
their exposure in the past several quarters due to poor profit margins. Sales
of Medicare Supplement products declined from $77 million of annualized
premium issued in the 1993 sixmonths to $51 million in 1994. The decline in
Medicare Supplement sales is thought to be a result of the confusion
surrounding health care reform proposals as well as increased sales
competition. Sales of all individual health products for the six months
declined from $100 million in 1993 to $68 million in 1994.
Annuities. Policy charges for annuities were $6.0 million in the 1994
six months compared to $4.4 million for the 1993 six months, an increase of
37%. These charges are assessed against the annuity account balance
periodically for insurance risk, sales, administration, and surrender.
Annuities are sold on both a fixed and variable basis. The combined annuity
deposit account balance at June 30, 1994 was $1.38 billion, growing 19% for
the period. Fixed annuities grew 2.2% to $788 million while variable
annuities rose 54% to $596 million. Annuity collections were $116 million in
the 1994 period, declining 4% over collections of $120 million in the 1993
period.
Investment. After adjusting for Vesta's investment income, Torchmark's
investment income declined $30 million or 15% from the 1993 six months due to
lower returns from energy investments, an increase in holdings of tax-exempt
securities, and lower yields on the investment portfolio. Although a decline
was experienced, average invested assets grew 6.4% during the same periods.
The decline in returns from energy investments, which accounted for $17.6
million of the decrease in investment income, was primarily a result of
completion of the development in late 1993 of the Black Warrior basin, a
coalbed methane gas investment in Alabama. In 1993, costs associated with
this project were capitalized as developmental costs. In 1994, all costs were
charged as incurred. Benefits from this development are derived from Section
29 tax credits that are not reflected in investment income.
The relative attractiveness of tax-exempt securities improved in 1994
because of the increase in corporate tax rates. While pretax returns on
tax-exempts are lower than taxables, net after-tax returns are higher.
Torchmark's holdings in tax-exempt securities represented 15% of total
investments at June 30, 1994, compared to 11% at year-end 1993 and 6% a year
earlier. Tax-equivalent investment income for the insurance companies,
excluding energy income, was $174 million in the 1994 period compared to $173
million for the 1993 six months.
Declining interest rates during 1993 encouraged refinancing of mortgages,
causing increased GNMA prepayments. These funds were then reinvested at the
much lower prevailing rates, causing a reduction in Torchmark's investment
income in 1993 and future periods. It is estimated that the increased GNMA
repayments reduced investment income $12.7 million in the first six months of
1994 and $2.2 million in the same period of 1993, resulting in a
period-over-period reduction of $10.5 million.
The rise in interest rates during the first half of 1994 caused mortgage
prepayments to decline, and allowed Torchmark to invest new funds in slightly
higher yielding investments than in the earlier six-month period. Torchmark's
subsidiary insurance companies made permanent acquisitions at an average
tax-equivalent yield of 7.2% in the 1994 six-month period compared to 6.8% in
the 1993 period. However, the increase in rates also caused the market value
of Torchmark's fixed-maturity investments to decline during 1994 resulting in
a $197 million writedown of shareholders' equity, net of related taxes and
deferred acquisition costs. At June 30, 1994, the book value of Torchmark's
fixed maturities was $4.4 billion, the same as year-end 1993. At June 30,
1994, book value exceeded market by $134 million. The average life of the
investment portfolio was extended because of a reduction in expected
prepayments of mortgage-backed holdings and the acquisition of longer term
securities. At June 30, 1994, the average life of Torchmark's subsidiary
insurance company investment portfolios was 7.8 years, compared with 6.0 years
at year-end 1993 and 5.2 years a year ago.
