Torchmark Corporation Reports 10% Increase in Third Quarter 2002 Operating Earnings Per Share
October 22, 2002
Torchmark Corporation (NYSE: TMK) reported today that net operating income for the third quarter of 2002 was $.89 per share ($106 million), a 10% per share increase compared with the $.81 per share ($102 million) for the year-ago quarter. For the first nine months of 2002, net operating income was $2.61 per share ($317 million), up 9% per share over the same year-ago period. The 2001 results exclude amortization of goodwill for comparative purposes.
Net income for the third quarter of 2002 was $.98 per share ($117 million) compared with $.82 per share ($104 million) for the year-ago quarter. Net income for the first nine months of 2002 was $2.29 per share ($278 million) compared with $2.16 per share ($273 million) for the same year-ago period.
HIGHLIGHTS - comparing the third quarter of 2002 with the third quarter of 2001:
- Total sales increased 17%, with four distribution units producing double-digit growth.
- Total life sales grew 23%. Direct Response led life sales with $31 million of annualized premium, up 25%.
- American Income led life sales growth with a 41% increase to $25 million of annualized premium sold.
- Health sales grew 9%, led by $25 million in health sales from the UA Independent Agency.
- Excess Investment Income of $74 million grew 14%, in part due to a 25% decline in financing costs.
PER SHARE AMOUNTS
| |
Quarter Ended |
|
Nine Months Ended |
|
| |
September 30, |
|
September 30, |
|
| |
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
| |
| Insurance underwriting income |
|
$.76 |
|
$.73 |
|
4 |
|
$2.23 |
|
$2.20 |
|
1 |
| Excess investment income |
|
.62 |
|
.52 |
|
19 |
|
1.81 |
|
1.48 |
|
22 |
| Other |
|
(.03) |
|
(.03) |
|
|
|
(.09) |
|
(.09) |
|
|
| Income tax |
|
(.46) |
|
(.41) |
|
12 |
|
(1.33) |
|
(1.21) |
|
10 |
| Net Operating Income |
|
$.89 |
|
$.81 |
|
10 |
|
$2.61 |
|
$2.39 |
|
9 |
| |
| Realized Gains (Losses), Net of Tax |
|
| Investments |
|
.01 |
|
- |
|
|
|
(.42) |
|
.05 |
|
|
| Valuation of Interest Rate Swaps |
|
.09 |
|
.04 |
|
|
|
.10 |
|
.04 |
|
|
| Goodwill Amortization |
|
- |
|
(.02) |
|
|
|
- |
|
(.07) |
|
|
| Loss on Redemption of Debt, Net of Tax |
|
- |
|
(.01) |
|
|
|
- |
|
(.02) |
|
|
| Change in Accounting Principle, Net of Tax |
|
- |
|
- |
|
|
|
- |
|
(.21) |
|
|
| Discontinued Operations |
|
- |
|
- |
|
|
|
- |
|
(.03) |
|
|
| Net income |
|
$.98 |
|
$.82 |
|
|
|
$2.29 |
|
$2.16 |
|
|
| |
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 $568 million. Life premium revenue increased 7% to $307 million. Health premium revenue decreased slightly to $251 million. Annuity premium declined 37% to $9 million.
