<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------
Commission File Number 1-5846
--------
THE LIBERTY CORPORATION
- - - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0507055
- - - ---------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 789, Wade Hampton Boulevard, Greenville, S. C. 29602
- - - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 268-8436
----------------------------
NOT APPLICABLE
- - - ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- ----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of the latest practicable date.
Number of Shares Outstanding
Title of each class as of June 30, 1994
- - - ------------------------- ----------------------------
Common Stock 19,796,207
Page 1 of 14 sequentially numbered pages.
The Exhibit Index is on Page 12.
<PAGE> 2
PART I, ITEM 1
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1994 1993
----------- -----------
<S> <C> <C>
Investments:
Fixed Maturity Securities:
Available for Sale, at market, cost of $859,458
at 6/30/94 $ 816,793 $ 0
Held to Maturity, at cost, market of $327,172
at 6/30/94 and $921,169 at 12/31/93 303,541 857,673
Nonredeemable Preferred Stocks, at market,
cost of $46,473 at 6/30/94 and $44,359
at 12/31/93 48,314 48,123
Common Stocks, primarily at market, cost of
$36,059 at 6/30/94 and $16,156 at 12/31/93 40,353 20,268
Mortgage Loans 194,921 165,784
Investment Properties 140,886 84,530
Loans to Policyholders 95,453 86,942
Other Long-Term Investments 90,537 82,826
Short-Term Investments 15,479 13,355
----------- -----------
Total Investments 1,746,277 1,359,501
----------- -----------
Cash 67,691 29,487
Accrued Investment Income 17,987 12,736
Receivables 43,895 46,648
Receivable from Reinsurers 251,409 245,210
Deferred Acquisition Costs 358,514 288,635
Buildings and Equipment 68,933 63,499
Intangibles Related to Television Operations 47,676 48,418
Goodwill Related to Insurance Acquisitions 35,751 27,683
Other Assets 63,798 65,216
----------- -----------
955,654 827,532
----------- -----------
Total Assets $ 2,701,931 $ 2,187,033
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities
Policy Liabilities $ 1,723,827 $ 1,389,176
Notes, Mortgages and Other Debt 278,104 149,489
Accrued Income Taxes 8,353 12,054
Deferred Income Taxes 115,933 110,004
Accounts Payable and Accrued Expenses 70,122 61,932
Other Liabilities 28,143 30,533
----------- -----------
Total Liabilities 2,224,482 1,753,188
----------- -----------
Redeemable Preferred Stock
1994-A Series, $35.00 redemption value, 668,207
shares issued and outstanding 23,387 ---
1994-B Series, $37.50 redemption value, 598,656
shares issued and outstanding 22,450 ---
Shareholders' Equity
Common Stock 151,782 143,939
Unearned Stock Compensation (6,066) (4,475)
Unrealized Investment Gains (Losses) (21,521) 5,177
Cumulative Foreign Currency
Translation Adjustment (1,611) (1,529)
Retained Earnings 309,028 290,733
----------- -----------
Total Shareholders' Equity 431,612 433,845
----------- -----------
Total Liabilities, Redeemable Preferred Stock
and Shareholders' Equity $ 2,701,931 $ 2,187,033
=========== ===========
</TABLE>
See Notes to Consolidated and Condensed Financial Statements.
