-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FSypZLKBYRqw9odg8zWW4sGp4FFBtpkFtNpbD/FTPFjELGKT5QYzIuIPr5Zr4g1S fnMNnB54rKQcHZE/Rtru9Q== 0000931763-97-000836.txt : 19970515 0000931763-97-000836.hdr.sgml : 19970515 ACCESSION NUMBER: 0000931763-97-000836 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TORCHMARK CORP CENTRAL INDEX KEY: 0000320335 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] 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: 97605289 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 FIRST QUARTER 10-Q 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, 1997 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 required 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, 1997 Common Stock, 69,275,222 $1.00 Par Value Index of Exhibits (Page 10) Total number of pages included are 11. TORCHMARK CORPORATION INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheet 1 Consolidated Statement of Operations 2 Consolidated Statement of Cash Flow 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II. OTHER INFORMATION Item 1. Legal Proceedings 9 Item 6. Exhibits and Reports on Form 8-K 10
PART I - FINANCIAL INFORMATION Item 1. Financial Statements TORCHMARK CORPORATION CONSOLIDATED BALANCE SHEET (Amounts in thousands)
March 31, December 31, Assets: 1997 1996 ------------------ --------------------- Investments: Fixed maturities, available for sale, at fair value (amortized cost: 1997 - $5,317,182; 1996 - $5,265,499) $5,272,812 $5,328,276 Equity securities, at fair value (cost: 1997 - $3,340; 1996 - $3,799) 9,075 8,858 Mortgage loans, at cost (estimated fair value: 1997 - $70,165; 1996 - $61,970) 73,978 64,353 Investment real estate, at depreciated cost 152,164 150,490 Policy loans 209,811 206,959 Other long-term investments ( at fair value) 96,895 95,485 Short-term investments 226,225 85,099 ------------------ --------------------- Total investments 6,040,960 5,939,520 Cash 4,223 18,272 Investment in unconsolidated subsidiaries 91,341 88,051 Accrued investment income 92,892 91,837 Other receivables 121,644 112,291 Deferred acquisition costs 1,291,847 1,253,727 Value of insurance purchased 237,156 244,368 Property and equipment 52,039 50,323 Goodwill 536,796 540,540 Other assets 32,755 41,846 Separate account assets 1,491,522 1,420,025 ------------------ --------------------- Total assets $9,993,175 $9,800,800 ================== ===================== Liabilities and Shareholders' Equity: Liabilities: Future policy benefits $4,850,665 $4,797,738 Unearned and advance premiums 84,737 83,670 Policy claims and other benefits payable 216,812 220,121 Other policyholders' funds 80,864 80,812 ------------------ --------------------- Total policy liabilities 5,233,078 5,182,341 Accrued income taxes 343,421 340,287 Short-term debt 87,369 40,910 Long-term debt (estimated fair value: 1997 - $795,657 ; 1996 - $814,082) 792,071 791,880 Other liabilities 214,574 202,869 Separate account liabilities 1,491,522 1,420,025 ------------------ --------------------- Total liabilities 8,162,035 7,978,312 Monthly income preferred securities (estimated fair value: 1997 - $210,000 ; 1996 - $210,000 ) 193,159 193,145 Shareholders' equity: Preferred stock 0 0 Common stock 73,784 73,784 Additional paid-in capital 144,422 141,701 Unrealized investment gains, net of tax (14,055) 46,581 Retained earnings 1,602,646 1,549,391 Treasury stock, at cost (168,816) (182,114) ------------------ --------------------- Total shareholders' equity 1,637,981 1,629,343 ------------------ --------------------- Total liabilities and shareholders' equity $9,993,175 $9,800,800 ================== =====================
See accompanying Notes to Consolidated Financial Statements. 1 TORCHMARK CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited and in thousands except per share data)
