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 September 30, 1995 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 OCTOBER 31, 1995
Common Stock, $1.00 Par Value 71,656,086
<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 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)
September 30December 31
----------- -----------
1995 1994
Assets: ----------- -----------
Investments:
Fixed maturities, available for sale, at fair
value (amortized cost: 1995 - $4,707,543;
1994 - $4,634,594) $4,808,134 $4,392,259
Equity securities, at fair value
(cost: 1995 - $8,278; 1994 - $35,985) 16,511 31,547
Mortgage loans, at cost (estimated fair
value: 1995 - $43,752; 1994 - $17,956) 43,781 17,997
Investment real estate, at depreciated cost 141,743 132,554
Policy loans 190,015 181,988
Energy investments 322,104 330,543
Other long-term investments (at fair value) 40,587 35,933
Short-term investments 248,726 112,776
----------- ----------
Total investments 5,811,601 5,235,597
Cash 5,274 2,758
Investment in unconsolidated subsidiaries 143,191 86,386
Accrued investment income 75,765 67,116
Other receivables 210,118 223,811
Deferred acquisition costs 1,096,434 1,017,467
Value of insurance purchased 251,338 274,124
Property and equipment 75,725 103,806
Goodwill 559,256 570,455
Other assets 47,265 106,911
Separate account assets 1,003,272 715,203
----------- ----------
Total assets $9,279,239 $8,403,634
=========== ==========
Liabilities and Shareholders' Equity:
Liabilities:
Future policy benefits $4,446,194 $4,229,916
Unearned and advance premiums 86,156 90,871
Policy claims and other benefits payable 203,773 201,754
Other policyholders' funds 76,014 72,783
----------- ----------
Total policy liabilities 4,812,137 4,595,324
Accrued income taxes 375,271 235,124
Short-term debt 170,554 255,116
Long-term debt (estimated fair value:
1995 - $824,465; 1994 - $751,603) 793,085 792,763
Other liabilities 337,768 374,449
Separate account liabilities 1,003,272 715,203
----------- ----------
Total liabilities 7,492,087 6,967,979
Monthly income preferred securities (estimated
fair value: 1995 - $205,350; 1994 - $200,000) 193,085 193,052
Shareholders' equity:
Common stock 73,784 73,784
Additional paid-in capital 139,514 139,045
Unrealized investment gains (losses), net of tax 68,468 (140,756)
Retained earnings 1,404,463 1,267,545
Treasury stock, at cost (92,162) (97,015)
----------- ----------
Total shareholders' equity 1,594,067 1,242,603
----------- ----------
Total liabilities and shareholders' equity $9,279,239 $8,403,634
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Revenues:
Life premium $194,573 $145,463 $574,422 $433,845
Health premium 183,162 186,320 567,972 577,936
Other premium 6,227 4,750 17,161 13,066
--------- --------- --------- ---------
Total premium 383,962 336,533 1,159,555 1,024,847
Financial services revenue 39,108 33,747 111,105 105,863
Net investment income 90,540 79,585 267,610 244,478
Energy revenues 13,214 14,293 45,743 47,743
Realized investment gains (15,700) (1,278) (16,316) 2,013
Other income 251 409 871 1,455
--------- --------- --------- ---------
Total revenue 511,375 463,289 1,568,568 1,426,399
Benefits and expenses:
Life policy benefits 129,310 101,061 380,405 301,429
Health policy benefits 110,469 111,486 341,518 345,408
Other policy benefits 12,768 11,210 36,633 32,326
--------- --------- --------- ---------
Total policy benefits 252,547 223,757 758,556 679,163
Amortization of deferred
acquisition costs 51,150 41,327 151,271 131,255
Commissions and premium taxes 35,070 33,626 109,317 104,206
Financial services expense 9,919 9,487 28,840 31,539
Energy operations expense 1,437 5,376 10,793 10,716
Other operating expense 44,274 39,430 133,248 118,031
Amortization of goodwill 3,744 1,172 11,232 3,679
Interest expense 19,887 19,218 62,274 55,374
--------- --------- --------- ---------
Total benefits and expenses 418,028 373,393 1,265,531 1,133,963
--------- --------- --------- ---------
Pre-tax operating income 93,347 89,896 303,037 292,436
Income tax (32,821) (27,768) (104,122) (93,980)
