[LOGO OF TORCHMARK CORPORATION APPEARS HERE]
March 26, 2001
To the Stockholders of
Torchmark Corporation:
Torchmark's 2001 annual meeting of stockholders will be held in the
auditorium at the executive offices of the Company, 2001 Third Avenue South,
Birmingham, Alabama at 10:00 a.m., Central Daylight Time, on Thursday, April
26, 2001. The meeting will be conducted using Robert's Rules of Order and the
Company's Shareholder Rights Policy. This policy is posted on Torchmark's web
site at http://www.torchmarkcorp.com or you may obtain a printed copy by
writing to the Corporate Secretary at the Company's executive offices.
The accompanying notice and proxy statement discuss proposals which will be
submitted to a stockholder vote. If you have any questions or comments about
the matters discussed in the proxy statement or about the operations of your
Company, we will be pleased to hear from you.
It is important that your shares be voted at this meeting. Please mark,
sign, and return your proxy or vote over the telephone or the Internet. If you
attend the meeting, you may withdraw your proxy and vote your stock in person
if you desire to do so.
We hope that you will take this opportunity to meet with us to discuss the
results and operations of the Company during 2000.
Sincerely,
/s/ C.B. Hudson
--------------------------------
C.B. Hudson
Chairman, President & Chief
Executive Officer
---------------------------------
Notice of Annual Meeting of Stockholders
to be held April 26, 2001
---------------------------------
To the Holders of Common Stock of
Torchmark Corporation
The annual meeting of stockholders of Torchmark Corporation will be held at
the executive offices of the Company, 2001 Third Avenue South, Birmingham,
Alabama 35233 on Thursday, April 26, 2001 at 10:00 a.m., Central Daylight
Time. The meeting will be conducted in accordance with Robert's Rules of Order
and the Company's Shareholders Rights Policy. You will be asked to:
(1) Elect the nominees shown in the proxy statement as directors to
serve for their designated terms or until their successors have been duly
elected and qualified.
(2) Consider the appointment of Deloitte & Touche LLP as independent
auditors.
(3) Transact any other business that properly comes before the meeting.
These matters are more fully discussed in the accompanying proxy statement.
The close of business on Thursday, March 1, 2001 is the date for determining
stockholders who are entitled to notice of and to vote at the annual meeting.
You are requested to mark, date, sign, and return the enclosed form of proxy
in the accompanying envelope, whether or not you expect to attend the annual
meeting in person. You may also choose to vote your shares over the telephone
or the Internet. You may revoke your proxy at any time before it is voted at
the meeting.
The annual meeting may be adjourned from time to time without further notice
other than by an announcement at the meeting or at any adjournment. Any
business described in this notice may be transacted at any adjourned meeting.
By Order of the Board of Directors
/s/ Carol A. McCoy
Carol A. McCoy
Associate Counsel & Corporate
Secretary
Birmingham, Alabama
March 26, 2001
PROXY STATEMENT
Solicitation of Proxies
The Board of Directors of Torchmark Corporation solicits your proxy for use
at the 2001 annual meeting of stockholders and at any adjournment of the
meeting. The annual meeting will be held at the executive offices of the
Company, 2001 Third Avenue South, Birmingham, Alabama 35233 at 10:00 a.m.,
Central Daylight Time on Thursday, April 26, 2001. C.B. Hudson and Larry M.
Hutchison are named as proxies on the proxy/direction card. They have been
designated as directors' proxies by the Board of Directors.
If the enclosed proxy/direction card is returned, properly executed, and in
time for the meeting, your shares will be voted at the meeting. All proxies
will be voted in accordance with the instructions set forth on the
proxy/direction card. If proxies are executed and returned which do not
specify a vote on the proposals considered, those proxies will be voted FOR
such proposals. You have the right to revoke your proxy by giving written
notice of revocation addressed to the Secretary of the Company at the address
shown above at any time before the proxy is voted.
The card is considered to be voting instructions furnished to the respective
trustees each of the Torchmark Corporation Savings and Investment Plan, the
Waddell & Reed Financial, Inc. 401-K and Savings and Investment Plan, the
Liberty National Life Insurance Company 401(k) Plan and the Profit-Sharing and
Retirement Plan of Liberty National Life Insurance Company with respect to
shares allocated to individual's accounts under these plans. If the account
information is the same, participants in one or more of the plans who are also
shareholders of record will receive a single card representing all their
shares. If a plan participant does not return a proxy/direction card to the
Company, the trustees of any plan in which shares are allocated to the
participant's individual account will vote those shares in the same proportion
as the total shares in that plan for which directions have been received.
A simple majority vote of the holders of the issued and outstanding common
stock of the Company represented in person or by proxy at the stockholders
meeting is required to elect directors and approve all other matters put to a
vote of stockholders. Abstentions are considered as shares present and
entitled to vote. Abstentions have the same legal effect as a vote against a
matter presented at the meeting. Any shares for which a broker or nominee does
not have discretionary voting authority under applicable New York Stock
Exchange rules will be considered as shares not entitled to vote and will not
be considered in the tabulation of the votes.
Record Date and Voting Stock
Each stockholder of record at the close of business on March 1, 2001 is
entitled to one vote for each share of common stock held on that date upon
each proposal to be voted on by the stockholders at the meeting. At the close
of business on March 1, 2001, there were 126,000,676 shares of common capital
stock of the Company outstanding (not including 156,243,606 shares held by the
Company and its subsidiaries which are non-voting while so held). There is no
cumulative voting of the common stock.
Principal Stockholders
The Company is not aware of any persons known to be the beneficial owner of
more than five percent of the Company's outstanding common stock as of
December 31, 2000.
1
PROPOSAL NUMBER 1
Election of Directors
The Company's By-laws provide that there will be not less than seven nor
more than fifteen directors with the exact number to be fixed by the Board of
Directors. In October, 1999, the number of directors was increased to ten
persons. In October, 2000, the Board of Directors modified the directors
retirement policy as indicated below.
The Board of Directors proposes the election of Joseph M. Farley, C.B.
Hudson, Joseph L. Lanier, Jr. and R.K. Richey as directors, to hold office for
a term of three years, expiring at the close of the annual meeting of
stockholders to be held in 2004 or until their successors are elected and
qualified. Messrs. Farley, Hudson, Lanier and Richey's current terms expire in
2001. The term of office of the other six directors continues until the close
of the annual meeting of stockholders in the year shown in the biographical
information below.
Non-officer directors retire from the Board of Directors at the annual
meeting of stockholders which immediately follows their 78th birthday.
Directors who are employee officers of the Company retire from active service
as directors at the annual stockholders meeting immediately following their
65th birthday, except that these directors may be elected to a series of
additional three year terms not to continue beyond the annual meeting of
stockholders following the director's 78th birthday.
If any of the nominees becomes unavailable for election, the directors'
proxies will vote for the election of any other person recommended by the
Board of Directors unless the Board reduces the number of directors.
The Board recommends that the stockholders vote FOR the nominees.
Profiles of Directors and Nominees(/1/)
David L. Boren (age 60) has been a director of the Company since April,
1996. His term expires in 2003. He is a director of Phillips Petroleum
Corporation, AMR Corporation and Texas Instruments, Inc. Principal occupation:
President of The University of Oklahoma, Norman, Oklahoma since November,
1994.
Joseph M. Farley (age 73) has been a director of the Company since 1980.
Principal occupation: Of Counsel at Balch & Bingham LLP, Attorneys and
Counselors, Birmingham, Alabama since November, 1992.
Louis T. Hagopian (age 75) has been a director of the Company since 1988.
His term expires in 2003. Principal occupation: Owner of Meadowbrook
Enterprises, Darien, Connecticut, an advertising and marketing consultancy,
since January, 1990. Board member, Partnership for a Drug-Free America, New
York, New York.
C. B. Hudson (age 55) has been a director since 1986. Principal occupation:
Chairman, President and Chief Executive Officer of the Company since March,
1998. (Chairman of Insurance Operations of the Company, January, 1993-March,
1998; Chairman of Liberty, United American and Globe October, 1991-September,
1999 and Chief Executive Officer of Liberty December, 1989-September, 1999, of
United American November, 1982-September, 1999 and of Globe February, 1986-
September, 1999).
Joseph L. Lanier, Jr. (age 69) has been a director of the Company since
1980. He is a director of Dan River Incorporated, Flowers Industries, Inc.,
Dimon Inc. and SunTrust Banks, Inc. Principal occupation: Chairman of the
Board and Chief Executive Officer of Dan River Incorporated, Danville,
Virginia, a textile manufacturer, since November, 1989.
Mark S. McAndrew (age 47) has been a director of the Company since July,
1998. His term expires in 2002. Principal occupation: Chairman and Chief
Executive Officer of United American, Globe and American Income since
September, 1999; President of United American and Globe since October, 1991
and of American Income since September, 1999; Executive Vice President of the
Company since September, 1999. (Vice President of the Company, April-
September, 1999).
