Company Quick10K Filing
Quick10K
Torchmark
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$87.14 110 $9,580
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-29 Officers, Shareholder Vote
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-09-27 Enter Agreement, Other Events, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-04-26 Officers, Shareholder Vote, Exhibits
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-03-01 Officers, Exhibits
8-K 2018-02-07 Earnings, Exhibits
SHW Sherwin-Williams 40,800
LNTH Lantheus Holdings 961
CALA Calithera Biosciences 245
OVBC Ohio Valley Banc 173
PES Pioneer Energy Services 106
CPIX Cumberland Pharmaceuticals 91
MCEP Mid-Con Energy Partners 22
RAS RAIT Financial Trust 0
THST Truett-Hurst 0
CPKA Chase Packaging 0
TMK 2019-03-31
Part I-Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1-Significant Accounting Policies
Note 2-New Accounting Standards
Note 3-Supplemental Information About Changes To Accumulated Other Comprehensive Income
Note 4-Investments
Note 5-Commitments and Contingencies
Note 6-Liability for Unpaid Claims
Note 7-Postretirement Benefits
Note 8-Earnings per Share
Note 9-Business Segments
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Item 6. Exhibits
EX-10.49 tmk201910-qq1exhibit1049.htm
EX-10.50 tmk201910-qq1exhibit1050.htm
EX-10.51 tmk201910-qq1exhibit1051.htm
EX-31.1 tmk201910-qq1exhibit311.htm
EX-31.2 tmk201910-qq1exhibit312.htm
EX-31.3 tmk201910-qq1exhibit313.htm
EX-32.1 tmk201910-qq1exhbit321.htm

Torchmark Earnings 2019-03-31

TMK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tmk201910-qq1document.htm 10-Q- Q1 FY 2019 Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
 
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2019
 
 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from _________to_________
Commission File Number 1-8052
torchmarklogocolora01rgba49.jpg
TORCHMARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
 
63-0780404
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3700 South Stonebridge Drive, McKinney, Texas
 
75070
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (972) 569-4000
NONE
Former name, former address and former fiscal year, if changed since last report.
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $1.00 par value per share
 
TMK
 
New York Stock Exchange
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    ý            No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes   ý            No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   ¨              No   ý
Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the last practicable date.
 
CLASS
 
OUTSTANDING AT April 30, 2019
 
 
Common Stock, $1.00 Par Value
 
109,940,525
 



INDEX
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
Item 1A.
 
 
 
 
Item 2.
 
 
 
 
Item 6.
 
 
 
 



PART I—FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements

TORCHMARK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands, except per share data)
 
March 31,
2019
 
December 31,
2018
Assets:

 
 
Investments:
 
 
 
Fixed maturities—available for sale, at fair value (amortized cost: 2019—$15,988,228; 2018—$15,753,471)
$
17,223,585

 
$
16,297,932

Policy loans
555,456

 
550,066

Other long-term investments (includes: 2019—$118,556; 2018—$108,241 under the fair value option)
231,934

 
207,258

Short-term investments
125,759

 
63,288

Total investments
18,136,734

 
17,118,544

Cash
67,342

 
121,026

Accrued investment income
255,148

 
243,003

Other receivables
419,610

 
415,157

Deferred acquisition costs
4,185,231

 
4,137,925

Goodwill
441,591

 
441,591

Other assets
559,225

 
549,899

Assets related to discontinued operations
68,557

 
68,577

Total assets
$
24,133,438

 
$
23,095,722

Liabilities:
 
 
 
Future policy benefits
$
14,084,082

 
$
13,953,826

Unearned and advance premiums
66,924

 
61,208

Policy claims and other benefits payable
357,294

 
350,826

Other policyholders' funds
96,986

 
97,459

Total policy liabilities
14,605,286

 
14,463,319

Current and deferred income taxes payable
1,225,497

 
1,047,737

Other liabilities
557,824

 
453,270

Short-term debt
294,378

 
307,848

Long-term debt (estimated fair value: 2019—$1,458,751; 2018—$1,384,455)
1,355,601

 
1,357,185

Liabilities related to discontinued operations
51,426

 
51,186

Total liabilities
18,090,012

 
17,680,545

Commitments and Contingencies (Note 5)

 

Shareholders’ equity:
 
 
 
Preferred stock, par value $1 per share—5,000,000 shares authorized; outstanding: 0 in 2019 and 2018

 

Common stock, par value $1 per share—320,000,000 shares authorized; outstanding: (2019—121,218,183 issued; 2018—121,218,183 issued)
121,218

 
121,218

Additional paid-in capital
518,529

 
524,414

Accumulated other comprehensive income (loss)
870,067

 
319,475

Retained earnings
5,364,820

 
5,213,468

Treasury stock, at cost: (2019—11,292,000 shares; 2018—10,525,147 shares)
(831,208
)
 
(763,398
)
Total shareholders’ equity
6,043,426

 
5,415,177

Total liabilities and shareholders’ equity
$
24,133,438

 
$
23,095,722


See accompanying Notes to Condensed Consolidated Financial Statements.

