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 March 31, 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 APRIL 30, 1996
Common Stock, $1.00 Par Value 71,749,365
<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 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)
March 31, December 31
----------- -----------
1996 1995
Assets: ----------- -----------
- ------
Investments:
Fixed maturities, available for sale, at fair
value (amortized cost: 1996 - $5,032,753;
1995 - $4,984,223) $5,086,548 $5,210,224
Equity securities, at fair value
(cost: 1996 - $4,133; 1995 - $4,758) 8,281 10,551
Mortgage loans, at cost (estimated fair
value: 1996 - $57,121; 1995 - $50,686) 60,301 52,274
Investment real estate, at depreciated cost 143,633 143,356
Policy loans 196,181 193,877
Other long-term investments (at fair value) 95,668 95,744
Short-term investments 106,029 72,847
----------- ----------
Total investments 5,696,641 5,778,873
Cash 6,582 13,158
Investment in unconsolidated subsidiaries 78,948 76,101
Accrued investment income 86,498 82,006
Other receivables 113,046 122,108
Deferred acquisition costs 1,169,154 1,121,325
Value of insurance purchased 268,431 277,297
Property and equipment 46,769 47,185
Goodwill 551,773 555,517
Other assets 32,768 30,304
Discontinued operations assets 138,077 174,386
Separate account assets 1,171,114 1,085,844
----------- ----------
Total assets $9,359,801 $9,364,104
=========== ==========
Liabilities and Shareholders' Equity:
- ------------------------------------
Liabilities:
Future policy benefits $4,624,685 $4,566,850
Unearned and advance premiums 82,981 83,473
Policy claims and other benefits payable 208,644 209,773
Other policyholders' funds 77,813 77,039
----------- ----------
Total policy liabilities 4,994,123 4,937,135
Accrued income taxes 352,386 362,005
Short-term debt 102,960 189,372
Long-term debt (estimated fair value:
1996 - $810,109; 1995 - $860,258) 792,067 791,988
Other liabilities 207,596 215,712
Separate account liabilities 1,171,114 1,085,844
----------- ----------
Total liabilities 7,620,246 7,582,056
Monthly income preferred securities (estimated
fair value: 1996 - $209,040; 1995 - $217,040) 193,109 193,096
Shareholders' equity:
Preferred stock 0 0
Common stock 73,784 73,784
Additional paid-in capital 140,186 139,754
Unrealized investment gains, net of tax 39,717 140,338
Retained earnings 1,379,354 1,325,534
Treasury stock, at cost (86,595) (90,458)
----------- ----------
Total shareholders' equity 1,546,446 1,588,952
----------- ----------
Total liabilities and shareholders' equity $9,359,801 $9,364,104
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
Three months ended
March 31,
--------------------
1996 1995
--------- ---------
Revenue:
Life premium $209,307 $188,298
Health premium 187,131 197,560
Other premium 5,750 4,976
--------- ---------
Total premium 402,188 390,834
Financial services revenue 44,337 34,774
Net investment income 99,417 92,808
Realized investment gains 4,713 (920)
Other income 168 192
--------- ---------
Total revenue 550,823 517,688
Benefits and expenses:
Life policyholder benefits 136,406 122,315
Health policyholder benefits 115,281 119,413
Other policyholder benefits 12,615 11,641
--------- ---------
Total policyholder benefits 264,302 253,369
Amortization of deferred
acquisition costs 55,457 50,185
Commissions and premium taxes 36,012 37,933
Financial services selling expense 12,286 8,810
Other operating expense 40,082 34,572
Amortization of goodwill 3,744 3,744
Interest expense 19,644 21,713
--------- ---------
Total benefits and expenses 431,527 410,326
--------- ---------
Pre-tax operating income 119,296 107,362
Income tax (43,643) (38,381)
Equity in earnings of
unconsolidated subsidiaries 3,040 1,925
Monthly income preferred
securities dividend (2,419) (2,573)
--------- ---------
Net income from continuing operations 76,274 68,333
Discontinued operations of energy segment (after tax) 0 288
--------- ---------
Net income $76,274 $68,621
========= =========
Net income per share:
Continuing operations $1.06 $0.96
Discontinued operations of energy segment 0.00 0.00
--------- ---------
Net income per share $1.06 $0.96
========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TORCHMARK CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
(Amounts in thousands)
Three Months Ended
March 31,
---------------------
1996 1995
-------- ---------
Cash provided from operations $125,866 $119,772
Cash provided from (used for) investment activities:
Investments sold or matured:
Fixed maturities available for sale - sold 37,398 74,089