2
<PAGE> 3
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED AND CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Insurance Premiums & Policy Charges $ 81,218 $ 64,363 $148,013 $123,912
Broadcasting Revenues 25,681 23,196 46,928 42,856
Net Investment Income 34,177 28,473 62,678 55,049
Service Contract Revenues 1,441 2,054 2,961 4,624
Realized Investment Gains 607 2,892 2,165 10,091
-------- -------- -------- --------
Total Revenues 143,124 120,978 262,745 236,532
-------- -------- -------- --------
EXPENSES
Policyholder Benefits 58,246 42,738 105,988 80,572
Commissions 12,511 11,066 23,668 22,126
General Insurance Expenses 15,811 15,815 29,189 31,234
Amortization of Deferred
Acquisition Costs 10,889 9,470 21,247 18,648
Broadcasting Expenses 17,502 16,256 33,681 31,741
Interest Expense 2,867 2,810 4,560 5,657
Other Expenses 2,955 2,363 5,934 4,911
-------- -------- -------- --------
Total Expenses 120,781 100,518 224,267 194,889
-------- -------- -------- --------
Income Before Income Taxes & Cumulative
Effect of Accounting Changes 22,343 20,460 38,478 41,643
Provision for Income Taxes 7,743 7,179 13,305 14,348
-------- -------- -------- --------
Income Before Cumulative Effect of
Accounting Changes 14,600 13,281 25,173 27,295
Cumulative Effect of Accounting Changes --- --- --- (11,940)
-------- -------- -------- --------
NET INCOME $ 14,600 $ 13,281 $ 25,173 $ 15,355
======== ======== ======== ========
EARNINGS PER SHARE: (Exhibit 11) $ .70 $ .68 $ 1.24 $ .79
======== ======== ======== ========
Dividends Per Common Share $ .155 $ .14 $ .31 $ .28
======== ======== ======== ========
Data on Provision for Income Taxes:
Taxes Currently Payable - Federal $ 5,170 $ 5,739 $ 8,506 $ 11,536
- State 416 275 620 436
Taxes Deferred Primarily Due to GAAP
Adjustments on Insurance Subsidiary -
- Federal 2,157 1,165 4,179 2,376
- State --- --- --- ---
-------- -------- -------- --------
$ 7,743 $ 7,179 $ 13,305 $ 14,348
======== ======== ======== ========
</TABLE>
Note: The provision for income taxes (current and deferred) is calculated on
current period operations based on the annual tax rate.
See Notes to Consolidated and Condensed Financial Statements.
3
<PAGE> 4
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1994 1993
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 25,173 $ 15,355
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Increase in policy liabilities 24,296 24,881
Increase (decrease) in accounts payable and
accrued liabilities 996 (723)
(Increase) decrease in receivables (468) 683
Amortization of policy acquisition costs 21,247 18,648
Policy acquisition costs deferred (30,607) (30,236)
Realized investment (gains) losses (2,165) (10,091)
Depreciation and amortization 6,815 6,889
Amortization of bond premium and discount (2,308) (2,227)
Provision for deferred income taxes 4,179 2,376
All other operating activities, net (13,025) 11,723
---------- ----------
NET CASH PROVIDED IN OPERATING ACTIVITIES 34,133 37,278
---------- ----------
INVESTING ACTIVITIES
Investment securities sold - available for sale 108,224 26,256
Investment securities matured or redeemed by issuer-
available for sale 36,359 ----
Investment securities matured or redeemed by issuer-
held to maturity 45,158 82,103
Cost of investment securities acquired - available
for sale (218,384) (27,261)
Cost of investment securities acquired - held to maturity ---- (168,964)
Mortgage loans made (15,395) (8,181)
Mortgage loan repayments 11,979 10,233
Purchase of investment properties, buildings and equipment (66,987) (10,168)
Sale of investment properties, buildings and equipment 9,371 14,936
Purchases of short-term investments (366,730) (73,709)
Sales of short-term investments 371,662 94,658
Net cash paid on purchases of insurance companies (53,686) ----
All other investment activities, net 1,627 (3,370)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (136,802) (63,467)
---------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings 1,140,218 960,650
Principal payments on debt (1,016,298) (954,249)
Dividends paid (6,878) (5,395)
Stock issued for employee benefit and compensation
programs 2,141 3,759
Common stock offering ---- 8,543
Return of policyholders' account balances (14,112) (12,962)
Receipts credited to policyholders' account balances 35,802 32,045
---------- ----------
NET CASH PROVIDED IN FINANCING ACTIVITIES 140,873 32,391
---------- ----------
INCREASE IN CASH 38,204 6,202
Cash at beginning of year 29,487 32,180
---------- ----------
CASH AT END OF PERIOD $ 67,691 $ 38,382
========== ==========
</TABLE>
See Notes to Consolidated and Condensed Financial Statements.