2
Harold T. McCormick (age 72) has been a director since April, 1992. His term
expires in 2003. Principal occupation: Chairman and Chief Executive Officer of
Bay Point Yacht & Country Club, Panama City, Florida, since March, 1988;
Director, First Ireland Spirits Co., Ltd., Abbeyleix, Ireland, since February,
2001 (Chairman, February, 1996-February, 2001).
George J. Records (age 66) has been a director of the Company since April,
1993. His term expires in 2002. Principal occupation: Chairman of Midland
Financial Co., Oklahoma City, Oklahoma, a bank and financial holding company
for retail banking and mortgage operations, since 1982.
R. K. Richey (age 74) has been a director of the Company since 1980. He is a
director of Full House Resorts, Inc. and a Director Emeritus of the United
Group of Mutual Funds, Waddell & Reed Funds, Inc. and Target/United Funds,
Inc. Principal occupation: Chairman of the Executive Committee of the Board of
Directors of the Company since March, 1998. (Chairman of the Company, August,
1986-March, 1998 and Chief Executive Officer of the Company, December, 1984-
March, 1998).
Lamar C. Smith (age 53) has been a director of the Company since October,
1999. His term expires in 2002. Principal Occupation: Chairman since 1992 and
Chief Executive Officer since 1990 of United Services Planning Association,
Inc., Independent Research Agency for Life Insurance, Inc. and First Command
Bank.
- --------
(1) Liberty, Globe, United American, American Income and UILIC as used in this
proxy statement refer to Liberty National Life Insurance Company, Globe
Life And Accident Insurance Company, United American Insurance Company,
American Income Life Insurance Company and United Investors Life Insurance
Company, subsidiaries of the Company.
3
PROPOSAL NUMBER 2
Approval of Auditors
A proposal to approve the appointment of the firm of Deloitte & Touche LLP
as the principal independent accountants of the Company to audit the financial
statements of the Company and its subsidiaries for the year ending December
31, 2001 will be presented to the stockholders at the annual meeting. Deloitte
& Touche served as the principal independent accountants of Torchmark,
auditing the financial statements of the Company and its subsidiaries for the
fiscal year ended December 31, 2000. The Audit Committee of the Board
recommends the appointment of Deloitte & Touche as the Company's principal
accountants for 2001.
KPMG Peat Marwick LLP served as the principal independent accountants of
Torchmark, auditing the financial statements of the Company and its
subsidiaries from 1981 through the fiscal year ended December 31, 1998. In
1998, senior management of the Company conducted extensive interviews with
several independent accounting firms and held discussions regarding the
selection of principal independent accountants with the members of the Audit
Committee of the Board. After deliberation, senior management recommended to
the Audit Committee that Deloitte & Touche be engaged as the Company's
principal accountants as of January 1, 1999, effective upon the issuance of
KPMG's reports on the consolidated financial statements of Torchmark and its
subsidiaries and the separately issued financial statements of Torchmark's
subsidiaries, unit investment trusts and benefit plans as of and for the year
ending December 31, 1998. (KPMG completed its engagement as Torchmark's
independent auditor on October 14, 1999, the date upon which the last of the
audit reports as of and for the year ended December 31, 1998 for the entities
noted above were issued.) Upon review, on October 21, 1998, the Audit
Committee approved the engagement of Deloitte & Touche.
The reports of KPMG on the financial statements of Torchmark for the fiscal
years ending December 31, 1998 did not contain any adverse opinion or
disclaimer of opinion. KPMG's report was not qualified or modified as to
uncertainty, audit scope or accounting principles. During such years and
during the period between December 31, 1998 and the date of completion of
KPMG's engagement, there was no disagreement between KPMG and Torchmark on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of KPMG, would have caused that firm to make reference to the
subject matter of such disagreement in connection with its report on the
Company's financial statements.
A representative of Deloitte & Touche is expected to be present at the
meeting and available to respond to appropriate questions and, although the
firm has indicated that no statement will be made, an opportunity for a
statement will be provided.
If the stockholders do not approve the appointment of Deloitte & Touche LLP,
the selection of independent auditors will be reconsidered by the Board of
Directors.
The Board recommends that stockholders vote FOR the proposal.
OTHER BUSINESS
The directors are not aware of any other matters which may properly be and
are likely to be brought before the meeting. If any other proper matters are
brought before the meeting, the persons named in the proxy, or in the event no
person is named, C.B. Hudson and Larry M. Hutchison will vote in accordance
with their judgment on these matters.
4
INFORMATION REGARDING DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Executive Officers
The following table shows certain information concerning each person deemed
to be an executive officer of the Company, except those persons also serving
as directors. Each executive officer is elected by the Board of Directors of
the Company or its subsidiaries annually and serves at the pleasure of that
board. There are no arrangements or understandings between any executive
officer and any other person pursuant to which the officer was selected.
Principal Occupation
and Business Experience
Name Age for the Past Five Years(1)
---- --- --------------------------
Tony G. Brill............... 58 Executive Vice President and Chief
Administrative Officer of Company since
September, 1999. (Vice President of Company,
January, 1997-September, 1999; Managing
Partner, KPMG Peat Marwick LLP, Birmingham,
Alabama 1969-December, 1996).
Gary L. Coleman............. 48 Executive Vice President and Chief Financial
Officer of Company since September, 1999.
(Vice President and Chief Accounting Officer
of Company, July, 1994-September, 1999).
Larry M. Hutchison.......... 47 Executive Vice President and General Counsel
of Company since September, 1999; Vice
President, Secretary and General Counsel of
United American since May, 1994. (Vice
President and General Counsel of Company,
April, 1997-September, 1999).
Anthony L. McWhorter........ 51 Chairman and Chief Executive Officer of
Liberty and UILIC since September, 1999;
President of Liberty since December, 1994 and
of UILIC since September, 1998; Executive
Vice President of Company since September,
1999.
Rosemary J. Montgomery...... 51 Executive Vice President and Chief Actuary of
Company, United American and Globe since
September, 1999. (Senior Vice President and
Chief Actuary of United American, October,
1991-September, 1999 and of Globe, May, 1992-
September, 1999).
Andrew W. King.............. 43 President of Branch Office Marketing Division
of United American since September, 1999.
(Senior Vice President, Branch Office
Division of United American, April, 1995-
September, 1999; Senior Vice President,
Marketing of Liberty, January, 1992-April,
1995).
5
Stock Ownership
The following table shows certain information about stock ownership of the
directors, director nominees and executive officers of the Company as of
December 31, 2000.
Company Common Stock
or Options Beneficially
Owned as of
December 31, 2000(1)
-------------------------
Name Directly(2) Indirectly(3)
---- ----------- -------------
David L. Boren....................................... 23,699 0
Norman, OK
Joseph M. Farley..................................... 146,610 4,800
Birmingham, AL
Louis T. Hagopian.................................... 153,122 0
Darien, CT
C. B. Hudson......................................... 1,650,753 237,126
Plano, TX
Joseph L. Lanier, Jr. ............................... 150,097 18,912
Lanett, AL
Mark S. McAndrew..................................... 256,828 6,529
McKinney, TX
Harold T. McCormick ................................. 0 68,688
Panama City, FL
George J. Records.................................... 67,908 0
Oklahoma City, OK
R. K. Richey......................................... 1,332,478 1,648,118
Plano, TX
Lamar C. Smith....................................... 7,487 0
Fort Worth, TX
Tony G. Brill........................................ 184,882 2,017
Frisco, TX
Gary L. Coleman...................................... 224,589 12,747
Richardson, TX
Larry M. Hutchison................................... 105,007 8,312
Duncanville, TX
Anthony L. McWhorter................................. 167,100 10,049
Birmingham, AL
Rosemary J. Montgomery............................... 187,450 1,518
Frisco, TX
Andrew W. King....................................... 75,591 8,381
Plano, TX
All Directors, Nominees and Executive Officers as a
group:(4)............................................ 4,733,601 2,027,197
- --------
(1) No directors, director nominees or executive officers other than R. K.
Richey (2.3%) and C.B. Hudson (1.4%) beneficially own 1% or more of the
common stock of the Company.
(2) Includes: for David L. Boren, 21,395 shares; for Joseph Farley, 77,200
shares; for Louis Hagopian, 101,229 shares; for Joseph Lanier, 96,228
shares; for Mark McAndrew, 160,748 shares; for Lamar Smith, 7,487 shares;
for George Records, 54,750 shares; for R. K. Richey, 433,230 shares; for
C. B. Hudson, 759,676 shares; for Tony Brill, 127,627 shares; for Anthony
McWhorter, 110,902 shares; for Gary Coleman, 139,748 shares; for Larry
Hutchison, 83,389 shares; for Rosemary Montgomery, 121,639 shares; for
Andrew King, 62,428 shares and for all directors, executive officers and
nominees as a group, 2,357,676 shares, that are subject to presently
exercisable Company stock options.
