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, 1996 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, 1996
Common Stock, $1.00 Par Value 70,366,407
<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 30 December 3
----------- -----------
1996 1995
Assets ----------- -----------
- ------
Investments:
Fixed maturities, available for sale, at fair
value (amortized cost: 1996 - $5,108,910;
1995 - $4,984,223) $5,102,491 $5,210,224
Equity securities, at fair value
(cost: 1996 - $3,883; 1995 - $4,758) 8,082 10,551
Equity securities held for trading, at fair value
(cost: 1996 - $61,346; 1995 - $0) 61,346 0
Mortgage loans, at cost (estimated fair 52,274
value: 1996 - $63,103; 1995 - $50,686) 66,209
Investment real estate, at depreciated cost 144,311 143,356
Policy loans 203,889 193,877
Other long-term investments (at fair value) 108,476 95,744
Short-term investments 115,060 72,847
----------- ----------
Total investments 5,809,864 5,778,873
Cash 24,912 13,158
Investment in unconsolidated subsidiaries 86,583 76,101
Accrued investment income 88,373 82,006
Other receivables 155,016 122,108
Deferred acquisition costs 1,236,406 1,121,325
Value of insurance purchased 252,196 277,297
Property and equipment 55,703 47,185
Goodwill 544,284 555,517
Other assets 34,431 30,304
Discontinued operations assets 0 174,386
Separate account assets 1,310,316 1,085,844
----------- ----------
Total assets $9,598,084 $9,364,104
=========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Future policy benefits $4,741,600 $4,566,850
Unearned and advance premiums 84,010 83,473
Policy claims and other benefits payable 216,766 209,773
Other policyholders' funds 80,034 77,039
----------- ----------
Total policy liabilities 5,122,410 4,937,135
Accrued income taxes 294,213 362,005
Short-term debt 51,019 189,372
Long-term debt (estimated fair value:
1996 - $804,424; 1995 - $860,258) 791,736 791,988
Other liabilities 258,400 215,712
Separate account liabilities 1,310,316 1,085,844
----------- ----------
Total liabilities 7,828,094 7,582,056
Monthly income preferred securities (estimated
fair value: 1996 - $210,000; 1995 - $217,040) 193,133 193,096
Shareholders' equity:
Preferred stock 0 0
Common stock 73,784 73,784
Additional paid-in capital 140,407 139,754
Unrealized investment gains (losses), net of tax 5,888 140,338
Retained earnings 1,489,447 1,325,534
Treasury stock, at cost (132,669) (90,458)
----------- ----------
Total shareholders' equity 1,576,857 1,588,952
----------- ----------
Total liabilities and shareholders' equity $9,598,084 $9,364,104
=========== ==========
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,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues:
Life premium $215,642 $194,573 $639,520 $574,422
Health premium 181,400 184,256 552,934 571,323
Other premium 5,543 5,133 15,853 13,810
--------- --------- --------- ---------
Total premium 402,585 383,962 1,208,307 1,159,555
Financial services revenue 45,529 39,108 137,023 111,105
Net investment income 101,358 93,762 301,475 279,453
Realized investment gains 498 (15,700) 5,590 (16,316)
Other income 409 251 790 871
--------- --------- --------- ---------
Total revenue 550,379 501,383 1,653,185 1,534,668
Benefits and expenses:
Life policy benefits 139,933 129,310 417,400 380,405
Health policy benefits 110,527 110,712 338,512 342,242
Other policy benefits 13,152 12,525 37,973 35,909
--------- --------- --------- ---------
Total policy benefits 263,612 252,547 793,885 758,556
Amortization of deferred
acquisition costs 54,788 51,150 164,522 151,271
Commissions and premium taxes 34,900 35,070 106,434 109,317
Financial services expense 12,215 9,919 37,461 28,840
Other operating expense 38,589 34,742 116,793 103,814
Amortization of goodwill 3,744 3,744 11,232 11,232
Interest expense 17,655 19,754 55,486 61,289