Financial services. Revenues for financial services grew 4.8% to $72
million in the first six months of 1994 over the prior-year period. This
increase occurred even though the maximum sales charge on the United Funds was
reduced in the third quarter of 1993 to improve competitive position. The
reduced sales charges were more than offset by a 15% growth in management fee
income to $35 million. Average assets under management increased 13% in the
1994 period versus the 1993 period. Assets under management were $14.2
billion at June 30, 1994, $14.5 billion at year-end 1993, and $13.1 billion at
June 30, 1993. While these assets grew consistently during 1993, the higher
interest rates experienced during the 1994 six months caused lower security
values, which resulted in a slight decline in 1994 assets under management.
Investment product sales rose 7% to $663 million in the 1994 six months as
United Fund sales increased 3% to $499 million, Waddell & Reed Fund sales rose
51% to $64 million, and variable annuity sales increased 10% to $100 million.
Financial services margins improved in the 1994 period over the prior-year
period. Financial services direct expenses decreased 11% over the prior-year
period to $22 million, declining to 30.8% of revenues in 1994 versus 36.0% in
1993. In addition, general and administrative expenses decreased as a
percentage of revenues from 15.6% in 1993 to 14.3% in 1994. A major reason
for the direct expense improvement was the implementation in late 1993 of a
12b-1 service fee by the United Funds which is used to reimburse Waddell &
Reed for some of its shareholder servicing expense.
Energy. Energy operations revenues for the first six months of 1994
declined 26% to $33.5 million. The reduction in property revenues resulting
from the disposition of $84 million in producing properties in the fourth
quarter of 1993 caused a decline in energy revenues. Revenues from product
marketing operations almost tripled in the 1994 period, rising to $12.6
million. Profit margins for energy operations improved in 1994, largely
because of the elimination of expenses related to the previously-mentioned
disposed property. As a percentage of energy operations revenue, pretax
operating income grew from 20.9% to 22.5%. Energy net income rose over 17% to
$5.6 million.
Financial Condition
Liquidity. Torchmark's liquidity is represented by a positive cash flow,
marketable investments, and the availability of a line of credit facility.
Torchmark's cash inflows from operations, after deduction of current operating
requirements, and including net cash inflows from deposit product operations
were $167 million in the first six months of 1994 compared to $264 million in
the same period of 1993. In addition, Torchmark received $564 million in
fixed-maturity repayments during the 1994 period which were either scheduled
maturities or unscheduled GNMA principal repayments. Excess cash flow from
operations and investment sales is generally reinvested.
At June 30, 1994, Torchmark had $152 million in cash and short-term
investments, compared to $237 million at the end of the previous year. These
assets represented 2% of Torchmark's total assets at June 30, 1994. In
addition, Torchmark's entire portfolio of fixed-income and equity securities,
in the amount of $4.35 billion at market value on June 30, 1994, is available
for sale should a need arise.
Torchmark's line of credit facility provides credit up to a maximum
amount of $250 million. Terms of the facility permit borrowing up to the
maximum amount at variable interest rates. Torchmark is subject to certain
covenants regarding capitalization and earnings, with which Torchmark was in
full compliance at June 30, 1994. At that date, Torchmark had outstanding $65
million on the facility.
Capital resources. Torchmark's shareholders' equity was $1.25 billion at
June 30, 1994, decreasing $166 million or 12% since 1993 year end. The
decline in equity was a result of two factors. Share purchases was the first
factor. Acquisition of the remaining outstanding Torchmark adjustable-rate
preferred stock on March 31, 1994 at a cost of $47 million resulted in a
reduction in shareholder's equity in the same amount. Acquisition of 1.1
million Torchmark common shares during the period at a cost of $42.7 million
caused a reduction in shareholders' equity in the amount of that cost.
The second factor in the decline in shareholders' equity related to the
change in market value of Torchmark's fixed investments caused by the increase
in interest rates during the six-month period ended June 30, 1994. This
decline in value resulted in a decrease in shareholders' equity of $197
million, net of the related taxes and the recovery of previously-charged
deferred acquistion costs. Without the required market value writedown and
the share repurchases, shareholders' equity would have increased $121 million.