Fixed maturities available for sale - matured 86,861 68,284
Other long-term investments 6,296 1,887
--------- ---------
Total investments sold or matured 130,555 144,260
Investments acquired:
Fixed maturities (168,310) (168,826)
Other long-term investments (14,825) (39,891)
--------- ---------
Total investments acquired (183,135) (208,717)
Net decrease (increase) in short-term investments (33,182) (1,554)
Dividend from discontinued affiliate 35,625 0
Disposition of properties 27 288
Additions to properties (1,250) (1,408)
--------- ---------
Cash used for investment activities (51,360) (67,131)
Cash provided from (used for) financing activities:
Issuance of common stock 2,192 540
Repayments of debt (86,477) (71,686)
Cash dividends paid to shareholders (20,785) (20,030)
Net receipts from deposit product operations 23,988 35,186
--------- ---------
Cash used for financing activities (81,082) (55,990)
Net increase (decrease) in cash (6,576) (3,349)
Cash at beginning of year 13,158 11,298
--------- ---------
Cash at end of period $6,582 $7,949
========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
TORCHMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
NOTE A - Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q, and, therefore,
do not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements
include all adjustments, consisting of normal recurring accruals, which are
necessary for a fair presentation of the consolidated financial position at
March 31, 1996 and the consolidated results of operations for the periods
ended March 31, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Results
Net income per share from continuing operations for Torchmark
Corporation ("Torchmark") was $1.06 for the first quarter of 1996,
compared with $.96 per share for the same period of 1995, an
increase of 10%. After exclusion of realized investment gains or
losses in both periods and the related adjustment to deferred
acquisition costs, both net of taxes, per share earnings from
continuing operations were $1.03 in the 1996 quarter, compared
with $.96 in the same quarter of 1995, an increase of 7%. Net
income per share, including discontinued operations, was also $1.06
versus $.96 for the same period. Net income was $76 million in the
1996 quarter, increasing 11% from $69 million in the comparable
1995 period.
Revenues rose $33 million or 6% to $551 million in the 1996
period. Growth in life premium accounted for $21 million of the
increase, gaining 11% to $209 million. Life premium comprised 52%
of total premium in 1996, compared with 48% in the 1995 period.
Health premium declined $10 million or 5% to $187 million. The
growth in life premium relative to total premium underscores
Torchmark's increased emphasis on life products. Financial services
revenues and net investment income also contributed to revenue
growth. Financial services revenues gained 28% or $9.6 million to
$44 million, while net investment income rose 7% or $6.6 million to
$99 million. Operating expense increased $5.5 million or 16% to
$40 million. This increase was caused by an increase in litigation
expense. Interest expense declined $2 million or 10% due primarily
to lower average short-term debt, resulting from debt paydowns in
1995 and in the 1996 period. A discussion of Torchmark's
operations follows under the appropriate captions.
Life insurance. Premium for life insurance rose 11% to $209
million in the first quarter of 1996, from $188 million for the
same period of the prior year. Annualized life premium in force
increased 11% over the prior year and stood at $904 million at
March 31, 1996, compared with $815 million a year earlier.
Included in the 1996 in force is a block of life insurance with
annualized premium of $21 million that was purchased at the end of
1995. Growth in premium and annualized premium in force has been
attributable to the above-mentioned purchase and increased sales of
life products during the preceding twelve-month period over the
same period a year earlier. During this period, sales grew 32% in
terms of annualized premium issued. For the first quarter of
1996, life sales were $54 million, increasing 5% over the
comparable 1995 period. Benefits as a percentage of premium were
stable in both periods at 65%. Acquisition expense as a percentage
of premium increased from 16% in 1995 to 17% in 1996 because of
the increase in proportion of American Income's premium to total
premium. American Income has a higher acquisition expense ratio
because acquisition expense consists largely of value of insurance
purchased, which has higher amortization relative to deferred
acquisition costs.