(3) Indirect beneficial ownership includes shares (a) owned by the director,
executive officer or spouse as trustee of a trust or executor of an
estate, (b) held in a trust in which the director, executive officer or a
family member living in his home has a beneficial interest, (c) owned by
the spouse or a family member living in
6
the director's, executive officer's or nominee's home or (d) owned by the
director or executive officer in a personal corporation or limited
partnership. Indirect beneficial ownership also includes approximately
13,126 shares, 6,529 shares, 1,412 shares, 8,258 shares, 12,747 shares,
8,381 shares, 8,312 shares and 518 shares calculated based upon conversion
of stock unit balances held in the accounts of Messrs. Hudson, McAndrew,
Brill, McWhorter, Coleman, King and Hutchison and Ms. Montgomery,
respectively, in the Company Savings and Investment Plan to shares.
Additionally, indirect beneficial ownership includes for Mr. Richey
538,081 shares subject to stock options held by Richey Capital Partners,
Ltd., a family limited partnership and for Mr. McCormick 59,450 shares
subject to stock options transferred to his spouse. Indirect ownership for
Mr. McWhorter also includes approximately 1,791 shares calculated based
upon conversion of stock unit balance in the Profit Sharing & Retirement
Plan of Liberty (PS&R Plan) to shares.
Mr. Lanier disclaims beneficial ownership of 16,512 shares owned by his
spouse and 2,400 shares owned by his children. Mr. Farley disclaims 4,800
shares held as trustee of a church endowment fund. Mr. McCormick disclaims
beneficial ownership of 7,038 shares owned by his spouse.
(4) All directors, nominees and executive officers as a group, beneficially
own 5.1% of the common stock of the Company.
During 2000, the Board of Directors met four times. In 2000, all of the
directors attended more than 75% of the meetings of the Board and the
committees on which they served.
Committees of the Board of Directors
The Board of Directors has the following committees: Audit-Messrs. Farley,
Hagopian, and McCormick; Compensation -- Messrs. Farley, Lanier and Hagopian;
Executive -- Messrs. Boren, Farley, Hagopian, Hudson, Lanier, McCormick,
Records, Richey and Smith; Finance -- Messrs. Farley, Lanier, McCormick,
Records and Smith; and Nominating -- Messrs. Boren, Farley, Hagopian, Lanier,
McCormick, Records, Richey and Smith.
The audit committee recommends the independent auditors to be selected by
the Board; discusses the scope of the proposed audit with the independent
auditors and considers the audit reports; discusses the implementation of the
auditors' recommendations with management; reviews the fees of the independent
auditors for audit and non-audit services; reviews the adequacy of the
Company's system of internal accounting controls; reviews, before publication
or issuance, the annual financial statement and any annual reports to be filed
with the Securities and Exchange Commission and periodically reviews pending
litigation. Additionally, the audit committee meets with the Company's
independent accountants and internal auditors both with and without management
being present. The audit committee met four times in 2000.
The compensation committee determines the compensation of senior management
of the Company and its subsidiaries and affiliates. Additionally, the
compensation committee administers the stock incentive plans of the Company.
The compensation committee met twice in 2000.
The executive committee exercises all the powers of the Board of Directors
in the interim between Board meetings. The executive committee met once in
2000.
The finance committee serves as the pricing committee in connection with
capital financing by the Company. The finance committee did not meet in 2000.
The nominating committee reviews the qualifications of potential candidates
for the Board of Directors from whatever source received, reports its findings
to the Board and proposes nominations for Board membership for approval by the
Board of Directors and for submission to the stockholders for approval.
Recommendations of potential Board candidates may be directed to the
nominating committee in care of the Corporate Secretary of the Company at the
address stated herein. The nominating committee did not meet in 2000.
7
COMPENSATION AND OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
- --------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
----------------------- -----------------------------
Awards
-----------------------------
(g)
(f) Securities (i)
(a) (d) Restricted Stock underlying All other
Name and (b) (c) Bonus Award(s) Options/SARs Compensation
Principal Position Year Salary ($) ($)(1) ($) (#)(3) ($)(4)
------------------ ---- ---------- ------- ---------------- ------------ ------------
C.B. Hudson 2000 800,000 0 0 379,849 6,393
Chairman, President 1999 800,000 0 0 151,734 5,910
and CEO 1998 800,000 0 0 259,740 5,772
Mark S. McAndrew 2000 650,000 210,000 0 90,000 5,100
Chairman, President and CEO of 1999 575,000 150,000 0 153,198 4,800
United American, Globe and 1998 525,000 150,000 1,687,500(2) 62,500 4,800
American Income
Tony G. Brill 2000 525,000 121,000 0 68,000 5,100
Executive Vice President and 1999 500,016 100,000 0 115,813 4,800
Chief Administrative Officer 1998 450,000 0 1,687,500(2) 63,258 4,800
Anthony L. McWhorter 2000 375,024 136,000 0 68,000 5,100
Chairman, President and Chief 1999 350,120 120,000 0 108,374 4,800
Executive Officer of Liberty 1998 300,722 27,000 1,054,688(2) 47,505 4,800
and UILIC
Gary L. Coleman 2000 320,000 96,000 0 54,000 5,100
Executive Vice President 1999 300,000 30,000 0 89,303 4,800
and Chief Financial Officer 1998 275,000 30,000 0 30,379 4,800
Andrew W. King 2000 275,000 0 0 65,496 5,100
President of Branch Office 1999 240,000 0 0 75,163 4,800
Marketing Division of 1998 190,000 0 0 25,758 4,800
United American
- --------
(1) Messrs. Hudson and King elected to defer $400,000 and $161,000 of their
respective 2000 bonuses and received for them Company stock options under
the provisions of the Torchmark Corporation 1998 Stock Incentive Plan
(1998 Incentive Plan). Messrs. Hudson, Coleman and King elected to defer
$400,000, $50,000 and $100,000, respectively, of their 1999 bonuses and
received for them Company stock options under the provisions of 1998
Incentive Plan. Messrs. Hudson, Brill, McWhorter, Coleman and King elected
to defer $400,000, $100,000, $93,000, $50,000 and $100,000, respectively,
of their 1998 bonuses pursuant to the provisions of the 1998 Incentive
Plan.
(2) At year end 2000, Messrs. McAndrew, McWhorter and Brill held 27,600,
17,250 and 27,600 restricted shares, respectively, valued at $1,060,875,
$663,047 and $1,060,875 (based on a year-end closing price of $38.4375 per
share). Restricted stock (40,000 shares) awarded on January 1, 1998 at
$42.1875 per share to each of Messrs. McAndrew and Brill vests as follows:
1-1-99 6,400 shares; 1-1-00 6,000 shares; 1-1-01 5,600 shares; 1-1-02
5,200 shares; 1-1-03 4,800 shares; 1-1-04 4,400 shares; 1-1-05 4,000
shares; and 1-1-06 3,600 shares. Restricted stock (25,000 shares) awarded
on January 1, 1998 at $42.1875 per share to Mr. McWhorter vests as
follows: 1-1-99 4,000 shares; 1-1-00 3,750 shares; 1-1-01 3,500 shares; 1-
1-02 3,250 shares; 1-1-03 3,000 shares; 1-1-04 2,750 shares; 1-1-05 2,500
shares. Cash dividends on all restricted stock are paid directly to the
stockholder at the same rate as on unrestricted stock. Messrs. McAndrew,
McWhorter and Brill agreed as a condition of their restricted stock awards
to waive receipt of any shares of Waddell & Reed Financial, Inc. (WDR)
stock distributed by Torchmark to its common shareholders in the WDR spin-
off on November 6, 1998.
(3) On December 20, 2000, Mr. Hudson elected to participate in a restoration
program under the 1998 Incentive Plan, comparable to a program for other
eligible Company officers, directors and employees in which Mr. Hudson
could not participate because of Securities and Exchange Commission rules,
whereby he exercised existing Torchmark stock options and received
restoration options on 251,351 Torchmark shares.
8
Also, on that same date, Messrs. Hudson and King elected to receive their
respective 2000 bonuses of $400,000 and $161,000 in the form of Torchmark
stock options on 38,498 shares and 15,496 shares, respectively. Messrs.
Hudson, McAndrew, Brill, McWhorter, Coleman and King received stock option
grants pursuant to the 1998 Incentive Plan on 90,000, 90,000, 68,000,
68,000, 54,000 and 50,000 Torchmark shares, respectively, on December 20,
2000.