Book value per share was $17.40 at June 30, 1994, compared to $18.80 at
December 31, 1993 and $16.11 at June 30, 1993. Book value per share would
have been $18.61 at June 30, 1994 without the required market value writedown.
Torchmark's debt outstanding declined from $899 million at year-end 1993
to $862 million at June 30, 1994. The percentage of debt to total
capitalization was 41% at June 30, 1994, compared to 39% at year-end 1993.
The 2% increase in the debt-to-capitalization ratio resulted from the decline
in shareholders' equity. Annualized return on common equity was 21.1% for the
1994 six-month period compared to 26.4% for the same period of 1993.
In July, 1994, the Securities and Exchange Commission declared effective
Torchmark's and Torchmark Capital L.L.C.'s Form S-3 registering up to $200
million in securities in the form of preferred stock, monthly income preferred
securities together with backup undertakings, depositary shares, or some
combination thereof. Currently, no securities have been issued pursuant to
that registration statement. It is expected that the net proceeds from the
sale of any such securities will be used for general corporate purposes, which
may include repayment of bank debt, the repurchase of shares of Torchmark's
common stock, and possible acquisitions.
Item 1. Legal Proceedings
Torchmark and its subsidiaries continuously are parties to pending or
threatened legal proceedings. Many of these lawsuits involve claims for
punitive damages. As of June 30, 1994, there were approximately 130 active
lawsuits (excluding interpleaders and stayed cases), more than 90 of which
were Alabama proceedings in which punitive damages were sought. In
particular, Torchmark's subsidiary, Liberty National Life Insurance Company
("Liberty National") is a party to a number of such actions which seek
punitive damages in Alabama state courts, some of which actions also name
Torchmark as a defendant. The frequency of large punitive damages awards
bearing little or no relation to actual damages continues to increase in
Alabama as well as universally.
As previously reported in the Form 10-K for the fiscal year ended
December 31, 1993 and the Form 10-Q for the first quarter of 1994, litigation
was filed in May 1992 against Liberty National in the Circuit Court for
Barbour County, Alabama (Robertson v. Liberty National, Case No.: CV-92-021).
This suit was amended in October 1992 to include claims on behalf of a class
of Liberty National policyholders alleging fraud in the exchange of certain
cancer insurance policies. The complaint sought substantial equitable and
injunctive relief and unspecified compensatory and punitive damages. A
policyholder class was certified by the Barbour County Court in March 1993.
Additionally, subsequent to the class certification, a number of individual
lawsuits based on substantially the same allegations as in Robertson were
filed by plaintiffs in Alabama, Georgia, Florida and Mississippi. Four
additional class action suits also based upon substantially the same
allegations as in Robertson were filed in Mobile County, Alabama (Adair v.
Liberty National, Case No.: 93-958 and Lamey v. Liberty National, Case No.: CV
93-1256) and in Polk County, Florida (Howell v. Liberty National, Case No.:
GC-G 93-2023 and Scott v. Liberty National, Case No.: GC-G 93-2415) after the
class certification. Lamey and Adair are presently stayed as to those claims
pending the outcome of Robertson, and Howell and Scott are also the subject of
temporary stay orders.
On October 25, 1993, a jury in the Circuit Court for Mobile County,
Alabama rendered a one million dollar verdict ($1,000 actual damages) against
Liberty National in McAllister v. Liberty National, Case No.: CV-92-4085, one
of twenty-five suits involving cancer policy exchanges which were filed prior
to class certification in the Barbour County litigation. Liberty National
filed appropriate post-judgment motions and has appealed the McAllister
verdict. Previously, another judge in the Mobile County Court had granted a
summary judgment in favor of Liberty National in another substantially similar
suit in which no cancer claims had been submitted (Boswell v. Liberty
National, Case No.: CV-92-3342), which was appealed to the Alabama Supreme
Court. On May 13, 1994, the Alabama Supreme Court reversed and remanded
Boswell. The Court held the plaintiffs had alleged injury or damages in the
form of the additional policy premium payments and these allegations were
sufficient to withstand a motion to dismiss. Following this order and pending
a petition for rehearing, the Boswell case was settled. Including the
McAllister case, only four of the preclass certification individual cancer
exchange cases remained active as of June 30, 1994.
