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, 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 JULY 31, 1995
Common Stock, $1.00 Par Value 71,579,444
<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 5. Other Information
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
----------- -----------
1995 1994
Assets ----------- -----------
------
Investments:
Fixed maturities, available for sale, at fair
value (amortized cost: 1995 - $4,711,312;
1994 - $4,634,594) $4,795,874 $4,392,259
Equity securities, at fair value
(cost: 1995 - $35,783; 1994 - $35,985) 28,350 31,547
Mortgage loans, at cost (estimated fair
value: 1995 - $16,981; 1994 - $17,956) 17,014 17,997
Investment real estate, at depreciated cost 166,274 132,554
Policy loans 186,636 181,988
Energy investments 328,874 330,543
Other long-term investments (at fair value) 42,270 35,933
Short-term investments 109,810 112,776
----------- ----------
Total investments 5,675,102 5,235,597
Cash 3,728 2,758
Investment in unconsolidated subsidiaries 169,800 86,386
Accrued investment income 70,495 67,116
Other receivables 234,256 223,811
Deferred acquisition costs 1,057,693 1,017,467
Value of insurance purchased 258,682 274,124
Property and equipment 84,751 103,806
Goodwill 563,000 570,455
Other assets 46,902 106,911
Separate account assets 900,954 715,203
----------- ----------
Total assets $9,065,363 $8,403,634
=========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Future policy benefits $4,377,593 $4,229,916
Unearned and advance premiums 88,710 90,871
Policy claims and other benefits payable 198,892 201,754
Other policyholders' funds 74,596 72,783
----------- ----------
Total policy liabilities 4,739,791 4,595,324
Accrued income taxes 345,127 235,124
Short-term debt 181,152 255,116
Long-term debt (estimated fair value:
1995 - $820,769; 1994 - $751,603) 792,999 792,763
Other liabilities 377,559 374,449
Separate account liabilities 900,954 715,203
----------- ----------
Total liabilities 7,337,582 6,967,979
Monthly income preferred securities (estimated
fair value: 1995 - $205,074; 1994 - $200,000) 193,074 193,052
Shareholders' equity:
Common stock 73,784 73,784
Additional paid-in capital 139,218 139,045
Unrealized investment gains (losses), net of tax 51,573 (140,756)
Retained earnings 1,364,911 1,267,545
Treasury stock, at cost (94,779) (97,015)
----------- ----------
Total shareholders' equity 1,534,707 1,242,603
----------- ----------
Total liabilities and shareholders' equity $9,065,363 $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 Six months ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Revenues:
Life premium $191,551 $144,418 $379,849 $288,382
Health premium 187,250 191,182 384,810 391,616
Other premium 5,958 4,566 10,934 8,316
--------- --------- --------- ---------
Total premium 384,759 340,166 775,593 688,314
Financial services revenue 37,223 35,572 71,997 72,116
Net investment income 89,288 81,092 177,070 164,893
Energy revenues 14,964 16,147 32,529 33,450
Realized investment gains 304 (9,304) (616) 3,291
Other income 427 756 620 1,046
--------- --------- --------- ---------
Total revenue 526,965 464,429 1,057,193 963,110
Benefits and expenses:
Life policy benefits 128,780 101,388 251,095 200,368
Health policy benefits 111,636 110,989 231,049 233,922
Other policy benefits 12,224 10,547 23,865 21,116
--------- --------- --------- ---------
Total policy benefits 252,640 222,924 506,009 455,406
Amortization of deferred
acquisition costs 49,936 40,106 100,121 89,928
Commissions and premium taxes 36,314 34,701 74,247 70,580
Financial services expense 10,111 10,712 18,921 22,052
Energy operations expense 3,914 3,550 9,356 5,340
Other operating expense 44,651 40,759 88,974 78,601
Amortization of goodwill 3,744 908 7,488 2,507
Interest expense 19,945 18,159 42,387 36,156
--------- --------- --------- ---------
Total benefits and expenses 421,255 371,819 847,503 760,570
--------- --------- --------- ---------
Pre-tax operating income 105,710 92,610 209,690 202,540
Income tax (36,590) (29,989) (71,301) (66,212)
Equity in earnings of
unconsolidated subsidiaries 3,505 2,282 5,430 4,147
Monthly income preferred
securities dividend (2,602) 0 (5,175) 0
--------- --------- --------- ---------
Net income 70,023 64,903 138,644 140,475
========= ========= ========= =========
Net income per share $0.98 $0.90 $1.94 $1.92
========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
(Amounts in thousands)
Six Months Ended
June 30,
---------------------
1995 1994
-------- ---------
Cash provided from operations $171,968 $130,928
Cash provided from (used for) investment activities:
Investments sold or matured:
Fixed maturities available for sale - sold 124,109 383,995
Fixed maturities available for sale - matured 152,678 564,258
Other long-term investments 4,562 29,468
--------- ---------
Total investments sold or matured 281,349 977,721
