Annual Report
CORPORATE HEADQUARTERS
Torchmark Corporation
2001 Third Avenue South
Birmingham, Alabama 35233
(205) 325-4200
www.torchmarkcorp.com
ANNUAL MEETING
OF SHAREHOLDERS
10:00 a.m. CDT, Thursday, April 27, 2006
Corporate Headquarters
2001 Third Avenue South
Birmingham, Alabama 35233
The proceedings will be webcast live and
in replay on the Investor Relations page of
the Torchmark Corporation website. The
Company’s Annual Meeting will be conducted
in accordance with its Shareholder Rights
Policy. A copy of this policy can be obtained
on the Company’s website, or by contacting
the Corporate Secretary at the Torchmark
Corporation headquarters address.
INVESTOR RELATIONS
Contact: Joyce L. Lane
Phone: (972) 569-3627
Fax: (972) 569-3282
E-Mail: jlane@torchmarkcorp.com
Individual Stock Ownership Information:
(205) 325-4270
Toll-Free Stock Transfer Number:
(800) 524-4458
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2200 Ross Avenue
Suite 1600
Dallas, Texas 75201
STOCK EXCHANGE LISTINGS
New York Stock Exchange
Symbol: TMK
The International Stock Exchange,
London, England
INDENTURE TRUSTEE FOR
SENIOR DEBENTURES
AND 7⅞% AND 7⅜% NOTES
J.P. Morgan Bondholder Services
P.O. Box 2320
Dallas, Texas 75221-2320
Toll-Free Number: (800) 275-2048
www.jpmorgan.com/bondholder
INDENTURE TRUSTEE
FOR 6¼% NOTES
The Bank of New York Trust Company, N.A.
505 North 20th Street, Suite 950
Birmingham, Alabama 35203
Attention: Corporate Trust Administration
Toll-Free Number: (800) 254-2826
www.bankofny.com/corptrust
TORCHMARK CAPITAL TRUST
PREFERRED SECURITIES
Torchmark Capital Trust I and II, Delaware
business trust subsidiaries of Torchmark,
have issued a total of 5,000,000 7¾% Trust
Preferred Securities (liquidation amount $25
per Trust Preferred Security). The Trust
Preferred Securities trade through Depository
Trust Company under global certificates
listed on the New York Stock Exchange
(Torchmark Capital Trust I NYSE symbol:
TMKPRT; Torchmark Capital Trust II NYSE
symbol: TMKPRS).
STOCK TRANSFER AGENT AND
SHAREHOLDER ASSISTANCE
The Bank of New York
Investor Services Department
P.O. Box 11258
New York, New York 10286-1258
Toll-Free Number: (800) 524-4458
Toll-Free Hearing
Impaired Number: (888) 269-5221
Outside the U.S.: (610) 312-5303
E-Mail: shareowners@bankofny.com
www.stockbny.com
DIVIDEND REINVESTMENT
Torchmark maintains a dividend reinvestment
plan for all holders of its common stock.
Under the plan, shareholders may reinvest all
or part of their dividends in additional shares
of common stock and may also make periodic
additional cash payments of up to $3,000
toward the purchase of Torchmark stock.
Participation is voluntary. More information
on the plan may be obtained from the Stock
Transfer Agent by calling: toll-free (800) 524-
4458 or by writing: The Bank of New York,
Dividend Reinvestment Department, P.O.
Box 1958, Newark, NJ 07101.
AUTOMATIC DEPOSIT
OF DIVIDENDS
Automatic deposit of dividends is available
to shareholders who wish to have their
dividends directly deposited into the financial
institution of their choice. Authorization
forms may be obtained from the Stock
Transfer Agent by calling toll-free (800) 524-
4458. Participation is voluntary.
CORPORATE GOVERNANCE
The Company timely submitted to the New
York Stock Exchange a Section 303A (12)(a)
CEO Certification without qualification in
2005. In 2005, Torchmark also filed with the
Securities and Exchange Commission the
CEO/CFO Certifications required by Section
302 of the Sarbanes-Oxley Act as Exhibits to
its Form 10-K.