1
                                 TMK 2019 FORM 10-Q QTR 1



TORCHMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollar amounts in thousands, except per share data)
 
Three Months Ended 
 March 31,
 
2019
 
2018
Revenue:
 
 
 
Life premium
$
624,289

 
$
598,303

Health premium
266,684

 
251,798

Other premium

 
5

Total premium
890,973

 
850,106

 
 
 
 
Net investment income
226,673

 
218,084

Realized gains (losses)
1,329

 
1,951

Other income
241

 
295

Total revenue
1,119,216

 
1,070,436

 
 
 
 
Benefits and expenses:
 
 
 
Life policyholder benefits
409,692

 
400,581

Health policyholder benefits
170,017

 
160,619

Other policyholder benefits
8,048

 
8,689

Total policyholder benefits
587,757

 
569,889

 
 
 
 
Amortization of deferred acquisition costs
135,822

 
129,620

Commissions, premium taxes, and non-deferred acquisition costs
73,465

 
69,639

Other operating expense
72,793

 
66,824

Interest expense
21,278

 
21,622

Total benefits and expenses
891,115

 
857,594

 
 
 
 
Income before income taxes
228,101

 
212,842

Income tax benefit (expense)
(42,707
)
 
(39,131
)
Income from continuing operations
185,394

 
173,711

 
 
 
 
Income (loss) from discontinued operations, net of tax
(49
)
 
(111
)
Net income
$
185,345

 
$
173,600

 
 
 
 
Basic net income (loss) per common share:
 
 
 
Continuing operations
$
1.68

 
$
1.52

Discontinued operations

 

Basic net income per common share
$
1.68

 
$
1.52

 
 
 
 
Diluted net income (loss) per common share:
 
 
 
Continuing operations
$
1.65

 
$
1.49

Discontinued operations

 

Diluted net income per common share
$
1.65

 
$
1.49









See accompanying Notes to Condensed Consolidated Financial Statements.

2
                                 TMK 2019 FORM 10-Q QTR 1



TORCHMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)
 
Three Months Ended 
 March 31,
 
2019
 
2018
Net income
$
185,345

 
$
173,600

 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Investments:
 
 
 
Unrealized gains (losses) on fixed maturities:
 
 
 
Unrealized holding gains (losses) arising during period
693,482

 
(611,548
)
Reclassification adjustments included in net income
(2,444
)
 
(696
)
Foreign exchange adjustment on fixed maturities recorded at fair value
(142
)
 
(585
)
Unrealized gains (losses) on fixed maturities
690,896

 
(612,829
)
 
 
 
 
Unrealized gains (losses) on other investments
4,043

 
(2,853
)
Total unrealized investment gains (losses)
694,939


(615,682
)
Less applicable tax (expense) benefit
(145,936
)
 
129,289

Unrealized investment gains (losses), net of tax
549,003

 
(486,393
)
 
 
 
 
Deferred acquisition costs:
 
 
 
Unrealized gains (losses) attributable to deferred acquisition costs
(3,199
)
 
450

Less applicable tax (expense) benefit
671

 
(94
)
Unrealized gains (losses) attributable to deferred acquisition costs, net of tax
(2,528
)
 
356

 
 
 
 
Foreign exchange translation:
 
 
 
Foreign exchange translation adjustments, other than fixed maturities
3,089

 
(1,299
)
Less applicable tax (expense) benefit
(647
)
 
276

Foreign exchange translation adjustments, other than fixed maturities, net of tax
2,442

 
(1,023
)
 
 
 
 
Pension:
 
 
 
Amortization of pension costs
2,120

 
3,778

Less applicable tax (expense) benefit
(445
)
 
(793
)
Pension adjustments, net of tax
1,675

 
2,985

 
 
 
 
Other comprehensive income (loss)
550,592

 
(484,075
)
Comprehensive income (loss)
$
735,937

 
$
(310,475
)












See accompanying Notes to Condensed Consolidated Financial Statements.