Equity in earnings of
unconsolidated subsidiaries 3,036 2,570 8,466 6,717
Monthly income preferred
securities dividend (2,588) 0 (7,763) 0
--------- --------- --------- ---------
Net income 60,974 64,698 199,618 205,173
========= ========= ========= =========
Net income per share $0.85 $0.90 $2.79 $2.83
========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
(Amounts in thousands)
Nine Months Ended
September 30,
---------------------
1995 1994
-------- ---------
Cash provided from operations $232,423 $211,926
Cash provided from (used for) investment activities:
Investments sold or matured:
Fixed maturities available for sale - sold 905,806 411,217
Fixed maturities available for sale - matured 265,582 690,442
Other long-term investments 26,533 70,893
--------- ---------
Total investments sold or matured 1,197,921 1,172,552
Investments acquired:
Fixed maturities (1,238,178) (1,214,945)
Other long-term investments (72,637) (105,674)
--------- ---------
Total investments acquired (1,310,815) (1,320,619)
Net decrease (increase) in short-term investments (135,950) 59,318
Acquisition of Gulf Canada (71,521) 0
Sale of Nuevo 33,666 0
Disposition of properties held for resale 48,904 0
Disposition of properties 18,944 3,518
Additions to properties (15,153) (39,227)
Acquisitions of properties held for sale 0 (78,705)
Loaned money repaid by affiliates 28,000 0
Dividends from unconsolidated subsidiaries 513 342
--------- ---------
Cash used for investment activities (205,491) (202,821)
Cash provided from (used for) financing activities:
Issuance of common stock 2,290 4,292
Borrowings 0 46,900
Repayment of debt (84,685) (108)
Acquisition of treasury stock 0 (106,054)
Cash dividends paid to shareholders (60,109) (62,309)
Net receipts from deposit product operations 118,088 60,652
--------- ---------
Cash used for financing activities (24,416) (56,627)
Net increase (decrease) in cash 2,516 (47,522)
Cash at beginning of year 2,758 53,408
--------- ---------
Cash balance at end of period $5,274 $5,886
========= =========
See accompanying Notes to Consolidated Financial Statements.
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
accountingprinciples. However, in the opinion of management, these
statements includeall adjustments, consisting of normal recurring accruals,
which are necessary for a fair presentation of the consolidated financial
position at September 30, 1995 and the consolidated results of operations
for the periods ended September 30, 1995 and 1994.
NOTE B - Sale of Energy Subsidiary
Torchmark has entered into a preliminary agreement to sell Torch
Energy Advisors Incorporated ("TEAI"), its energy management subsidiary.
The transaction will result in total consideration of $108 million, of which
$60 million is in cash and the balance is in the form of subordinated debt,
preferred stock, and an equity interest of approximately
12% in TEAI. Torchmark will retain substantially all of its energy
investments, including its Black Warrior development and interests in
various institutional limited partnerships. It is anticipated that the
transaction will be completed in the fourth quarter of 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Operating Results
For the first nine months of 1995, net income per share for
Torchmark Corporation ("Torchmark") was $2.79, compared to $2.83 per
share for the same period of 1994. Net income was $200 million in the
1995 nine months, declining 2% from $205 million in the comparable
1994 period. In the third quarter of 1995, Torchmark wrote off its
investment in Southwestern Life Corporation, which filed for Chapter
11 bankruptcy protection. The write-off, accounted for as a realized
investment loss, reduced net income for the nine months and the third
quarter by $15 million or $.21 per share. After exclusion of
realized investment gains in both periods and the related deferred
acquisition costs adjustment, both net of taxes, per share earnings
were $2.94 in the 1995 nine-month period, compared to $2.87 in the
same period of 1994, an increase of 2%.