4
<PAGE> 5
THE LIBERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
June 30, 1994
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated and condensed financial
statements of The Liberty Corporation and Subsidiaries have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
information included is not necessarily indicative of the annual
results that may be expected for the year ended December 31, 1994, but
it does reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the
interim periods presented.
The financial statements include the accounts of the Company and all
of its subsidiaries after elimination of all significant intercompany
balances and transactions.
2. FINANCIAL ACCOUNTING STANDARDS STATEMENT NO. 115 - ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
As a result of adopting FAS 115 on January 1, 1994, the opening
balance of shareholders' equity was increased by $11.4 million related
to unrealized gains, net of adjustments to deferred acquisition costs
and deferred taxes, on the fixed income securities classified as
available-for-sale previously carried at amortized cost or cost.
There was no effect on net income as a result of the adoption of FAS
115. During the six month period following adoption, net unrealized
losses of $38.1 million were reported, of which $36.8 million resulted
directly from the implementation of FAS 115. This resulted in an
unrealized loss balance of $21.5 million at June 30, 1994. This
significant decrease reflects the impact of rising interest rates as
well as the addition of the new 1994 acquisitions which provided
approximately $8.6 million of net unrealized losses. On a
consolidated basis, the Company initially classified approximately 66%
of its bond portfolio as available-for-sale and 34% as
held-to-maturity; and classified 100% of its redeemable preferred
stocks as available for sale. In accordance with FAS 115, the Company
did not restate prior period financial statements to reflect this
change in accounting principle. For additional information on FAS
115, see the Company's 1994 First Quarter Form 10-Q.
3. REDEEMABLE PREFERRED STOCK
On February 24, 1994, the Company issued 598,656 shares of Series
1994-B Voting Cumulative Preferred Stock having a total redemption
value of $22,449,600 or $37.50 per share in connection with the
acquisition of American Funeral Assurance Company. Additionally, on
April 1, 1994, the Company issued 668,207 shares of Series 1994-A
Voting Cumulative Preferred Stock having a total redemption value of
$23,387,245 or $35.00 per share in connection with the acquisition of
State National Capital Corporation. The consolidated and condensed
balance sheet at June 30, 1994 includes the issuance of both series
under the caption "Redeemable Preferred Stock." For additional
information see the Company's 1994 First Quarter Form 10-Q.
4. ACQUISITIONS
(In 000's, except for per share data)
North American National Corporation, American Funeral Assurance
Company and State National Capital Corporation were acquired by the
Company on February 23, February 24, and April 1, respectively. The
following unaudited combined results of operations for the six months
ended June 30, 1994 and 1993 give effect to these acquisitions as
though they had occurred at the beginning of each period.
5
<PAGE> 6
None of these acquisitions were individually material for financial reporting
purposes and accordingly the following pro forma financial data reflects the
effect of these acquisitions in the aggregate. Pro forma results are not
necessarily indicative of the results that actually would have occurred had the
Company owned these acquisitions during these periods or which will be obtained
in the future.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1994 1993
-------- --------
<S> <C> <C>
Revenues $281,209 $295,169
======== ========
Net Income Before Cumulative Effect
of Accounting Changes $ 26,019 $ 29,111
======== ========
Net Income $ 26,019 $ 17,171
======== ========
Earnings Per Share:
Net Income Before Cumulative Effect
of Accounting Changes $ 1.24 $ 1.41
======== ========
Net Income $ 1.24 $ 0.81
======== ========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
At June 30, 1994, the Company had made commitments as shown below:
<TABLE>
<CAPTION>
(In 000's)
<S> <C>
Buildings and equipment $10,262
Mortgage loans and bonds 20,826
Other ---
-------
$31,088
=======
</TABLE>
The Company is contingently liable for reinsurance ceded ($4.9 billion
at June 30, 1994) should any reinsurer be unable to meet the
obligations assumed. The Company is also contingently liable for $.6
million of debt incurred by Cosmos on an industrial development bond.
