Note 11—Debt

The following table presents information about the terms and outstanding balances of Torchmark’s debt.

Selected Information about Debt Issues


						As of December 31,
						2012									2011
Description	Annual Percentage Rate			Issue Date	Periodic Interest Payments Due	Outstanding Principal (Par Value)			Outstanding Principal (Book Value)			Outstanding Principal (Fair Value)			Outstanding Principal (Book Value)
Notes, due 5/15/23⁽¹⁾⁽²⁾		7.875	%	5/93	5/15 & 11/15	$	165,612		$	163,471		$	213,270		$	163,344
Notes, due 8/1/13⁽¹⁾⁽²⁾		7.375	%	7/93	2/1 & 8/1		94,050			93,956			97,180			93,823
Senior Notes, due 6/15/16⁽¹⁾⁽⁸⁾		6.375	%	6/06	6/15 & 12/15		250,000			248,300			281,447			247,875
Senior Notes, due 6/15/19⁽¹⁾⁽⁸⁾		9.250	%	6/09	6/15 & 12/15		292,647			289,950			395,703			289,661
Senior Notes, due 9/15/22⁽¹⁾⁽⁸⁾		3.800	%	9/12	3/15 & 9/15		150,000			147,148			154,400
Issue expenses⁽³⁾																(4,132	)
Junior Subordinated
Debentures due 6/1/46⁽⁴⁾⁽⁵⁾		7.100	%	6/06	quarterly											123,711
Junior Subordinated
Debentures due 12/15/52^(6)(10)		5.875	%	9/12	quarterly		125,000			120,817			126,500
Junior Subordinated
Debentures due 3/15/36⁽⁶⁾⁽⁷⁾		0	%⁽¹¹⁾	⁽¹²⁾	quarterly		20,000			20,000			20,000

Total funded debt							1,097,309			1,083,642			1,288,500			914,282

Less current maturity of long-term debt							(94,050	)		(93,956	)		(97,180	)		0

Total long-term debt							1,003,259			989,686			1,191,320			914,282

Current maturity of long-term debt							94,050			93,956			97,180			0
Commercial Paper⁽⁹⁾							225,180			225,087			225,087			224,842

Total short-term debt							319,230			319,043			322,267			224,842


Total debt						$	1,322,489		$	1,308,729		$	1,513,587		$	1,139,124

(1)	All securities other than the Junior Subordinated Debentures have equal priority with one another.

(2)	Not callable.

(3)	Unamortized issue expenses related to Trust Preferred Securities.

(4)	Junior Subordinated Debentures are classified as “Due to affiliates” and are junior to other securities in priority of payment.

(5)	Called October 24, 2012.

(6)	Quarterly payments on the 15th of March, June, Sept., and Dec.

(7)	Callable anytime.

(8)	Callable subject to “make-whole” premium.

(9)	Classified as short-term debt.

(10)	Callable as of December 15, 2017.

(11)	Interest paid at 3 month LIBOR plus 330 basis points, resets each quarter.

(12)	Assumed upon November 1, 2012 acquisition of Family Heritage.

The amount of debt that becomes due during each of the next five years is: 2013—$319 million; 2014—$0; 2015—$0; 2016—$250; 2017—$0 and thereafter—$753 million.

Funded debt: On September 24, 2012, Torchmark issued $300 million principal amount of 3.80% Senior Notes due 2022. Interest on the Senior Notes will be payable semi-annually and will commence on March 15, 2013. As part of the offering, two of Torchmark’s insurance subsidiaries acquired a combined amount of $150 million par value of the Senior Notes. Proceeds from the issuance of this debt, net of underwriters’ discount and expenses, were $147 million with total proceeds to the Parent Company of approximately $297 million. The Senior Notes are redeemable by Torchmark in whole or in part at any time subject to a “make-whole” premium, whereby the Company would be required to pay the greater of the full principal amount of the notes or otherwise the present value of the remaining payment schedule of the notes discounted at a rate of interest equivalent to the rate of a United States Treasury security of comparable term plus a spread of 30 basis points. Torchmark used a portion of the net proceeds from the new Senior Note offering to fund the acquisition of Family Heritage as described in Note 6 - Acquisition. The Parent Company will use the remaining proceeds to retire our 7³/₈% Senior Notes that mature in August, 2013 and for other corporate purposes.