When comparing Torchmark's 1995 results to prior year results,
consideration should be given to the inclusion of the operations of
American Income Life Insurance Company ("American Income"). Torchmark
acquired American Income on November 3, 1994 for total consideration
of $552 million and has consolidated American Income since the
acquisition date. American Income added $175 million of total
revenues and $13 million of net income (after acquisition expenses) or
$.18 per share.
Revenues rose $142 million or 10% to $1.6 billion for the 1995
nine months. Growth in life premium accounted for the increase,
gaining $141 million or 32%. Life premium comprises 50% of total
premium compared to 42% in the 1994 nine months. Operating expense
increased $15 million or 13% to $133 million. The inclusion of
American Income's expenses added $5.9 million of expense. Adjusted
for the acquisition of American Income, operating expenses increased
8%. Goodwill amortization increased $8 million, primarily as a result
of the purchase of American Income. Interest expense rose 12% to $62
million, because of increased average short-term borrowings during the
first nine months of 1995 compared to the prior-year period combined
with higher short-term interest rates in 1995. In connection with the
American Income acquisition, $200 million face amount of monthly
income preferred securities were issued in the fourth quarter of 1994.
Torchmark subsequently entered into a ten-year swap agreement to
exchange its 9.18% fixed dividend obligation for a variable rate upon
which a five year cap was acquired to prevent the variable rate from
rising above 10.39%. The after-tax dividend in the first nine months
of 1995, for which the fixed obligation was $9.0 million, was reduced
to $7.8 million after the effects of the swap and cap. A discussion
of Torchmark's operations follows under the appropriate captions.
Life insurance. Life insurance premium increased 32% to $574
million in the first nine months of 1995, from $434 million for the
same period of the prior year. Annualized life premium in force
increased 33% over the prior year and stood at $854 million at
September 30, 1995. Growth in premium and annualized premium in force
has been attributable to increased sales of life products as well as
the addition of American Income, which accounted for $113 million of
the $141 million increase in life premium income and $163 million of
the $214 million increase in life premium in force. Sales of life
insurance, as measured by annualized premium issued, grew 54% for the
1995 nine months over the comparable 1994 period, increasing from $105
million in 1994 to $162 million in 1995. Acquisition expense for
life insurance included a $5.8 million adjustment to deferred
acquisition expense in recognition of realized investment gains
related to interest-sensitive life insurance products in 1994. In
1995, this adjustment was $.2 million. After exclusion of these
adjustments, the percentage of acquisition expense to premium was
14.4% in the 1994 period compared to 16.0% in 1995. The increase in
1995 was primarily because of the inclusion of American Income.
Policy benefits as a percentage of premium declined from 69.5% in 1994
to 66.2% in 1995, primarily because of the inclusion in 1995 of
American Income's life business which has a lower benefit ratio.
Health insurance. Torchmark's health insurance premium declined
2% to $568 million for the 1995 nine-month period. Annualized health
insurance premium in force declined to $767 million at September 30,
1995, or 3% from $787 million at the same date in 1994. American
Income health premium was $31 million for the 1995 period and
annualized premium in force was $39 million at September 30, 1995.
Sales of health insurance, as measured by annualized premium issued,
declined 17% from $95 million in the first nine months of 1994 to $79
million in the 1995 period. Medicare Supplement annualized premium in
force of $540 million represented 70% of total annualized health
premium in force at September 30, 1995, compared to 74% at the same
point in the prior year. In 1995 sales of Medicare Supplement
annualized premium of $51 million declined 28% over the nine months of
1994. Declines in Medicare Supplement sales were experienced during
the past two years because of confusion over the impact on Medicare of
various health care legislative initiatives, increased regulatory
restraints, and increased competition. Non-Medicare Supplement health
insurance annualized premium in force has grown 10%
period-over-period, from $207 million in 1994 to $227 million in 1995.
