Torchmark Corporation Reports 9% Increase in Second Quarter 2002 Earnings Per Share From Operations
July 18, 2002
Torchmark Corporation (NYSE: TMK) reported today that net operating income for the second quarter of 2002 was $.87 per share ($106 million), compared with $.80 per share ($101 million) for the second quarter of 2001, a 9% per share increase. For the first six months of 2002, net operating income was $1.72 per share ($211 million) compared with $1.58 per share ($200 million) for the same period of 2001. The 2001 results exclude amortization of goodwill.
Net operating income per share for the second quarter and the first six months of 2001 were previously reported as $.78 and $1.53, respectively, which included amortization of goodwill. Torchmark stopped amortizing goodwill on January 1, 2002, in accordance with Financial Accounting Standard 142.
Net income for the second quarter of 2002 was $.52 per share ($63 million) compared with $.58 per share ($73 million) for the year-ago quarter. Net income for the first six months of 2002 was $1.32 per share ($161 million) compared with $1.34 per share ($170 million) for the same year-ago period. Impacting 2002 net income is a second quarter write-down of certain bonds in the investment portfolio from book value of $110 million to $27 million, resulting in an after-tax realized loss of $54 million.
HIGHLIGHTS - comparing the third quarter of 2002 with the third quarter of 2001:
- Direct Response led life sales with $31 million of annualized premium sold in the quarter, up 6% from the year-ago period.
- American Income Agency led growth in life sales with $25 million of annualized premium sold in the quarter, a 62% increase over the year-ago quarter.
- Health sales grew 6% for the quarter, led by the $23 million in health sales by the UA Independent Agency.
- Excess Investment Income of $73 million grew 16% compared with the year-ago quarter, in part due to a 38% decline in financing costs.
PER SHARE AMOUNTS
| |
Quarter Ended |
|
Six Months Ended |
|
| |
June 30, |
|
June 30, |
|
| |
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
| |
| Insurance underwriting income |
|
$.74 |
|
$.74 |
|
0 |
|
$1.47 |
|
$1.47 |
|
0 |
| Excess investment income |
|
.60 |
|
.50 |
|
20 |
|
1.19 |
|
.97 |
|
23 |
| Other |
|
(.03) |
|
(.03) |
|
|
|
(.06) |
|
(.06) |
|
|
| Income tax |
|
(.44) |
|
(.41) |
|
7 |
|
(.88) |
|
(.80) |
|
10 |
| Net Operating Income |
|
$.87 |
|
$.80 |
|
9 |
|
$1.72 |
|
$1.58 |
|
9 |
| |
| Realized Gains (Losses), Net of Tax |
|
| Investments |
|
(.42) |
|
.03 |
|
|
|
(.42) |
|
.05 |
|
|
| Valuation of Interest Rate Swaps |
|
.06 |
|
(.01) |
|
|
|
.02 |
|
.01 |
|
|
| Goodwill Amortization |
|
- |
|
(.02) |
|
|
|
- |
|
(.05) |
|
|
| Loss on Redemption of Debt, Net of Tax |
|
- |
|
(.01) |
|
|
|
- |
|
(.01) |
|
|
| Change in Accounting Principle, Net of Tax |
|
- |
|
(.21) |
|
|
|
- |
|
(.21) |
|
|
| Discontinued Operations |
|
- |
|
- |
|
|
|
- |
|
(.03) |
|
|
| Net income |
|
$.52 |
|
$.58 |
|
|
|
$1.32 |
|
$1.34 |
|
|
| |
INSURANCE OPERATIONS - comparing the third quarter of 2002 with the third quarter of 2001:
Premium Revenue
Total premium revenue for the quarter increased 2% to $572 million. Life premium revenue increased 6% to $307 million. Health premium revenue remained flat at $255 million. Annuity premium declined 45% to $10 million.