3
                                 TMK 2019 FORM 10-Q QTR 1



TORCHMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollar amounts in thousands, except per share data)
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Shareholders’ Equity
Balance at January 1, 2018
$

 
$
124,218

 
$
508,476

 
$
1,424,274

 
$
4,806,208

 
$
(631,755
)
 
$
6,231,421

Adoption of ASU 2016-01

 

 

 

 
4,896

 

 
4,896

Comprehensive income (loss)

 

 

 
(484,075
)
 
173,600

 

 
(310,475
)
Common dividends declared
($0.1600 per share)

 

 

 

 
(18,216
)
 

 
(18,216
)
Acquisition of treasury stock

 

 

 

 
 
 
(109,954
)
 
(109,954
)
Stock-based compensation

 

 
465

 

 
(1,803
)
 
10,398

 
9,060

Exercise of stock options

 

 

 

 
(9,077
)
 
22,646

 
13,569

Balance at March 31, 2018
$

 
$
124,218

 
$
508,941

 
$
940,199

 
$
4,955,608

 
$
(708,665
)
 
$
5,820,301

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total Shareholders’ Equity
Balance at January 1, 2019
$

 
$
121,218

 
$
524,414

 
$
319,475

 
$
5,213,468

 
$
(763,398
)
 
$
5,415,177

Adoption of ASU 2016-02(1)

 

 

 

 
(497
)
 

 
(497
)
Comprehensive income (loss)

 

 

 
550,592

 
185,345

 

 
735,937

Common dividends declared
($.1725 per share)

 

 

 

 
(18,943
)
 

 
(18,943
)
Acquisition of treasury stock

 

 

 

 

 
(110,896
)
 
(110,896
)
Stock-based compensation

 

 
(5,885
)
 

 
(6,817
)
 
23,261

 
10,559

Exercise of stock options

 

 

 

 
(7,736
)
 
19,825

 
12,089

Balance at March 31, 2019
$

 
$
121,218

 
$
518,529

 
$
870,067

 
$
5,364,820

 
$
(831,208
)
 
$
6,043,426

(1)
See further discussion in Note 2—New Accounting Standards.

























See accompanying Notes to Condensed Consolidated Financial Statements.

4
                                 TMK 2019 FORM 10-Q QTR 1



TORCHMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
 
Three Months Ended 
 March 31,
 
2019
 
2018
Cash provided from operating activities
$
423,285

 
$
382,389

 
 
 
 
Cash provided from (used for) investing activities:
 
 
 
Disposition of investments:
 
 
 
Fixed maturities available for sale—sold
34,997

 

Fixed maturities available for sale—matured or other redemptions
188,253

 
74,019

Total investments disposed
223,250

 
74,019

Acquisition of investments:
 
 
 
Fixed maturities—available for sale
(421,111
)
 
(358,753
)
Other long-term investments
(22,971
)
 
(53,853
)
Total investments acquired
(444,082
)
 
(412,606
)
Net (increase) decrease in policy loans
(5,390
)
 
(2,854
)
Net (increase) decrease in short-term investments
(62,471
)
 
47,048

Additions to properties
(7,015
)
 
(11,966
)
Investment in low-income housing interests
(10,054
)
 
(7,518
)
Cash provided from (used for) investing activities
(305,762
)
 
(313,877
)
 
 
 
 
Cash provided from (used for) financing activities:
 
 
 
Issuance of common stock
11,592

 
13,569

Cash dividends paid to shareholders
(17,696
)
 
(17,194
)
Repayment of debt
(1,250
)
 
(625
)
Net borrowing (repayment) of commercial paper
(14,095
)
 
36,464

Acquisition of treasury stock
(110,896
)
 
(109,954
)
Net receipts (payments) from deposit-type product
(37,136
)
 
(25,603
)
Cash provided from (used for) financing activities
(169,481
)
 
(103,343
)
 
 
 
 
Effect of foreign exchange rate changes on cash
(1,726
)
 
4,883

Net increase (decrease) in cash
(53,684
)
 
(29,948
)
Cash at beginning of year
121,026

 
118,563

Cash at end of period
$
67,342

 
$
88,615

















See accompanying Notes to Condensed Consolidated Financial Statements.

5
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)



Note 1—Significant Accounting Policies

Basis of Presentation: The accompanying condensed consolidated financial statements of Torchmark Corporation (Torchmark or alternatively, the Company) have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America (GAAP) for annual financial statements. However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial position at March 31, 2019, and the condensed consolidated results of operations, comprehensive income, and cash flows for the periods ended March 31, 2019 and 2018. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Form 10-K filed with the Securities Exchange Commission (SEC) on March 1, 2019.

