0000320335-95-000006.txt : 19950815 0000320335-95-000006.hdr.sgml : 19950815 ACCESSION NUMBER: 0000320335-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TORCHMARK CORP CENTRAL INDEX KEY: 0000320335 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 630780404 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08052 FILM NUMBER: 95562883 BUSINESS ADDRESS: STREET 1: 2001 3RD AVE S CITY: BIRMINGHAM STATE: AL ZIP: 35233 BUSINESS PHONE: 2053254200 FORMER COMPANY: FORMER CONFORMED NAME: TORCHMARK CORP SAVINGS & INVESTMENT PLAN DATE OF NAME CHANGE: 19820825 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY NATIONAL INSURANCE HOLDING CO DATE OF NAME CHANGE: 19820701 10-Q 1 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 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 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 EX-11 2 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 ============= ============= EX-27 3
7 1,000 6-MOS DEC-31-1995 JUN-30-1995 4,795,874 0 0 28,350 17,014 166,274 5,675,102 3,728 0 1,316,375 9,065,363 4,377,593 88,710 198,892 74,596 974,151 73,784 193,074 0 1,460,923 9,065,363 775,593 177,070 0 104,530 506,009 100,121 198,986 209,690 71,301 138,644 0 0 0 138,644 1.94 0 0 0 0 0 0 0 0