Investments acquired:
Fixed maturities (350,676) (970,469)
Other long-term investments (58,515) (52,887)
--------- ---------
Total investments acquired (409,191) (1,023,356)
Net decrease (increase) in short-term investments 2,966 35,755
Acquisition of Gulf Canada (71,521) 0
Disposition of properties held for resale 48,936 0
Disposition of properties 18,705 1,691
Additions to properties (10,219) (29,048)
Acquisitions of properties held for sale 0 (13,124)
Dividends from unconsolidated subsidiaries 342 171
--------- ---------
Cash used for investment activities (138,633) (50,190)
Cash provided from (used for) financing activities:
Issuance of common stock 1,037 3,889
Borrowings 0 24,900
Repayment of debt (74,025) (62,453)
Acquisition of treasury stock 0 (89,660)
Cash dividends paid to shareholders (40,067) (42,167)
Net receipts from deposit product operations 80,690 35,737
--------- ---------
Cash used for financing activities (32,365) (129,754)
Net increase (decrease) in cash 970 (49,016)
Cash at beginning of year 2,758 53,408
--------- ---------
Cash balance at end of period $3,728 $4,392
========= =========
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 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, 1995 and the consolidated results of operations for the periods
ended June 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 $160 million, of which
$60 million is in cash and the balance is in the form of subordinated debt,
nonrecourse 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 third quarter of 1995.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Results
Net income per share for Torchmark Corporation
("Torchmark") was $1.94 for the first six months of
1995, compared to $1.92 per share for the same period
of 1994. Net income was $139 million in the 1995
six months, declining 1% from $140 million in the
comparable 1994 period. Per share earnings gained while
net income declined for two reasons: (1) a 1.5%
decline in average shares outstanding in the 1995
period, and (2) a reduction in 1994 earnings available
to common shareholders for an $804 thousand preferred
dividend. After exclusion of realized investment gains
in both periods and the related deferred acquisition
cost adjustment, both net of taxes, per share earnings
were $1.94 in the 1995 six-month period, compared to
$1.96 in the same period of 1994, a decrease of 1%.
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 $74 million of life premium, $20 million
of health premium, $115 million of total revenues,
and $8.3 million of net income (after acquisition
expenses) or $.12 per share.
Torchmark's revenues grew $94 million or 10% to
$1.1 billion. Growth in life premium accounted for the
increase, gaining $91 million or 32%. Operating
expenses increased $10 million or 13% to $89
million. The inclusion of American Income's expenses
added $4 million of expense. There was also a one-time
franchise tax charge of $1.2 million in 1995 and a
one-time reduction in employee health benefits of
$1.3 million in 1994. Adjusted for the acquisition of
American Income and the above mentioned expense items,
operating expenses increased 5%. Goodwill
amortization increased $5 million, primarily as a
result of the purchase of American Income. Interest
expense rose 17% to $42 million, because of increased
average short-term borrowings during the first six
months of 1995 compared to the prior year quarter
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
six months of 1995, for which the fixed obligation was
$6.0 million, was reduced to $5.2 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 rose 32% to
$380 million in the first six months of 1995, from $288
million for the same period of the prior year.
Annualized life premium in force also rose 32% over
the prior year and stood at $836 million at June
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. Sales of life insurance as measured by
annualized premium issued grew 50% for the 1995 six
months over the comparable 1994 period, increasing from
$72 million in 1994 to $108 million in 1995. American
Income accounted for $74 million of the $91 million
increase in life premium income and $158 million of the
$202 million increase in life premium in force. In
1994, 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. After
exclusion of this adjustment, the percentage of
acquisition expense to premium was 14.4% in the 1994
period compared to 15.9% in 1995. The increase in
1995 was primarily because of the
inclusion of American Income. There was no such
adjustment in 1995. Policy benefits as a percentage of
premium declined from 69.5% in 1994 to 66.1% 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 $385 million for the 1995
six-month period. Annualized health insurance premium
in force declined to $779 million at June 30, 1995, or
3% from $802 million at the same date in 1994.