6. SUPPLEMENTAL INFORMATION ON INSURANCE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1994 1993 1994 1993
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Increase in net
insurance in force* $ 153 $ 16 $ 924 $ 240
====== ======= ======= =======
Net insurance
in force $16,358 $15,811
======= =======
</TABLE>
* Six months ended June 30, 1994 includes $1.3 billion related to the
acquisitions of North American, American Funeral, and State National.
6
<PAGE> 7
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Unaudited)
Operations
Consolidated second quarter net income of $14.6 million increased 10% or $1.3
million from 1993's second quarter (see table below). The increase in net
income was due to: (1) a $1.9 million increase in income before taxes; and (2)
a $.6 million increase in income taxes. The increase in income before taxes
was a function of increased earnings of $.7 million from the Insurance Group,
increased earnings of $1.3 million from Broadcasting Operations coupled with an
increased loss of $0.1 million in the Parent Company.
Year-to-date net income before the cumulative effect of accounting changes was
down $2.1 million from last year due to the decline in income before taxes.
The decline was primarily due to lower earnings from the Insurance Group.
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
-------------------------- --------------------------
1994 1993 1994 1993
-------- -------- -------- --------
(000's) (000's)
<S> <C> <C> <C> <C>
Income Before Income Taxes
and the Cumulative Effect of
Accounting Changes 22,343 20,460 38,478 41,643
Income Taxes 7,743 7,179 13,305 14,348
-------- -------- -------- --------
Income Before the Cumulative
Effect of Accounting Changes $ 14,600 $ 13,281 $ 25,173 $ 27,295
Cumulative Effect of Accounting
Changes --- --- --- (11,940)
-------- -------- -------- --------
Net Income $ 14,600 $ 13,281 $ 25,173 $ 15,355
======== ======== ======== ========
</TABLE>
The 4% increase in the Insurance Group's second quarter income before taxes was
primarily a function of a pretax earnings contribution from the 1994
acquisitions of $2.6 million, offset to a large degree by a continuation of
high claims in the mortgage protection business and lower realized investment
gains. The pre-need business provided a pretax earnings increase of $2.3
million -- approximately $1.7 million came from the acquisitions of North
American National Corporation and American Funeral Assurance Company which
closed in late February and the remainder from Pierce National. State National
Corporation, a home service company acquired on April 1, 1994, provided a
pretax earnings contribution of $.9 million. Additionally, the Insurance
Group's earnings benefitted from improving lapse experience in the home service
business.
The decline in the Insurance Group's year-to-date pretax earnings reflects
primarily lower realized investment gains of $6.3 million combined with
negative claims experience in mortgage protection as well as in all of the key
insurance lines in the first quarter.
The 24% increase in pretax earnings from broadcasting operations was largely
due to a substantial increase in political revenues coupled with strong
national revenue growth. Year-to-date earnings, up 28%, reflect stronger local
revenues and lower expense in the first quarter.
7
<PAGE> 8
The increase in the parent company's before-tax loss was a result of higher
general expenses which offset lower interest expense and strong real estate
land and lot sales. The year-to-date before-tax loss in the parent company
also reflects that last year include significant realized investment gains,
primarily on the sale of shopping centers.
The 18% increase in consolidated revenues for the quarter was largely due to
the 1994 insurance acquisitions. Without the acquisitions, consolidated
revenues were down 3%, primarily a function of the sale of the medicare
business in late 1993, a decline in mortgage protection premiums and lower
realized investment gains.
The 26% growth in second quarter insurance premiums was largely due to
additional premiums of $18.6 million from the Pre-need Group with the new
acquisitions -- American Funeral and North American -- contributing an increase
of $17.8 million and Pierce National contributing an incremental $.8 million.