As reported previously, a fairness hearing was held on January 20, 1994,
in the Robertson cancer policy exchange class action. Prior to that hearing,
class members had been mailed notice of the hearing and the proposed
settlement.
On February 4, 1994, the Circuit Court for Barbour County, Alabama ruled
that with a $16 million increase in the total value of the equitable and
monetary relief contained in the proposed Robertson settlement (from
approximately $39 million to $55 million in total value), the settlement would
be fair and would be approved, provided that the parties to the litigation
accepted the amended settlement within fourteen days of the issuance of the
ruling. On February 17, 1994, the Court extended for two weeks the period for
filing objections to or accepting the court's order conditionally approving
the class action settlement. On February 22, 1994, the Court entered an order
in the Robertson litigation, which delayed any final decision on the proposed
class action settlement and various motions to modify it (including motions to
delete Torchmark from the settlement release), pending certain specified
discovery to be completed within 90 days from the date the order was entered.
In the order, the Court directed limited additional discovery regarding
whether Torchmark had any active involvement in the cancer policy exchanges.
Pending completion of limited additional discovery, the Court reserved
jurisdiction and extended the deadline for acceptance or rejection of the
modifications set forth in the February 4, 1994 order. On May 6, 1994, the
Court entered an order in the Robertson litigation setting a hearing on May
19, 1994, on all outstanding motions in that case.
On May 26, 1994, the Barbour County Court entered an Order and Final
Judgment in the Robertson litigation, making final the findings and
conclusions of its February 4, 1994 Order. That Order has been accepted by
the parties to the action. The discovery regarding the propriety of
Torchmark's release by the settlement agreement was concluded prior to the
entry of the Order and Final Judgment, and Torchmark was included in the
release.
In connection with orders of the Barbour County Circuit Court, the $55
million proposed amended settlement charge has been provided for in
Torchmark's 1993 financial reports.
On July 5, 1994, certain intervenors in the Robertson litigation filed a
notice of appeal of the Order and Final Judgment approving class certification
and the settlement with the Supreme Court of Alabama.
Purported class action litigation was filed in December 1993 against
Liberty National in the Circuit Court for Mobile County, Alabama asserting
fraud and misrepresentation in connection with exclusionary provisions of
accident and hospital accident policies sold to persons holding multiple
accident policies (Cofield v. Liberty National Life Insurance Company, Case
No.: CV-93-3667). A hearing on class certification in Cofield has been set
for September 7, 1994.
In December 1993, a purported class action alleging fraud in the
replacement of certain hospital intensive care policies with policies alleged
to have less value with lower benefits was filed seeking unspecified
compensatory and punitive damages against Liberty National and Torchmark in
the Circuit Court of Mobile County, Alabama (Maples v. Liberty National, Case
No.: CV 93-3694). The Maples litigation has been settled on an individual
basis pursuant to a confidential agreement. No class was ever certified.
Several individual actions remain pending.
In July 1994, a purported class action alleging fraudulent and deceitful
practices in premium billing and lapses of coverage on a payroll deduction
insurance plan was filed in the Superior Court for Gordon County, Georgia
against Liberty National (Nicholson v. Liberty National, Civil Action No.
28979). The complaint alleges actual damages in excess of $10 million and
punitive damages of not less than $50 million as well as premium
reimbursements. No class has been certified and no proceedings of any
materiality have occurred in this case. Liberty National believes that it is
entitled to remove this case to federal court. Additionally, Liberty National
had filed a declaratory judgment action essentially seeking an accounting in
this matter in the U.S. District Court for the Northern District of Georgia
on the same day Nicholson was filed. Liberty National intends to vigorously
defend this action.