| |
Premium Revenue |
| |
(dollars in millions) |
| |
| |
Life |
|
Health |
|
Total |
| |
Quarter Ended |
|
Quarter Ended |
|
Quarter Ended |
| |
June 30, |
|
June 30, |
|
June 30, |
| |
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
| |
| Direct Response |
|
$79.6 |
|
$74.8 |
|
7 |
|
$6.0 |
|
$4.2 |
|
41 |
|
$85.6 |
|
$79.0 |
|
8 |
| |
| LNL Exclusive Agency |
|
75.9 |
|
75.2 |
|
1 |
|
39.5 |
|
38.8 |
|
2 |
|
115.4 |
|
114.0 |
|
1 |
| |
| American Income Agency |
|
68.9 |
|
61.1 |
|
13 |
|
12.9 |
|
12.3 |
|
5 |
|
81.8 |
|
73.3 |
|
12 |
| |
| Military |
|
36.6 |
|
32.8 |
|
12 |
|
- |
|
- |
|
- |
|
36.6 |
|
32.8 |
|
12 |
| |
| United American Agencies |
|
| Branch Office Agency |
|
5.0 |
|
4.8 |
|
2 |
|
80.4 |
|
81.8 |
|
(2) |
|
85.4 |
|
86.6 |
|
(1) |
| Independent Agency |
|
12.6 |
|
11.8 |
|
6 |
|
115.8 |
|
116.6 |
|
(1) |
|
128.4 |
|
128.4 |
|
0 |
| |
| Other Life |
|
28.0 |
|
28.3 |
|
(1) |
|
- |
|
- |
|
- |
|
28.0 |
|
28.3 |
|
(1) |
| |
| Total Life and Health |
|
$306.6 |
|
$288.9 |
|
6 |
|
$254.6 |
|
$253.7 |
|
0 |
|
$561.2 |
|
$542.5 |
|
3 |
| |
| Annuity |
|
10.4 |
|
18.7 |
|
(45) |
| |
| Total |
|
$571.5 |
|
$561.2 |
|
2 |
| |
Insurance Underwriting Income
Insurance net underwriting income declined 3% to $91 million. The life underwriting margin (before administrative expenses) was 24% of premium and the health underwriting margin was 17% of premium. Insurance underwriting results are summarized in the following chart:
| |
Insurance Net Underwriting Income |
| |
(dollars in millions) |
| |
|
Quarter Ended |
|
% of |
|
Quarter Ended |
|
% of |
|
% |
| |
|
September 30, 2002 |
|
Premium |
|
September 30, 2001 |
|
Premium |
|
Chg. |
| Insurance underwriting margins: |
|
| Life |
|
$72.9 |
|
24 |
|
$69.9 |
|
24 |
|
4 |
| Health |
|
42.5 |
|
17 |
|
44.8 |
|
18 |
|
(5) |
| Annuity |
|
4.4 |
|
|
|
6.8 |
|
(36) |
| |
| Other income |
|
1.0 |
|
1.1 |
|
| Administrative expenses |
|
(30.2) |
|
5 |
|
(29.5) |
|
5 |
|
2 |
| |
| Insurance Net Underwriting Income |
|
$90.5 |
|
$93.1 |
|
(3) |
| |
Sales
Total insurance sales for the quarter were $140 million, a 13% increase. Total life insurance sales were $88 million, up 17%. Life sales were led by Direct Response with sales of $31 million, an increase of 6%, followed by life sales of $25 million by American Income, an increase of 62%.
While Medicare supplement sales declined 27% to $27 million, total health insurance sales increased 6% to $53 million.
Sales by distribution channels are shown in the following chart:
| |
Annualized Life and Health Premium Issued |
| |
(dollars in millions) |
| |
| |
Life |
|
Health |
|
Total |
| |
Quarter Ended |
|
Quarter Ended |
|
Quarter Ended |
| |
June 30, |
|
June 30, |
|
June 30, |
| |
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
| |
| Direct Response |
|
$31.4 |
|
$29.6 |
|
6 |
|
$3.8 |
|
$.4 |
|
865 |
|
$35.2 |
|
$30.0 |
|
17 |
| |
| LNL Exclusive Agency |
|
14.4 |
|
14.2 |
|
1 |
|
3.5 |
|
2.6 |
|
36 |
|
17.9 |
|
16.8 |
|
6 |
| |
| American Income Agency |
|
24.8 |
|
15.3 |
|
62 |
|
3.2 |
|
2.5 |
|
26 |
|
28.0 |
|
17.9 |
|
57 |
| |
| Military |
|
6.2 |
|
6.0 |
|
4 |
|
- |
|
- |
|
- |
|
6.2 |
|
6.0 |
|
4 |
| |
| United American Agencies |
|
| Branch Office Agency |
|
1.8 |
|
1.3 |
|
40 |
|
19.0 |
|
27.7 |
|
(31) |
|
20.8 |
|
29.0 |
|
(28) |
| Independent Agency |
|
7.1 |
|
5.8 |
|
23 |
|
23.2 |
|
16.4 |
|
42 |
|
30.3 |
|
22.1 |
|
37 |
| |
| Other |
|
2.0 |
|
2.5 |
|
(20) |
|
- |
|
- |
|
- |
|
2.0 |
|
2.5 |
|
(20) |
| |
| Total Premium Issued |
|
$87.7 |
|
$74.7 |
|
17 |
|
$52.7 |
|
$49.6 |
|
6 |
|
$140.4 |
|
$124.3 |
|
13 |
| |
INVESTMENTS -- comparing the second quarter of 2002 to the second quarter of 2001:
Excess Investment Income
Excess investment income (investment income less interest credited on net policy liabilities and less financing costs) was $73 million compared with $63 million, a 16% increase, or 20% on a per-share basis, as detailed in the following chart:
| |
Quarter Ended |
| |
June 30, |
| |
(dollars in millions) |
| |
2002 |
|
2001 |
|
% Chg. |
| |
| Investment Income |
|
$129.0 |
|
$124.0 |
|
4 |
| |
| Required interest: |
|
| Interest Credited on Net Policy Liabilities |