American Income health premium was $20 million for the
1995 period and annualized premium in force was $38
million at June 30, 1995. Sales of health insurance,
as measured by annualized premium issued, declined 20%
from $68 million in the first six months of 1994 to
$54 million in the 1995 period. Medicare Supplement
annualized premium in force of $550 million represented
71% of total annualized health premium in force at June
30, 1995, compared to 74% at the same point in the prior
year. Sales in 1995 of Medicare Supplement annualized
premium of $36 million declined 30% over the six 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.
Policy obligations and acquisition expense as a
percentage of premium improved to 69.2% in 1995 from
69.5% in 1994.
Annuities. Torchmark sells annuities on both a
fixed and a variable basis. Fixed annuities on deposit
with Torchmark were $876 million at June 30, 1995,
gaining 10% over the same date a year ago. The
variable annuity balance on deposit rose 46% to $873
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 $8.7 million in the 1995
first six months compared to $6.0 million for the 1994
period, rising 45%. 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. Fixed annuity
collections were $69 million in the 1995 period, more
than three times the $19 million collected in the 1994
period. Collections of variable annuities declined
20%, from $97 million in 1994 to $77 million in 1995.
The agent who accounts for all of the sales of Family
Service Life Insurance Company ("Family Service"),
Torchmark's pre-need subsidiary, has informed
Torchmark that it will discontinue its agency
relationship with Torchmark at the end of September,
1995. Family Service's annuity collections were $17
million during the first six months of 1995.
Investment. Torchmark's investment income rose 7%
for the first six months of 1995 to $177 million from
$165 million in the 1994 period. Mean invested assets
rose 4% to $5.6 billion for the 1995 period. Total
invested assets were $5.7 billion at June 30, 1995.
The inclusion of American Income's investments in 1995
resulted in additional investment income of $20 million.
This increase was partially offset, however, by an
estimated $6 million of investment income on $184
million of internal funds used to acquire the company.
After adjusting for the American Income acquisition,
investment income declined approximately $2 million or
1%, correlating with the 1% decline in mean invested
assets after adjustment for the American Income
acquisition.
After increasing steadily throughout 1994,
long-term interest rates declined during the first six
months of 1995. Although rates declined, Torchmark
made new investment commitments in 1995 of $351
million at an average taxable-equivalent yield of 7.56%
as contrasted with 7.16% during the same period of
1994. New acquisitions were concentrated in
high-quality, call-protected, medium-term corporate
obligations. With 1995 acquisitions effectively
limited to corporate obligations, holdings of
corporate bonds as a percentage of invested assets
increased from 29% at year-end 1994 to 33% at the
end of June, 1995. Repayments of mortgage-backed
securities offset this increase, as holdings fell from
40% to 36% of invested assets for the same period.
Lower interest rates influenced the average life
of the portfolio during 1995. The portfolio was
estimated to have an average life of 7.2 years at June
30, 1995, compared with 8.0 years at year-end 1994 and
7.8 years a year ago. The decrease in rates also
created an improvement in the value of Torchmark's fixed
investments. This converted an unrealized loss of $242
million at year-end 1994 to an unrealized gain of $85
million at the end of June, 1995.
Financial services. Financial services revenues
were flat at $72 million for both of the six-month
periods, with second quarter 1995 revenues of $37.2
million rising 7% over $34.8 million in the first quarter
of 1995. Commission revenues from investment product
sales were lower, but these declines were offset
by increased asset management fees, service fees and
insurance product sales. Commissions from investment
products declined 20% from $33 million in the 1994
six months to $26 million. Investment product sales were
$531 million in the 1995 period compared to $663
million in the same period of 1994, also declining 20%.
Sales of United Funds declined 21%, Waddell & Reed
Funds were down 13%, and variable annuities were off
18%. Asset management fees, the largest component of
financial services revenues, rose 13% to $39.6 million.
These fees are based on the amount of assets under
management. Average assets under management rose 8.4%
in the 1995 six-month period versus the same 1994
period. Assets under management were $16.6 billion at
June 30, 1995, $14.5 billion at year-end 1994, and
$14.2 billion at June 30, 1994. Service fees increased
6% to $11.5 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
43% in 1995.
Energy. Revenues for energy operations were $32.5
million for the 1995 first six months, declining modestly
from $33.5 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
expense rose from $5.3 million in 1994 to $9.4 million
in 1995, caused by increased depletion and operating
expense relating to additional properties acquired in
1994 and 1995. Pretax operating income for energy
operations declined from $7.0 million in 1994 to $1.6
million in 1995, primarily as a result of the
above-mentioned one-time transaction.