TORCHMARK
CORPORATION WEBSITE
On the home page at
www.torchmarkcorp.com
are links to the web pages of:
(cid:129) Torchmark’s principal
subsidiaries
(cid:129) Torchmark’s Annual Reports
(cid:129) Employment
(cid:129) Investor Relations
The Investor Relations page
contains a menu with links
to many topics of interest to
investors and other interested
third parties:
(cid:129) About Torchmark
(cid:129) Annual Reports, SEC forms
10-K and Proxy Statements
(cid:129) News Releases and
Stock Quotes
(cid:129) SEC Filings
(cid:129) Financial Reports and Other
Financial Information
(cid:129) Officers and Directors
(cid:129) Torchmark Calendar
(cid:129) Management Presentations
(cid:129) Conference Calls on the Web
(cid:129) Corporate Governance
including:
- Shareholder Rights Policy
- Code of Business
Conduct and Ethics
- Code of Ethics for CEO and
Senior Financial Officers
- Corporate Governance
Guidelines
- Audit Committee Charter
- Compensation
Committee Charter
- Governance & Nominating
Committee Charter
- Employee Complaint
Procedure
- How to Contact the
Board of Directors
(cid:129) Annual Meeting of
Shareholders
(cid:129) Stock Transfer Agent and
Shareholder Assistance
(cid:129) Dividend Reinvestment
(cid:129) Automatic Deposit
of Dividends
(cid:129) Contact Information
Financial Highlights*
In thousands, except percentage and per share amounts
OPERATIONS:
Total Premium
Total Revenue
Net Operating Income
Annualized Life Premium in Force
Annualized Health Premium in Force
Diluted Average Shares Outstanding
Net Operating Income as a Return
On Average Common Equity
2005
2004
% CHANGE
$2,508,074
$2,471,900
3,125,910
485,505
1,577,635
1,026,410
105,751
3,071,542
473,432
1,523,335
1,056,451
111,908
15.9%
16.2%
1.5
1.8
2.6
3.6
(2.8)
(5.5)
PER COMMON SHARE:
Net Operating Income
Shareholders‘ Equity at Year End
$4.59
30.41
$4.23
27.45
8.5
10.8
* Certain financial data differ from the comparable GAAP financial data. Reconciliations to GAAP financial data
are presented on pages 10-11.
TABLE OF CONTENTS
Financial Highlights . . . . . . . . . . . . . . 1
Letter to Shareholders . . . . . . . . . . . . 2
Board of Directors, Officers
and Officers of Subsidiaries. . . . . . . . 9
Operating Summary . . . . . . . . . . . . .10
Condensed Balance Sheet . . . . . . . .11
1
Letter to Shareholders*
Before I begin my comments on Torchmark operations, I would like to make a few comments about the outgoing
leader of this Company.
C. B. Hudson retired as Chairman of the Board at the end of February with over 31 years of service to the Torchmark
companies. For the last 26 years, C. B. has been my mentor. He is one of the smartest and hardest working people
I have ever known. More importantly, he is a man of unquestioned integrity. In the 26 years that I have worked with
C. B., every decision was made in our shareholders’ best interests. If every corporate CEO had the character of C. B.
Hudson, the Sarbanes-Oxley legislation would not have been necessary.
C. B. was instrumental in every acquisition made since the founding of Torchmark. He was also directly responsible for
our reputation of providing the best possible customer service at the lowest possible cost. He insisted at all levels of
management that return on investment be evaluated before any shareholder money could be spent. He truly managed
the Company as if it were his own. I will be forever grateful to C. B. for his contributions to Torchmark’s success. He
will be missed.