--------- --------- --------- ---------
Total benefits and expenses 425,503 406,926 1,285,813 1,224,319
--------- --------- --------- ---------
Income from continuing operations
before income taxes and equity
in earnings of unconsolidated
subsidiaries 124,876 94,457 367,372 310,349
Income tax (45,982) (35,948) (135,056) (114,308)
Equity in earnings of
unconsolidated subsidiaries 4,360 3,036 11,060 8,466
Monthly income preferred
securities dividend (2,424) (2,588) (7,233) (7,763)
--------- --------- --------- ---------
Net income from continuing
operations 80,830 58,957 236,143 196,744
Discontinued operations of
energy segment (after tax):
Income from operations 0 2,017 0 2,874
Loss on disposal (7,137) 0 (7,137) 0
--------- --------- --------- ---------
Net income $73,693 $60,974 $229,006 $199,618
========= ========= ========= =========
Net income per share:
Continuing operations $1.13 $0.82 $3.30 $2.75
Discontinued operations of
energy segment (after tax):
Income from operations 0.00 0.03 0.00 0.04
Loss on disposal (0.10) 0.00 (0.10) 0.00
--------- --------- --------- ---------
Net income per share $1.03 $0.85 $3.20 $2.79
========= ========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
(Amounts in thousands)
Nine Months Ended
September 30,
---------------------
1996 1995
-------- ---------
Cash provided from operations $324,658 $234,669
Cash provided from (used for) investment activities:
Investments sold or matured:
Fixed maturities available for sale - sold 344,627 905,806
Fixed maturities available for sale - matured 269,832 265,582
Other long-term investments 28,324 26,396
--------- ---------
Total investments sold or matured 642,783 1,197,784
Investments acquired:
Fixed maturities (730,667) (1,238,178)
Other long-term investments (46,731) (72,692)
--------- ---------
Total investments acquired (777,398) (1,310,870)
Net decrease (increase) in short-term investments (42,213) (129,464)
Proceeds from sale of Torch Energy 15,500 0
Loans repaid by unconsolidated affiliates 0 28,000
Dividend from discontinued affiliate 35,625 0
Disposition of properties 498 447
Additions to properties (13,089) (4,128)
--------- ---------
Cash used for investment activities (138,294) (218,231)
Cash provided from (used for) financing activities:
Issuance of common stock 4,106 2,290
Repayments of debt (139,035) (79,685)
Cash dividends paid to shareholders (62,400) (60,109)
Acquisitions of treasury stock (49,009) 0
Net receipts from deposit product operations 71,728 118,088
--------- ---------
Cash used for financing activities (174,610) (19,416)
Net increase (decrease) in cash 11,754 (2,978)
Cash at beginning of year 13,158 11,298
--------- ---------
Cash balance at end of period $24,912 $8,320
========= =========
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
September 30, 1996 and the consolidated results of operations for the period
ended September 30, 1996 and 1995.
NOTE B - Sale of Energy Segment
On September 30, 1996, Torchmark completed the sale of its energy business
segment including its energy asset management subsidiary, Torch Energy
Advisors Incorporated, and its Black Warrior coalbed methane investment.
These operations, which were reclassified as discontinued operations in
Torchmark's financial statements at December 31, 1995, were sold to a Torch
Energy management group. After the sale, Torchmark had no ownership
interest in any energy asset management organization. In addition to the
transfer to Torchmark of securities, warrants and Section 29 energy related
tax credits, which approximated $112 million at closing, Torchmark received
subordinated debt and notes totaling $32.5 million along with $15.5 million
in cash and cancelled stock options. Torchmark recorded a pre-tax loss of
$23 million and an after-tax loss of $7 million from the sale, or $.10 per
share.