Three Months Ended March 31, ------------------------------------- 1997 1996 -------------- -------------- Revenue: Life premium $ 222,360 $ 209,307 Health premium 187,600 188,168 Other premium 5,730 4,713 -------------- -------------- Total premium 415,690 402,188 Financial services revenue 48,363 44,337 Net investment income 103,634 99,417 Realized investment gains (losses) (10,831) 4,713 Other income 214 168 -------------- -------------- Total revenue 557,070 550,823 Benefits and expenses: Life policyholder benefits 144,948 136,406 Health policyholder benefits 114,701 115,521 Other policyholder benefits 13,432 12,375 -------------- -------------- Total policyholder benefits 273,081 264,302 Amortization of deferred acquisition costs 56,523 55,457 Commissions and premium taxes 35,982 36,012 Financial services selling expense 12,327 12,286 Other operating expense 37,848 40,082 Amortization of goodwill 3,744 3,744 Interest expense 17,874 19,644 -------------- -------------- Total benefits and expenses 437,379 431,527 Income before income taxes and equity in earnings of unconsolidated affiliates 119,691 119,296 Income taxes (43,456) (43,643) Equity in earnings of unconsolidated subsidiaries 3,482 3,040 Monthly income preferred securities dividend (2,389) (2,419) -------------- -------------- Net income $ 77,328 $ 76,274 ============== ============== Net income per share $ 1.11 $ 1.06 ============== ==============
See accompanying Notes to Consolidated Financial Statements. 2 TORCHMARK CORPORATION CONSOLIDATED STATEMENT OF CASH FLOW (Amounts in thousands)
Three Months Ended March 31, ----------------------------------- 1997 1996 --------------- -------------- Cash provided from operations $129,692 $125,866 Cash provided from (used for) investment activities: Investments sold or matured: Fixed maturities available for sale - sold 238,219 37,398 Fixed maturities available for sale - matured, called, and repaid 100,604 86,861 Other long-term investments 12,471 6,296 --------------- -------------- Total investments sold or matured 351,294 130,555 Investments acquired: Fixed maturities (401,871) (168,310) Other long-term investments (27,235) (14,825) --------------- -------------- Total investments acquired (429,106) (183,135) Net decrease (increase) in short-term investments (141,126) (33,182) Proceeds from sale of discontinued energy operations 25,502 0 Dividend from discontinued affiliate 0 35,625 Disposition of properties 250 27 Additions to properties (1,029) (1,250) --------------- -------------- Cash used for investment activities (194,215) (51,360) Cash provided from (used for) financing activities: Issuance of common stock 9,438 2,192 Additions to debt 46,591 0 Repayments of debt (65) (86,477) Cash dividends paid to shareholders (22,404) (20,785) Net receipts from deposit product operations 16,914 23,988 --------------- -------------- Cash used for financing activities 50,474 (81,082) Net increase (decrease) in cash (14,049) (6,576) Cash at beginning of year 18,272 13,158 --------------- -------------- Cash at end of period $4,223 $6,582 =============== ==============
See accompanying Notes to Consolidated Financial Statements. 3 TORCHMARK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1997, and the consolidated results of operations for the periods ended March 31, 1997, and 1996. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results For the first quarter of 1997, Torchmark Corporation's ("Torchmark's") net income was $77 million, compared with $76 million for the same period of 1996. On a per-share basis, net income was $1.11 in 1997, gaining 5% over 1996 net income of $1.06. During the first quarter of 1997, a net realized investment loss of $11 million was taken to offset tax return gains, as compared with a net realized gain of $5 million for the first quarter of 1996. After exclusion of realized investment gains or losses and the related adjustment to deferred acquisition costs, net of taxes, earnings per share were $1.21 in the 1997 period, compared with $1.03 in the same period of 1996, an increase of 17%. Average shares outstanding declined 3% to 69.8 million in the 1997 period, as a result of Torchmark's share purchases made in the latter half of 1996. Revenues rose 1% to $557 million in the 1997 quarter. Excluding realized investment gains and losses, the revenue increase was 4% over the 1996 period. Total premium increased 3% to $416 million. Life premium grew 6% to $222 million for the three months of 1997, while health premium was flat at $188 million. Life premium comprised 53% of total premium in the 1997 period, compared with 52% in the 1996 period and 37% in 1992. The growth in life premium relative to health premium underscores Torchmark's increased emphasis on life products. Financial services revenues gained 9% to $48 million, while net investment income rose 4% to $104 million. Litigation expense at Torchmark's Alabama-based insurer, Liberty National Life Insurance Company, declined $4 million in a quarter-over-quarter comparison, contributing to a decline in Torchmark's