|
(47.6) |
|
(47.0) |
|
1 |
| Financing Costs: |
|
| Debt |
|
(11.6) |
|
(11.8) |
|
|
| Trust Preferred/MIPS |
|
(2.9) |
|
(3.8) |
|
|
| Interest Rate Swaps |
|
5.7 |
|
1.6 |
|
|
| Total Financing Costs |
|
(8.7) |
|
(14.0) |
|
(38) |
| |
| Total Required Interest |
|
(56.3) |
|
(61.1) |
|
(8) |
| |
| Excess Investment Income |
|
$72.7 |
|
$62.9 |
|
16 |
| |
Investment income increased 4%. The fixed income portfolio, which comprises 93% of total invested assets, earned 7.3% during the quarter, compared with 7.5% during the year-ago quarter. During the quarter, acquisitions of fixed maturity investments totaled $243 million, earning an average effective yield of 7.4%.
Financing costs were $9 million, down $5 million, or 38%. The decline was attributable to (1) a $1 million decline in trust preferred/MIPS dividends, and (2) a $4 million increase in cash settlements received from interest rate swap agreements. The more favorable financing position regarding the trust preferred/MIPS securities resulted from Torchmark redeeming the $200 million of 9.18% MIPS in 2001 and the issuance of $150 million of 7.75% trust preferred securities in the fourth quarter of 2001, which began paying quarterly dividends in February, 2002.
Write-down of Investment in Bonds
Net realized losses from investments, after tax, were $51 million in the second quarter of 2002 compared with net realized gains of $4 million in the year-ago quarter. The 2002 net losses are comprised of a write-down of bonds of $54 million, offset by net gains on investment sales totaling $3 million.
At June 30, 2002, Torchmark wrote down the book value of certain bonds in its fixed investment portfolio from $110 million to $27 million, resulting in an after-tax realized loss of $54 million. Annual interest income due from these securities is $8 million, but because receipt of future interest payments is not assured, Torchmark will not accrue income on these securities in 2002. The amount of interest that would have been accrued on these securities at June 30, 2002 is $3 million.
Prior to their write-down, the book value of the securities written down comprised less than 2% of Torchmark's fixed income investments. At June 30, 2002, the market value of Torchmark's fixed maturity investments was $6.742 billion and exceeded "book value" amortized cost by $63 million.
NET INCOME - comparing the second quarter of 2002 with the second quarter of 2001:
Net income was $.52 per share ($63 million) in the second quarter of 2002 compared with $.58 per share ($73 million) in the year-ago quarter. The following chart shows the differences between net operating income and net income:
| |
Quarter Ended |
| |
June 30, 2002 |
|
June 30, 2002 |
| |
(dollars in millions) |
| |
| Net Operating Income |
|
$106.1 |
|
$101.1 |
| Realized Gains (Losses), net of tax: |
|
| Investments |
|
(50.9) |
|
4.1 |
| Valuation of Interest Rate Swaps |
|
7.5 |
|
(1.3) |
| Goodwill Amortization |
|
- |
|
(3.0) |
| Loss on redemption of debt, net of tax |
|
- |
|
(1.1) |
| Change in Accounting Principle, net of tax |
|
- |
|
(26.6) |
| |
| Net Income |
|
$62.7 |
|
$73.2 |
| |
The difference between net operating income and net income in the second quarter of 2002 was a combination of realized investment losses of $51 and the $8 million gain in the market value of Torchmark's interest rate swap agreements. Under these agreements, the company converts interest expense obligations from fixed to floating rates. The periodic cash settlements from these agreements are reflected in net operating income, but as required by Financial Accounting Standard 133, the Company also must record the "market value" of the swaps (i.e. the present value of the estimated future cash settlements) on the balance sheet. The quarterly change in the market value is recognized as a "non-cash" capital gain or loss, even though Torchmark plans to hold the swaps until the scheduled termination dates, at which time their market value and the total capital gains and losses recorded will be $0. At June 30, 2002, the market value of the swap agreements was a net asset of $14 million.