Torchmark has entered into an 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
$160 million, of which $60 million is in cash and
the balance is in the form of subordinated debt,
nonrecourse 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 $329 million at June
30, 1995, will continue to be managed by TEAI. It is
anticipated that the transaction will be completed in
the third quarter of 1995.
Financial Condition
Liquidity. Positive cash flow, marketable
investments, and the availability of a line of credit
facility provides Torchmark with strong liquidity.
Torchmark's cash inflows from operations, after
deduction of current operating requirements, and
including net cash inflows from deposit product
operations were $253 million in the first six
months of 1995 compared to $167 million in the same
period of 1994, resulting in an increase of 52%.
In addition, Torchmark received $153 million in
fixed-maturity repayments during the 1995 period that
were either scheduled maturities or unscheduled GNMA
principal repayments.
At June 30, 1995, Torchmark had $114 million in
cash and short-term investments, compared to $116
million at the end of the previous year. In addition,
Torchmark's entire portfolio of fixed-income and
equity securities, in the amount of $4.8 billion at
market value on June 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, in which Torchmark was in
full compliance at June 30, 1995. At that date,
Torchmark had outstanding $181 million on the facility.
Capital resources. Torchmark's shareholders'
equity stood at $1.5 billion at June 30, 1995,
increasing $292 million or 24% since 1994 year end.
Book value per share was $21.44 at quarter end, compared
to $17.37 at year-end 1994. Book value per share
was $17.40 at June 30, 1994. Shareholders' equity
is seriously affected by the impact of 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. Adjusting shareholder's equity to remove
these effects of rate fluctuations on an after-tax basis
resulted in an increase in shareholder's equity for the
1995 period of $104 million or 7.5 % to $1.5 billion at
June 30, 1995. The adjustment also resulted in book
value of $20.75 per share at 1995 quarter end, compared
to $19.31 at year end 1994 and $18.61 at June 30, 1994.
Annualized return on common equity was 19.4% for
the 1995 six month-period, compared to 20.7% for the
same period of 1994.
Torchmark's debt stood at $974 million at June 30,
1995, compared to $1.05 billion at December 31,
1994. Debt as a percentage of total capitalization
was 37% at June 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 3% decline in this ratio resulted
from the paydown in short-term debt of $74 million
accompanied by the above-mentioned 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 suits 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 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 its 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 June 30, 1995, Liberty was a party to
approximately 173 active lawsuits (including 35
employment related cases and excluding interpleaders and
stayed cases), 145 of which were Alabama proceedings.
Of these Alabama cases, 121 are punitive damage cases
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 Judgment 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. 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.
As previously reported, 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 the 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 a writ of certiorari has been filed with the U.S.
Supreme Court.
Torchmark has previously reported that 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 asserts that it is brought on behalf of a class
composed of the shareholders of Torchmark. The complaint
alleges 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 are sought.
In April 1994, the complaint in Miles was amended to
add an additional shareholder plaintiff and to name
Torchmark as a defendant. A second similar action
(Oakley v. Torchmark Corporation, Case No. CV-94-47) was
filed on August 16, 1994 in the Circuit Court for Bibb
County, Alabama, but 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 (Dismukes v. Torchmark
Corporation, Case No. 94-1006-P-M). The Dismukes case
was subsequently transferred to the United States
District Court for the Northern District of Alabama.
No class has been certified in any of these cases,
although a class certification hearing has been set for
October 20, 1995 in the Dismukes litigation. All of
these shareholder actions seek punitive damages.
Torchmark, Liberty and the individual defendants intend
to vigorously defend these actions and to oppose
certification of any class.
Torchmark, its insurance subsidiaries Globe Life And
Accident Insurance Company and United American Insurance
Company, and certain Torchmark officers have previously
reported that they were named as defendants in litigation
filed April 22, 1994 as a purported class action in the
District Court of Oklahoma County, Oklahoma (Moore v.
Torchmark Corporation, Case No. CJ-94-2784-65). The suit
claims damages on behalf of individual health
policyholders who are alleged to have been induced to
terminate such policies and to purchase Medicare
Supplement and/or other insurance coverages. The
complaint seeks actual and punitive damages for each
class member in excess of $10,000. Subsequent to the
filing of this case, one of the plaintiffs was dismissed
and the named plaintiff died. The complaint was amended
to include new plaintiffs purporting to represent the
class. No class has been certified. A motion to dismiss
filed by the defendants was denied and discovery is
proceeding. The defendants intend to vigorously defend
the action.