2
Financial Review
Key Components of Net Operating Income
2005 was a good year for Torchmark, but also a challenging year in many respects. Net operating income per share
increased 9% to $4.59. Underwriting income, which is premium income less the funding of current and future benefits
and less expenses, increased 6%. Excess investment income, which is net investment income less the interest paid
or credited on interest-bearing liabilities, decreased 2%. For the year, under our ongoing repurchase program, we
repurchased 5.6 million shares of Torchmark at a cost of $300 million.
Insurance Underwriting Income
Excess Investment Income
Other
Income Tax
Net Operating Income
$ MILLIONS
2004
% CHANGE
2005
$426.1
324.2
$400.9
330.5
(9.7)
(9.6)
(255.2)
(248.5)
$485.5
$473.4
6
(2)
1
3
3
DILUTED OPERATING
EARNINGS PER SHARE
2005
$4.03
3.07
(0.09)
(2.41)
2004
$3.58
2.95
(0.09)
(2.22)
$4.59
$4.23
% CHANGE
13
4
0
9
9
First year premiums are the premiums received for policies that are in their first policy year, and they are a measure
of the new business generated within our distribution systems. Life insurance first year premiums decreased 6% to
$222 million, and health insurance first year premiums decreased 11% to $147 million.
Total life insurance premiums increased 5% to $1.5 billion. Underwriting margin, which is the premium income less the
amounts required to fund current and future benefits and to amortize acquisition expenses, increased 8% to $382 million.
* Certain financial data differ from the comparable GAAP financial data. Reconciliations to GAAP financial data are presented on pages 10-11.
Torchmark Corporation (cid:129) Letter to Shareholders
Total health insurance premiums decreased 3% to $1.0 billion, and underwriting margin increased 1% to $177 million.
Annuity margin decreased 10% to $13 million, and other income was $2 million. Our administrative expenses increased
4% to $148 million. Underwriting income increased 6% to $426 million. Net investment income increased 5% to
$603 million. Required interest on net policy liabilities increased 6% to $225 million, and financing costs increased 62%
to $53 million. Therefore, excess investment income decreased 2% to $324 million.
When valuing fixed maturity assets at amortized cost, our book value was $30.41 per share, our debt to capital ratio
was 21.9%, and our net operating income as a return on equity was 15.9%.
Direct Response Operation
In millions, except %
First Year Collected Premium
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses
Underwriting Margin
LIFE
2005
2004
HEALTH
2005
2004
$
77
424
195
122
107
%*
$
74
%*
387
46% 181
29% 109
25% 97
47%
28%
25%
$
6
38
30
3
5
%*
79%
8%
13%
$
9
35
27
3
4
%*
79%
10%
11%
3
* Percent of Premium
First year premiums were flat and remained at $83 million. Total premiums increased 10% to $462 million, and
underwriting margin increased 11% to $112 million.
With respect to life insurance, ours is the largest direct response operation in the U. S. We obtain mailing lists that
meet the selection criteria for the products we offer, and then we reduce the lists using our own demographic data
related to household incomes and past response rates. All
printing and lettershop work are done internally, including the
making of envelopes. We pre-sort the mail into carrier route zip
codes, and then truck it to the various regional postal centers
throughout the country. The results are mailings that have the
lowest possible packaging and postal costs and the highest
probability of response rates that will generate the desired
underwriting margin.
DIRECT RESPONSE LIFE PREMIUM INCOME
In millions
$400
$450
$350
The direct response operation has shown the most consistent
long-term growth of any of our distribution systems. This growth
is a direct reflection of the experience and talent of the people
who manage this operation.
To achieve growth in this market, we must constantly find ways
to improve our results. This requires extensive ongoing testing of
products, pricing and packaging as well as testing of new media
and refinements in targeting our desired audience. Recent results
are very encouraging and should result in renewed sales growth
for 2006 and into 2007.