Note 2—New Accounting Standards
Accounting Pronouncements Adopted in the Current Year
Standard
 
Description
 
Effective date
 
Effect on the consolidated financial statements
ASU No. 2016-02/2018-11, Leases (Topic 842), with clarification guidance issued in July 2018.
 
The standard requires lessees to record a right-of-use asset and corresponding lease liability on the balance sheet for all operating leases that do not qualify for the practical expedients allowed for in this standard. Additional qualitative and quantitative disclosures are required.
 
This standard became effective for the Company beginning January 1, 2019.
 
The Company adopted the optional transition method allowed for under ASU 2018-11 by not restating comparative periods and recognizing an immaterial cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019. The Company does not have any significant lessor contracts.
The adoption did not have a material impact on the consolidated financial statements.
ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities
 
This standard was issued to shorten the amortization period for certain callable debt securities held at a premium. The standard requires the premium to be amortized to the earliest call date.
 
This standard became effective for the Company beginning January 1, 2019.
 
This adoption did not have a material impact on the consolidated financial statements as of March 31, 2019.

Accounting Pronouncements Yet to be Adopted
Standard
 
Description
 
Effective date
 
Effect on the consolidated financial statements
ASU No. 2016-13/2019-04, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, with clarification guidance issued in April 2019.
 
This standard provides financial statement users with more decision-useful information about the expected credit losses on financial instruments as well as to change the loss impairment methodology for available-for-sale debt securities by use of an allowance rather than a direct write-down.
 
This standard will become effective on January 1, 2020. The applicable section of the standard related to debt securities requires a prospective transition.
 
The Company is in the process of determining the impact this guidance will have on the consolidated financial statements.

 
 
 
 
 
 
 

6
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 2—New Accounting Standards (continued)


Standard
 
Description
 
Effective date
 
Effect on the consolidated financial statements
ASU No. 2018-12
Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
 
The guidance was primarily issued to 1) improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows, 2) simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, 3) simplify the amortization of deferred acquisition costs, and 4) improve the effectiveness of the required disclosures.
 
This standard is effective beginning January 1, 2021, and should be applied on a retrospective basis. Early adoption of the amendments is permitted.
 
ASU 2018-12 will require changes to the Company's actuarial systems and data inputs related to the valuation of the future policy benefits. Additionally, it will significantly expand the Company's disclosures.
The Company is in the process of evaluating the impact this guidance will have on the consolidated financial statements.
ASU No. 2018-13
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
 
The amendment modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures.
 
The revised standard is effective beginning January 1, 2020. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. Early adoption is permitted.
 
The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20), Changes to the Disclosure Requirements for Defined Benefit Plans
 
The standard removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant.
 
This standard is effective beginning January 1, 2021, and will be applied retrospectively. Early adoption is permitted.
 
The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.
ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
 
The standard was issued to align the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. Accordingly, the standard requires the capitalization of implementation costs incurred in a hosting arrangement that is a service contract, similar to the treatment for developed or obtained internal-use software.
 
The standard is effective beginning January 1, 2020, and the Company plans to apply the standards on a prospective basis. Early adoption of the amendments is also permitted.
 
The Company is in the process of determining the impact this guidance will have on the consolidated financial statements.




7
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)


Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income

An analysis of the change in balance by component of Accumulated Other Comprehensive Income is as follows for the three month periods ended March 31, 2019 and 2018.

Components of Accumulated Other Comprehensive Income
 
Three Months Ended March 31, 2018
 
Available
for Sale
Assets
 
Deferred
Acquisition
Costs
 
Foreign
Exchange
 
Pension
Adjustments
 
Total
Balance at January 1, 2018
$
1,569,289

 
$
(8,547
)
 
$
16,302

 
$
(152,770
)
 
$
1,424,274

Other comprehensive income (loss) before reclassifications, net of tax
(485,843
)
 
356

 
(1,023
)
 

 
(486,510
)
Reclassifications, net of tax
(550
)
 

 

 
2,985

 
2,435

Other comprehensive income (loss)
(486,393
)
 
356

 
(1,023
)
 
2,985

 
(484,075
)
Balance at March 31, 2018
$
1,082,896

 
$
(8,191
)
 
$
15,279

 
$
(149,785
)
 
$
940,199


 
Three Months Ended March 31, 2019
 
Available
for Sale
Assets
 
Deferred
Acquisition
Costs
 
Foreign
Exchange
 
Pension
Adjustments
 
Total
Balance at January 1, 2019
$
435,698

 
$
(4,163
)
 
$
6,495

 
$
(118,555
)
 