The home service acquisition -- State National -- provided additional premiums
of $2.3 million. In Liberty Life premiums were down $4.1 million primarily due
to: (1) the sale of its medicare supplement business in December of 1993,
resulting in $3.1 million of lower premiums, and (2) lower premiums of $2.2
million in the mortgage protection line, reflecting a decline in its in force
block due to high lapses.
Year-to-date premiums were up 19% reflecting the impact of $27 million of
additional premiums from the acquisitions. Excluding the acquisitions,
premiums were down 2% due to the sale of medicare and lower mortgage protection
premiums.
The 20% increase in net investment income for the quarter was also due to the
acquisitions. Without the acquisitions, net investment income was flat with
last year due to reinvestment at lower market yields coupled with minimal asset
growth in the Liberty Life investment portfolio. Year-to-date net investment
income was up 14%, but flat compared to last year excluding the acquisitions.
Revenues from service contracts, generated by Liberty Insurance Services which
provides administrative services to other insurance companies for a fee, were
down from last year for both the quarter and year-to-date due the loss of one
of its key clients.
Realized investment gains were down significantly from last year for both the
quarter and year-to-date. Contributing factors to a significantly greater
amount of investment gains last year include: (1) a high level of repayments on
bonds and preferred stock due to early calls and redemptions, (2) planned sales
of shopping centers in the parent company's real estate operation, and (3)
gains taken on common stocks due to market prospects and timing.
Broadcasting revenues for the quarter, up 11%, benefitted primarily from a $1.1
million increase in political revenues as well as continued strong national
revenue growth of 8% in addition to first time cable revenues of $.6 million.
Local revenues, however, were up only 1% largely reflecting the trade-off in
advertising time for political advertising. The cable operation currently
generates revenues from two sources: (1) third party sales of advertising time
on cable by Cosmos sales representatives; and (2) advertising insertion, which
allows Cosmos stations' advertisements to be inserted into other markets for
advertising on cable. Year-to-date revenues, up 10%, reflect the impact of
weaker second quarter local revenues.
The 36% increase in policy benefits was primarily due to the new acquisitions;
excluding the new acquisitions, policy benefits were down 1%. In terms of
percent of premiums, the ratio of policy benefits was significantly greater
than last year's second quarter at 69.2% versus 66.4% due primarily to a
negative claims deviation in the mortgage protection business. Year-to-date
policy benefits increased 32% reflecting the impact of acquisitions as well as
negative claims experience.
8
<PAGE> 9
Commissions for the Insurance Group increased 13% for the second quarter;
without the new acquisitions, commissions were down 9% reflecting a lower
premium base as well as improvement in home service commissions due to changes
in agent subsidies. Year-to-date commissions were up 7%, but were down 8%
excluding the acquisitions.
General expenses for the Insurance Group were flat compared to last year's
second quarter due largely to lower expenses in Liberty Life reflecting cost
reduction efforts. The two new pre-need acquisitions added approximately $2.4
million to general expenses and the new home service acquisition added $.5
million. Year-to-date general insurance expenses were down 7% despite $3.3
million of additional general expenses attributed to the acquisitions; without
the acquisitions, general expenses were down 17%.
The 15% increase in amortization of deferred acquisition costs was also a
function of the new acquisitions; excluding these acquisitions, amortization of
deferred acquisition costs decreased 3% due to an overall improvement in home
service lapses despite continued high lapses in the mortgage protection
business. Year-to-date amortization of deferred acquisition costs was up 14%;
without the acquisitions, amortization of deferred acquisition costs was up 3%
reflecting an improving trend in home service lapses in the second quarter
compared to the first quarter. Broadcasting expenses were up 8% for the
quarter due to the additional expenses associated with its start-up venture
with cable operators. Without the cable operation expenses, expenses were up
5% for the quarter. Year-to-date broadcasting expenses were up 6%.