operating expense. Operating expense declined 5% to $42 million for the 1997 three months. As a percentage of revenue, operating expenses fell from 8.0% in the 1996 period to 7.5%. Interest expense declined $2 million or 9% because of lower average short-term debt, resulting from debt paydowns since March, 1996. A discussion of Torchmark's operations follows under the appropriate captions. Life insurance. Life insurance premium rose 6% to $222 million in the first quarter of 1997, from $209 million in the same period a year ago. Annualized life premium in force grew 6% over the prior year and was $961 million at March 31, 1997, compared with $904 million a year earlier. Annualized life insurance premium in force represented 56% of Torchmark's total annualized premium in force at March 31, 1997, compared with 54% the same date a year earlier. Life insurance sales, in terms of annualized premium issued, were $54 million in both the 1997 and 1996 first quarters. Benefits and acquisition expenses as a percentage of premium were stable in both periods at 82%. Health insurance. Premium income for Torchmark's health insurance products was level at $188 million for the 1997 first quarter. Annualized health insurance premium in 5 force rose 1% to $763 million at March 31, 1997. This is Torchmark's first year-over-year increase in annualized health premium in force since 1993. Medicare Supplement annualized premium in force gained slightly to $532 million at March 31, 1997 compared with $531 million a year earlier. The improvement in Medicare Supplement in force premium resulted primarily from premium rate increases. Cancer annualized premium in force grew 11% to $127 million, also as a result of premium rate increases. Comparing the first three months of 1997 to the same period of 1996, sales of health insurance, as measured by annualized premium issued, were level at $25 million. Operating margins for health insurance remained steady compared to the year ago quarter. Annuities. Torchmark's annuities are sold on both a fixed and a variable basis. Fixed annuity collections were $20 million in the 1997 period, compared with $22 million collected in the 1996 period. Collections of variable annuities were $48 million in the 1997 quarter, declining slightly from variable collections of $49 million in 1996. Fixed annuities on deposit with Torchmark were $980 million at March 31, 1997, gaining 5% over the same date a year ago. The variable annuity balance on deposit rose 27% during the same period. This balance was $1.4 billion at March 31, 1997, compared with $1.1 billion a year ago. Growth in the variable account balance was a result of strong financial markets throughout 1996 and early 1997 as well as the additional collections. Policy charges for annuities for the 1997 three months were $5.7 million compared with $4.7 million for the 1996 period, an increase of 22%. Policy charges are assessed against the annuity account balance periodically for insurance risk, sales, administration, and cash 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 4% in the first quarter of 1997 to $104 million from $99 million in the same quarter of 1996. Mean invested assets at amortized cost increased to $6.0 billion for the quarter, a 6%increase over the previous period. First quarter 1997 yields available for new investments were significantly higher than yields in the 1996 first quarter. During the 1997 quarter, fixed maturity investments of $397 million were made at an average yield of 7.3% and had an estimated average life of 9.4 years, compared with $168 million made during the same quarter of 1996, with an average yield of 6.5% and an average maturity of 12.1 years. Sales of fixed maturities in 1997 accounted for the higher level of funds available for investment. Acquisitions continue to emphasize call protected, medium maturity obligations. Sales of municipal and corporate holdings in the amount of $238 million were completed in the 1997 quarter. These sales were made as a result of the declining attractiveness of tax-sheltered income, relative strength in the municipal market, and the desire to offset tax return realized capital gains with losses. Fixed maturity investments represented 87% of total invested assets at March 31, 6 1997. Although interest rates increased during the quarter, new investments were made slightly below the average portfolio yield. At quarter end, the fixed maturity portfolio