In November 1999, Messrs. McAndrew, Brill, McWhorter, Coleman and King
elected to participate in a program under the TMK Incentive Plan whereby
they exercised existing Torchmark stock options and received restoration
options for 53,198, 40,813, 33,374, 22,836 and 12,229 Torchmark shares,
respectively. On December 21, 1999, Messrs. Hudson, McAndrew, Brill,
McWhorter, Coleman and King received stock option grants pursuant to the
TMK Incentive Plan on 100,000, 100,000, 75,000, 75,000, 60,000 and 50,000
Torchmark shares, respectively. Also, on that same date, Messrs. Hudson,
Coleman and King elected to receive 1999 bonus amounts of $400,000,
$50,000, and $100,000, respectively, in the form of Torchmark stock
options on 51,734 shares, 6,467 and 12,934 shares, respectively.
In December 1998, Messrs. Hudson, McAndrew, King, McWhorter, Coleman and
Brill received stock option grants of 100,000, 62,500, 15,000, 37,500,
25,000 and 52,500 shares, respectively, pursuant to the 1998 Incentive
Plan. Also, in December 1998, Messrs. Hudson, Brill, McWhorter, Coleman
and King elected to receive 1998 bonus amounts of $400,000, $93,000,
$50,000, $100,000 and $100,000 in the form of stock options on 43,031
shares, 10,758 shares, 10,005 shares, 5,379 shares and 10,758 shares
pursuant to the terms of the 1998 Incentive Plan. On November 6, 1998,
pursuant to the terms of each existing option plan, adjustments were made
to all outstanding stock options granted prior to that date to reflect the
WDR spin-off based upon each optionee's election to receive either
Adjusted Torchmark Options or a combination of Adjusted Torchmark Options
and WDR Conversion Options granted in WDR Class A common stock.
Accordingly, all shares reflected as underlying options granted prior to
November 6, 1998 have been so adjusted. Mr. Hudson was also granted
options under the TMK Incentive Plan on 116,709 Torchmark shares on
January 2, 1998.
(4) Includes Company contributions to Torchmark Corporation Savings and
Investment Plan, a funded, qualified defined contribution plan, for each
of Messrs. Hudson, McAndrew, Brill, McWhorter, Coleman and King of $5,100
in 2000 and $4,800 in 1999 and 1998; interest only on prior contributions
to the Torchmark Corporation Supplemental Savings and Investment Plan, an
unfunded, non-qualified defined contribution plan, for Mr. Hudson of
$1,293.07, $1,110.31 and $972.11, respectively, in 2000, 1999 and 1998.
9
OPTION GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------
Potential realizable
value at assumed annual rates
of stock price appreciation
Individual Grants for option term
--------------------------------------------- --------------------------------
% of
Number of total options Exercise
Securities granted to or
underlying employees base
options in price Expiration
Name granted(#) fiscal year ($/share) Date 5% ($) 10% ($)
(a) (b)(1) (c) (d) (e) 0% ($) (f) (g)
---- ---------- ------------- --------- ---------- ------------------- ------------
C.B. Hudson 90,000 7.2 37.375 12-22-10 0 2,115,446 5,360,950
251,351 20.1 37.375 12-22-10 0 5,907,993 14,972,001
38,498 3.1 37.375 12-20-11 0 1,220,080 2,666,381
Mark S. McAndrew 90,000 7.2 37.375 12-22-10 0 2,115,446 5,360,950
Tony G. Brill 68,000 5.4 37.375 12-22-10 0 1,598,337 4,050,495
Anthony L. McWhorter 68,000 5.4 37.375 12-22-10 0 1,598,337 4,050,495
Gary L. Coleman 54,000 4.3 37.375 12-22-10 0 1,269,267 3,216,570
Andrew W. King 50,000 4.0 37.375 12-22-10 0 1,175,248 2,978,305
15,496 1.2 37.375 12-20-11 0 411,402 1,073,257
- --------
(1) Options expiring on 12-22-10 are non-qualified stock options granted in
Torchmark common stock pursuant to the 1998 Incentive Plan with a ten year
and two day term at an exercise price equal to the closing price of the
Company's common stock on the grant date. Options expiring on 12-22-10
granted to Messrs. McAndrew, Brill, McWhorter, Coleman and King and to Mr.
Hudson for 90,000 shares are not exercisable during the first two years
after the grant date and vest on 50% of the shares two years after the
grant date and on the remaining 50% of the shares three years after the
grant date. Options expiring on 12-22-10 granted to Mr. Hudson for 251,351
shares are first exercisable six months from the grant date.
Options expiring on 12-20-11 are non-qualified stock options granted in
Torchmark stock with an eleven year term, an exercise price equal to the
closing price of the Company's common stock on the grant date and are
fully vested upon issuance, but only first exercisable as to 1/10 per year
commencing on the first anniversary of the grant date.
10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
(d) (e)
(b) (c) Number of Securities Value of unexercised
(a) Shares acquired Value underlying unexercised in-the-money options
Name on exercise (#)(1) Realized ($) options at FY-end (#) at FY-end ($)
----- ------------------ ------------ ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
C.B. Hudson............. 415,146 7,665,113 692,334 732,106 $4,536,689 $3,543,488
Mark S. McAndrew........ 0 0 160,748 221,250 $1,047,603 $1,314,375
Tony G. Brill........... 0 0 127,627 177,856 $1,291,680 $1,043,405
Anthony L. McWhorter.... 0 0 110,902 169,754 $ 687,052 $1,002,895
Gary L. Coleman......... 0 0 139,748 136,623 $ 818,186 $ 840,728
Andrew W. King.......... 0 0 62,428 143,243 $ 391,336 $ 805,056
- --------
(1) Of the shares shown as acquired on exercise, Mr. Hudson retained 144,438
shares after cashless option exercises.
Pension Plans
Torchmark Corporation Pension Plan; Liberty National Life Insurance Company
Pension Plan for Non-Commissioned Employees. These plans are non-contributory
pension plans which cover all eligible employees who are 21 years of age or
older and have one or more years of credited service. The benefits at age 65
under the TMK Pension Plan are determined by multiplying the average of the
participant's earnings in the five consecutive years in which they were
highest during the ten years before the participant's retirement by a
percentage equal to 1% for each of the participant's first 40 years of
credited service plus 2% for each year of credited service up to 20 years
after the participant's 45th birthday and then reducing that result by a
Social Security offset and by other benefits from certain other plans of
affiliates. Benefits at age 65 under the LNL Pension Plan are determined by
multiplying the average of the participant's earnings in the five consecutive
years in which they were highest during the ten years before the participant's
retirement by a percentage equal to 2% for each of the participant's first 30
years of credited service plus 1% for each year of credited service in excess
of 30 years (up to a maximum of 10 years) and then reducing that result by a
Social Security offset and by other benefits from certain other plans of
affiliates. Earnings for purposes of both pension plans include compensation
paid by subsidiaries and affiliates, and do not include commissions,
directors' fees, expense reimbursements, employer contributions to retirement
plans, deferred compensation, or any amounts in excess of $170,000 (as
adjusted). Benefits under both pension plans vest 100% at five years. Upon the
participant's retirement, benefits under the plan are payable as an annuity or
in a lump sum. In 2000, covered compensation was $170,000 for Messrs. Hudson,
McAndrew, Brill, Coleman and King under the TMK Pension Plan and for Mr.
McWhorter under the LNL Pension Plan.
Vested benefits under the non-qualified Torchmark Supplemental Retirement
Plan, in which Messrs. Hudson, McAndrew, McWhorter, Coleman and King have
participated, were frozen as of December 31, 1994 and no additional benefits
accrue after that date pursuant to the supplementary retirement plan. Messrs.
Hudson, McAndrew, McWhorter, Coleman and King participate in the Torchmark
Supplemental Retirement Plan. Mr. Brill does not participate in any
supplementary pension plan.
Messrs. Hudson, McAndrew, Brill, Coleman and King have 26 years, 21 years,
four years, 19 years and 13 years of credited service under the TMK Pension
Plan, respectively. Messrs. McWhorter and King have 26 years and three years
of credited service under the LNL Pension Plan, respectively. Mr. King's
projected benefit at age 65 from the TMK Pension Plan is offset by the
projected benefit at age 65 from the LNL Pension Plan.
The following tables show the estimated annual benefits payable under the
TMK Pension Plan or LNL Pension Plan along with the TMK Supplemental
Retirement Plan (which was frozen in 1994) upon retirement of participants
with varying final average earnings and years of service. Primarily because of
the termination of the Supplemental Retirement Plan, the benefits shown below
as payable pursuant to the TMK Pension or LNL Pension Plans and the TMK
Supplemental Retirement Plan may in most cases exceed the actual amounts paid.
The benefits shown are offset as described above and the amounts are
calculated on the basis of payments for the life of a participant who is 65
years of age.