NOTE C - Monetization of Vesta Stock
Torchmark filed a registration statement with the Securities and
Exchange Commission during the third quarter of 1996. The purpose of this
statement was to monetize a substantial portion of Torchmark's holdings of
Vesta Insurance Group, Inc. ("Vesta") common stock, by issuing a security
mandatorily exchangeable for Vesta stock at the option of Torchmark.
Torchmark currently holds approximately five million shares of Vesta stock.
On November 7, 1996,
Torchmark withdrew this registration statement, because of the market
conditions with respect to Vesta stock. Depending upon future market
conditions, Torchmark may refile the registration statement or otherwise
provide for the monetization of a portion or all of the Vesta stock.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Results
Torchmark Corporation's ("Torchmark's") net income from
continuing operations for the first nine months of 1996 was $236
million or $3.30 per share compared to $197 million or $2.75 per
share for the same period of 1995, resulting in a per-share
increase of 20%. After exclusion of realized investment gains or
losses and the related adjustment to deferred acquisition costs,
net of taxes, earnings per share from continuing operations were
$3.25 in the 1996 period, compared with $2.90 in the same period of
1995, an increase of 12%. Net income per share, including
discontinued operations, was $3.20 versus $2.79 for the same nine-
month periods.
On September 30, 1996, Torchmark completed the sale of its
energy business segment including its energy asset management
subsidiary, Torch Energy Advisors Incorporated, and its Black
Warrior coalbed methane investment. These operations, which were
reclassified as discontinued operations in Torchmark's financial
statements at December 31, 1995, were sold to a Torch Energy
management group. After the sale, Torchmark had no ownership
interest in any energy asset management organization.
In addition to previously transferred securities, warrants,
and Section 29 energy-related tax credits, which approximated $112
million at closing, Torchmark received subordinated debt and notes
totalling $32.5 million along with $15.5 million in cash. After
closing costs and retained liabilities, Torchmark recorded a pre-
tax loss of $23 million and an after-tax loss of $7 million from
the sale, or $.10 per share.
Revenues rose $119 million or 8% to $1.7 billion in the 1996
period. Total premium increased 4% to $1.2 billion. Growth in
life premium, the largest component of premium, accounted for $65
million or 55% of the total revenue growth. Financial services
revenues and net investment income also contributed to revenue
growth. Financial services revenues gained 23% or $26 million to
$137 million, while net investment income rose 8% or $22 million to
$301 million. Operating expense increased $13 million or 13% to
$117 million, caused primarily by an increase in litigation
expense of $7 million. Excluding the increase in litigation
expense, operating expense as a percentage of revenues declined
from the prior period. Interest expense declined $6 million or
9%. Debt paydowns in the 1996 period caused a reduction in average
short-term debt outstanding. A discussion of Torchmark's operations
follows under the appropriate captions.
Life insurance. Life insurance premium increased 11% to $640
million in the first nine months of 1996, from $574 million in the
prior period. Life premium has grown in relation to total
premium, underscoring Torchmark's emphasis on the sale of life
products, because of the higher profit margins and asset-building
nature associated with life insurance. Life premium comprised 53%
of total premium in the 1996 nine months, compared with 50% in the
1995 period and 42% for the comparable 1994 period. Annualized
life premium in force was $933 million at September 30, 1996, up 9%
over life premium in force of $854 million a year earlier.
Included in the 1996 life premium in force is a block of life
insurance with annualized premium of $21 million that was purchased
effective January 1, 1996. Growth in premium and annualized
premium in force has been attributed to the above-mentioned
emphasis on sales of life products and the purchased block of
business. For the first nine months of 1996, life sales were $163
million in terms of annualized premium issued, increasing 1% over
the comparable 1995 period. For the preceding twelve-month period,
sales increased 6% compared with the same period a year earlier.
Benefits as a percentage of premium declined to 65% in 1996 from
66% in 1995. Acquisition expense as a percentage of premium
increased from 16% in 1995 to 17% in 1996. The lower obligation
and higher acquisition expense ratios were a result of the increase
in the proportion of American Income's premium to total premium.