had a 7.6 year average life and effective duration of 4.8 years, compared with 7.8 years and 4.9 years, respectively, for 1996 year end. Because of the increase in rates during 1997, the $5.3 billion portfolio had a $44 million, or 1%, unrealized loss at the end of the quarter. Financial services. Financial services revenues increased 9% to $48 million for the first quarter of 1997 over the prior period. Asset management fees, the largest component of financial services revenues, rose 11% to $27 million. These fees are based on the amount of assets under management. Average assets under management rose 4% in the 1997 quarter versus the same 1996 period. Assets under management were $18.8 billion at March 31, 1997, $18.9 billion at year-end 1996, and $19.1 billion at March 31, 1996. Growth in fee revenue was greater than the growth in average assets due to the loss of several large accounts in 1996 with lower than average fees. Commission revenues from investment product sales declined 3% to $17.7 million in the 1997 period from $18.2 million for the prior period. Investment product sales of $362 million in the 1997 period declined 11% compared with $405 million in the same period of 1996, which was the highest collection quarter on record. Sales of United Funds were down 3% to $262 million, while sales of Waddell & Reed Funds declined 40% to $47 million. Variable annuity sales fell 7% to $53 million. Commissions from the sale of insurance products were $3.4 million in the 1997 quarter, compared with $3.5 million in the 1996 quarter. Service fees increased 27% to $7.5 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 and variable annuity products of United Investors Life Insurance Company is eliminated in consolidation. Direct expenses for financial services declined as a percentage of revenues from 27.7% in the 1996 quarter to 25.5% in the 1997 quarter because most of these expenses are fixed costs. The financial services pretax profit margin increased from 52% in the 1996 period to 54%. Financial Condition Liquidity. Torchmark's liquidity is very strong, as evidenced by its positive cash flow, its marketable investments, and the availability of a line of credit facility. Torchmark's insurance and asset-management operations generate cash flows in excess of immediate requirements. Torchmark's net cash inflows from operations were $130 million in the first three months of 1997, compared with $126 million in the same period of 1996, resulting in a 3% increase. In addition to cash flows from operations, Torchmark received $101 million in investment maturities or repayments during 1997. At the end of March, 1997, Torchmark had $230 million in cash and short- term investments, more than double the $103 million at December 31, 1996. Cash and short-term investments represented 2.3% of total assets at March 31, 1997, compared with approximately 1% at year-end 1996. In addition, Torchmark's entire portfolio of fixed- 7 income and equity securities, in the amount of $5.3 billion at market value on March 31, 1997, is available for sale should a need arise. The increase in short-term investments was caused by the previously-mentioned sales of fixed maturities at 1997 first quarter end to offset taxable realized gains. These funds were reinvested early in April, 1997. Torchmark has in place a line of credit facility, which is also designed as a backup credit line for a commercial paper program. This program provides credit up to a maximum amount of $600 million, and permits Torchmark to borrow from either the credit line or issue commercial paper at any time up to the combined facility maximum 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 March 31, 1997. At that date, Torchmark had commercial paper outstanding in the amount of $87 million and no borrowings on the line of credit. At December 31, 1996, $41 million in commercial paper was outstanding. Capital resources. Torchmark's debt outstanding at March 31, 1997 was $879 million, compared with $833 million at December 31, 1996 and $895 million at March 31, 1996. Debt as a percentage of total capitalization was 32% at March 31, 1997, 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 also 32% at year-end 1996 and 34% at March 31, 1996. Torchmark's 8 5/8% Sinking Fund Debentures due 2017 are subject to a mandatory $8 million repayment during the twelve months ending March 31, 1998. In addition to this mandatory repayment, Torchmark