The increase for both the quarter and year-to-date in other expenses, which are
associated with the parent company, largely reflects higher headquarters
building expense.
Investments
As of June 30, 1994, approximately 61% of the Company's $1.7 billion
consolidated invested assets were in bonds with an overall average credit
rating of AA. Less than 5% of the bond portfolio was rated below investment
grade.
Approximately 53% of the Company's $1.1 billion bond portfolio at June 30, 1994
was comprised of mortgage-backed securities compared to 60% at December 31,
1993. Certain mortgage-backed securities are subject to significant prepayment
risk due to the fact that in periods of declining interest rates mortgages may
be repaid more rapidly than scheduled as borrowers refinance higher rate
mortgages to take advantage of the lower current rates. As a result, holders
of mortgage-backed securities may receive large prepayments on their
investments which cannot be reinvested at interest rates comparable to the
rates on the prepaid mortgages. Mortgage-backed pass-through securities and
"sequential" CMO's, which comprised 22% of the book value of the Company's
mortgage-backed securities at June 30, 1994 and at December 31, 1993, are
sensitive to this prepayment risk.
The remaining 78% of the Company's mortgage-backed investment portfolio of June
30, 1994 consisted of planned amortization class ("PAC") instruments compared
to approximately the same percentage at December 31, 1993. These investments
are designed to amortize in a more predictable manner by shifting the primary
risk of prepayment of the underlying collateral to investors in other tranches
of the CMO.
Mortgage loans of $194.9 million comprised 11% of the consolidated investment
portfolio at June 30, 1994. They are commercial mortgages with a loan to value
ratio not exceeding 75% when made. Approximately 47% of these loans are
concentrated in North and South Carolina; and 88% are in the states of North
Carolina, South Carolina, Virginia, Tennessee, Florida, Georgia and Louisiana.
9
<PAGE> 10
Mortgage loan delinquencies, defined as payments 60 or more days past due, have
historically been low and were 2.10% at the end of the second quarter compared
to 1.59% at the end of 1993 and to the latest industry rate of 4.54%. Due to
the overall low delinquency rate, the Company has not deemed it necessary to
establish a general loss reserve on the portfolio, but establishes impairments
on specific assets at the time that losses are probable and can be reasonably
estimated.
Investment real estate at June 30, 1994 of $140.9 million comprised 8% of the
consolidated investment portfolio compared to 6% at December 31, 1993. Four
key property types made up approximately 90% of the Company's real estate
investment assets: residential land development (34%), business parks (20%),
business property rentals (23%) and shopping centers (13%).
Of the Company's investment real estate, 76% is located in South Carolina and
Florida; and 95% is located in South Carolina, Florida, Georgia, and North
Carolina.
Financial Position
As a result of the first quarter acquisitions of North American and American
Funeral and the second quarter acquisition of State National, the Company
experienced significant changes in its June 30, 1994 balance sheet compared to
its December 31, 1993 balance sheet.
These acquisitions combined added $413.3 million to total assets, of which
$318.3 million were in investments, and total liabilities of $320.7 million,
of which $293.1 million were related to policy liabilities.
As a result of adopting FAS 115, "Accounting for Certain Investments in Debt
and Equity Securities" on January 1, 1994, a significant portion of fixed
maturity securities were classified as available-for-sale and accordingly
carried on the balance sheet at fair value. Prior to the adoption of FAS 115,
the fixed income securities were carried at either amortized cost or cost and
therefore no unrealized gain or loss was reflected on the balance sheet. The
1993 balance sheet has not been restated for this change in accounting
principle as prescribed by FAS 115. At June 30, 1994, fixed income securities
reported as available-for-sale had a gross unrealized loss of $42.7 million.
Held-to-maturity securities, however, had an unrealized gain of $23.6 million
which was not reflected in the balance sheet since these securities continue to
be carried at cost. Although the initial adoption of FAS 115 resulted in an
unrealized gain of $11.4 million on January 1, 1994, the decline in market
value since that time resulted in a decrease in shareholders' equity of $36.8
million for the period ended June 30, 1994. Thus, the net impact of FAS 115 on
shareholders' equity has been a decline of $25.4 million.