Annuities. Torchmark sells annuities on both a fixed and a
variable basis. Fixed annuity collections were $98 million in the
1995 period, more than three times the $31 million collected in the
1994 period. The rise in fixed annuity collections was largely a
result of annuity product sales of United American Insurance Company
beginning in the fourth quarter of 1994. These sales added $53
million in 1995 collections. Collections of variable annuities
declined 10% from $139 million in 1994 to $126 million in 1995. Fixed
annuities on deposit with Torchmark were $904 million at September 30,
1995, gaining 12% over the same date a year ago. The variable annuity
balance on deposit rose 50% to $972 million during the same period.
Growth in the variable account balance was a result of strong
financial markets in 1995 as well as additional collections. Policy
charges for annuities were $13.8 million in the 1995 first nine months
compared to $9.6 million for the 1994 period, rising 44%. The gain
resulted primarily from the growth in variable annuities over the
prior year. These policy charges are assessed against the annuity
account balance periodically for insurance risk, sales,
administration, and surrender.
Investment. Torchmark's investment income for the 1995
nine-month period rose 9% to $268 million from $244 million in the
1994 period. Mean invested assets rose 5% to $5.6 billion for the
1995 period. Total invested assets were $5.8 billion at September 30,
1995, growing 12% over the year-earlier period. American Income added
$30 million of investment income. This increase was partially
offset, however, by an estimated $9 million of investment income on
$184 million of internal funds used to acquire the company. After
adjusting for the American Income acquisition, investment income
increased approximately 1%.
In contrast with the first nine months of 1994, interest rates
declined sharply during 1995, especially rates on medium to long
maturities. During the nine-month 1995 period, Torchmark made fixed
income acquisitions of $1.2 billion at a tax-equivalent yield of
7.57%. Acquisitions during the comparable 1994 period totaled $1.2
billion and had a tax-equivalent yield of 7.23%. Despite slightly
higher yields on new investments, the yield on permanent bond holdings
declined from 7.73% at year-end 1994 to 7.64% at the end of the third
quarter.
Primary components of 1995 acquisitions were medium-maturity
agency and mortgage-backed securities, short-maturity emerging market
and high-yield securities, and longer-term corporate obligations.
With 1995 sales in the amount of $905 million of selected shorter-term
mortgage-backed and corporate holdings, the emphasis on
mortgage-backed holdings continued to decrease, falling from 75% of
the bond account at year-end 1992 to 38% currently. Mortgage-backed
securities represented 32% of total invested assets at September 30,
1995.
The decline in interest rates in 1995 favorably impacted the
market valuation of investment holdings. At September 30, 1995 there
was an unrealized gain of $101 million, compared to an unrealized loss
of $242 million at year-end 1994.
Financial services. Financial services revenues grew 5% to $111
million for the 1995 nine months. Third quarter 1995 financial
services revenues of $39 million rose 16% over the same period of
1994. For the nine months of 1995, commission revenues from
investment product sales were lower, but these declines were more than
offset by increased asset management fees, service fees and
commissions from insurance product sales. Commissions from investment
products declined 12% from $46 million in the 1994 nine months to $41
million. Investment product sales were $828 million in the 1995
period compared to $925 million in the same period of 1994, declining
10%. Sales of United Funds declined 14%, Waddell & Reed Funds
increased 13%, and variable annuities were off 8%. Asset management
fees, the largest component of financial services revenues, rose 18%
to $62 million. These fees are based on the amount of assets under
management. Average assets under management rose 12% in the 1995
nine-month period versus the same 1994 period. Assets under
management were $17.8 billion at September 30, 1995 and $14.5 billion
at year-end 1994. Service fees increased 5% to $17 million. The sum
of all financial services revenue components is greater than total
financial services revenue because the portion of commission related
to sales of the insurance products of United Investors Life Insurance
Company is eliminated in consolidation. Financial services' expense
margins improved in the 1995 period over the prior-year period. As a
percentage of financial services revenues, financial services direct
expenses coupled with general and administrative expenses declined
from 44% in 1994 to 42% in 1995.