Prior filings have reported that on November 17,
1994, a Circuit Court jury in Mobile County, Alabama
returned a $4.6 million verdict against Liberty in Coram
v. Liberty National Life Insurance Company (Case No. 93-
2100). This case involved allegations of fraud by an
agent of Liberty and was consolidated for trial with
another case involving the same sales agent. A verdict
was returned in favor of Liberty in the companion case.
The Coram case has been settled.
Litigation was filed on April 26, 1995 in the
Circuit Court of Houston County, Alabama against Liberty
involving the sale of health insurance coverage and
Omnibus Budget Reconciliation Act of 1990 (Stewart v.
Liberty National Life Insurance Company, Case No. CV-95-
345L; Tolar v. Liberty National Life Insurance Company,
Case No. CV-95-346J; Ingram v. Liberty National Life
Insurance Company, Case No. CV-95-348L; Burkett v.
Liberty National Life Insurance Company, Case No. CV-95-
347H). Because these cases are at an extremely
preliminary stage, it is premature to assess their
potential materiality. Liberty intends to vigorously
defend these cases and its initial assessment is that it
has valid defenses to these claims.
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 4. Submission of Matters to a Vote of Security
Holders
The Annual Meeting of Shareholders of Torchmark was
held April 27, 1995. At the meeting the following
proposals were voted on:
(1) Election of Directors, each for a three year
term
For Withheld
Joseph M. Farley 59,506,682 272,238
C. B.Hudson 59,520,603 258,317
Joseph L. Lanier, Jr. 59,545,286 233,634
Yetta G. Samford, Jr. 59,263,896 515,024
(2) Approval of Appointment of KPMG Peat
Marwick as Independent Auditors for 1995
For Against Abstain
59,517,621 57,880 203,419
(3) Approval of Amendment and Restatement of
Incentive Plan
This proposal deleted the six year limitation on
automatic grants of director stock options to non-
employee directors ("Outside Directors"), who may now
continue to receive such options for as long as he or she
serves as a director.
For Against Abstain
50,646,275 8,615,716 516,929
There were no broker non-votes tabulated on any of the
foregoing proposals considered at the Annual Meeting.
Item 5. Other Information
On August 3, 1995, a jury in the Circuit Court of
Jefferson County, Alabama rendered a five million, four
hundred forty thousand dollar verdict against Liberty in
Allen v. Liberty National Life Insurance Company (Case
No.: CV-94-3634). Mr. Allen's cancer policy provided
that Liberty would pay benefits for "actual charges"
incurred in the treatment of cancer. Doctors, hospitals
and other medical providers are limited as to what they
can be paid for specific services in connection with
Medicare recipients. Normally, they bill a higher amount
than what they are permitted to accept as payment. In
September 1993, Liberty began to pay based on the amount
of expense the doctor or other provider could charge,
rather than the face amount of the bill. This caused
delay in claims payment and numerous inquiries from
policyholders. In November of that same year, Liberty
discontinued this practice and recalculated and repaid
claims as it had prior to September.
Mr. Allen brought suit against Liberty National
alleging the reduction in his claims was improper. He
had been repaid in full with interest prior to filing
suit, as had all other affected claimants. Liberty
believes this verdict was unwarranted and will pursue all
post-trial remedies available to it.
Although Liberty has not been served, it has been
advised that a purported class action has been filed
against it in Jefferson County Circuit Court on behalf of
Liberty cancer policyholders eligible for Medicare who
submitted claims during the approximately two month
period in 1993 described above. Liberty intends to
vigorously defend the class action suit and to oppose
certification of any class.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(11) Statement regarding computation of per
share earnings.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
Second 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: 8/11/95 /s/ R. K. Richey
___________________________________
R. K. Richey, Chairman and Chief
Executive Officer
Date: 8/11/95 /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 June 30,
1995 1994
------------- -------------
Net income $70,022,949 $64,902,661
Preferred dividends 0 0
------------- -------------
Net income available to common $70,022,949 $64,902,661
============= =============
Weighted average shares and common
stock equivalents outstanding 71,568,440 72,368,574
============= =============
Primary earnings per share:
Net income $0.98 $0.90
============= =============
Six months ended June 30,
1995 1994
------------- -------------
Net income $138,644,428 $140,474,545
Preferred dividends 0 (804,130)
------------- -------------
Net income available to common $138,644,428 $139,670,415
============= =============
Weighted average shares and common
stock equivalents outstanding 71,555,542 72,628,453
============= =============
Primary earnings per share:
Net income $1.94 $1.92
============= =============
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