American Income has a higher acquisition expense ratio because
acquisition expense consists largely of the value of insurance
purchased, which has higher amortization relative to deferred
acquisition costs.
Health insurance. Torchmark's health insurance premium
declined 3% to $553 million for the 1996 nine months. Annualized
health insurance premium in force declined to $751 million at
September 30, 1996, or 3%, from $772 million at the same date a
year earlier. However, the rate of decline for annualized health
premium in force has diminished when compared to prior periods. At
December 31, 1995, the decline was 7% when compared with the
previous year and at June 30, 1996, the decline was 4%. This
leveling of the decline of health premium in force is due in part
to Medicare supplement rate increases being implemented during
1996. No Medicare supplement increases had been taken in the
previous two years. Medicare Supplement annualized premium in force
of $524 million represented 70% of total annualized health premium
in force at September 30, 1996.
Sales of health insurance, as measured by annualized premium
issued, declined 10% from $81 million in the first nine months of
1995 to $73 million in the 1996 period. In the first nine months
of 1996, sales of Medicare Supplement annualized premium of $47
million declined 9% from those of the comparable period of 1995.
Declines in Medicare Supplement sales were experienced during 1995
and 1996 primarily because commissions available for the
predominantly agent-sold distribution system have been reduced due
to mandated increases in loss ratios and levelized commission
rates, thus reducing agents' incentive to sell Medicare
supplements.
Cancer annualized premium in force grew 5% to $120 million at
September 30, 1996 from $114 million a year earlier. Other non-
Medicare Supplement health insurance annualized premium in force
has declined 10% period-over-period, from $118 million at September
30, 1995 to $107 million at the same date in 1996.
Annuities. Torchmark's annuities consist of both fixed and
variable products. Fixed annuity collections were $66 million in
the 1996 nine-month period, declining 34% from the $100 million
collected in the 1995 period. Collections of variable annuities
rose 46% from $126 million in the 1995 period to $184 million in
the 1996 nine months. Fixed annuities on deposit with Torchmark
were $964 million at September 30, 1996, gaining 7% over the same
date a year ago. The variable annuity balance on deposit rose 31%
to $1.3 billion during the same period. Growth in the variable
account balance was a result of strong financial markets in late
1995 and throughout 1996 as well as additional collections. Policy
charges for annuities rose 15% to $16 million in the 1996 period,
compared to $14 million for the 1995 nine months. Policy charges
are assessed against the annuity account balance periodically for
insurance risk, sales, administration, and surrender. The
increase in policy charges resulted primarily from the growth in
variable annuities over the prior-year period.
Investment. During the first nine months of 1996,
Torchmark's investment income rose 8% over the previous year's
level, increasing $22 million to total $301 million. The change is
primarily attributable to the continued increase in mean invested
assets which rose 6% from the September 30, 1995 level to total
$5.67 billion at quarter end. Total invested assets at quarter end
were $5.81 billion.
While investment acquisitions in both 1996 and 1995 emphasized
call-protected corporate securities, 1996 acquisitions focused on
shorter maturities than acquisitions during 1995's comparable
period. Fixed income acquisitions during the first nine months of
1996 totalled $731 million and were made at an average yield of
7.24% and an average maturity of 8.4 years. Increased by proceeds
from sales of mortgage-backed securities during 1995, 1995 year-to-
date acquisitions were $1.24 billion and had an average yield and
maturity of 7.58% and 12.5 years, respectively. Although treasury
yields were approximately 50 basis points above the previous year's
level and 100 basis points above the previous year end, the yield
of Torchmark's portfolio declined slightly due to the increase in
proportion of shorter-maturity securities. The yield on
Torchmark's $5.1 billion fixed-maturity portfolio declined to 7.59%
at September 30, 1996, compared with 7.64% one year ago and 7.66%
at year-end 1995.
