Capital Resources: The carrying amount of Torchmark's long-term debt was $792 million at both year-ends 1995 and 1994. Major debt issues outstanding at December 31, 1995 were as follows:
Short-term debt was $189 million at year-end 1995, compared with $250 million at the end of the previous year. Torchmark paid down a net of $61 million on its above-mentioned credit facility during 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) NOTE 9--FUTURE POLICY BENEFIT RESERVES (CONTINUED)
The valuation allowance for deferred tax assets as of December 31, 1994 and 1995 was $2.1 million. Subsequently recognized tax benefits of $2.1 million relating to the December 31, 1995 valuation allowance will be allocated to goodwill.
In October, 1994, Torchmark, through its wholly-owned finance subsidiary, Torchmark Capital L.L.C., completed a public offering of eight million shares of 9.18% MIPS at a face amount of $200 million. The securities are subject to a mandatory redemption in full at September 30, 2024, although Torchmark may elect to extend the MIPS for up to an additional 20 years if certain conditions are met. They are redeemable at Torchmark's option after September 30, 1999. Torchmark subsequently entered into a ten-year swap agreement with an unaffiliated party whereby Torchmark agreed to pay a variable rate on the $200 million face amount in exchange for payment of the fixed dividend. In a related transaction, Torchmark purchased a five-year cap on the swap agreement that insures that the variable rate cannot exceed 10.39% through September 30, 1999. The interest rate was 5.86% at December 31, 1995 and 7.02% at December 31, 1994. Torchmark pays a yearly fee of $860 thousand for the cap agreement. The market value of the swap agreement was a benefit of $26.5 million at December 31, 1995 and an obligation of $4.1 million at December 31, 1994. The market value of the cap agreement, net of the present value of future annual payments, was an obligation of $2.1 million at December 31, 1995 and a benefit of $517 thousand at December 31, 1994. Except as otherwise described in "Note 3--Investments" on page 42 of this report, Torchmark is a party to no other derivative instruments as defined by SFAS 119.
Leases: Torchmark leases office space and office equipment under a variety of operating lease arrangements. These leases contain various renewal options, purchase options, and escalation clauses. Rental expense for operating leases was $6.3 million, $7.9 million, and $7.6 million for 1995, 1994, and 1993, respectively. Future minimum rental commitments required under operating leases having remaining noncancelable lease terms in excess of one year at December 31, 1995 are as follows: 1996, $4.3 million; 1997, $2.4 million; 1998, $1.4 million; 1999, $851 thousand; 2000, $440 thousand; and in the aggregate, $9.4 million.
Concentrations of Credit Risk: Torchmark maintains a highly-diversified investment portfolio with limited concentration in any given region, industry, or economic characteristic. At December 31, 1995, the investment portfolio consisted of securities of the U.S. government or U.S. government-backed securities (26%); non government-guaranteed mortgage-backed securities (4%); short-term investments, which generally mature within one month (1%); securities of state and municipal governments (14%); securities of foreign governments (1%); and investment-grade corporate bonds (42%). The remainder of the portfolio was in oil and gas investments (1%) and real estate (3%), which are not considered financial instruments according to GAAP; policy loans (3%), which are secured by the underlying insurance policy values; and equity securities, mortgages, noninvestment grade corporate securities and other long-term investments (5%). Investments in municipal governments and corporations are made throughout the U.S. with no concentration in any given state. Substantially all investments in foreign government securities are in Canadian government obligations. Corporate equity and debt investments are made in a wide range of industries. At December 31, 1995, 1% or more of the portfolio was invested in the following industries or security types: Financial services (15%); regulated utilities (5%); chemicals (5%); transportation (4%); miscellaneous manufacturing (3%); foods (3%); petroleum (2%); retailing (2%); electronics (1%); media (1%); and paper and allied products (1%). Otherwise, no individual industry represented 1% or more of Torchmark's investments. At year-end 1995, 3% of the carrying value of fixed maturities was rated below investment grade (Ba or lower as rated by Moody's service or the equivalent
The following is a summary of quarterly results for the two years ended December 31, 1995. The information is unaudited but includes all adjustments (consisting of normal accruals) which management considers necessary for a fair presentation of the results of operations for these periods.