Health insurance. Torchmark's health insurance premium
declined 5% to $187 million for the 1996 three-month period.
Annualized health insurance premium in force declined to $752
million at March 31, 1996, or 5% from $794 million at the same date
a year earlier. Sales of health insurance, as measured by
annualized premium issued, declined 10% from $28 million in the
first three months of 1995 to $25 million in the 1996 period.
However, first quarter 1996 health insurance sales rose 9% over the
fourth quarter of 1995. Medicare Supplement annualized premium in
force of $531 million represented 71% of total annualized health
premium in force at March 31, 1996. Medicare Supplement annualized
premium in force increased slightly over year-end 1995 premium in
force of $530 million. In the three months of 1996, sales of
Medicare Supplement annualized premium of $17.3 million declined 7%
over the three months of 1995. Declines in Medicare Supplement
sales were experienced during 1995 and early 1996 primarily
because of increased competition. Cancer annualized premium in
force grew slightly from $114 million to $115 million at March 31,
1996. Other non-Medicare Supplement health insurance annualized
premium in force has declined 9% period-over-period, from $118
million at March 31, 1995 to $107 million at the same date in 1996.
Annuities. Torchmark sells annuities on both a fixed and a
variable basis. Fixed annuity collections were $21 million in the
1996 period, slightly lower than the $22 million collected in the
1995 period. Collections of variable annuities rose 46% from $34
million in the 1995 quarter to $49 million in the 1996 period.
Fixed annuities on deposit with Torchmark were $938 million at
March 31, 1996, gaining 16% over the same date a year ago. This
increase was a result of strong sales growth in 1995. The variable
annuity balance on deposit rose 50% to $1.1 billion during the same
period. Growth in the variable account balance was a result of
strong financial markets primarily in 1995 as well as additional
collections. Policy charges for annuities were $4.7 million in the
1996 first three months compared to $3.8 million for the 1995
period, rising 23%. 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. Torchmark's investment income rose 7% for the
first quarter to $99.4 million from $92.8 million for the 1995
quarter. Mean invested assets at amortized cost were $5.6 billion
for the 1996 quarter, increasing 6% over the prior period. Asset
holdings for both 1995 and 1996 have been adjusted to reflect the
reclassification of certain energy investments as discontinued
operations. The increase in investment income is primarily
attributed to the increase in invested assets.
After declining steadily throughout 1995, interest rates rose
sharply during the first quarter of 1996, impacting yields
available on investment commitments and decreasing the market
valuation of the Torchmark fixed income portfolio. Investment
acquisitions in the first quarter of 1996 totaled $168 million, and
were placed in fixed-income assets with a weighted average yield of
6.5%. As a comparison, in the first quarter of 1995,
acquisitions of fixed-income investments totaled $169 million, had
an average yield of 8.0%.
Increasing interest rates reduced the market value of the
fixed-income holdings by $172 million in the first quarter of 1996.
At the end of the quarter, the $5.1 billion portfolio had an
unrealized gain of $54 million. This compares with an unrealized
loss of $81 million at the end of the first quarter of 1995 and an
unrealized gain of $226 million at the end of 1995.
Financial services. Financial services revenues grew 28% to
$44 million for the first quarter of 1996 over the prior period.
Commission revenues from investment product sales gained 44% from
$12.6 million in the 1995 three months to $18.2 million for the
1996 period. Investment product sales were $405 million in the
1996 period compared to $255 million in the same period of 1995,
growing 59%. Sales of United Funds rose 42%, Waddell & Reed Funds
tripled, and variable annuities gained 47%. Asset management fees,
the largest component of financial services revenues, rose 29% to
$25 million. These fees are based on the amount of assets under
management. Average assets under management rose 25% in the 1996
quarter versus the same 1995 period. Assets under management were
$19.1 billion at March 31, 1996, $18.3 billion at year-end 1995,
and $15.5 billion at March 31, 1995. Commissions from the sale of
insurance products increased 8% to $3.5 million. Service fees
increased 6% to $6 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' pretax profit margins
remained steady at 52% of revenues in the 1996 period compared with
51% in the prior-year period.