$300
$250
$200
$150
$100
$50
1988 1991 1994 1997 2000 2003 2005
Letter to Shareholders (cid:129) Torchmark Corporation
American Income Agency Operation
In millions, except %
First Year Collected Premium
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses
Underwriting Margin
LIFE
HEALTH
2005
2004
2005
2004
$
73
380
132
131
118
%*
$
77
%*
350
35% 117
34% 127
31% 106
33%
36%
30%
$
13
64
26
16
21
%*
41%
26%
33%
$
13
60
25
15
19
%*
42%
26%
33%
4
* Percent of Premium
First year premiums decreased 4% to $86 million. Total premiums increased 9% to $444 million, and underwriting
margin increased 11% to $139 million.
American Income is a “union label” company with union members not only in the home office, but also in the sales
force. With the endorsement of unions at the local level, the sales force markets products to union membership.
American Income is one of only two “union label” U. S. life insurance companies, and American Income is clearly the
leader with respect to individual life and health insurance.
To achieve growth in new sales, we must grow our agency force. In turn, to grow our agency force, we must increase
our recruiting activity as well as grow our lead generation of prospective customers. For 2005, our efforts in each of
these areas were unsuccessful at American Income. We believe this trend can be reversed in 2006.
Throughout American Income’s history, lead generation has been the responsibility of our regional sales management
(known as State General Agents). These SGAs are assigned defined geographical areas for their exclusive use in lead
generation and agent recruiting. We believe this system is a hindrance to our future growth.
We have begun and will continue to expand the centralization of the lead generation responsibility in the home office.
We believe this change will help us to grow our traditional union lead generation and expand into new non-union
markets. It will also allow us to expand our SGA force in underperforming regions.
Liberty National Exclusive Agency Operation
In millions, except %
First Year Collected Premium
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses
Underwriting Margin
LIFE
HEALTH
2005
2004
2005
2004
$
36
303
139
85
78
%*
$
40
%*
304
46% 141
28% 89
26% 74
46%
29%
24%
$
10
149
100
23
25
%*
$
10
%*
164
67% 119
16% 26
17% 19
72%
16%
11%
* Percent of Premium
First year premiums decreased 7% to $46 million and total premiums decreased 3% to $452 million, underwriting
margin increased 12% to $104 million.
The producing agent count increased 9% or 143 agents. The producing agent count at year end was 1,781.
Torchmark Corporation (cid:129) Letter to Shareholders
The reduction in acquisition expenses favorably impacted the underwriting margin. Even though life insurance premiums
were flat relative to the prior year, acquisition expenses declined by $4 million. The lower acquisition expenses were a
key factor in the 6% increase in life insurance underwriting margin.
The Liberty National Agency Operation is one of our biggest challenges, but also one of our biggest opportunities. The
challenge is how to expand a 105 year old regional home-service type company into a national operation.
Most of the major life insurance companies in this country began as home service operations where agents were
assigned specific territories to not only sell new policies, but also to service and collect premiums from existing
customers. A major component of agents earnings were the “servicing salaries,” which were paid for their service and
collection activities. Expansion was difficult because agents became reliant upon an existing customer base for much
of their income.
Over time, this type of distribution system became very expensive and inefficient. In the last 25 years, most of the
large life insurers either significantly reduced or completely shut down their home service operations.
To expand Liberty National, significant changes are necessary. While our agents no longer collect premiums, we have
continued to assign territories and pay salaries for servicing existing customers. Customer service will always be a
priority; however, we believe this money would be better spent on generating leads of prospective new customers and
improved commissions on new sales. These changes will reduce the agent’s reliance on an existing customer base,
eliminate the need for defined territories and make it easier to expand into new geographic areas.
United American General Agency and
Branch Office Operations
In millions, except %
5
First Year Collected Premium
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses
Underwriting Margin
LIFE
HEALTH
2005
2004
2005
2004
$
5
62
27
28
7
%*
43%
45%
12%
$
10
68
33
28
6
%*
49%
41%
9%
$
118
764
491
147
126
%*
$
134
%*
791
64% 507
19% 151
16% 133
64%
19%
17%
* Percent of Premium
First year premiums decreased 14% to $124 million. Total premiums decreased 4% to $827 million, and underwriting
margin declined 4% to $133 million.