11
Torchmark Pension and Supplemental Retirement Plans*
Final Years of Credited Service
Average -------------------------------------------------------------
Earnings 15 20 25 30 35
---------- ------- ------- --------- --------- ---------
$1,000,000 450,000 600,000 650,000 700,000 750,000
1,200,000 540,000 720,000 780,000 840,000 900,000
1,400,000 630,000 840,000 910,000 980,000 1,050,000
1,600,000 720,000 960,000 1,040,000 1,120,000 1,200,000
- --------
* Benefits paid under a qualified defined benefit plan are limited by law in
2000 to $135,000 per year. The balance of the benefit payments shown above
thus comes from the Supplemental Retirement Plan. Because benefit accruals
under the Supplemental Retirement Plan ceased as of December 31, 1994,
Messrs. Hudson, McAndrew, Coleman and King have six years less of credited
service under the Supplemental Retirement Plan than under the TMK Pension
Plan.
LNL Pension and TMK Supplemental Retirement Plans*
Final Years of Credited Service
Average -----------------------------------------------------------------------
Earnings 15 20 25 30 35
-------- ------- ------- ------- ------- -------
$100,000 30,000 40,000 50,000 60,000 65,000
200,000 60,000 80,000 100,000 120,000 130,000
300,000 90,000 120,000 150,000 180,000 195,000
400,000 120,000 160,000 200,000 240,000 260,000
500,000 150,000 200,000 250,000 300,000 325,000
- --------
* Benefits paid under a qualified defined benefit plan are limited by law in
2000 to $135,000 per year. The balance of the benefit payments shown above
thus comes from the Supplemental Retirement Plan. Because benefit accruals
under the Supplemental Retirement Plan ceased as of December 31, 1994, Mr.
McWhorter has six years less of credited service under the Supplemental
Retirement Plan than under the LNL Pension Plan.
Payments to Directors
Directors of the Company are currently compensated on the following basis:
(1) Directors who are not officers or employees of the Company or a
subsidiary of the Company (Outside Directors) receive a fee of $1,000 for
each attended Board meeting, a fee of $500 for each attended Board
committee meeting, and an annual retainer of $40,000, payable each January
for the entire year. They do not receive fees for the execution of written
consents in lieu of Board meetings and Board committee meetings. They
receive an allowance for their travel and lodging expenses if they do not
live in the area where the meeting is held.
Each Outside Director is automatically awarded annually non-qualified
stock options on 6,000 shares of Company common stock on the first day of
each calendar year in which stock is traded on the New York Stock Exchange.
The entire Board may, for calendar years commencing with 1996, award non-
qualified stock options on a non-formula basis to all or such individual
Outside Directors as it shall select. Such options may be awarded at such
times and for such number of shares as the Board in its discretion
determines. The price of such options may be fixed by the Board at a
discount not to exceed 25% of the fair market value on the grant date or at
the fair market value of the stock on the grant date.
Commencing with 1997 retainer and meeting and committee fees (assuming
attendance at all scheduled meetings), Outside Directors may annually elect
to make deferrals of such compensation for the following year into the
interest-bearing account of the Torchmark Corporation 1996 Non-Employee
Director Stock Option Plan (for amounts earned prior to 1999) and pursuant
to the deferred compensation stock option provisions of the 1998 Incentive
Plan (for amounts earned in 1999 and in subsequent years). They may
subsequently elect to convert such balances to stock options with either
fair market value or discounted exercise prices. In December 1999,
Messrs. Hagopian, Lanier, McCormick, Records and Richey chose to make such
deferrals of 2000 compensation, which were converted in 2000 into options
on 8,546, 6,011, 6,309, 5,721 and 19,071 shares, respectively, with fair
market value exercise prices.
12
(2) Beginning in January, 1993, directors who are officers or employees
of the Company or a subsidiary of the Company waived receipt of all fees
for attending Board meetings. They do not receive fees for the execution of
written consents in lieu of Board meetings or Board committee meetings.
They also do not receive a fee for attending Board committee meetings or an
annual retainer. They are reimbursed their travel and lodging expenses, if
any.
(3) Compensation paid to the director serving as Chairman of the
Executive Committee is determined annually by the Compensation Committee in
their discretion. Pursuant to the terms of a Consultation Agreement, the
Compensation Committee determined to pay R.K. Richey $250,000 for service
in 2000 as Chairman of the Executive Committee. Mr. Richey elected to defer
this compensation and received it in the form of Torchmark stock options
which are included in the options reported on page 12, paragraph 3 of this
section.
Each person who served as a director on or prior to February 29, 2000 is
eligible to receive upon retirement from the Board a retirement benefit
payable annually, in an amount equal to $200 a year for each year of service
as a director or advisory director up to 25 years, but not less than $1,200 a
year. In determining this benefit, the number of years of service may include
years as a director of a subsidiary of the Company if the payment for such
years by the Company is in place of a payment which would otherwise be made by
the subsidiary. Directors who retired prior to the termination of this
retirement benefit program effective February 29, 2000 have been and will
continue to receive their retirement benefit payments in cash. Directors with
accrued but unpaid retirement benefits under this program on the date of
termination were offered the opportunity to convert the present value of such
retirement benefits on that date to options in Company common stock.
Accordingly, Messrs. Boren, Farley, Hagopian, Lanier, McCormick, Records,
Richey and Smith received stock options on 1,395, 4,800, 2,894, 3,387, 2,103,
1,821, 5,027 and 928 shares, respectively, on February 29, 2000.
Other Transactions
Robert Richey, Vice President of a Company subsidiary and son of R.K.
Richey, received compensation and fringe benefits from that Company subsidiary
in 2000 of $134,244.
In 2000, the Company paid MidFirst Bank $106,000 in fees as the servicing
agent for portions of the Company subsidiaries' commercial real estate
portfolios. George J. Records is an officer, director and 45.57% beneficial
owner of Midland Financial Co., the parent corporation of MidFirst Bank.
Lamar C. Smith is an officer, director and 15% owner of Independent Research
Agency for Life Insurance, Inc. (IRA), a life insurance general agency which
sells certain insurance products offered by Torchmark subsidiaries pursuant to
agency agreements. In 2000, that company, IRA, received commission payments of
$43,531,000 for sales of life insurance on behalf of Torchmark subsidiaries,
which comprised approximately 29% of IRA's 2000 revenues.
R.K. Richey is a 25% owner of Stonegate Realty Co., LLC, the parent company
of Elgin Development Company, LLC (Elgin Development). In 2000, pursuant to
contractual agreements, Torchmark subsidiaries paid $748,937 to Elgin
Development for building management and maintenance services on Liberty,
Globe, and United American real estate and $259,565 for leased rental
property. The largest aggregate principal amount of indebtedness outstanding
to Torchmark from Elgin Development during 2000 pursuant to the 8% Promissory
Note due September 30, 2009 issued by Elgin Development in connection with its
1996 purchase of certain investment real estate was $12,400,000. As of
February 28, 2001, the outstanding principal balance of this indebtedness was
$10,999,986.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's common stock are required to report their initial ownership of the
Company's common stock and other equity securities and any subsequent changes
in that
13
ownership to the Securities and Exchange Commission and the New York Stock
Exchange and to submit copies of these reports to the Company. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports
were required, during the fiscal year ended December 31, 2000, all required
Section 16(a) filings applicable to its executive officers, directors, and
greater than ten percent beneficial owners were timely and correctly made
except that Rosemary J. Montgomery included her 2000 Form 5 a late report of
one Form 4 sale transaction.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation of senior executives of Torchmark and its subsidiaries and
affiliates is determined by the Compensation Committee of the Board of
Directors. The Compensation Committee, comprised entirely of outside
directors, meets to fix annual salaries in advance and bonuses for the current
year of executives earning more than $150,000, to review annual goals and
reward outstanding annual performance of executives, to grant stock options
pursuant to the 1998 Stock Incentive Plan and to determine senior executives
eligible to participate in the executive deferred compensation stock option
program under the 1998 Incentive Plan.
In 1993, the Compensation Committee employed an unaffiliated executive
compensation consulting firm, Towers Perrin, to assist it in reviewing
executive compensation policies and the payment of bonuses to executives. In
1997, the Compensation Committee utilized an unaffiliated executive
compensation consultant from KPMG Peat Marwick LLP to review certain of its
executive compensation policies and practices. In 2000, the Compensation
Committee reviewed compensation of the Chief Executive Officer and the five
most highly compensated executives of each of Torchmark's peer group companies
relative to the compensation of comparable Company executives. The
Compensation Committee met in 2000 with the Chairman to discuss the salaries
and bonuses of the five most highly compensated executives, including the
Chairman. Also, the Compensation Committee received written materials
discussing compensation of the Chairman, the five most highly compensated
executives and persons reporting to the five most highly compensated
executives.