Energy. Revenues for energy operations were $46 million for the
1995 first nine months, declining from $48 million in the 1994
period. During the first quarter of 1994, a one-time gain from the
sale of a special gas agreement in the amount of $5 million boosted
1994 revenues and profits. Energy operations expenses were flat at
$11 million. Pretax operating income for energy operations declined
from $8.6 million in 1994 to $5.5 million in 1995. The decline was a
result of the above-mentioned one-time transaction.
Torchmark has entered into a preliminary agreement to sell Torch
Energy Advisors Incorporated ("TEAI"), its energy management
subsidiary, through a management-led buyout. The transaction will
result in total consideration of $108 million, of which $60 million is
in cash and the balance is in the form of subordinated debt, preferred
stock, and a 12% equity interest in TEAI. Torchmark will retain
substantially all of its energy investments, including its Black
Warrior development and interests in various institutional limited
partnerships. These energy investments, which were carried at $322
million at September 30, 1995, will continue to be managed by TEAI.
It is anticipated that the transaction will be completed in the fourth
quarter of 1995.
Financial Condition
Liquidity. Torchmark is highly liquid, which is evidenced by its
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 $350 million in the
first nine months of 1995 compared to $273 million in the same period
of 1994, resulting in an increase of 28%. In addition, Torchmark
received $265 million in fixed-maturity repayments during the 1995
period that were either scheduled maturities or unscheduled GNMA
principal repayments.
At September 30, 1995, Torchmark had $254 million in cash and
short-term investments, compared to $116 million at the end of the
previous year. The increase in short-term investments resulted from
the accumulation of cash pending permanent investment, which settled
early in the fourth quarter of 1995. Cash and short-term investments
represented 3% of total assets at September 30, 1995. In addition,
Torchmark's entire portfolio of fixed-income and equity securities, in
the amount of $4.8 billion at market value on September 30, 1995, is
available for sale should a need arise.
Torchmark's line of credit facility, which is also designed as a
backup credit line for a commercial paper program, provides credit up
to a maximum amount of $400 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 September 30,
1995. At that date, Torchmark had outstanding $170 million on the
facility.
Capital resources. Torchmark's shareholders' equity stood at
$1.6 billion at September 30, 1995, increasing $351 million or 28%
since 1994 year-end. Book value per share was $22.25 at quarter end,
compared to $17.37 at year-end 1994. Shareholders' equity is greatly
impacted by an accounting rule that requires equity to be adjusted
for the fluctuations in the market values of fixed investments
available for sale. These fluctuations are caused by changes in
interest rates in the financial markets. The rule further requires
that equity be adjusted for the impact of interest-rate movements on
the deferred acquisition costs relating to interest-sensitive
products. After adjusting shareholders' equity to remove these
effects of rate fluctuations on an after-tax basis,
shareholders' equity for the 1995 period increased $153 million or
11% over year-end 1994 to $1.5 billion at September 30, 1995. The
adjustment also resulted in book value of $21.42 per share at 1995
September quarter end, compared to $19.31 at year-end 1994.
Annualized return on common equity, adjusted to exclude the effects of
the accounting rule, was 18.3% for the 1995 nine month-period,
compared to 20.3% for the same period of 1994. Adjusting for the
one-time write-down of Southwestern Life Corporation, return on equity
would have been 19.5% in the 1995 nine-month period.