With respect to health insurance, our operations market (a) limited-benefit health insurance products to individuals who
are under the age of 65, and (b) Medicare supplement products to individuals age 65+ who are on Medicare.
First year premiums for underage-65 health insurance were 71% of the total health premiums, up from 68% the prior
year. There are two reasons for the demand for the products: (1) the availability of individual Major Medical insurance
is disappearing as carriers withdraw these products from the marketplace, and (2) employers continue to cut back
employee group health insurance benefits. The wide variety of products offered by United American provide either
basic protection against the expenses of the majority of hospital confinements and out-patient hospital treatments or
fill the gaps created by employer cutbacks.
Letter to Shareholders (cid:129) Torchmark Corporation
Medicare supplement first year premiums declined 26% to $34 million. This market has continued to be affected
by the Bush administration’s push to privatize Medicare through both managed care and fee-for-service plans. The
government currently compensates these private plans more than the cost of traditional Medicare, a practice which
cannot continue indefinitely. We have been in the Medicare supplement market since its inception and will continue to
be so. This market has had a history of peaks and valleys and we believe that it will continue to do so.
Demand for our other health products continue to improve. In our Branch Office operation, net health sales grew 16%
for the year with 62% growth in the fourth quarter. Our agent count also grew 29% for the year.
We expect to see continued robust growth in this distribution system in 2006.
Military and Other Life Agency Operations
In millions, except %
6
First Year Collected Premium
Underwriting Margin:
Premium
Policy Obligations
Acquisition Expenses
Underwriting Margin
MILITARY
2005
2004
OTHER
2005
2004
$
22
199
91
65
44
%*
$
27
%*
187
45% 88
33% 57
22% 42
47%
30%
23%
$
9
99
40
31
28
%*
%*
$
8
101
41% 41
31% 33
28% 27
40%
32%
27%
* Percent of Premium
With respect to our Military operations, first year premiums decreased 20% to $22 million. Total premiums increased
7% to $199 million, and underwriting margin increased 3% to $44 million.
The underwriting margin was affected by the continuing hostile activities in Iraq and Afghanistan. Paid claims directly
related to these hostilities were $3.9 million in 2005 versus $4.0 million in 2004.
All of our Military business is generated through one independent agency, First Command, headquartered in Fort
Worth, Texas. First Command is represented by almost 450 producing agents in over 200 offices located on or near
military installations in the U. S. and abroad. The agency markets its products primarily to commissioned and non-
commissioned military officers and their families. The integrity of First Command and its commitment to customers is
extraordinary. The quality of the business written is second to none in the industry.
In the past two years, First Command has been impacted by negative publicity concerning inappropriate sales of
life insurance and investment products to military personnel. While we believe the criticism of First Command was
unjustified and did not include criticism of any Torchmark company or product, new sales have been affected.
First Command and Torchmark have been partners since 1982. We have and will continue to do all we can to help them
grow their operation.
Medicare Part D Prescription Drug Program
A new endeavor for Torchmark in 2006 will be our participation in the Medicare Prescription Drug Program (Part D). This
program provides government subsidized prescription drug coverage offered through private companies. We believe
this program provides an opportunity and is an acceptable risk due to the government’s guarantees of reimbursement
if our loss ratios deviate significantly from our expectations.
Torchmark Corporation (cid:129) Letter to Shareholders
We began marketing the program in the fourth quarter of 2005 with coverages beginning on January 1, 2006. At
January 31, 2006, we had 121,000 confirmed enrollees in our plan with enrollment expected to continue to May 15,
2006. We currently expect 2006 revenue from this program to be in the range of $175 to $225 million.
Administrative Expenses
Insurance administrative expenses increased 4% to $148 million. As a percentage of premiums, administrative
expenses were 5.9%, up slightly from last year due primarily to higher employee costs.