Compensation Principles
The business philosophy of the Company focuses on maintenance and
improvement of insurance operating margins and other operating margins through
the efficient management of assets and control of costs. The Company's
executive compensation program is based on principles which align compensation
with this business philosophy, company values and management initiative. The
program also takes into consideration competitive remuneration practices in
the insurance and financial services sectors. Torchmark's executive
compensation program seeks to attract and retain key executives necessary to
the long-term success of the Company, to mesh compensation with both annual
and long-term strategic plans and goals and to reward executives for their
efforts in the continued growth and success of the Company. Annual goals for
executive compensation focus on a number of factors, including but not limited
to, growth in earnings per share, return on equity and pre-tax operating
income for holding company executives and on insurance operating income,
underwriting income and premium growth for the executives of the Company's
insurance subsidiaries.
To the extent readily determinable and as one of the factors in its
consideration of compensation matters, the Compensation Committee considers
the anticipated tax treatment to the Company and to the executives of various
payments and benefits. Some types of compensation payments and their
deductibility depend upon the timing of an executive's vesting or exercise of
previously granted rights. Further, interpretations of and changes in the tax
laws and other factors beyond the Compensation Committee's control also affect
the deductibility of compensation. For these and other reasons, the
Compensation Committee will not necessarily and in all circumstances limit
executive compensation to that deductible under Section 162(m) of the Internal
Revenue Code. The Compensation Committee will consider various alternatives to
preserving the deductibility of compensation payments and benefits to the
extent reasonably practicable and to the extent consistent with its other
compensation objectives.
14
Salary and Bonus System
For some time the Company has used a system of salaries and bonuses to
reward executives of the Company and its subsidiaries for performance relative
to annual goals. These goals vary by operating company based upon that
particular company's current position. Annually, the Company's Chairman,
President and Chief Executive Officer calculates a proposed pool to fund
current year bonuses and subsequent year salaries for all executives whose
combined cash compensation exceeds $150,000 per year. The proposed
salary/bonus pool is determined based upon a formula within a range of
approximately 5% that takes into account prior year salaries and bonuses paid,
estimated and adjusted earnings per share and estimated return on equity,
adjusted for certain minimum tax-effected earnings per share and minimum
return on equity. The amount of the proposed pool is submitted to the
Compensation Committee for its review and approval. In 2000, the Chairman,
President and Chief Executive Officer recommended that the proposed bonus and
salary pool for 2000 be reduced to adjust downward for the Company's 1999
write-off for the Reader's Digest marketing agreement, which had not been
taken into account in the 1999 pool. The Compensation Committee reviewed and
approved the recommended adjustment to the 2000 pool.
The Compensation Committee, in consultation with the Company's Chairman,
President and Chief Executive Officer, then reviews each subsidiary's
performance relative to the goals and fixes salaries and bonuses for that
operating subsidiary's executives. The degree to which these executives have
met their particular subsidiary's goals in turn determines the amount of the
bonus, if any, and whether senior executive officers of the Company receive
salary increases. Such executives do not receive any cost of living salary
adjustments.
Stock Option Program
The Company began awarding stock options to executives and key employees in
1984. The option plan under which options in Company common stock were awarded
in 2000 was adopted in April 1998. It has as its stated purpose attracting and
retaining employees who contribute to the Company's success and enabling those
persons to participate in that long-term success and growth through an equity
interest in the Company. To this end, the Compensation Committee, as
administrator of the 1998 Incentive Plan, grants non-qualified stock options
to officers and key employees at the market value of the Company's common
stock on the date of the grant, the size of the grant being based generally on
the current compensation of such officers or key employees. The five most
highly compensated executive officers are paid salaries and bonuses
commensurate with the level of their responsibilities and therefore they
typically are awarded a larger number of option shares than other employees
with lesser levels of compensation and responsibility. In 2000, for the most
highly compensated executive officers shown in the Summary Compensation Table
on page 8, the options granted were in proportion to current compensation
adjusted by a subjective factor ranging from .112% to .182%.
Decisions regarding stock option grants are made annually and the number of
options previously awarded to an individual executive officer is not a
substantial consideration in determining the amount of options granted to that
officer in the future. Once an officer has been awarded options and becomes a
part of the stock option program, he or she will typically continue to be
eligible from year to year for consideration for stock option awards related
to salary.
Stock options may be exercised using cash or previously-owned stock for
payment or through a simultaneous exercise and sale program. Such stock
options generally become first exercisable to the extent of 50% of the shares
on the second anniversary of the option grant date and on the remaining 50% of
the shares on the third anniversary of the option grant date.
Deferred Compensation Option Program
The Company's 1998 Incentive Plan, adopted in April, 1998, contains
provisions permitting designated executives to receive deferred compensation
stock options. The plan permits eligible executives to defer salary and/or
bonus on an annual basis into an interest-bearing account and subsequently on
a one time basis within a
15
limited time period to elect to convert all or a portion of their deferred
compensation into Company stock options granted at market value or at a
discount not to exceed 25%. The Compensation Committee did not designate any
Company executives to participate in this program in 2000. However, Messrs.
Hudson and King elected to receive all of their respective 2000 bonuses in the
form of stock options under the regular provisions of the 1998 Incentive Plan.
Compensation of Chief Executive Officer
C. B. Hudson joined the Company subsidiary Globe in 1974 as its Chief
Actuary and has served as a senior executive officer and director of the
Company's principal insurance subsidiaries since that time. During the period
1982 to 1991, he was elected as Chairman and Chief Executive Officer of United
American, Globe and Liberty, all principal insurance subsidiaries of the
Company. Mr. Hudson was elected to the Torchmark Board of Directors in 1986
and was named Chairman of Insurance Operations of the Company in January 1993.
He assumed the responsibilities of Chairman, President and Chief Executive
Officer of the Company on March 10, 1998. In the three-year period 1998-2000,
which is covered by the Summary Compensation Table on page 8, Torchmark's
diluted earnings per share grew from $1.94 per share in 1997 to $2.85 per
share in 2000. Return on equity increased to 16.3% in 2000 from 16.2% in 1999,
after increasing from 15.1% in 1998. Torchmark repurchased 14.6 million shares
in the 1998-2000 period under its share repurchase program, 10.5% of the
outstanding shares at the beginning of that period.
The Compensation Committee gave consideration to the factors discussed on
page 14 in the compensation principles section as well as to Mr. Hudson's
ability and determination and his vision and leadership in continuing to
enhance the long term value of the Company. Mr. Hudson was awarded a 2000
discretionary bonus of $400,000 from the pool by the Compensation Committee,
all of which he chose to receive in the form of Company stock options granted
at market value.
Mr. Hudson's base salary and any stock options awarded to him are not
directly tied to any one or a group of specific measures of corporate
performance. His base salary is determined by the Compensation Committee
considering his tenure of service with the Company and its subsidiaries and
affiliates, his current job responsibilities, the progression of
responsibilities and positions he has assumed in the Company over the course
of his career and a comparison of salaries paid at peer companies. Stock
options awarded to Mr. Hudson are generally based on his current compensation.
Compensation of Other Executives
The other executive officers listed in the Summary Compensation Table in the
Proxy Statement are compensated by salary and a discretionary bonus which may
be impacted by a number of factors, including but not limited to, growth in
earnings per share and return on equity at the Company and growth in insurance
operating income, underwriting income and premium of the various Company
subsidiaries, affiliates or areas of operation for which each is responsible.
The pool of funds available for determining their salaries and bonuses is
calculated based upon the formula described in the discussion of the salary
and bonus system. Determination of any salary increase or bonus award to such
an executive is then recommended by the Chairman, President and Chief
Executive Officer in his discretion based upon an evaluation of a number of
factors, including those listed above, to the Compensation Committee for its
decision.
Mr. McAndrew serves as an Executive Vice President of the Company and as
Chairman, President and Chief Executive Officer of United American, Globe and
American Income. He is responsible for the Company's direct response insurance
marketing. Mr. McAndrew was awarded a $210,000 discretionary bonus by the
Compensation Committee for 2000, which he chose to receive in cash.
Mr. Brill is the Executive Vice President and Chief Administrative Officer
in charge of insurance administration for Torchmark and all its insurance
subsidiaries. He was primarily responsible for the Company's Year 2000
compliance efforts. The Compensation Committee awarded Mr. Brill a $121,000
discretionary bonus for 2000, which he elected to take in cash.
16
Mr. McWhorter is an Executive Vice President of the Company and the
Chairman, President and Chief Executive Officer of Liberty and UILIC. Mr.
McWhorter was awarded a $136,000 discretionary bonus by the Compensation
Committee for 2000, which he elected to be paid in cash.
Mr. Coleman serves as Executive Vice President and Chief Financial Officer
of the Company. He has been responsible for the Company's accounting
operations since 1994 and is also in charge of all financial areas. The
Compensation Committee awarded Mr. Coleman a $96,000 bonus for 2000, which he
chose to be paid in cash.