Discontinued Energy Operations. In 1995, Torchmark decided to
sell Torch Energy Advisors Incorporated ("TEAI"), its energy
management subsidiary. Torchmark is currently negotiating the
disposal of this subsidiary through a management-led buyout. It
is anticipated that total consideration will be approximately $108
million and that there will be a small gain from the transaction.
It is expected that the sale will be consumated by the third
quarter of 1996. Additionally, as announced in early 1996,
Torchmark also intends to sell its Black Warrior coalbed methane
development and certain other energy investments. It is expected
that these investments will be sold by year-end 1996. All energy
operations to be sold have been classifsied as discontinued
operations in the financial statements.
Financial Condition
Liquidity. Torchmark's high level of liquidity is evidenced
by its positive cash flow, its 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 $150 million in the first three months of 1996,
compared with $155 million in the same period of 1995, resulting in
a 3% decline. In addition to cash flows from operations, Torchmark
received $86 million in fixed-maturity repayments during the 1996
three-month period that were either scheduled maturities or
unscheduled GNMA principal repayments.
At the end of March, 1996, Torchmark had $113 million in cash
and short-term investments, compared with $86 million at December
31, 1995. Cash and short-term investments represented 1.2% of total
assets at March 31, 1996, compared with less than 1% at year-end
1995. In addition, Torchmark's entire portfolio of fixed-income
and equity securities, in the amount of $5.1 billion at market
value on March 31, 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, 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 March 31, 1996. At that date, Torchmark had
outstanding $103 million on the facility, compared with $189
million at December 31, 1995.
Capital resources. Torchmark's debt stood at $895 million at
March 31, 1996, compared with $981 million at December 31, 1995 and
$970 million at March 31, 1995. Debt as a percentage of total
capitalization was 34% at March 31, 1996, counting the Monthly
Income Preferred Securities as equity and excluding the effects on
equity of an 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 both year-end 1995 and at March 31,
1995. The 3% decline in this ratio since year-end 1995 resulted
from the paydown in short-term debt of $86 million accompanied by
an increase in adjusted equity.
Shareholders' equity was $1.5 billion at March 31, 1996,
declining $43 million since 1995 year end. Book value per share
was $21.55 at quarter end, compared with $22.17 at year-end 1995.
Shareholders' equity is greatly impacted by the previously-
mentioned 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 $60 million or 4% over year-end 1995 to $1.5
billion at March 31, 1996. Shareholders' equity rose $85 million
or 6% since March 31, 1995, on an adjusted basis. This 6% growth
was achieved in spite of the $130 million writedown of Torchmark's
Black Warrior investment in the fourth quarter of 1995. The
adjustment also resulted in book value of $21.15 per share at the
end of first quarter 1996, compared with $20.33 at year-end 1995
and $20.01 at March 31, 1995. Annualized return on common equity,
adjusted to exclude the effects of the accounting rule, was 20.5%
for the 1996 three-month period, compared with 19.4% for the same
period of 1995.
Part II - Other Information
Item 1. Legal Proceedings
Torchmark and its subsidiaries continue to be named 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 subsidiaries, employment discrimination,
and miscellaneous other causes of action. Many of these lawsuits
involve claims for punitive damages in state courts of Alabama, a
jurisdiction particularly recognized for its large punitive damage
verdicts. A number 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. As of
March 31, 1996, Liberty was a party to approximately 259 active
lawsuits (including 31 employment related cases and excluding
interpleaders and stayed cases), more than 233 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
Judgment 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. The
cost of this settlement increases over time as Liberty is
prohibited from increasing premium rates on this block of business
for one year from the final binding affirmance by the Alabama
Supreme Court. This aspect of the settlement is expected to cost
Torchmark an additional $2.5 million before tax in each quarter
going forward until one year after the final binding affirmance by
the Alabama Supreme Court.
In July 1994, certain intervenors in the Robertson litigation
filed a notice of appeal of the Order and Final Judgment approving
class certification and the settlement with the Supreme Court of
Alabama. Oral argument on the appeal was held July 7, 1995 and on
December 22, 1995, the Supreme Court unanimously affirmed the
Robertson class action settlement. On February 16, 1996, the
Alabama Supreme Court issued a notice overruling the petition for
a rehearing in Robertson filed by certain intervenors. A petition
for writ of certiorari to the Supreme Court of the United States
has been filed by certain intervenors.