With the decline in interest rate volatility during the third
quarter, Torchmark's fixed income portfolio's unrealized loss
narrowed from $20 million at the end of the previous quarter to $6
million at September 30, 1996. The portfolio had an unrealized
gain of $226 million at the end of 1995. The average life of
Torchmark's fixed income portfolio was 8.6 years at September 30,
1996, slightly below the 8.8 year level of year-end 1995.
Torchmark continues to emphasize high quality investments.
Over 95% of Torchmark's holdings at September 30, 1996 were in
investment grade assets.
Financial services. Financial services revenues rose 23% to
$137 million for the first nine months of 1996 when compared with
the prior period. Asset management fees rose 21% to $76 million.
Asset management fees are the largest component of financial
services revenues representing 55% of such revenues. These fees
are based on the amount of assets under management. Average assets
under management rose 17% in the 1996 period versus the same 1995
period. Assets under management were $18.6 billion at September
30, 1996, $18.3 billion at year-end 1995, and $17.8 billion at
September 30, 1995. Commission revenue from investment product
sales increased 36% to $55 million for the 1996 nine months from
$41 million in the comparable 1995 period. Investment product
sales grew 40% to $1.2 billion in the 1996 period, compared to $828
million in the same period of 1995. Sales of United Funds grew
31%, Waddell & Reed Funds increased 93% and variable annuities
gained 44%. Commissions from the sale of insurance products
increased 2% to $10 million. Service fees increased 19% to $21
million. The sum of all financial services revenue components is
greater than total financial services revenue because the portion
of commission related to the sales of the insurance and variable
annuity products of United Investors Life Insurance Company is
eliminated in consolidation.
Financial Condition
Liquidity. Positive cash flow, marketable investments, and
the availability of a line of credit facility provide Torchmark
with a high level of liquidity. Torchmark's cash inflows from
operations, after the deduction of current operating requirements
and including net cash inflows from deposit product operations,
were $396 million for the first nine months of 1996. These cash
inflows compared with $353 million in the same period of 1995,
resulting in a 12% growth. In addition to cash flows from
operations, Torchmark received $270 million in fixed-maturity
repayments during the 1996 nine-month period that were either
scheduled maturities, called, or unscheduled GNMA principal
repayments.
Torchmark had $140 million in cash and short-term investments
at the end of September, 1996, compared with $86 million at
December 31, 1995. In addition, Torchmark's entire portfolio of
fixed-income and equity securities, in the amount of $5.1 billion
at market value on September 30, 1996, 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, was recently
renegotiated to provide credit up to a maximum amount of $600
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, 1996. At that
date, Torchmark had $51 million outstanding on the facility,
compared with $189 million at December 31, 1995.
Capital resources. Beginning in August, 1996, Torchmark
renewed its share repurchase program and purchased 1.1 million
shares at a cost of $49 million in the third quarter of 1996.
Torchmark intends to use excess cash flow to make open market
purchases as market conditions warrant, provided that its debt-to-
capital ratio does not exceed 40% and that no opportunities for
acquisitions offering superior returns are available.
Shareholders' equity was $1.6 billion at September 30,
1996, declining $12 million since 1995 year end. Book value per
share was $22.31 at September 30, 1996, compared with $22.17 at
year-end 1995. 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 and deferred
acquisition costs based on changes in interest rates. After
adjusting shareholders' equity to remove the effects of rate
fluctuations on an after-tax basis, shareholders' equity for the
1996 period increased $122 million, or 8%, over year-end 1995 to
$1.6 billion at September 30, 1996. This growth was achieved
in spite of the $49 million in share purchases made in the third
quarter of 1996. The adjustment also resulted in book value of
$22.34 per share at the end of the third quarter of 1996, compared
with $20.33 at year-end 1995. Annualized return on common equity,
adjusted to exclude the effects of the accounting rule, was 19.9%
for the 1996 nine-month period, compared with 18.0% for the same
period of 1995.