SHARE REPURCHASE - second quarter of 2002:
Torchmark's ongoing share repurchase program resulted in the repurchase of 2.0 million shares of Torchmark Corporation common stock for a total cost of $81 million ($39.94 average cost per share). At June 30, 2002, there were 119.9 million Torchmark shares outstanding (120.4 million on a diluted basis).
OTHER FINANCIAL INFORMATION:
Net operating income as a return on equity (excluding the FAS 115 adjustment*) for the quarter ended June 30, 2002, was 16.7%, up from 16.1% for the year-ago quarter. Total assets at June 30, 2002, were $12.1 billion and shareholders' equity was $2.6 billion.
Book value per diluted share at June 30, 2002 is as follows:
| |
Excluding FAS 115 adjustment * |
|
$20.98 |
| |
FAS 115 adjustment * |
|
.32 |
| |
As Reported for GAAP |
|
$21.30 |
The debt to capital ratio (excluding the FAS 115 adjustment*) was 21.3% at June 30, 2002, as compared with 20.4% a year ago (25.6% and 24.9% respectively, when the Monthly Income Preferred and Trust Preferred Securities are treated as debt rather than equity).
* The FAS 115 adjustment reflects fixed maturity assets at fair market value as required by accounting standard SFAS 115.
SUMMARY OF FINANCIAL RESULTS
| |
Quarter Ended |
| |
June 30, 2002 |
|
June 30, 2002 |
| |
(in thousands, except per share data) |
| |
| Total Revenue from Operations ** |
|
$700,184 |
|
$684,742 |
| Net Operating Income |
|
$106,069 |
|
$101,070 |
| Per diluted share |
|
$.87 |
|
$.80 |
| Net Income |
|
$62,712 |
|
$73,174 |
| Per diluted share |
|
$.52 |
|
$.58 |
| Weighted Average Diluted Shares Outstanding |
|
121,694 |
|
126,131 |
| |
** Total revenue from operations excludes net realized investment gains and losses.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS:
This press release may contain forward-looking statements within the meaning of the federal securities laws. These prospective statements reflect management's current expectations, but are not guarantees of future performance. Accordingly, please refer to Torchmark's cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company's Form 10-K for the year ended December 31, 2001, and Form 10Q for the quarter ended March 31, 2002, on file with the Securities and Exchange Commission. Torchmark specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.
EARNINGS RELEASE CONFERENCE CALL WEBCAST:
Torchmark will provide a live audio webcast of its second quarter earnings release conference call with financial analysts at 10:00 a.m. (Eastern Time) today, July 18, 2002. Access to the live webcast and replays will be available at http://www.torchmarkcorp.com/ on the Investor Relations page, at the "Conference Call on the Web" icon, or at http://www.prnewswire.com/ . Supplemental financial reports for the quarter will be available July 18 on the Investor Relations page of the Torchmark website at the "Financial Reports" icon.
Torchmark Corporation is a financial services holding company specializing in life and supplemental health insurance for "middle income" Americans marketed through multiple distribution channels including direct response, and exclusive and independent agencies. Subsidiary Globe Life and Accident is a nationally recognized direct-response provider of life insurance known for its administrative efficiencies. United American has been a nationally recognized provider of Medicare supplement health insurance since 1966. Liberty National Life, one of the oldest traditional life insurers in the Southeast, is the largest life insurer in its home state of Alabama. American Income Life is nationally recognized for providing supplemental life insurance to labor union members.
SOURCE Torchmark Corporation
CONTACT: Joyce Lane, Vice President, Investor Relations of Torchmark Corporation, +1-972-569-3627, or fax, +1-972-569-3282, or jlane@torchmarkcorp.com
Web site: http://www.torchmarkcorp.com/