Torchmark's debt stood at $964 million at September 30, 1995,
compared to $1.05 billion at December 31, 1994. Debt as a percentage
of total capitalization was 36% at September 30, 1995, counting the
Monthly Income Preferred Securities as equity and excluding the
effects on equity of the above-mentioned accounting rule requiring
market revaluation of fixed securities. The debt to capitalization
ratio was 40% at year-end 1994. The 4% decline in this ratio resulted
from the paydown in short-term debt of $85 million accompanied by the
above-mentioned $153 million rise in adjusted equity.
Part II - Other Information
Item 1. Legal Proceedings
Torchmark and its subsidiaries continue to be named as parties to
pending or threatened legal proceedings. These lawsuits involve tax
matters, alleged breaches of contract, torts, including bad faith and
fraud claims based on alleged wrongful or fraudulent acts of agents of
Torchmark's insurance subsidiaries, employment discrimination, and
miscellaneous other causes of action. Many of these lawsuits involve
claims for punitive damages in the state courts of Alabama, a
jurisdiction particularly recognized for large punitive damage
verdicts. Some of such actions involving Liberty National Life
Insurance Company ("Liberty") also name Torchmark as a defendant. As
a practical matter, a jury's discretion regarding the amount of a
punitive damage award is not limited by any clear, objective criteria
under Alabama law. Accordingly, the likelihood or extent of a
punitive damage verdict in any given case is virtually impossible to
predict. As of September 30, 1995, Liberty was a party to
approximately 185 active lawsuits (including 39 employment related
cases and excluding interpleader and stayed cases), approximately 156
were Alabama proceedings in which punitive damages were sought arising
out of Liberty's insurance operations. Liberty faces trial settings
in these cases on an on-going basis.
Torchmark has previously reported the entry of an Order and Final
Judgement by the Circuit Court of Barbour County, Alabama in Robertson
v. Liberty National Life Insurance Company (Case No.: CV-92-021)
approving a class action settlement involving legal and equitable
relief valued at a total of $55 million. The cost of this settlement
increases over time as Liberty is prohibited from increasing the
premium rates on this block of business for one year from final
binding affirmance by the Alabama Supreme Court. This retroactive
reformation of cancer policy contracts is expected to cost Torchmark
an additional $2.5 million before tax in each quarter going forward
until final binding affirmance. In July 1994, certain intervenors in
the Robertson litigation filed a notice of appeal with the Supreme
Court of Alabama of the Order and Final Judgment approving class
certification and the settlement. Oral argument on the appeal was
held July 17, 1995 and the parties are awaiting the Supreme Court's
decision.
On October 25, 1993, a jury in the Circuit Court of Mobile
County, Alabama rendered a one million, one thousand dollar verdict
(including $1,000 actual damages) against Liberty in McAllister v.
Liberty National Life Insurance Company (Case No.: CV-92-4085).
McAllister was one of approximately twenty-five suits involving cancer
policy exchanges which were filed prior to class certification in
Barbour County litigation and which were excluded from the Robertson
cancer class action. It is the only remaining such case. The
McAllister decision was appealed to the Alabama Supreme Court, which
affirmed the judgment on February 25, 1995. A petition for rehearing
was filed by Liberty and was denied by the Alabama Supreme Court. A
petition for writ of certiorari was filed with the U.S. Supreme Court.
A settlement is pending in the McAllister case.
On March 17, 1994, litigation was filed against Liberty, certain
officers and present and former directors of Torchmark and KPMG Peat
Marwick LLP, independent public accountants of Torchmark and its
subsidiaries, in the Circuit Court of Marion County, Alabama (Miles v.
Liberty National Life Insurance Company, Civil Action No. CV-94-67).
The lawsuit asserted that it was brought on behalf of a class composed
of the shareholders of Torchmark. The complaint alleged a failure to
timely and adequately report allegedly material contingent liabilities
arising out of insurance policy litigation involving Liberty.
Compensatory and punitive damages in an unspecified amount were
sought.
