Business Segments (Tables)

6 Months Ended

Jun. 30, 2013

Schedule of Adjustments for Difference in Interim Medicare Part D Results for Segment Purposes and Gaap Table

An analysis of the adjustments for the difference in the interim results as presented for segment purposes and GAAP for Medicare Part D is as follows.


	Six months ended
	June 30,
	2013			2012
Benefit costs deferred	$	29,945		$	32,640
Government risk-sharing premium adjustment		(14,895	)		(11,274	)

Pre-tax addition to segment interim period income	$	15,050		$	21,366

After tax amount	$	9,782		$	13,888

Reconciliation of Segment Operating Information to Consolidated Statement of Operations

The following tables total the components of Torchmark’s operating segments and reconcile these operating results to its pretax income and each significant line item in its Consolidated Statements of Operations.


	For the six months ended June 30, 2013
	Life			Health			Annuity			Investment			Other & Corporate			Adjustments			Consolidated
Revenue:
Premium	$	945,923		$	589,560		$	287								$	14,895	⁽¹⁾	$	1,550,665
Net investment income										$	367,204						(12,401	)⁽⁴⁾		354,803
Other income													$	1,227			(146	)⁽³⁾		1,081

Total revenue		945,923			589,560			287			367,204			1,227			2,348			1,906,549
Expenses:
Policy benefits		615,990			409,043			21,524									29,945	⁽¹⁾		1,076,502
Required interest on:
Policy reserves		(251,356	)		(29,372	)		(29,105	)		309,833									0
Deferred acquisition costs		82,340			11,504			959			(94,803	)								0
Amortization of acquisition costs		162,534			36,785			4,883												204,202
Commissions, premium taxes, and non-deferred acquisition costs		67,575			45,240			30									(146	)⁽³⁾		112,699
Insurance administrative expense ⁽²⁾														88,062			1,155	⁽⁵⁾		89,217
Parent expense														4,927			500	⁽⁶⁾		5,427
Stock compensation expense														12,956						12,956
Interest expense											41,705									41,705

Total expenses		677,083			473,200			(1,709	)		256,735			105,945			31,454			1,542,708

Subtotal		268,840			116,360			1,996			110,469			(104,718	)		(29,106	)		363,841
Nonoperating items																	16,705	^(1,5,6)		16,705
Amortization of low-income housing																	12,401	⁽⁴⁾		12,401

Measure of segment profitability (pretax)	$	268,840		$	116,360		$	1,996		$	110,469		$	(104,718	)	$	0			392,947

Deduct applicable income taxes																				(128,632	)

Segment profits after tax																				264,315
Add back income taxes applicable to segment profitability																				128,632
Add (deduct) realized investment gains (losses)																				2,006
Deduct Part D adjustment ⁽¹⁾																				(15,050	)
Deduct amortization of low-income housing ⁽⁴⁾																				(12,401	)
Deduct Guaranty Fund Assessment ⁽⁵⁾																				(1,155	)
Deduct legal settlement expense ⁽⁶⁾																				(500	)

Pretax income from continuing operations per Consolidated Statement of Operations																			$	365,847

(1)	Medicare Part D items adjusted to GAAP from the segment analysis, which matches expected benefits with policy premium.

(2)	Administrative expense is not allocated to insurance segments.

(3)	Elimination of intersegment commission.

(4)	Amortization of low-income housing expense, considered a component of income tax expense in the segment analysis.

(5)	Guaranty Fund Assessment.

(6)	Legal settlement expense.

Reconciliation of Segment Operating Information to the Consolidated Statement of Operations


	For the six months ended June 30, 2012
	Life			Health			Annuity			Investment			Other & Corporate			Adjustments			Consolidated
Revenue:
Premium	$	902,828		$	509,676		$	279								$	11,274	⁽¹⁾	$	1,424,057
Net investment income										$	360,329						(11,032	)^(2,5)		349,297
Other income													$	865			(168	)⁽⁴⁾		697

Total revenue		902,828			509,676			279			360,329			865			74			1,774,051
Expenses:
Policy benefits		583,472			359,489			21,853									32,640	⁽¹⁾		997,454
Required interest on:
Policy reserves		(238,656	)		(18,700	)		(29,766	)		287,122									0
Deferred acquisition costs		81,814			9,196			1,177			(92,187	)								0
Amortization of acquisition costs		155,649			32,243			5,207												193,099
Commissions, premium taxes, and non-deferred acquisition costs		70,254			31,234			36									(168	)⁽⁴⁾		101,356
Insurance administrative expense ⁽³⁾														80,427						80,427
Parent expense														4,210						4,210
Stock compensation expense														11,237						11,237
Interest expense											39,188						132	⁽²⁾		39,320

Total expenses		652,533			413,462			(1,493	)		234,123			95,874			32,604			1,427,103

Subtotal		250,295			96,214			1,772			126,206			(95,009	)		(32,530	)		346,948
Nonoperating items																	21,366	⁽¹⁾		21,366
Amortization of low-income housing																	11,164	⁽⁵⁾		11,164

Measure of segment profitability (pretax)	$	250,295		$	96,214		$	1,772		$	126,206		$	(95,009	)	$	0			379,478

Deduct applicable income taxes																				(124,209	)

Segment profits after tax																				255,269
Add back income taxes applicable to segment profitability																				124,209
Add (deduct) realized investment gains (losses)																				9,667
Deduct Part D adjustment ⁽¹⁾																				(21,366	)
Deduct amortization of low-income housing ⁽⁵⁾																				(11,164	)

Pretax income from continuing operations per Consolidated Statement of Operations																			$	356,615

(1)	Medicare Part D items adjusted to GAAP from the segment analysis, which matches expected benefits with policy premium.

(2)	Reclassification of interest amount due to accounting rule requiring deconsolidation of Trust Preferred Securities. Management views the Trust Preferreds as consolidated debt.

(3)	Administrative expense is not allocated to insurance segments.

(4)	Elimination of intersegment commission.

(5)	Amortization of low-income housing expense, considered a component of income tax expense in the segment analysis.

Analysis of Profitability By Segment

The following table summarizes the measures of segment profitability for comparison. It also reconciles segment profits to net income.

Analysis of Profitability by Segment

(Dollar amounts in thousands)


	Six months ended June 30,						Increase (Decrease)
	2013			2012			Amount			%
Life insurance	$	268,840		$	250,295		$	18,545			7
Health insurance		116,360			96,214			20,146			21
Annuity		1,996			1,772			224
Investment		110,469			126,206			(15,737	)		(12	)
Other and corporate:
Other income		1,227			865			362			42
Administrative expense		(88,062	)		(80,427	)		(7,635	)		9
Corporate		(17,883	)		(15,447	)		(2,436	)		16

Pretax total		392,947			379,478			13,469			4
Applicable taxes		(128,632	)		(124,209	)		(4,423	)		4

Total		264,315			255,269			9,046			4
Reconciling items, net of tax:
Realized gains (losses) - Investments		76			6,284			(6,208	)
Part D adjustment		(9,782	)		(13,888	)		4,106
Guaranty Fund Assessment		(751	)		0			(751	)
Legal settlement expense		(325	)		0			(325	)

Net income	$	253,533		$	247,665		$	5,868			2