$
319,475

Other comprehensive income (loss) before reclassifications, net of tax
550,934

 
(2,528
)
 
2,442

 

 
550,848

Reclassifications, net of tax
(1,931
)
 

 

 
1,675

 
(256
)
Other comprehensive income (loss)
549,003

 
(2,528
)
 
2,442

 
1,675

 
550,592

Balance at March 31, 2019
$
984,701

 
$
(6,691
)
 
$
8,937

 
$
(116,880
)
 
$
870,067



8
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands except, per share data)

Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income (continued)



Reclassifications out of Accumulated Other Comprehensive Income are presented below for the three month periods ended March 31, 2019 and 2018.
Reclassification Adjustments
  
 
Three Months Ended 
 March 31,
 
Affected line items in the
Statement of Operations
Component Line Item
 
2019
 
2018
 
Unrealized investment gains (losses) on available for sale assets:
 
 
 
 
 
 
Realized (gains) losses
 
$
(3,670
)
 
$
(1,386
)
 
Realized investment gains (losses)
Amortization of (discount) premium
 
1,226

 
690

 
Net investment income
Total before tax
 
(2,444
)
 
(696
)
 
 
Tax
 
513

 
146

 
Income taxes
Total after-tax
 
(1,931
)
 
(550
)
 
 
Pension adjustments:
 
 
 
 
 
 
Amortization of prior service cost
 
158

 
119

 
Other operating expense
Amortization of actuarial gain (loss)
 
1,962

 
3,659

 
Other operating expense
Total before tax
 
2,120

 
3,778

 
 
Tax
 
(445
)
 
(793
)
 
Income taxes
Total after-tax
 
1,675

 
2,985

 
 
Total reclassifications (after-tax)
 
$
(256
)
 
$
2,435

 
 


9
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)


Note 4—Investments

Portfolio Composition: Summaries of fixed maturities available for sale by cost or amortized cost and estimated fair value at March 31, 2019 and December 31, 2018 are shown below.
 
March 31, 2019
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value(1)
 
% of Total
Fixed
Maturities(2)
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
390,947

 
$
16,443

 
$
(1,034
)
 
$
406,356

 
2
States, municipalities, and political subdivisions
1,426,461

 
113,371

 
(174
)
 
1,539,658

 
9
Foreign governments
19,402

 
2,222

 

 
21,624

 
Corporates, by sector:
 
 
 
 
 
 
 
 
 
Financial
3,864,828

 
387,731

 
(44,465
)
 
4,208,094

 
24
Utilities
1,984,792

 
279,830

 
(9,690
)
 
2,254,932

 
13
Energy
1,645,409

 
172,802

 
(27,409
)
 
1,790,802

 
10
Other corporate sectors
6,452,950

 
438,527

 
(115,784
)
 
6,775,693

 
40
Total corporates
13,947,979

 
1,278,890

 
(197,348
)
 
15,029,521

 
87
Collateralized debt obligations
57,473

 
25,664

 
(5,888
)
 
77,249

 
1
Other asset-backed securities
145,966

 
3,577

 
(366
)
 
149,177

 
1
Total fixed maturities
$
15,988,228

 
$
1,440,167

 
$
(204,810
)
 
$
17,223,585

 
100
(1)
Amounts reported on the balance sheet.
(2)
At fair value.
 
December 31, 2018
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value(1)
 
% of Total
Fixed
Maturities(2)
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
390,351

 
$
5,104

 
$
(2,787
)
 
$
392,668

 
2
States, municipalities, and political subdivisions
1,354,810

 
83,600

 
(1,750
)
 
1,436,660

 
9
Foreign governments
19,006

 
1,810

 

 
20,816

 
Corporates, by sector:
 
 
 
 
 
 
 
 
 
Financial
3,759,768

 
262,875

 
(87,515
)
 
3,935,128

 
24
Utilities
1,989,506

 
217,846

 
(24,399
)
 
2,182,953

 
13
Energy
1,652,700

 
93,880

 
(62,371
)
 
1,684,209

 
10
Other corporate sectors
6,382,707

 
283,524

 
(242,509
)
 
6,423,722

 
40
Total corporates
13,784,681

 
858,125

 
(416,794
)
 
14,226,012

 
87
Collateralized debt obligations
57,769

 
22,014

 
(6,414
)
 
73,369

 
1
Other asset-backed securities
146,854

 
2,187

 
(634
)
 
148,407

 
1
Total fixed maturities
$
15,753,471

 
$
972,840

 
$
(428,379
)
 
$
16,297,932

 
100
(1)
Amounts reported on the balance sheet.
(2)
At fair value.


