Shareholders' equity rose to $1.63 billion at December 31, 1996, an increase of 3% from December 31, 1995 shareholders' equity of $1.59 billion. Book value per share was $23.38 at 1996 year end, compared with $22.17 and $17.37 at year-ends 1995 and 1994, respectively. After adjusting for the impact of interest-rate fluctuations on shareholders' equity required by accounting rules, book value per share was $22.84 at year-end 1996, an increase of 12% over $20.33 at year-end 1995. Comparative book value per share was $19.31 at year-end 1994. Return from continuing operations on common shareholders' equity was 20.5% in 1996, compared with 18.5% in 1995, even though average shareholders' equity increased. The return on equity ratios excludes the mark up or down of shareholders' equity for changes in market interest rates required by accounting rules. Total debt as a percentage of total capitalization continues to decline, and was 32% at December 31, 1996. In the computation of this ratio, the MIPS are counted as equity and the effect of the above-mentioned accounting rule is excluded. This debt-to-capitalization ratio was 37% at year-end 1995 and 40% at year-end 1994. Torchmark's ratio of earnings before interest, taxes and discontinued operations to interest requirements was 7.7 for 1996, compared with 6.3 in 1995 and 6.2 in 1994.
Earnings Per Share: Earnings available to holders of common stock are computed after deducting dividends on the Preferred Stock in 1994. Primary earnings per share are then calculated by dividing the earnings available to holders of common stock by the weighted average number of common shares outstanding during the period. The weighted average numbers of common shares outstanding for each period are as follows: 1996--71,229,892, 1995-- 71,593,774, 1994--72,095,657.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Torchmark's pro forma information follows (in thousands except for earnings per share information):
As previously reported, Torchmark, its insurance subsidiaries Globe and United American, and certain Torchmark officers were named as defendants in litigation filed April 22, 1994, as a purported class action in the District Court of Oklahoma County, Oklahoma (Moore v. Torchmark Corporation, Case No. CJ-94-2784-65). The suit claims damages on behalf of individual health policyholders who are alleged to have been induced to terminate such policies and to purchase Medicare Supplement and/or other insurance coverages. The complaint seeks actual and punitive damages for each class member in excess of $10,000. Subsequent to the filing of this case, one of the plaintiffs was dismissed and the named plaintiff died. The complaint was amended to include new plaintiffs purporting to represent the class and restyled Tabor v. Torchmark Corporation. No class has been certified. A motion to dismiss filed by the defendants was denied and limited discovery as permitted by the Oklahoma Supreme Court is proceeding.
On August 25, 1995, a purported class action was filed against Torchmark, Globe, United American and certain officers of these companies in the United States District Court for the Western District of Missouri on behalf of all former agents of Globe (Smith v. Torchmark Corporation, Case No.: 95-3304-CV- S-4). This action alleges that the defendants breached independent agent contracts with the plaintiffs by treating them as captive agents and engaged in a pattern of racketeering activity wrongfully denying income and renewal commissions to the agents, restricting insurance sales, mandating the purchase of worthless leads, terminating agents without cause and inducing the execution of independent contracts based on misrepresentations of fact. Monetary damages in an unspecified amount are sought. A plaintiff class was certified by the District Court on February 26, 1996, although the certification does not go to the merit of the allegations in the complaint. On December 31, 1996, the plaintiffs filed an amended complaint in Smith to allege violations of various provisions of the Employment Retirement Income Security Act of 1974. Discovery is presently proceeding in this case.