Investments
Our investment portfolio is concentrated in investment grade fixed-maturity assets. Fixed-maturity assets on an
amortized cost basis represented 94% of our invested assets, and will likely be an increasing percentage of our
invested assets as we are not as comfortable with alternative investments. The average credit rating quality of the
fixed-maturity portfolio was BBB+ as rated by Standard & Poor’s and Baa1 as rated by Moody’s.
Net investment income increased 5% to $603 million. The interest required on net interest-bearing liabilities increased
13% to $279 million. Therefore, excess investment income was $324 million. Because of our stock repurchase program,
comparing the yearly change in excess investment income is misleading. A better comparison is on a per-share basis;
as such, excess investment income increased 4%.
The flattening of the yield curve in 2005 had a negative impact on excess investment income by restricting the growth of
investment income and increasing the costs of the interest-bearing liabilities. The increase in short term rates reduced
the spread of long term versus short term rates, and influenced us to shorten the average life of new investments,
which in turn resulted in lower yields. In addition, rising short term rates increased the costs of our debt, a component
of the interest-bearing liabilities.
In the past, we have said that we hope for higher interest rates. To be more specific, we hope for higher long term
rates, which would increase the spread earned on the assets supporting the interest-bearing liabilities, and more
important, increase the yield on the remaining invested assets.
7
Investment Income
In millions, except percent and per share amounts
(1) From Invested Assets Supporting:
Net Interest-Bearing Policy Liabilities:
Policy Reserves
DAC
Net
Debt
Interest Rate Swaps
(2) From Remaining Invested Assets
Per Diluted Share
Increase over 2004
TOTAL *
REQUIRED
EXCESS
$393
(168)
225
61
(7)
0
$279
$2.63
20%
$69
1
7
247
$324
$3.07
4%
$294
62
0
247
$ 603
$5.70
11%
* For illustrative purposes only, total investment income has been allocated pro rata based upon the net liabilities. Torchmark does not specifically
allocate assets to liabilities.
Letter to Shareholders (cid:129) Torchmark Corporation
Share Repurchase Program
During the year we repurchased 5.6 million shares of our outstanding stock under our ongoing share repurchase
program at a cost of $300 million. Since the stock repurchase program began in 1986, we have repurchased
140.1 million shares at a total cost of over $2.8 billion. In the past five years we have repurchased 26 million shares at
a cost of $1.1 billion.
Obviously, we believe our stock has been undervalued. We believe it still is, and we expect to continue the stock
repurchase program since it is a means of increasing shareholder intrinsic value.
Outlook
With the diversified structure of Torchmark’s distribution systems, we will always have challenges. I am confident
we will meet those challenges and I am optimistic about both the short-term and long-term growth opportunities for
Torchmark. The primary reason for my optimism is the executive management we have in place at Torchmark and its
subsidiary companies. This group averages 20+ years of experience with the Torchmark companies. They are bright,
hard-working and dedicated people who truly work together as a team.
For 2006, we expect to see improvements in all of our distribution systems. Life insurance sales should reverse their
decline from 2005 and health sales should show strong double-digit growth. We continue to hope for higher interest
rates that will give us a greater spread over the yields that we must pay/credit on our interest-bearing liabilities. We will
continue to repurchase our stock and we are open to an acquisition if the right opportunity presents itself.
8
MARK S. MCANDREW
Chairman and Chief Executive Officer
Torchmark cautions you that this Letter to Shareholders may contain forward-looking statements within the meaning of the federal
securities law. 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 period ended December 31, 2005, found on the following
pages and 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.