10
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 4—Investments (continued)

A schedule of fixed maturities available for sale by contractual maturity date at March 31, 2019 is shown below on an amortized cost basis and on a fair value basis. Actual disposition dates could differ from contractual maturities due to call or prepayment provisions.
 
March 31, 2019
 
Amortized
Cost
 
Fair Value
Fixed maturities available for sale:
 
 
 
Due in one year or less
$
204,444

 
$
206,980

Due after one year through five years
611,042

 
643,173

Due after five years through ten years
1,643,633

 
1,814,976

Due after ten years through twenty years
5,210,071

 
5,843,176

Due after twenty years
8,114,988

 
8,488,204

Mortgage-backed and asset-backed securities
204,050

 
227,076

 
$
15,988,228

 
$
17,223,585


Analysis of Investment Operations: Net investment income for the three months ended March 31, 2019 and 2018 is summarized as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Fixed maturities available for sale
$
215,763

 
$
208,542

Policy loans
10,636

 
10,198

Other long-term investments
3,388

 
2,854

Short-term investments
819

 
391

 
230,606

 
221,985

Less investment expense
(3,933
)
 
(3,901
)
Net investment income
$
226,673

 
$
218,084


Selected information about sales of fixed maturities available for sale is as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Fixed maturities available for sale:
 
 
 
Proceeds from sales
$
34,997

 
$

Gross realized gains
46

 

Gross realized losses
(3,027
)
 


11
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 4—Investments (continued)

An analysis of realized gains (losses) is as follows:
 
Three Months Ended 
 March 31,
 
2019
 
2018
Realized investment gains (losses):
 
 
 
Fixed maturities available for sale:
 
 
 
Sales and other
$
3,670

 
$
1,386

Fair value option—change in fair value
(2,185
)
 
560

Other investments
(156
)
 
5

Realized gains (losses) from investments
1,329

 
1,951

Applicable tax
(279
)
 
(410
)
Realized gains (losses), net of tax
$
1,050

 
$
1,541


Fair Value Measurements: The following tables represent the fair value of fixed maturities available for sale measured on a recurring basis at March 31, 2019 and December 31, 2018.
 
Fair Value Measurements at March 31, 2019 using:
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total Fair
Value
Fixed maturities available for sale:
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$

 
$
406,356

 
$

 
$
406,356

States, municipalities, and political subdivisions

 
1,539,658

 

 
1,539,658

Foreign governments

 
21,624

 

 
21,624

Corporates, by sector:
 
 
 
 
 
 
 
Financial

 
4,163,932

 
44,162

 
4,208,094

Utilities
5,100

 
2,098,883

 
150,949

 
2,254,932

Energy

 
1,750,336

 
40,466

 
1,790,802

Other corporate sectors

 
6,448,950

 
326,743

 
6,775,693

Total corporates
5,100

 
14,462,101

 
562,320

 
15,029,521

Collateralized debt obligations

 

 
77,249

 
77,249

Other asset-backed securities

 
136,023

 
13,154

 
149,177

Total fixed maturities
$
5,100

 
$
16,565,762

 
$
652,723

 
$
17,223,585

Percentage of total
%
 
96.2
%
 
3.8
%
 
100.0
%

12
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 4—Investments (continued)

 
Fair Value Measurements at December 31, 2018 using:
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total Fair
Value
Fixed maturities available for sale:
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$

 
$
392,668

 
$

 
$
392,668

States, municipalities, and political subdivisions

 
1,436,660

 

 
1,436,660

Foreign governments

 
20,816

 

 
20,816

Corporates, by sector:
 
 
 
 
 
 


Financial

 
3,891,728

 
43,400

 
3,935,128

Utilities

 
2,032,127

 
150,826

 
2,182,953

Energy

 
1,645,077

 
39,132

 
1,684,209

Other corporate sectors

 
6,103,609

 
320,113

 
6,423,722

Total corporates

 
13,672,541

 
553,471

 
14,226,012

Collateralized debt obligations

 

 
73,369

 
73,369

Other asset-backed securities

 
135,425

 
12,982

 
148,407

Total fixed maturities
$

 
$
15,658,110

 
$
639,822

 
$
16,297,932

Percentage of total
%
 
96.1
%
 
3.9
%
 
100.0
%

The following tables represent an analysis of changes in fair value measurements using significant unobservable inputs (Level 3) for the three months ended March 31, 2019 and 2018.