Capital, Financing and Liquidity
The Company's net cash flow from operating activities was $34.1 million for the
first six months of 1994 compared to $37.3 million for the same period of 1993.
The Company's net cash used in investing activities was $136.8 million, and
cash flow provided from financing activities was $140.9 million. As a result
of its activities, the Company generated a $38.2 million increase in cash
compared to $6.2 million in the same period in 1993. The net cash used in
investing activities was primarily related to net cash paid on the purchase of
North American, American Funeral, State National, and certain real estate
assets of SCANA Development Corporation. The net cash provided from financing
activities was primarily from proceeds from borrowings net of principal
payments on debt. The proceeds from borrowings were used to partially finance
acquisitions and to repay an intercompany note.
10
<PAGE> 11
At June 30, 1994, borrowings against the Company's revolving credit facility
and lines of credit amounted to $266.5 million, an increase from $145.5 million
outstanding at December 31, 1993. The increase was primarily a function of
borrowings related to the insurance acquisitions -- North American of $51.9
million, American Funeral of $5.6 million and State National of $.9 million --
as well as the SCANA real estate acquisition of $42.8 million and the repayment
of an intercompany note to Liberty Life. Liberty plans for Liberty Life to
repay $22.9 million of the SCANA real estate assets owned by Liberty Life,
currently carried as an intercompany note.
The Company financed the $51.9 million purchase price of North American, which
closed on February 23, 1994, entirely with proceeds borrowed under its
revolving credit facility. Of the $28.1 million American Funeral purchase
price, approximately $22.5 million was financed with a new class of redeemable,
convertible preferred stock (1994-B Series) issued at the time of closing on
February 24, 1994; and the remaining $5.6 million was financed from the
Company's credit facility. The 1994-B Series preferred stock has a stated
value of $37.50 per share and will pay an annual dividend of 5.6%.
On April 1, 1994, the Company closed its acquisition of State National for
$27.5 million which was financed through a combination of cash of $.9 million,
Liberty Common Stock of 113,611 shares valued at $3.2 million and a new class
of redeemable, convertible preferred stock (1994-A Series) valued at $23.4
million. The stated value of the 1994-A Series preferred stock is $35.00 per
share with an annual dividend of 6%.
Both the 1994-A Series and 1994-B Series preferred stock will be convertible
into shares of the Company's common stock on a share for share basis. Both the
1994-A and 1994-B Series of preferred stock may be redeemed at the option of
either the holder of the stock or by the Company beginning five years and one
month after the effective dates of the acquisitions. The 1994-A Series and
1994-B Series preferred stock was only issued to State National and American
Funeral shareholders, respectively, in connection with the acquisitions of each
company and no additional shares of these Series were made available to the
public.
On May 5, 1994, the Company closed the residential portion of the acquisition
of certain real estate assets of SCANA Development Corporation for
approximately $13 million. On May 27, 1994, the Company closed the remaining
$29.8 million of the total $42.8 million cash purchase price, consisting of
rental properties, industrial parks and undeveloped land. Financing of the
acquisition was initially completed through the Company's credit facility.
However, the Company plans to use internal funds to repay a substantial portion
of the purchase price prior to year-end.
Other Company commitments are shown in Note 5 contained in the accompanying
financial statements. Additional detail as to commitments and financing is
contained in the Notes to the Consolidated Financial Statements in the
Company's 1993 Annual Report to Shareholders.
Further discussion of investments and valuation is contained in Notes 1 and 2
to the Consolidated Financial Statements in the Company's 1993 Annual Report to
Shareholders.
Accounting Developments
Accounting developments are summarized in the Notes of the accompanying
Financial Statements and are discussed in detail in the Management Discussion
and Analysis in the Company's 1993 Annual Report to Shareholders and the Form
10-Q for the first quarter ended March 31, 1994.