Torchmark Corporation (cid:129) Letter to Shareholders
Directors
Officers
CHARLES E. ADAIR
Partner of Cordova Ventures,
Montgomery, Alabama
DAVID L. BOREN
President of the University of Oklahoma,
Norman, Oklahoma
M. JANE BUCHAN
Chief Executive Officer and Managing Director
of Pacific Alternative Asset Company, LLC
Irvine, California
JOSEPH M. FARLEY
Of Counsel in the Birmingham, Alabama
law firm of Balch & Bingham LLP
ROBERT W. INGRAM
Senior Associate Dean and Ross-Culverhouse
Professor of Accounting in
Culverhouse College of Commerce,
University of Alabama
Tuscaloosa, Alabama
JOSEPH L. LANIER, JR.
Chairman of the Board of Dan River Incorporated,
Danville, Virginia
MARK S. MCANDREW
Chairman and Chief Executive Officer of
Torchmark
HAROLD T. MCCORMICK
Chairman and Chief Executive Officer of
Bay Point Yacht and Country Club,
Panama City, Florida; Retired
President of Wheelabrator Technologies, Inc.
SAM R. PERRY
Attorney, Austin, Texas
LAMAR C. SMITH
Chairman and Chief Executive Officer of First
Command Financial Services, Inc.,
Fort Worth, Texas
PAUL J. ZUCCONI
Retired Partner of KPMG LLP,
Plano, Texas
MARK S. MCANDREW
Chairman and Chief Executive Officer
TONY G. BRILL
Executive Vice President and Chief
Administrative Officer
GARY L. COLEMAN
Executive Vice President and
Chief Financial Officer
LARRY M. HUTCHISON
Executive Vice President and General Counsel
ANTHONY L. MCWHORTER
Executive Vice President
Officers of
Subsidiaries
AMERICAN INCOME LIFE
ROGER SMITH
Chief Executive Officer and President
GLOBE LIFE
CHARLES F. HUDSON
President and Chief Executive Officer
LIBERTY NATIONAL LIFE
ANTHONY L. MCWHORTER
Chief Executive Officer
ROSEMARY J. MONTGOMERY
Executive Vice President and Chief Actuary
ANDREW W. KING
President and Chief Marketing Officer
UNITED AMERICAN
VERN D. HERBEL
President and Chief Executive Officer
9
UNITED INVESTORS LIFE
ANTHONY L. MCWHORTER
President and Chief Executive Officer
RUSSELL B. TUCKER
Executive Vice President and
Chief Investment Officer
GLENN D. WILLIAMS
Executive Vice President and
Chief Marketing Officer
DANNY H. ALMOND
Vice President , Accounting
MICHAEL J. KLYCE
Vice President and Treasurer
JOYCE L. LANE
Vice President, Investor Relations
CAROL A. MCCOY
Vice President, Associate Counsel and Secretary
SPENCER H. STONE
Controller
FRANK M. SVOBODA
Vice President, Director of Tax
DAVID F. THORNDIKE
Vice President
Letter to Shareholders (cid:129) Torchmark Corporation
Operating Summary
Unaudited and amounts in thousands except per share amounts
TWELVE MONTHS ENDED DECEMBER 31,
2005
2004
% INCREASE
(DECREASE)
10
Underwriting Income
Life:
Premium
Net policy obligations
Commissions and acquisition expenses
Underwriting margin
Health:
Premium
Net policy obligations
Commissions and acquisition expenses
Underwriting margin
Annuity underwriting margin
Total underwriting margin
Other income
Insurance administration expenses
Underwriting income
Excess Investment Income
Tax-equivalent net investment income
Required interest on:
Net policy liabilities:
Policy reserves
Deferred acquisition costs
Debt
Total excess investment income
Corporate expenses
Pre-tax operating income
Income tax
Net Operating Income
Operating EPS on a diluted basis
Diluted average shares outstanding
Reconciliation of Net Operating Income to Net Income:
Net operating income
Non operating items, net of tax:
Realized gains/(losses)
Realized gains/(losses) - interest rate swaps
Tax settlements
Change in accounting principle
Net proceeds from legal settlement
Retiring executive option term extension
Net Income
EPS on a diluted basis
5%
8%
(3%)
1%
4%
6%
5%
(2%)
3%
3%
9%
$1,468,288
(623,788)
(462,852)
381,648
1,014,857
(647,326)
(190,352)
177,179
12,580
571,407
2,366
(147,681)
426,092
$1,395,490
(600,889)
(442,424)
352,177
1,048,666
(678,143)
(195,941)
174,582
13,964
540,723
1,833
(141,620)
400,936
602,708
576,675
(393,276)
167,987
(53,181)
324,238
(9,660)
740,670
(255,165)
$485,505
$4.59
105,751
(370,128)
156,808
(32,812)
330,543
(9,575)
721,904
(248,472)
$473,432
$4.23
111,908
$485,505
$473,432
608
(5,388)
15,989
0
(955)
(369)
$495,390
$4.68
4,615
(5,332)
3,003
(7,163)
0
0
$468,555
$4.19
The Operating Summary has been prepared in the manner Torchmark management uses to evaluate the operating results of the company. It differs from
the Consolidated Statement of Operations found in the accompanying SEC Form 10-K.