Torchmark's debt stood at $843 million at September 30, 1996,
compared with $981 million at December 31, 1995 and $962 million at
September 30, 1995. Debt as a percentage of total capitalization
was 32% at September 30, 1996, 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 and an adjustment to deferred
acquisition costs based on changes in interest rates in the
financial markets. The debt to capitalization ratio was 37% at
year-end 1995. The decline in this ratio since year-end 1995
resulted from the paydown in short-term debt of $138 million
accompanied by an increase in adjusted equity.
Torchmark filed a registration statement with the Securities
and Exchange Commission during the third quarter of 1996. The
purpose of this statement was to monetize a substantial portion
of Torchmark's holdings of Vesta Insurance Group, Inc. ("Vesta")
common stock, by issuing a security mandatorily exchangeable for
Vesta stock at the option of Torchmark. Torchmark currently holds
approximately five million shares of Vesta stock. On November 7,
1996, Torchmark withdrew this registration statement, because of
the market conditions with respect to Vesta stock. Depending upon
future market conditions, Torchmark may refile the registration
statement or otherwise provide for the monetization of a portion or
all of the Vesta stock.
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 its
large punitive damage verdicts. Some of such actions involving
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, 1996, Liberty was a party to approximately
283 active lawsuits (including 26 employment related cases and excluding
interpleader and stayed cases), approximately 250 of which were
Alabama proceedings in which punitive damages were sought. Liberty
faces trial settings in these cases on an on-going basis.
Torchmark 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 cancer policy class action settlement
involving legal and equitable relief valued at a total of $55
million. In July 1994, certain intervenors in Robertson filed a
notice of appeal of the Order and Final Judgement with the Supreme
Court of Alabama. On December 22, 1995, the Alabama Supreme Court
unanimously affirmed the Robertson class action settlement and on
February 16, 1996, issued a notice overruling the petition for
rehearing in the case filed by certain intervenors. A petition for
writ of certiorari to the Supreme Court of the United States was
then filed by certain intervenors. The U. S. Supreme Court
granted certiorari in Robertson on October 1, 1996. Oral arguments
before that Court are expected to be held in early 1997.
A purported class action was filed on August 8, 1995, against
Liberty in the Circuit Court of Jefferson County, Alabama on behalf
of Liberty cancer policyholders eligible for Medicare who submitted
claims during an approximately two month period in 1993 (Adkins v.
Liberty National Life Insurance Company, Case No. CV-95-5634).
Beginning in September 1993, in reliance on federal law concerning
the amount health care providers could collect from Medicare
eligible individuals, Liberty limited the payment of benefits to
such individuals to the amounts collectible by the providers under
federal law. In November, 1993, Liberty discontinued this practice
and recalculated and repaid all claims in full as it had prior to
September 1993 together with interest. Nearly two years after
this refund, the Adkins case was filed. The claims made in
Adkins are identical to the individual claims in Allen v. Liberty National
Life Insurance Company (Case No. CV-94-3634), an individual case
currently submitted to the Alabama Supreme Court on appeal after
oral arguments regarding the remitted verdict of $2.7 million. A
class certification order, which does not address the merits of the
litigation, was entered by the Court in Adkins on July 26, 1996.
Liberty filed a petition for writ of mandamus or prohibition with
the Alabama Supreme Court in August 1996 asserting abuse of
discretion by the trial court in certifying the Adkins class. The
Alabama Supreme Court has stayed further proceedings as to the
class issues pending its ruling on the propriety of class
certification.