may elect to repay an additional $12 million during this same period at par value. Torchmark currently intends to make both of these repayments, with accrued interest, on July 15, 1997. Shareholders' equity was $1.64 billion at March 31, 1996, compared with $1.63 billion at 1996 year end. Shareholders' equity was $1.55 billion one year ago. Book value per share was $23.40 at quarter end, compared with $23.38 at year-end 1996 and $21.55 a year earlier. Shareholders' equity is 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 was $1.66 billion at March 31, 1997, compared with $1.59 billion at 1996 year end and $1.52 billion a year ago. On a per share basis, book value was $23.76 at the end of the first quarter of 1997, compared with $22.84 at year-end 1996 and $21.15 at March 31, 1996. Growth in shareholders' equity over the prior year was attained despite share purchases during the second half of 1996 in the amount of $107 million. Annualized return on common equity, adjusted to exclude the effects of the accounting rule and realized investment gains and losses, was 20.7% for the 1997 three- 8 month period, compared with 19.8% for the same period of 1996. Torchmark intends to effect a two-for-one stock split in the form of a stock dividend to be paid on August 1, 1997. This split is conditioned on shareholder approval of an increase in authorized common stock to a total of 320 million shares. 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 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 March 31, 1996, Liberty was a party to approximately 290 active lawsuits (including 23 employment related cases and excluding interpleader and stayed cases), approximately 255 of which were Alabama proceedings in which punitive damages were sought. Liberty faces trial settings in these cases on an on-going basis. As previously reported in a Form 8-K dated April 10, 1996, Torchmark's subsidiary Liberty is a party to Harris v. Liberty National Life Insurance ----------------------------------------- Company (CV-96-01836), a purported class action filed in the Circuit Court of - ------- Jefferson County, Alabama in March 1996. In this action, the plaintiffs allege that a class of persons were insured under Liberty cancer policies when Liberty knew that such persons were participants in Medicaid, Medicare and/or CHAMPUS and were not entitled to retain any benefits under these policies. No class has been certified in Harris. On March 21, 1997, a purported class action with ------ substantially similar allegations was filed in the Circuit Court of St. Clair County, Alabama (Gentry v. Liberty National Life Insurance Company, CV-97-61 ). ------------------------------------------------- A class certification hearing in Gentry has been set for May 21, 1997. ------ 9 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. A Form 8-K dated March 13, 1997 was filed to report the U.S. Supreme Court's dismissal of certiorari in Adams v. Robertson and Liberty National Life -------------------------------------------- Insurance Company. No financial statements were required to be filed. - ----------------- 10 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: May 9, 1997 /s/ Keith A. Tucker ---------------------------------- Keith A. Tucker, Vice Chairman Date: May 9, 1997 /s/ Gary L. Coleman ---------------------------------- Gary L. Coleman, Vice President and Chief Accounting Officer EX-11 2 COMPUTATION OF PER SHARE EARNINGS Exhibit 11. Statement re computation of per share earnings. TORCHMARK CORPORATION COMPUTATION OF EARNINGS PER SHARE
Three months ended March 31, 1997 1996 -------------------- ------------------- Net income $77,327,581 $76,274,272 Preferred dividends 0 0 -------------------- ------------------- Net income available to common shareholders $77,327,581 $76,274,272 ==================== =================== Weighted average shares and common stock equivalents outstanding 69,805,861 71,715,019 ==================== =================== Primary earnings per share: Net income $1.11 $1.06 ==================== ===================
EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 5,272,812 0 0 9,075 73,978 152,164 6,040,960 4,223 0 1,529,003 9,993,175 4,850,665 84,737 216,812 80,864 879,440 193,159 0 73,784 1,564,197 9,993,175 415,690 103,634 (10,831) 48,577 273,081 56,523 107,775 119,691 43,456 77,328 0 0 0 77,328 1.11 0 0 0 0 0 0 0 0
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