| |
Premium Revenue |
| |
(dollars in millions) |
| |
| |
Life |
|
Health |
|
Total |
| |
Quarter Ended |
|
Quarter Ended |
|
Quarter Ended |
| |
September 30, |
|
September 30, |
|
September 30, |
| |
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
| |
| Direct Response |
|
$79.7 |
|
$72.8 |
|
10 |
|
$5.1 |
|
$4.6 |
|
10 |
|
$84.9 |
|
$77.4 |
|
10 |
| |
| LNL Exclusive Agency |
|
75.4 |
|
73.9 |
|
2 |
|
40.3 |
|
38.7 |
|
4 |
|
115.6 |
|
112.6 |
|
3 |
| |
| American Income Agency |
|
70.6 |
|
61.9 |
|
14 |
|
13.2 |
|
12.9 |
|
3 |
|
83.8 |
|
74.7 |
|
12 |
| |
| Military |
|
37.7 |
|
33.9 |
|
11 |
|
- |
|
- |
|
- |
|
37.7 |
|
33.9 |
|
11 |
| |
| United American Agencies |
|
| Branch Office Agency |
|
4.9 |
|
4.8 |
|
2 |
|
78.3 |
|
81.6 |
|
(4) |
|
83.2 |
|
86.5 |
|
(4) |
| Independent Agency |
|
13.0 |
|
12.0 |
|
8 |
|
114.2 |
|
114.4 |
|
0 |
|
127.1 |
|
126.4 |
|
1 |
| |
| Other Life |
|
26.1 |
|
28.0 |
|
(7) |
|
- |
|
- |
|
- |
|
26.1 |
|
28.0 |
|
(7) |
| |
| Total Life and Health |
|
$307.4 |
|
$287.3 |
|
7 |
|
$251.1 |
|
$252.2 |
|
0 |
|
$558.4 |
|
$539.5 |
|
4 |
| |
| Annuity |
|
9.2 |
|
14.5 |
|
(37) |
| |
| Total |
|
$567.6 |
|
$554.0 |
|
2 |
| |
Insurance Underwriting Income
Insurance net underwriting income declined 2% to $90 million. The life underwriting margin (before administrative expenses) was 25% of premium and the health underwriting margin was 16% 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 |
|
$76.9 |
|
25 |
|
$71.0 |
|
25 |
|
8 |
| Health |
|
41.1 |
|
16 |
|
43.2 |
|
17 |
|
(5) |
| Annuity |
|
2.5 |
|
|
|
5.6 |
|
(54) |
| |
| Other income |
|
1.2 |
|
1.1 |
|
| Administrative expenses |
|
(31.5) |
|
6 |
|
(28.7) |
|
10 |
|
4 |
| |
| Insurance Net Underwriting Income |
|
$90.2 |
|
$92.2 |
|
(2) |
| |
Sales
Total insurance sales for the quarter were $133 million, a 17% increase. Total life insurance sales were $86 million, up 23%. Life sales were led by Direct Response with sales of $31 million, an increase of 25%, followed by life sales of $25 million by American Income, an increase of 41%. The Military and UA Independent Agency also produced double-digit life sales growth during the quarter.
Total health insurance sales increased 9% to $47 million, while Medicare supplement sales declined 34% to $19 million.
| |
Annualized Life and Health Premium Issued |
| |
(dollars in millions) |
| |
| |
Life |
|
Health |
|
Total |
| |
Quarter Ended |
|
Quarter Ended |
|
Quarter Ended |
| |
September 30, |
|
September 30, |
|
September 30, |
| |
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
|
2002 |
|
2001 |
|
% Chg. |
| |
| Direct Response |
|
$30.8 |
|
$24.7 |
|
25 |
|
$.4 |
|
$.7 |
|
(43) |
|
$31.2 |
|
$25.4 |
|
23 |
| |
| LNL Exclusive Agency |
|
14.0 |
|
13.4 |
|
4 |
|
3.1 |
|
2.8 |
|
9 |
|
17.1 |
|
16.2 |
|
5 |
| |
| American Income Agency |
|
24.6 |
|
17.5 |
|
41 |
|
2.9 |
|
2.7 |
|
11 |
|
27.6 |
|
20.2 |
|
37 |
| |
| Military |
|
5.9 |
|
5.0 |
|
17 |
|
- |
|
- |
|
- |
|
5.9 |
|
5.0 |
|
17 |
| |
| United American Agencies |
|
| Branch Office Agency |
|
1.4 |
|
1.3 |
|
3 |
|
16.4 |
|
22.1 |
|
(26) |
|
17.7 |
|
23.4 |
|
(24) |
| Independent Agency |
|
7.0 |
|
5.7 |
|
23 |
|
24.5 |
|
15.1 |
|
63 |
|
31.5 |
|
20.7 |
|
52 |
| |
| Other |
|
2.0 |
|
2.2 |
|
(9) |
|
- |
|
- |
|
- |
|
2.0 |
|
2.2 |
|
(9) |
| |
| Total Premium Issued |
|
$85.6 |
|
$69.8 |
|
23 |
|
$47.3 |
|
$43.3 |
|
9 |
|
$132.9 |
|
$113.1 |
|
17 |
| |
INVESTMENTS - comparing the third quarter of 2002 to the third quarter of 2001:
Excess Investment Income
Excess investment income (investment income on a tax equivalent basis, less interest credited on net policy liabilities and less financing costs) was $74 million compared with $65 million, a 14% increase, or a 19% increase on a per-share basis, as detailed in the following chart:
| |
Quarter Ended |
| |
September 30, |
| |
(dollars in millions, except per share) |
| |
2002 |
|
2001 |
|
% Chg. |
| |
| Investment Income |
|
$131.5 |
|
$124.5 |
|
6 |
| |
| Required interest: |
|
| Interest Credited on Net Policy Liabilities |
|
(48.6) |
|
(47.7) |
|
2 |
| Financing Costs: |
|
| Debt |
|
(11.5) |
|
(10.4) |
|
|
| Trust Preferred/MIPS |
|
(2.9) |
|
(3.2) |
|
|
| Interest Rate Swaps |
|
5.7 |
|
2.0 |
|
|
| Total Financing Costs |
|
(8.7) |
|
(11.6) |
|
(25) |
| |
| Total Required Interest |
|
(57.3) |
|
(59.3) |
|
(3) |
| |
| Excess Investment Income |
|
$74.2 |
|
$65.1 |
|
14 |
| Per Share |
|
$.62 |
|
$.52 |
|
19 |
| |
Investment income increased 6%. The fixed income portfolio, which at amortized cost comprised 93% of total invested assets, earned 7.4%, compared with 7.5% during the year-ago quarter. Acquisitions of fixed maturity investments totaled $253 million, with an average yield of 7.3%.