Mr. King serves as President of the Branch Office Marketing Division of
United American. He is primarily responsible for the life and health insurance
marketing efforts of United American's exclusive agency force. Mr. King was
awarded a $161,000 bonus for 2000 by the Compensation Committee, all of which
he elected to receive in the form of market value stock options.
Compensation and Company Performance
As indicated above, the annual aspect of executive compensation for holding
company executives of Torchmark centers on growth in the earnings per share
and return on equity as well as increases in pre-tax operating income and for
executives of the insurance subsidiaries on growth in underwriting income and
premium income. Excluding a non-recurring charge in 1999 and amortization of
goodwill in both years, pre-tax operating income was $565 million in 2000, an
increase of 7% over 1999. Diluted earnings per share excluding the non-
recurring charge grew from $2.55 per share in 1999 to $2.85 per share in 2000,
a 12% change. Return on equity was 16.3% in 2000 compared to 16.2% in 1999.
Premium income, which made up 81% of the Company's total revenues, rose to
$2.05 billion in 2000 from $1.88 billion in 1999. Underwriting income
comprised 63% of the Company's pre-tax operating income for 2000. Underwriting
income excluding the non-recurring charge in 1999, increased from $333 million
to $356 million in 2000 over 1999.
The above performance resulted in compensation increases to certain of the
Company's executives as a group shown in the Summary Compensation Table on
page 8. Cash compensation paid persons who are listed in that table increased
10.8% in 2000 over 1999.
The long-term portion of the executive compensation program centers on stock
value through the granting of stock options. Over the last three fiscal years
diluted earnings per share from continuing operations excluding realized
investment gains, the related acquisition cost adjustment, and the equity in
Vesta earnings have increased 47% and rose from $1.94 in 1997 to $2.85 in
2000.
Louis T. Hagopian, Chairman
Joseph M. Farley
Joseph L. Lanier, Jr.
The foregoing Compensation Committee Report on Executive Compensation shall
not be deemed "filed" with the Securities and Exchange Commission or subject
to the liabilities of Section 18 of the Securities Exchange Act of 1934.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is comprised of three
directors: Harold T. McCormick, who currently serves as Committee Chairman;
Louis T. Hagopian and Joseph M. Farley. All of the Audit Committee members are
independent as that term is defined in the rules of the New York Stock
Exchange ("NYSE"). In April 2000, the Board of Directors reviewed and made a
determination under NYSE listing standards Section 393.01(B)(3)(b) that in
their business judgment, Mr. McCormick was independent and that his former
business relationship with the Company which terminated in July 1998 does not
interfere with his exercise of independent judgment.
17
The Audit Committee assists the Board of Directors in fulfilling its
oversight responsibilities by reviewing the Company's consolidated financial
reports, its internal financial and accounting controls, and its auditing,
accounting and financial reporting processes generally. In June 2000, the
Board of Directors approved and adopted a written Audit Committee Charter,
which is attached to this Proxy Statement as Exhibit A.
In discharging is oversight responsibilities regarding the audit process,
the Audit Committee reviewed and discussed the audited consolidated financial
statements of Torchmark as of and for the year ended December 31, 2000 with
Company management and Deloitte & Touche LLP ("Deloitte"), the independent
auditors. The Audit Committee received the written disclosures and the letter
from Deloitte required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, discussed with Deloitte any
relationships which might impair that firm's independence from management and
the Company and satisfied itself as to the auditors' independence. The Audit
Committee reviewed and discussed with Deloitte all communications required by
generally accepted auditing standards, including Statement on Auditing
Standards No. 61, Communications with Audit Committees, as amended.
Based upon these reviews and discussions, the Audit Committee recommended to
the Board of Directors that the Company's audited consolidated financial
statements be included in Torchmark's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
Harold T. McCormick, Chairman
Louis T. Hagopian
Joseph M. Farley
The foregoing Audit Committee Report shall not be deemed "filed" with the
Securities and Exchange Commission or subject to the liabilities of Section 18
of the Securities Exchange Act of 1934.
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees, including out-of-pocket
expenses, billed to Torchmark for the fiscal year ended December 31, 2000 by
the Company's principal accountants, Deloitte & Touche LLP.
Audit Fees................................................. $ 947,546(a)
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees............................................. $ 705,289(b)(c)
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$1,652,835
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(a) Includes those fees for professional services and out-of-pocket expenses
in connection with the audits of the separate statutory financial
statements of Torchmark's insurance company subsidiaries.
(b) Includes fees for professional services and out-of-pocket expenses in
connection with tax consulting, actuarial consulting, the audits of
certain regulatory reports and employee benefit plans and other services.
(c) The Audit Committee has considered whether the provision of these services
is compatible with maintaining the principal accountants' independence.
18
[Performance Graph]
Cumulative Total Return
---------------------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
TORCHMARK CORPORATION 100.00 115.16 195.61 192.08 159.86 214.36
S & P 500 100.00 122.96 163.98 210.84 255.22 231.98
S & P INSURANCE
(LIFE/HEALTH) 100.00 122.19 152.79 161.30 138.71 157.85
The line graph shown above compares the yearly percentage change in
Torchmark's cumulative total return on its common stock with the cumulative
total returns of the Standard and Poor's 500 Stock Index (S&P 500) and the
Standard and Poor's Insurance (Life/Health) Index (S&P Insurance
(Life/Health)). Torchmark is one of the companies whose stock is included
within both the S&P 500 and the S&P Insurance (Life/Health).
Information for graph produced by Research Data Group, Inc.
19
MISCELLANEOUS INFORMATION
Proposals of Stockholders
In order for a proposal by a stockholder of the Company to be eligible to be
included in the proxy statement and proxy form for the annual meeting of
stockholders in 2002, the proposal must be received by the Company at its home
office, 2001 Third Avenue South, Birmingham, Alabama 35233, on or before
November 22, 2001. If a stockholder proposal is submitted outside the proposal
process mandated by Securities and Exchange Commission rules, it will be
considered untimely if received after February 5, 2002.
General
The cost of this solicitation of proxies will be paid by the Company. The
Company is requesting that certain banking institutions, brokerage firms,
custodians, trustees, nominees, and fiduciaries forward solicitation material
to the underlying beneficial owners of the shares of the Company they hold of
record. The Company will reimburse all reasonable forwarding expenses.
The Annual Report of the Company for 2000, which accompanies this proxy
statement, includes a copy of the Company's Annual Report to the Securities
and Exchange Commission on Form 10-K for the fiscal year ended December 31,
2000 and the financial statements and schedules thereto. Upon request and
payment of copying cost, the exhibits to the Form 10-K will be furnished.
These written requests should be directed to Investor Relations Department,
Torchmark Corporation at its address stated above.
By Order of the Board of Directors
/s/ Carol A. McCoy
Carol A. McCoy
Associate Counsel & Corporate
Secretary
March 26, 2001
20
ATTACHMENT A
AUDIT COMMITTEE CHARTER
I. Purpose and Role
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: (i) the
GAAP financial reports and other GAAP financial information provided by
Torchmark Corporation (the "Corporation") to any governmental body,
shareholders or the public; (ii) the Corporation's systems of internal
controls regarding finance and accounting that management and the Board have
established; and (iii) the Corporation's auditing, accounting and financial
reporting processes generally.
All requirements in this Charter are qualified by the understanding that the
role of the Audit Committee is to act in an oversight capacity and is not
intended to require a detailed review of the work performed by the independent
auditors, internal auditors or financial management unless specific
circumstances are brought to its attention warranting such a review.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee has the ability to retain, at the Corporation's expense, special
legal, accounting, or other consultants or experts it deems necessary in the
performance of its duties. While the Audit Committee has the responsibilities
and powers set forth in this Charter, it is not the duty of the Audit
Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. This is the responsibility of
management and the independent auditor. It is not the duty of the Audit
Committee to conduct investigations or to resolve disagreements, if any,
between management and the independent auditor. However, the Committee will
use its best efforts to oversee that the parties resolve such disagreements in
accordance with the laws, regulations and the Company's Code of Business
Conduct. Should this effort fail to achieve satisfactory resolution, the
Committee shall refer the matter to the full Board of Directors.
II. Composition
The Audit Committee shall be comprised of three or more directors as
determined by the Board. All of the members of the Audit Committee must (i) be
free of any relationship to the Corporation that may interfere with the
exercise of their independence from management and the Corporation, and (ii)
not be subject to any of the other restrictions on independence set forth in
Rule 303.01(B)(3) of the New York Stock Exchange ("NYSE").
All members of the Committee shall possess a basic understanding of
financial statements, including Corporation's balance sheet, income statement
and cash flow statement or be able to do so within a reasonable period of time
after his or her appointment to the Committee. At least one member of the
Committee shall have accounting or related financial management expertise, as
the Board of Directors, in its business judgment, interprets such
qualification.