Liberty has recently been served with 5 individual cancer
policy lapse-issue lawsuits, filed in the Circuit Court of George
County, Mississippi. The Company believes these cases should
remain stayed pending the resolution of the petition for writ of
certiorari in Robertson. There are 77 similar individual cases in
all jurisdictions which have been previously stayed as a result of
the pendency of the class action.
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 comprised 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 a 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 of Bibb County, Alabama, was dismissed by the
plaintiff without prejudice. A third such action was filed on
December 30, 1994, 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 v. Torchmark
Corporation, Case No. CV-94-1006-P-M). On April 11, 1996 the Court
entered an order granting partial summary judgment on behalf of
defendants. Claims for damages based on Section 10b-5 of the
Securities Exchange Act of 1934, on state securities laws and for
common law fraud remain pending in the case.
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 the approximately two month period from September to
November 1993 (Adkins v. Liberty National Life Insurance Company,
Case No. CV-95-05634). For a two month period 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 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. The claims made in Adkins are identical
to the individual claims in Allen v. Liberty National Life
Insurance Company, (Case No. CV-94-3634), the remitted verdict of
which is currently being appealed to the Alabama Supreme Court by
Liberty. More than 400 (and perhaps as many as 1,000) individuals
appear to fit the proposed claim definition in Adkins. Punitive
damages for mental anguish appear to be sought on behalf of the
class. A class certification hearing is set for June 7, 1996. The
Company intends to oppose class certification and to vigorously
defend the case.
On August 25, 1995, a purported class action was filed against
Torchmark, Globe, United American and certain officers of these
companies in the United States District Court for the Western
District of Missouri on behalf of all former agents of Globe (Smith
v. Torchmark Corporation, Case No.: 95-3304-CV-S-4). This action
alleges that the defendants breached independent agent contracts
with the plaintiffs by treating them as captive agents and engaged
in a pattern of racketeering activity wrongfully denying income and
renewal commissions to the agents, restricting insurance sales,
mandating the purchase of worthless leads, terminating agents
without cause and inducing the execution of independent agent
contracts based on misrepresentations of fact. Monetary damages in
an unspecified amount are sought. A plaintiff class was certified
by the District Court on February 26, 1996, although the
certification does not go to the merit of the allegations in the
complaint. Discovery is currently proceeding in this case. The
companies intend to vigorously defend this action.
It has been previously reported that Liberty is a party to
individual lawsuits and one purported class action (Carlton v.
Liberty National Life Insurance Company, Case No. CV-96-22) in the
State of Alabama in which allegations are made that an interest
sensitive life insurance policy would become paid-up or self-
sustaining after a specified number of years. Currently, Liberty
is a party to 81 individual interest sensitive cases, 54 of which
were filed by a single lawyer in Chambers County, Alabama.
Additionally, Torchmark has previously reported the case of Lawson
v. Liberty National Life Insurance Company, filed in the Circuit
Court of Jefferson County, Alabama (Civil Action No.: CV-96-01119),
where the plaintiffs seek class certification on behalf of persons
who were induced to exchange life insurance policies or the
existing policy's cash value was depleted. Liberty is currently
evaluating its defense strategy.
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 filed in
February 1990 to challenge the final judgement under Federal Rule
of Civil Procedure 60(b) was rejected by both the District Court in
1991 and the Eleventh Circuit Court of Appeals in 1992 and a Writ
of Certiorari was denied by the U.S. Supreme Court in 1993.
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. This
petition was voluntarily withdrawn on November 8, 1995, by
petitioners. On February 23, 1996, Liberty filed a petition with
the District Court requesting that it order certain contract
funeral directors to comply with their obligations under the Final
Judgment in Battle and their funeral service contracts. A petition
was filed on April 8, 1996 on behalf of a group of funeral
directors seeking to modify the 1978 decree in Battle in light of
changed economic circumstances. Liberty opposes this petition and
will vigorously defend the validity of the Final Judgment in
Battle.