In April 1994, the complaint in Miles was amended to add an
additional shareholder plaintiff and to name Torchmark as a defendant.
The Miles case was dismissed upon the joint motion of all parties in
September 1995. A second similar action (Oakley v. Torchmark
Corporation, Case No. CV-94-47), filed on August 16, 1994 in the
Circuit Court for Bibb County, Alabama, was dismissed by the
plaintiff without prejudice. Thereafter, a third such action was filed
in the United States District Court for the Southern District of
Alabama. This action, which seeks punitive damages, was subsequently
transferred to the United States District Court for the Northern
District of Alabama (Dismukes vs. Torchmark Corporation, Case No.
CV-94-1006-P-M). No class has been certified in this case and a date
has not been set for a class certification hearing. Torchmark, Liberty
and the individual defendants intend to vigorously defend Dismukes and
to oppose certification.
In 1978, the United States District Court for the Northern
District of Alabama entered a final judgment in Battle v. Liberty
National Life Insurance Company, et al. (CV-70-H-752-S), class action
litigation involving Liberty, a class composed of all owners of
funeral homes in Alabama and a class composed of all insureds (Alabama
residents only) under burial or vault policies issued, assumed or
reinsured by Liberty. The final judgment fixed the rights and
obligations of Liberty and the funeral directors authorized to handle
Liberty burial and vault policies as well as reforming the benefits
available to the policyholders under the policies. It remains in
effect to date. A motion was filed to challenge the final judgment
under Federal Rule of Civil Procedure 60(b), in February 1990, but the
final judgment was upheld and the Rule 60(b) challenge was rejected by
both the District Court and the Eleventh Circuit Court of Appeals.
In November, 1993, an attorney (purporting to represent the
funeral director class) filed a petition in the District Court seeking
"alternative relief" under the final judgment. The relief sought is
unclear. Liberty is seeking to clarify the relief sought. Thus far
the District Court has refused to permit petitioners to conduct
discovery from Liberty to attempt to substantiate their claims.
Counsel for the petitioners have represented to the Court that they
plan to file an Amended Petition limiting the requested relief.
Much attention has been generated nationally with regard to
so-called vanishing premium cases, wherein the allegation is that an
interest sensitive life policy was sold with a projection that the
policy would become paid-up after a period of years. Plaintiffs in
these cases typically assert that the projection amounted to a promise
or misrepresentation. Liberty currently has pending against it in the
state courts of Alabama several such cases. Liberty believes that
appropriate disclosures and projections were made in the sale of these
policies and Liberty intends to vigorously defend these cases.
Provision has been made in the financial statements for certain
anticipated litigation costs. Based upon information presently
available, and in light of legal and other defenses available to
Torchmark and its subsidiaries, additional contingent liabilities
arising from threatened and pending litigation are not presently
considered by management to be material. It should be noted, however,
that the frequency of large punitive damage awards bearing little or
no relation to actual damages awarded by juries in jurisdictions in
which Torchmark has substantial business, particularly Alabama,
continues to increase universally, creating the potential for
unpredictable material adverse judgments in any given punitive damage
suit.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11. Statement re computation of per share earnings
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of
1995.
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: 11/12/95 /s/ R. K. Richey
______________________________
R. K. Richey, Chairman and
Chief Executive Officer
Date: 11/13/95 /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 September 30,
1995 1994
Net income $60,973,884 $64,698,569
Preferred dividends 0 0
Net income available to common
shareholders $60,973,884 $64,698,569
Weighted average shares and common
stock equivalents outstanding 71,604,721 71,613,568
Primary earnings per share:
Net income $0.85 $0.90
Nine months ended September 30,
1995 1994
Net income $199,618,312 $205,173,114
Preferred dividends 0 (804,130)
Net income available to common
shareholders $199,618,312 $204,368,984
Weighted average shares and common
stock equivalents outstanding 71,572,115 72,286,441
Primary earnings per share:
Net income $2.79 $2.83
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