It has been previously reported that the Company, its
subsidiaries United American Life Insurance Company (United
American) and Globe Life And Accident Insurance Company (Globe)
and certain individual corporate officers are parties to purported
class action litigation filed April 5, 1996 in the U.S. District
Court for the Northern District of Georgia (Crichlow v. Torchmark
Corporation, Case No.: 4:96-CV 0086-HLM). The complaint alleges
RICCO violations, fraud, breach of contract, conspiracy, violations
of the Oklahoma Consumer Protection Act and breach of the duty of
good faith and fair dealing on behalf of all persons who purchased,
at any time between 1987 and the present, certain hospitalization
and surgical insurance policies issued by Globe and United
American. The plaintiffs assert that they purchased these policies
and subsequently incurred improper claim denials, wrongful recision
and rate-ups and post-claim underwriting. The defendants have
filed a motion to dismiss which is pending with the
U.S. District Court.
On April 19, 1996, a $5 million punitive judgment was entered
against Liberty by a jury in Mobile, Alabama in Strickland v.
Liberty National Life Insurance Company (CV-95-1399). In the
Strickland case, the plaintiff, who was in his sixties,
cancelled several small life insurance policies and purchased a substantial
amount of new coverage. The plaintiff contended that certain
supplemental benefits which were present in the smaller policies
were not included in the new coverage (i.e. accidental death and
premium waiver). The trial judge held that Strickland was not
entitled to recover compensatory damages. Nevertheless, the jury
awarded $100 in nominal damages in addition to the punitive award.
Liberty has filed various motions for post-trial relief with the
Circuit Court which are scheduled to be heard on December 16, 1996.
A jury in Chambers County, Alabama Circuit Court returned a
verdict of $333,000 compensatory damages and $17.2 million in
punitive damages against Liberty on June 11, 1996, in McQuiston v.
Liberty National Life Insurance Company (CV-94-234). The case
arose out of a claim which had been denied due to an alleged
misrepresentation in the application. There was a recorded
telephone interview with the applicant in which a statement was
given which Liberty alleges was a misrepresentation of the health
of the proposed insured. After the litigation was filed, it was
learned that the signature on the application was not that of the
insured. Upon notice of this fact, Liberty had paid the $20,000
claim proceeds into court. Liberty has filed motions for post-
trial relief with the Court which, subject to completion of post
trial discovery, are scheduled to be heard on November 20, 1996.
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 in 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 by the registrant
during the third quarter of 1996.
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: 11/13/96 /s/ R. K. Richey
___________________________________
R. K. Richey, Chairman, Chief
Executive Officer and Director
Date: 11/13/96 /s/ Gary L. Coleman
___________________________________
Gary L. Coleman, Vice-President and
Chief Accounting Officer
(Principal Accounting Officer)
Exhibit 11. Statement re computation of per share earnings.
TORCHMARK CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three months ended September 30,
1996 1995
Net income - continuing operations $80,830,107 $58,957,161
Discontinued operations of energy
segment:
Income from operations (after tax) 2,016,723
Loss on disposal (after tax) (7,137,000)
Net income 73,693,107 60,973,884
Preferred dividends 0 0
Net income available to common shareh$73,693,107 $60,973,884
Weighted average shares and common
stock equivalents outstanding 71,314,373 71,604,721
Primary earnings per share:
Net income - continuing operations $1.13 $0.82
Discontinued operations of energy
segment:
Income from operations (after tax 0.00 0.03
Loss on disposal (after tax) (0.10) 0.00
Net income $1.03 $0.85
Nine months ended September 30,
1996 1995
Net income - continuing operations $236,142,811 $196,744,487
Discontinued operations of energy
segment:
Income from operations (after tax) 2,873,825
Loss on disposal (after tax) (7,137,000) 0
Net income 229,005,811 199,618,312
Preferred dividends 0 0
Net income available to common
shareholders $229,005,811 $199,618,312
Weighted average shares and common
stock equivalents outstanding 71,591,903 71,572,115
Primary earnings per share:
Net income - continuing operations $3.30 $2.75
Discontinued operations of energy
segment:
Income from operations (after tax 0.00 0.04
Loss on disposal (after tax) (0.10) 0.00
Net income $3.20 $2.79
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<FISCAL-YEAR-END> DEC-31-1996
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