Torchmark Corporation (cid:129) Operating Summary
Condensed Balance Sheet
Unaudited and amounts in thousands
AT DECEMBER 31,
2005
2004
Assets:
Fixed maturities at amortized cost *
Cash and short-term investments
Mortgages and real estate
Other investments
Deferred acquisition costs *
Goodwill
Other assets
Separate account assets
Total assets *
Liabilities and shareholders’ equity:
Policy liabilities
Accrued income taxes *
Short-term debt
Long-term debt and trust preferred securities
Other liabilities
Separate account liabilities
Shareholders’ equity, excluding FAS 115 *
Total liabilities and shareholders’ equity
Actual shares outstanding:
Basic
Diluted
Book value (shareholders’ equity, excluding FAS 115) per diluted share
Net operating income as a return on average equity, excluding FAS 115
Average equity, excluding FAS 115
Debt to capital ratio, excluding FAS 115
$
8,411,635
137,607
43,457
392,989
2,791,461
378,436
650,977
1,560,391
$ 14,366,953
$
7,439,810
870,365
381,505
507,902
435,479
1,560,391
3,171,501
$ 14,366,953
103,569
104,303
30.41
15.9%
3,045,446
21.9%
$
$
*Reconciliation of Torchmark management’s view of selected financial measures to comparable GAAP measures:
3,171,501
Shareholders’ equity, excluding FAS 115
$
Effect of FAS 115:
Increase fixed maturities
Decrease deferred acquisition costs
Increase accrued income taxes
Shareholders’ equity
Other comparable GAAP measures:
Fixed maturities
Deferred acquisition costs
Total assets
Shareholders’ equity
Accrued income taxes
Book value (shareholders’ equity) per diluted share
Net income as a return on average equity
Average equity
Debt to capital ratio
425,007
(23,057)
(140,683)
3,432,768
8,836,642
2,768,404
14,768,903
3,432,768
1,011,048
32.91
14.6%
3,389,878
20.6%
$
$
$
11
$
$
$
$
$
$
8,065,402
98,863
46,508
383,021
2,620,657
378,436
453,048
1,594,278
13,640,213
7,063,723
779,350
170,354
694,685
315,760
1,594,278
3,022,063
13,640,213
107,944
110,075
27.45
16.2%
2,927,299
22.3%
$
3,022,063
649,296
(37,325)
(214,190)
3,419,844
8,714,698
2,583,332
14,252,184
3,419,844
993,540
31.07
14.1%
3,311,563
20.2%
$
$
$
This Condensed Balance Sheet has been prepared in the manner Torchmark management, industry analysts, rating agencies and financial institutions
use to evaluate the financial position of the company. It differs from the Consolidated Balance Sheets found in the accompanying SEC Form 10-K.
Condensed Balance Sheet (cid:129) Torchmark Corporation
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Torchmark Corporation
2001 Third Avenue South
Birmingham, Alabama 35233
www.torchmarkcorp.com