Also in July 1994, a purported class action (Bosarge v. Liberty National,
Case No.: CV-94-2177) was filed against Liberty National and Torchmark in the
Circuit Court for Mobile County, Alabama which alleges that Liberty National
agents have made misrepresentations in connection with converting policyholder
accounts to bank budget from other modes of premium payment. The lawsuit
claims that agents have represented that insureds would receive additional
"free insurance" if they changed to bank budget payment while charges for such
"free insurance" were actually made through bank budget payments. Injunctive
relief and unspecified actual and punitive damages are sought. No class has
been certified and no proceedings of any materiality have occurred in this
case. Liberty National intends to vigorously defend this action.
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of stockholders held April 28, 1994 the following
matters were submitted to a vote of stockholders (Shares Eligible to Vote
71,904,330; Shares Voted 58,479,391):
1. Election of Directors
Messrs. J. P. Bryan, Louis T. Hagopian and Harold T. McCormick
were elected to additional three year terms on the Board of
Directors.
For Withheld
Bryan 58,076,370 403,021
Hagopian 58,075,335 404,056
McCormick 57,722,159 757,232
Messrs. Joseph M. Farley, C. B. Hudson, Joseph L. Lanier, Jr.,
Joseph W. Morris, George J. Records, R. K. Richey, Yetta G. Samford,
Jr. and Keith A. Tucker continue to serve on the Board of Directors.
2. Amendment and Restatement of Incentive Plan
The Company's 1987 Stock Incentive Plan was amended and restated
to (a) increase the number of shares available for issuance under the
plan to 11,300,000, (b) extend expiration date of the plan to April
28, 2004, (c) limit to 200,000 the number of shares subject to stock
options which could be awarded in any calendar year to an officer or
key employee, (d) clarify the ability of the Compensation Committee
of the Board of Directors to accelerate vesting of awards and extend
the exercise period for stock options following termination of
employment or service as a director and (e) authorize the
Compensation Committee, in its sole discretion, to settle plan awards
in cash or stock upon changes in control.
Broker
For Against Abstain Non-Vote
42,401,356 8,383,183 470,847 7,224,005
3.Ratification of Auditors
KPMG Peat Marwick was approved as the Company's principal
independent accountant for 1994.
For Against Abstain
57,690,127 228,164 561,100
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings per
common share.
(b) Reports on Form 8-K
A Form 8-K dated June 6, 1994 reporting the entry of an Order
and Final Judgment by the Barbour County Circuit Court in
Robertson v. Liberty National Life Insurance Company was
submitted during the second quarter of 1994. No financial
statements were required to be attached to the Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
TORCHMARK CORPORATION
Date: 8/10/94 /s/ R. K. Richey
___________________________________
R. K. Richey, Chairman and Chief Executive
Officer
Date: 8/11/94 /s/ Gary L. Coleman
___________________________________
Gary L. Coleman, Vice-President and
Chief Accounting Officer
Exhibit 11. Statement re computation of per share earnings.
TORCHMARK CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three months ended June 30,
1994 1993
------------- -------------
Net income $64,902,661 $78,246,435
Preferred dividends 0 (822,184)
------------- -------------
Net income available to common $64,902,661 $77,424,251
============= =============
Weighted average shares and common
stock equivalents outstanding 72,368,574 73,675,121
============= =============
Primary earnings per share:
Net income $0.90 $1.05
============= =============
Six months ended June 30,
1994 1993
------------- -------------
Net income $140,474,545 $151,735,238
Preferred dividends (804,130) (1,644,370)
------------- -------------
Net income available to common $139,670,415 $150,090,868
============= =============
Weighted average shares and common
stock equivalents outstanding 72,628,453 73,618,097
============= =============
Primary earnings per share:
Net income $1.92 $2.04
============= =============