The members of the Committee shall be elected by the Board of Directors at
the annual or at any regular meeting of the Board of Directors. The members of
the Committee shall serve until their successors shall be duly elected and
qualified or their earlier resignation or removal. If a Chair is not elected
by the full Board or is not present at a particular meeting, the members of
the Committee may designate a Chair by majority vote of the Committee
membership in attendance.
III. Meetings
The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. The Committee should meet at least annually with
management, the manager of the internal auditing department, the manager of
the information technology auditing department, the independent auditors, and
as a Committee, in separate executive sessions, to discuss any matters that
the Committee or each of these groups believe should be discussed privately.
In addition, the Committee, or at least its Chair, should meet with the
independent auditors
21
and financial management quarterly either in person or telephonically, to
review the Corporation's interim financial statements consistent with Section
IV.4 below. The Committee Chair shall prepare and/or approve an agenda in
advance of each meeting. The Committee shall maintain minutes of its meeting
and report to the Board of Directors.
IV. Responsibilities and Duties
To fulfill its responsibilities and duties, the Audit Committee shall
perform the following:
Documents/Reports Review
1. The Committee has adopted this Charter following its approval by the Board
of Directors based upon the recommendation of the Committee. The Committee
shall review, and reassess the adequacy of, this Charter at least annually.
The Charter shall be included as an appendix to Corporation's proxy
statement for its annual meeting of stockholders at least once every three
years.
2. Review and discuss with management and the independent auditors the
Corporation's annual audited financial statements prior to filing or
distribution. This review and discussion should encompass the results of
the audit, including significant issues regarding accounting principles,
practices and judgments.
3. Review and discuss with management the Corporation's audited financial
statements and management's discussion and analysis ("MD&A").
4. Review with financial management and independent auditors the quarterly
financial results prior to the earlier of the release of earnings or the
filing of the Quarterly Report on Form 10-Q. The Chair of the Audit
Committee may represent the entire Committee for purposes of this review.
In connection with such review, the Audit Committee should ensure that the
communications and discussions with the independent auditors contemplated
by Statement of Auditing Standards No. 61 (as may be modified or amended)
have been received and held.
Independent Auditors
5. Recommend to the Board of Directors the selection of the independent
auditors, considering independence and effectiveness and approve the fees
and other compensation to be paid to the independent auditors.
6. Emphasize that the independent auditors for the Corporation are ultimately
accountable to the Committee and the Board of Directors, that the Committee
and Board of Directors have the ultimate authority and responsibility to
select, evaluate and, when appropriate, replace the independent accountants
or to nominate the independent auditor to be proposed for shareholder
approval in any proxy statement.
7. Require the independent auditors to submit on a periodic basis (but at
least annually) to the Audit Committee a formal written statement in
accordance with Independence Standards Board Statement No. 1 (as may be
modified or amended) delineating all relationships between them and the
Corporation, actively engage in a dialogue with them with respect to any
disclosed relationships or services that may impact their objectivity and
independence, and recommend that the Board of Directors take appropriate
action in response to the report of the independent auditors to satisfy
itself of the outside auditors' independence.
8. Review the performance of the independent auditors and approve any proposed
discharge of the independent auditors when circumstances warrant.
9. Periodically review the independent auditors' audit plan.
Financial Reporting Processes
10. In consultation with the management, the independent auditors, and the
manager of the internal auditing department, consider the integrity of the
Corporation's financial reporting processes and controls. Discuss
significant financial risk exposures and the steps management has taken to
monitor, control, and report such exposures. Review significant findings
prepared by the independent auditors and the internal auditing department
together with management's responses.
22
11. Discuss with the Corporation's independent auditor and management,
information relating to such auditor's judgments about the quality, not
just the acceptability, of the Corporation's accounting principles and
matters identified by the auditor during its interim review. Also, the
Committee shall discuss the results of the annual audit and any other
matters that may be required to be communicated to the Committee by such
auditor under generally accepted auditing standards.
12. Review with the Corporation's independent auditor, the manager of the
internal audit department and management the adequacy and effectiveness of
the Corporation's internal auditing, accounting and financial controls,
and elicit any recommendations for improvement.
13. Prior to release of the year-end earnings, discuss the results of the
audit with the independent auditors.
14. Discuss with the independent auditors the matters contemplated by
Statement of Auditing Standards No. 61 (as may be modified or amended),
including, without limitation, the independent auditor's judgments about
the quality, not just the acceptability, of the Corporation's accounting
principles as applied in its financial reporting.
15. Based on, among other things, the review and discussions referred to in
subsections 2, 6 and 11 of this Section IV, recommend to the Board of
Directors that the audited financial statements be included in the
Corporations' Annual Report on Form 10-K.
16. Review with the Corporation's legal counsel any legal matters that could
have a significant impact on the Corporation's financial statements.
17. Prepare a report of the Committee to be included in the Corporation's
proxy statement for its Annual Meeting of Stockholders satisfying the
requirements of the rules of the Securities and Exchange Commission as
promulgated from time to time.
Internal Auditors
18. Review of internal audit function, budgeting and staffing, including
appointment or replacement of the manager of the internal auditing
department and the proposed internal audit scope for the year.
19. Receive from internal audit a summary of findings from completed audits
and a progress report on the proposed internal audit plan with
explanations for any deviations from the original plan.
20. Review significant internal audit findings and management's response.
21. Review periodically reports from the manager of the internal audit
department and advise the Board regarding compliance with the
Corporation's Code of Business Conduct.
23
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TORCHMARK CORPORATION
Proxy/Direction Card for Annual Meeting on April 26, 2001
P R O X Y
This Proxy/Direction is solicited by the Board of Directors of The Company.
The undersigned hereby appoints C. B. Hudson and Larry M. Hutchison, jointly
and severally with full power of substitution, to vote all shares of common
stock which the undersigned holds of record and is entitled to vote at the An-
nual Meeting of Shareholders to be held at the offices of the Company, 2001
Third Avenue South, Birmingham, Alabama on the 26th day of April 2001 at 10:00
a.m. (CDT), or any adjournment thereof. All shares votable by the undersigned
including shares held of record by agents or trustees for the undersigned as a
participant in the Dividend Reinvestment Plan (DRP), Torchmark Corporation Sav-
ings and Investment Plan (TTP), Waddell & Reed Financial, Inc. 401-K and Sav-
ings and Investment Plan (WR 401K), Liberty National Life Insurance Company
401K Plan (LNL 401K) and the Profit Sharing and Retirement Plan of Liberty Na-
tional Life Insurance Company (LNL PS&R) will be voted in the manner specified
and in the discretion of the persons named above or such agents or trustees on
such other matters as may properly come before the meeting.
(change of address/comments)
Election of Directors: ----------------------------
(01) Joseph M. Farley, (02) C. B.
Hudson and ----------------------------
(03) Joseph L. Lanier, Jr. and (04)
R. K. Richey for three year terms ----------------------------
----------------------------
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxy Committee
cannot vote your shares unless you sign and return this card.
---------------
|SEE REVERSE |
| SIDE |
---------------
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FOLD AND DETACH HERE
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 entirely voluntary. More
information on the plan can be obtained by calling 1-800-446-2617.
Direct Deposit of Dividends: Torchmark is now making direct deposit of cash
dividends available to its shareholders. To obtain information and materials
for participation in this service, please call 1-800-446-2617.
www.torchmarkcorp.com: Torchmark's web site, http://www.torchmarkcorp.com,
contains financial information about the company and information regarding
our insurance subsidiaries. The Company's Shareholder Rights Policy is also
posted on the web site.
- --------------------------------------------------------------------------------
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Please mark your ---- |
[X] votes as in this | | 4937
example. |
---------
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR election of directors
and FOR Proposal 2.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of Directors [ ] [ ] 2. Approval of [ ] [ ] [ ]
Auditors
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
Change of Address shown [ ]
on reverse
Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such.
-----------------------------------
-----------------------------------
SIGNATURE(S) DATE
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FOLD AND DETACH HERE
Torchmark stockholders can now vote their shares over the telephone or the
Internet. This eliminates the need to return the proxy card.
To vote your shares over the telephone or the Internet you must have your
proxy card and Social Security Number available. The Voter Control Number that
appears in the box just below the perforation must be used in order to vote by
telephone or over the Internet. These systems can be accessed 24 hours a day,
seven days a week up until the day prior to the meeting.
1. To vote by telephone:
On a touch-tone telephone call Toll-free: 1-877-PRX-VOTE (1-877-779-8683).
2. To vote by Internet:
Log on to the Internet and go to the web site: http//www.eproxyvote.com/tmk
Your vote over the telephone or the Internet registers your vote in the same
manner as if you marked, signed, dated and returned your proxy card.
Do not return this Proxy Card if you are voting by telephone or the Internet.
Your vote is important. Thank you for voting.
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