Analysis of Changes in Fair Value Measurements Using
Significant Unobservable Inputs (Level 3)
 
Three Months Ended March 31, 2019
 
Asset-
Backed
Securities
 
Collateralized
Debt
Obligations
 
Corporates(1)
 
Total
Balance at January 1, 2019
$
12,982

 
$
73,369

 
$
553,471

 
$
639,822

Total gains or losses:
 
 
 
 
 
 
 
Included in realized gains/losses

 

 

 

Included in other comprehensive income
298

 
4,176

 
10,663

 
15,137

Acquisitions

 

 

 

Sales

 

 

 

Amortization

 
1,162

 
3

 
1,165

Other(2)
(126
)
 
(1,458
)
 
(1,817
)
 
(3,401
)
Transfers in and/or out of Level 3(3)

 

 

 

Balance at March 31, 2019
$
13,154

 
$
77,249

 
$
562,320

 
$
652,723

Percent of total fixed maturities
0.1
%
 
0.4
%
 
3.3
%
 
3.8
%
(1)
Includes redeemable preferred stocks.
(2)
Includes capitalized interest, foreign exchange adjustments, and principal repayments.
(3)
Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available.


13
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 4—Investments (continued)

 
Three Months Ended March 31, 2018
 
Asset-
Backed
Securities
 
Collateralized
Debt
Obligations
 
Corporates(1)
 
Total
Balance at January 1, 2018
$
14,049

 
$
71,581

 
$
582,810

 
$
668,440

Total gains or losses:
 
 
 
 
 
 
 
Included in realized gains/losses

 

 

 

Included in other comprehensive income
(749
)
 
4,621

 
(12,233
)
 
(8,361
)
Acquisitions

 

 

 

Sales

 

 

 

Amortization

 
1,201

 
4

 
1,205

Other(2)
(113
)
 
(1,879
)
 
(1,781
)
 
(3,773
)
Transfers in and/or out of Level 3(3)

 

 

 

Balance at March 31, 2018
$
13,187

 
$
75,524

 
$
568,800

 
$
657,511

Percent of total fixed maturities
0.1
%
 
0.5
%
 
3.4
%
 
4.0
%
(1)
Includes redeemable preferred stocks.
(2)
Includes capitalized interest, foreign exchange adjustments, and principal repayments.
(3)
Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available.

The following table presents transfers in and out of each of the valuation levels of fair values.
 
Three Months Ended March 31,
 
2019
 
2018
 
In
 
Out
 
Net
 
In
 
Out
 
Net
Level 1
$
5,100

 
$

 
$
5,100

 
$

 
$

 
$

Level 2

 
(5,100
)
 
(5,100
)
 

 

 

Level 3

 

 

 

 

 


Other investment information: Other long-term investments consist of the following:
 
March 31, 2019
 
December 31, 2018
Investment in limited partnerships(1)
$
118,556

 
$
108,241

Commercial mortgage loan participations(2)
110,209

 
96,266

Other
3,169

 
2,751

Total other long-term investments
$
231,934

 
$
207,258

(1)
See the following section for more information regarding the fair value option method used to account for these investments.
(2)
Torchmark invests in a portfolio of commercial mortgage loan participations. As of March 31, 2019 and December 31, 2018, the Company evaluated the portfolio on a loan-by-loan basis to determine any allowance for loss. Factors considered include, but are not limited to, collateral value, loan-to-value ratio, debt service coverage ratio, local market conditions, credit quality of the borrower and tenants, and loan performance. There were no material changes to the property type, geographic location, or loan-to-value ratio for any of the loans during the quarter. As of March 31, 2019 and December 31, 2018, there was no allowance for loss.


14
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 4—Investments (continued)

Fair Value Option: The following table represents the fair value of certain limited partnership investments elected for the fair value option method measured on a recurring basis at March 31, 2019, and the changes in fair value for the three months ended March 31, 2019. All changes in fair value are recognized in "Realized Investment Gains (Losses)" in the Condensed Consolidated Statements of Operations. Distributions received on a periodic basis are recorded in Net Investment Income.
 
 Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 Significant Other Observable Inputs
(Level 2)
 
 Significant Unobservable Inputs
(Level 3)
 
 Total Fair Value
Fair Value Measurements at:
 
 
 
 
 
 
 
March 31, 2019
$

 
$
118,556

 
$

 
$
118,556

December 31, 2018

 
108,241

 

 
108,241

 
Changes in Fair Values for the Period for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
 
 Net Gains and Losses Recognized During the Period
 
 Less Net Gains and Losses Recognized due to Sales
 
 Total Changes in Fair Values Included in Current-Period Earnings
Three Months Ended March 31,
 
 
 
 
 
2019
$
(2,185
)
 
$

 
$
(2,185
)
2018
560

 

 
560

 
 
 
 
Other-Than-Temporary Impairments: In accordance with the other-than-temporary impairment (OTTI) policy, the Company evaluated its fixed maturities available for sale in an unrealized loss position to determine if there was any impairment for the quarter. Gross unrealized losses may fluctuate quarter over quarter due to adverse factors in the market that affect our holdings, such as changes in the interest rates or credit spreads. While the Company holds securities that may be in an unrealized loss position from time to time, Torchmark has the ability and intent to hold these investments to recovery. Additionally, Torchmark does not expect to be required to sell any of its securities due to the strong cash flows generated by its insurance operations.