Torchmark has previously reported the filing of purported
class action litigation against the Company, its subsidiary Torch
Energy Advisors Incorporated and certain Torch Energy subsidiaries
and affiliated limited partnerships in the Circuit Court of Pickens
County, Alabama (Pearson v. Torchmark Corporation, Case No. CV-95-
140). Improper payment of royalties and overriding royalties on
coalbed methane gas produced and sold from wells in the Robinson's
Bend Coal Degasification Field is asserted in this lawsuit. On
April 11, 1996, Torchmark's motion to change venue was granted and
the case has been transferred to the Circuit Court of Tuscaloosa
County, Alabama. The Company's motion to dismiss remains pending.
Based upon information presently available, and in light of
legal and other defenses available to Torchmark and its
subsidiaries, contingent liabilities arising from the 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 5. Other Information.
On April 19, 1996, a $5 million punitive judgment was entered
against Liberty by a jury in a Mobile County, Alabama Circuit Court
in Strickland v. Liberty National Life Insurance Company, Case No.
95-1399. No compensatory damages were recoverable and only $100 in
"nominal" damages were awarded in the case. The case arose out of
the termination of several existing policies and the purchase of
newer coverage. The old policies provided $11,000 face amount of
insurance, plus additional benefits for accidental death and
dismemberment. The newer coverage consisted of a $100,000 base
policy plus a paid-up rider. The cash value of the old policies
were used to purchase approximately $10,000 of paid up coverage for
natural death, but did not include any of the additional coverages.
The plaintiff alleged the existence of the additional benefits in
some of the older policies was suppressed at the time the newer
coverage was purchased. The accidental death and dismemberment
benefits would have terminated at age 65, although the plaintiff
was 68 when the case was tried.
Since the verdict in Strickland, the Circuit Court of Mobile
County, Alabama has entered an order placing all Liberty cases on
an administrative docket. Liberty has 61 active cases and 66
stayed cancer policy cases pending in Mobile County. Since 1991,
approximately 330 cases have been filed against Liberty in Mobile
County. The order removes all cases from the active trial docket
and suspends discovery after May 15, 1996, except upon order of the
Court. The special master is to have "responsibility for all
discovery matters, including consolidation where appropriate and
conducting unified settlement conferences."
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.
(i) Form 8-K dated January 15, 1996, reporting updated
status of Robertson and Mitcham litigation. No
financial statements were required to be filed.
(ii) Form 8-K dated February 1, 1996, filing press
release of even date reporting 1995 earnings of
Torchmark Corporation. No financial statements
were required to be filed.
(iii) Form 8-K dated March 13, 1996, reporting Lawson v.
Liberty National Life Insurance Company. No
financial statements were required to be filed.
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: 5/14/96 /s/ R. K. Richey
___________________________________
R. K. Richey, Chairman and Chief
Executive Officer
Date: 5/14/96 /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 March 31,
1996 1995
Net income - continuing operations $76,274,272 $68,333,479
Discontinued operations 0 288,000
Net income 76,274,272 68,621,479
Preferred dividends 0 0
Net income available to common shareh$76,274,272 $68,621,479
Weighted average shares and common
stock equivalents outstanding 71,715,019 71,542,501
Primary earnings per share:
Net income - continuing operations $1.06 $0.96
Discontinued operations 0.00 0.00
Net income $1.06 $0.96
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 5,086,548
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,281
<MORTGAGE> 60,301
<REAL-ESTATE> 143,633
<TOTAL-INVEST> 5,696,641
<CASH> 6,582
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,437,585
<TOTAL-ASSETS> 9,359,801
<POLICY-LOSSES> 4,624,685
<UNEARNED-PREMIUMS> 82,981
<POLICY-OTHER> 208,644
<POLICY-HOLDER-FUNDS> 77,813
<NOTES-PAYABLE> 895,027
193,109
0
<COMMON> 73,784
<OTHER-SE> 1,472,662
<TOTAL-LIABILITY-AND-EQUITY> 9,359,801
402,188
<INVESTMENT-INCOME> 99,417
<INVESTMENT-GAINS> 4,713
<OTHER-INCOME> 168
<BENEFITS> 264302
<UNDERWRITING-AMORTIZATION> 55457
<UNDERWRITING-OTHER> 111,768
<INCOME-PRETAX> 119,296
<INCOME-TAX> 43,643
<INCOME-CONTINUING> 76,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,274
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