Financing costs were $9 million, down $3 million, or 25%. The decline was primarily attributable to the $4 million increase in cash settlements received from interest rate swap agreements.
At quarter-end, the market value of Torchmark's fixed maturity portfolio was $7 billion, $292 million higher than amortized cost. At amortized cost, 90% of fixed maturities were rated "investment grade."
NET INCOME - comparing the third quarter of 2002 with the third quarter of 2001:
Net income was $.98 per share ($117 million) in the third quarter of 2002 compared with $.82 per share ($104 million) in the year-ago quarter. The following chart shows the differences between net operating income and net income:
| |
Quarter Ended |
| |
Sept. 30, 2002 |
|
Sept. 30, 2002 |
| |
(dollars in millions) |
| |
| Net Operating Income |
|
$106.4 |
|
$102.3 |
| Realized Gains, net of tax: |
|
| Investments |
|
.6 |
|
.6 |
| Valuation of Interest Rate Swaps |
|
10.4 |
|
5.0 |
| Goodwill Amortization |
|
- |
|
(3.0) |
| Loss on redemption of debt, net of tax |
|
- |
|
(1.1) |
| |
| Net Income |
|
$117.4 |
|
$103.8 |
| |
The difference between net operating income and net income in the third quarter of 2002 was primarily due to the $10 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 September 30, 2002, the market value of these swap agreements was an asset of $25 million, after tax.
SHARE REPURCHASE - third quarter of 2002:
Torchmark's ongoing share repurchase program resulted in the repurchase of 1.4 million shares of Torchmark Corporation common stock for a total cost of $48 million ($34.53 average cost per share). At September 30, 2002, there were 118.6 million Torchmark shares outstanding (118.8 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 September 30, 2002, was 16.7%, up from 16.6% for the year-ago quarter when restated to remove the amortization of goodwill. Total assets at September 30, 2002, were $12.2 billion and shareholders' equity was $2.8 billion.
Book value per diluted share at September 30, 2002 is as follows:
| |
Excluding FAS 115 adjustment * |
|
$21.73 |
| |
FAS 115 adjustment * |
|
1.50 |
| |
As Reported for GAAP |
|
$23.23 |
The debt to capital ratio was 21.1%* at September 30, 2002, the same as for a year ago (25.3%* and 24.3%*, when the Monthly Income Preferred and Trust Preferred Securities are treated as debt rather than equity).
* These amounts exclude the adjustment of assets to fair market value required by FAS 115.
SUMMARY OF FINANCIAL RESULTS
| |
Quarter Ended |
| |
Sept. 30, 2002 |
|
Sept. 30, 2002 |
| |
(in thousands, except per share data) |
| |
| Total Revenue from Operations ** |
|
$698,914 |
|
$678,123 |
| Net Operating Income |
|
$106,384 |
|
$102,325 |
| Per diluted share |
|
$.89 |
|
$.81 |
| Net Income |
|
$117,375 |
|
$103,815 |
| Per diluted share |
|
$.98 |
|
$.82 |
| Weighted Average Diluted Shares Outstanding |
|
119,506 |
|
126,023 |
| |
** 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 June 30, 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 third quarter earnings release conference call with financial analysts at 10:00 a.m. (Eastern Time) today, October 22, 2002. Access to the live webcast and replays will be available at www.torchmarkcorp.com on the Investor Relations page, at the "Conference Call on the Web" icon, or at www.PRNewswire.com/news at the "Multimedia News" tab. Supplemental financial reports for the quarter will be available October 22 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/