For the three months ended March 31, 2019 and 2018, the Company concluded that there were no other-than-temporary impairments.

Unrealized Loss Analysis: The following table discloses information about fixed maturities available for sale in an unrealized loss position.
 
Less than
Twelve
Months
 
Twelve
Months
or Longer
 
Total
Number of issues (CUSIP numbers) held:
 
 
 
 
 
As of March 31, 2019
83

 
311

 
394

As of December 31, 2018
495

 
234

 
729


Torchmark’s entire fixed maturity portfolio consisted of 1,598 issues at March 31, 2019 and 1,548 issues at December 31, 2018. The weighted average quality rating of all unrealized loss positions as of March 31, 2019 was BBB compared with BBB+ as of December 31, 2018.

15
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 4—Investments (continued)

The following tables disclose unrealized investment losses by class and major sector of fixed maturities available for sale at March 31, 2019 and December 31, 2018, respectively. Torchmark considers these investments to be only temporarily impaired.

Analysis of Gross Unrealized Investment Losses
 
At March 31, 2019
 
Less than
Twelve Months
 
Twelve Months
or Longer
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
6

 
$

 
$
61,709

 
$
(1,034
)
 
$
61,715

 
$
(1,034
)
States, municipalities and political subdivisions
14,974

 
(26
)
 
1,056

 
(5
)
 
16,030

 
(31
)
Corporates, by sector:
 
 
 
 
 
 
 
 
 
 
 
Financial
69,791

 
(1,004
)
 
388,946

 
(15,440
)
 
458,737

 
(16,444
)
Utilities
2,023

 
(2
)
 
177,061

 
(5,553
)
 
179,084

 
(5,555
)
Energy
48,948

 
(693
)
 
145,645

 
(7,662
)
 
194,593

 
(8,355
)
Other corporate sectors
392,572

 
(12,612
)
 
1,560,588

 
(82,520
)
 
1,953,160

 
(95,132
)
Total corporates
513,334

 
(14,311
)
 
2,272,240

 
(111,175
)
 
2,785,574

 
(125,486
)
Other asset-backed securities
98

 

 
4,463

 
(23
)
 
4,561

 
(23
)
Total investment grade securities
528,412

 
(14,337
)
 
2,339,468

 
(112,237
)
 
2,867,880

 
(126,574
)
 
 
 
 
 
 
 
 
 
 
 
 
Below investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
States, municipalities and political subdivisions
85

 
(143
)
 

 

 
85

 
(143
)
Corporates, by sector:


 


 


 


 
 
 
 
Financial

 

 
104,759

 
(28,021
)
 
104,759

 
(28,021
)
Utilities

 

 
12,648

 
(4,135
)
 
12,648

 
(4,135
)
Energy
11,207

 
(589
)
 
47,260

 
(18,465
)
 
58,467

 
(19,054
)
Other corporate sectors
35,189

 
(2,153
)
 
94,367

 
(18,499
)
 
129,556

 
(20,652
)
Total corporates
46,396

 
(2,742
)
 
259,034

 
(69,120
)
 
305,430

 
(71,862
)
Collateralized debt obligations

 

 
14,112

 
(5,888
)
 
14,112

 
(5,888
)
Other asset-backed securities
14,132

 
(343
)
 

 

 
14,132

 
(343
)
Total below investment grade securities
60,613

 
(3,228
)
 
273,146

 
(75,008
)
 
333,759

 
(78,236
)
Total fixed maturities
$
589,025

 
$
(17,565
)
 
$
2,612,614

 
$
(187,245
)
 
$
3,201,639

 
$
(204,810
)


16
                                 TMK 2019 FORM 10-Q QTR 1


TORCHMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 4—Investments (continued)

Analysis of Gross Unrealized Investment Losses
 
At December 31, 2018
 
Less than
Twelve Months
 
Twelve Months
or Longer
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
 
 
Investment grade securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government direct, guaranteed, and government-sponsored enterprises
$
37,182