11
<PAGE> 12
PART II, ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the registrant was held on May 3,
1994.
(b) The following five individuals were elected as directors to serve for
three-year terms: Lawrence M. Gressette, Jr., Francis M. Hipp, W.
Hayne Hipp, Buck Mickel, and J. Thurston Roach. Listed below are
directors who continued their term of office after the meeting: Robert
S. Small, John A. Warren, Edward E. Crutchfield, Jr., James F. Kane,
James G. Lindley, William O. McCoy, John H. Mullin, III, Rufus C.
Barkley, W. W. Johnson, William S. Lee, and Benjamin F. Payton.
(c) Matters voted upon at the annual meeting are as follows:
<TABLE>
<CAPTION>
WITHHELD/ BROKER
FOR AGAINST ABSENTIONS NONVOTES
<S> <C> <C> <C> <C>
TO ELECT AS DIRECTORS:
LAWRENCE M. GRESSETTE, JR. 15,940,454 --- 63,514 ---
FRANCIS M. HIPP 15,955,042 --- 48,926 ---
W. HAYNE HIPP 15,955,042 --- 48,926 ---
BUCK MICKEL 15,954,942 --- 49,026 ---
J. THURSTON ROACH 15,943,830 --- 60,138 ---
TO ELECT AS INDEPENDENT AUDITORS:
ERNST & YOUNG 15,943,549 22,112 79,500 ---
</TABLE>
(d) There were no settlements between the registrant and any other
participants.
PART II, ITEM 6. Exhibit and Reports on Form 8-K
(a) A list of the exhibits filed with this report is included in the Index
to Exhibits filed herewith.
(b) The filing of Form 8-K was not required during the second quarter of
1994.
INDEX TO EXHIBITS
EXHIBIT 11 Consolidated Earnings Per Share Computation
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE LIBERTY CORPORATION Date: August 12, 1994
- - - -----------------------
(Registrant)
/s/ H. Ray Eanes
- - - -----------------------
H. Ray Eanes
Senior Vice President & Chief Financial Officer
/s/ William S. Kleckley
- - - ------------------------
William S. Kleckley
Vice President & Controller
13
<PAGE> 1
Exhibit 11
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED EARNINGS PER SHARE COMPUTATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- ---------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY SHARES
- - - --------------
Common Shares Outstanding - End of Period 19,796,207 19,358,336 19,796,207 19,358,336
=========== =========== =========== ===========
Weighted Average Common Shares 19,734,355 19,270,008 19,628,092 19,227,404
Common Stock Options Outstanding During
Period (Weighted Average) 93,967 188,721 90,819 187,179
----------- ----------- ----------- -----------
Total Primary Shares 19,828,322 19,458,729 19,718,911 19,414,583
=========== =========== =========== ===========
Fully Diluted Shares
- - - --------------------
Weighted Average Common Shares 19,734,355 19,270,008 19,628,092 19,227,404
Common Stock Options Outstanding During 103,755 176,913 95,797 190,761
Period (Weighted Average)
Weighted Average Redeemable
Preferred Shares* 1,266,863 --- 753,163 ---
----------- ----------- ---------- ----------
Total Fully Diluted Shares 21,104,973 19,446,921 20,477,052 19,418,165
=========== =========== ========== ==========
NET INCOME
- - - ----------
Earnings $14,600,000 $13,281,000 $25,173,000 $15,355,000
=========== =========== =========== ===========
Primary Earnings per Common Share $ .70 $ .68 $ 1.24 $ .79
(Earnings/Total Primary Shares) =========== =========== =========== ===========
Fully Diluted Earnings per Common $ .69 $ .68 $ 1.23 $ .79
Share (Earnings/Total Fully Diluted =========== =========== =========== ===========
Shares)
</TABLE>
*The preferred stock 1994-A and 1994-B series is not considered a common stock
equivalent for purposes of the primary earnings per share computation.
14