Additionally, on September 24, 2012, Torchmark completed the public offering of its 5.875% Junior Subordinated Debentures due 2052 for an aggregate principal amount of $125 million. Proceeds from this offering were $121 million, net of underwriters’ discount and issue expenses. These debentures pay interest quarterly commencing December 15, 2012. The securities are redeemable on December 15, 2052, and are first callable in whole or in part by Torchmark on or after December 15, 2017. Expenses of $4.2 million related to the offering have been netted against long-term debt and will be amortized over the forty-year redemption period. Net proceeds were used to fund the redemption of Torchmark’s 7.1% Trust Preferred Securities discussed below.

On October 24, 2012, Torchmark’s 7.1% Trust Originated Preferred Securities were redeemed in the amount of $120 million plus accrued dividends at a total cost of $121 million. These securities were originally issued in 2006 as preferred securities of Torchmark’s Capital Trust III, a deconsolidated variable interest entity. Upon redemption of these securities, Capital Trust III as well as the 7.1% Junior Subordinated Debentures due to that Trust in the amount of $124 million were liquidated. An after-tax loss of $2.7 million was recorded on this redemption in the fourth quarter of 2012 within “Realized investment gains (losses),” representing the write-off of the unamortized issue expenses.

Capital Trust III, which held the Trust Preferred Securities, was a variable interest entity in which Torchmark was not the primary beneficiary. Therefore, Torchmark was prohibited by accounting rules from consolidating Capital Trust III even though it had 100% ownership, complete voting control, and had guaranteed the performance of the trust. Accordingly, prior to redemption, Torchmark carried its 7.1% Junior Subordinated Debentures due to Capital Trust III as a liability under the caption “Due to Affiliates” on its Consolidated Balance Sheets. Expenses related to the original offering reduced long-term debt and were amortized over the forty-year redemption period.

In connection with the purchase of Family Heritage, Torchmark assumed $20 million par amount of Trust Preferred Securities that were liabilities of Family Heritage’s former parent. These securities, which are due March 15, 2036, had a fair value of $20 million on the November 1, 2012 purchase date and were carried at an amortized cost of $20 million at December 31, 2012. They bear interest at a variable rate paid quarterly, determined as the three-month LIBOR plus 330 basis points which is reset each quarter. They are callable by Torchmark at any time.

During 2010, Torchmark acquired $7.4 million par value of its 9¹/₄% Senior Notes ($7.3 million book value) at a cost of $8.9 million. This repurchase resulted in a pre-tax loss of $1.6 million ($1.1 million after tax).

Commercial Paper: In December, 2010, Torchmark entered into a credit facility with a group of lenders allowing unsecured borrowings and stand-by letters of credit up to $600 million. The facility includes a provision which allows Torchmark to increase the facility limit by $200 million if certain conditions are met. The Company also has the ability to request up to $250 million in letters of credit to be issued against the facility. The agreement is set to terminate on January 7, 2015. The credit facility is further designated as a back-up credit line for a commercial paper program, where Torchmark may borrow from either the credit line or issue commercial paper at any time, with total commercial paper outstanding not to exceed the facility limit less any letters of credit issued. Interest is charged at variable rates. The facility does not have a ratings-based acceleration trigger which would require early payment. A facility fee is charged for the entire facility. There is also an issuance fee for letters of credit issued. Torchmark is subject to certain covenants for the agreements regarding capitalization and earnings, with which it was in compliance at December 31, 2012 and throughout the three-year period ended December 31, 2012. Borrowings on the credit facilities are reported as short-term debt on the Consolidated Balance Sheets. A table presenting selected information concerning Torchmark’s short-term borrowings is presented below.

Short-Term Borrowings


	At December 31,
	2012			2011
Balance at end of period	$	225,180		$	225,000
Annualized interest rate		.36	%		.55	%
Letters of credit outstanding	$	198,000		$	198,000
Remaining amount available under credit line		176,820			177,000


	For the Year Ended December 31,
	2012			2011			2010
Average balance outstanding during period	$	250,401		$	206,148		$	196,317
Daily-weighted average interest rate*		.41	%		.39	%		.43	%
Maximum daily amount outstanding during period	$	385,000		$	271,761		$	249,950

Annualized