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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-5846
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THE LIBERTY CORPORATION
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(Exact name of Registrant as specified in its charter)
South Carolina 57-0507055
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (864) 609-8436
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
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Name of Each Exchange
Title of Each Class on Which Registered
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<S> <C>
Common Stock, no par value per share New York Stock Exchange
Rights to Purchase Series A Participating Cumulative Preferred Stock New York Stock Exchange
</TABLE>
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 the
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 15, 1996:
Common Stock, No Par Value $663,003,165
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The number of shares outstanding of each of Registrant's classes of common
stock as of March 15, 1996:
Common Stock, No Par Value 20,091,005
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Liberty Corporation Annual Report to Shareholders for the
year ended December 31, 1995 are incorporated into Part II, Items 5, 6, 7, and
8 by reference.
Portions of The Liberty Corporation Proxy Statement for the Annual Meeting
of Shareholders on May 7, 1996 are incorporated into Part III, Items 10, 11,
12, and 13 by reference.
This report is comprised of pages 1 through 80. The exhibit index is on
page 27.
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PART I
ITEM 1. BUSINESS
GENERAL
The Registrant, The Liberty Corporation ("Liberty" or "the Company") is a
holding company engaged through its subsidiaries primarily in the life
insurance and television broadcasting businesses.
The Company's primary insurance subsidiaries are Liberty Life Insurance
Company ("Liberty Life") and Pierce National Life Insurance Company ("Pierce
National"). During 1995, the insurance operations owned by North American
National Corporation ("North American") an insurance holding company acquired
by Liberty in 1994, were merged into Pierce National. The insurance
subsidiaries of North American consisted of Pan Western Life Insurance Company
("Pan Western"), Brookings International Life Insurance Company ("Brookings"),
and Howard Life Insurance Company ("Howard"). In November 1995, American
Funeral Assurance Company ("American Funeral"), acquired in 1994, was merged
into Pierce National. Together, the insurance subsidiaries offer a diverse
portfolio of individual life and health insurance products. In addition to
Liberty Life and Pierce National, Liberty Insurance Services Corporation
("Liberty Insurance Services") provides home office support services for
unaffiliated life and health insurance companies, as well as for some of the
Company's insurance operations. Other subsidiaries of the Company provide
investment advisory services to the Company's insurance subsidiaries and
unaffiliated insurance companies, and property development and management
services to the Company.
The Company's television broadcasting subsidiary, Cosmos Broadcasting
Corporation ("Cosmos"), currently owns and operates eight network affiliated
television stations, with the most recent acquisition, WLOX-TV in Biloxi,
Mississippi, being acquired in February 1995.
STRATEGY; RECENT DEVELOPMENTS
The Company's principal strategy is to grow internally and through
selective acquisitions, while maintaining its emphasis on cost controls. The
Company's operations are generally focused in niche markets where Liberty
believes it has the products and expertise to serve the market better than its
competitors.
Liberty will continue to seek opportunities to acquire insurance companies
and blocks of business that complement or fit with the Company's existing
marketing divisions and product lines. The Company's acquisition strategy has
focused on both home service and pre-need businesses. Home service business
represents the Company's primary core business, whereas the pre-need business
is a relatively new line of business for the Company. The Company largely
entered the pre-need business with the acquisition of Pierce National in July
1992. The 1994 pre-need acquisitions significantly strengthened the Company's
market position in the pre-need market, which provides life insurance products
to pre-fund funeral services. The Company believes that the pre-need business
has favorable demographics which can provide attractive future premium and
earnings growth. During 1995, the Company completed the consolidation of all
of the recently acquired pre-need companies into Pierce National. In
conjunction with the consolidation, the Company introduced what it believes to
be the most comprehensive pre-need product portfolio in the industry. The
product portfolio is marketed under the brand name FamilySide.
Management's philosophy regarding broadcasting acquisitions is to make
selective acquisitions in local markets where it can be among the dominant
television stations.
The following page summarizes the Company's acquisitions since 1992.
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<TABLE>
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Annual Premiums
INSURANCE ACQUISITIONS Date Acquired
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Acquisition of Pierce National Life Insurance Company, a July 1992 $31 million (1)
California based provider of pre-need life insurance (includes $6
million of single
pay premiums)
Acquisition of Magnolia Financial Corporation and its October 1992 $15 million (1)
subsidiary, Magnolia Life Insurance Company, a Louisiana
based provider of primarily home service life insurance
Acquisition of assets and block of insurance business April 1993 $7 million (2)
from Estate Assurance Company, a Louisiana (includes $6
based provider of pre-need life insurance million of single
pay premiums)
Acquisition of North American National Corporation and its February 1994 $24 million (3)
subsidiaries, an Ohio based holding company with insurance (includes $5
subsidiaries based in Ohio, Colorado and South Dakota that million of single
provide primarily pre-need and other ordinary life pay premiums)
insurance and accident and health insurance
Acquisition of American Funeral Assurance Company, a February 1994 $59 million (3)
Mississippi based provider of primarily pre-need life (includes $44
insurance million of single
pay premiums)
Acquisition of State National Capital Corporation and its April 1994 $10 million (3)
subsidiaries, a Louisiana based provider of primarily
home service life insurance
</TABLE>
(1) Represents amount of annualized premiums acquired at the time of
acquisition.
(2) Represents amount of annual premiums reported by the selling company in
its 1992 annual financial statements filed under applicable statutory
requirements.
(3) Represents amount of annual premiums reported by the selling company in
its 1993 annual financial statements filed under applicable statutory
requirements.
BROADCASTING ACQUISITION
On February 28, 1995, the Company completed the acquisition of WLOX-TV in
Biloxi, Mississippi, bringing to eight the total number of television stations
in Cosmos. The purchase price of $40.1 million was funded with a combination
of redeemable preferred stock, cash and a note payable. WLOX is an ABC
affiliate that carries strong local news and is the top station in its market.
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INSURANCE OPERATIONS
LIBERTY LIFE. Liberty Life is a stock life insurance company engaged in
the business of writing a broad range of individual life insurance policies and
accident and health insurance policies. Liberty Life is ranked 131st, based on
ordinary life insurance in force among approximately 1,200 United States life
insurance companies, according to data provided by A.M. Best Company. While
Liberty Life is licensed in forty-nine states, and the District of Columbia,
its focus has been the Southeast. For 1995, the largest percentages of its
premium income were from South Carolina (28%), North Carolina (21%), Louisiana
(7%) and Georgia (4%). The Company believes that Liberty Life is the largest
provider of home service business in the Carolinas.
Life insurance and annuity premiums contributed 84% of Liberty Life's
total premiums in 1995, 83% in 1994 and 79% in 1993. Accident and health
insurance premiums contributed the remainder.
In 1994, the Company decided to cease sales of its products through its
general agency distribution system due to the absence of critical volume.
Premiums and policy charges from the general agency division represented
approximately 2% of the Company's total premiums and policy charges when the
decision to cease sales in this division was made.
Liberty Life continues to market its insurance products through its Home
Service and Mortgage Protection divisions. At December 31, 1995, Liberty Life
had approximately 500 employees in its home office in Greenville.
HOME SERVICE DIVISION. The Home Service Division is Liberty Life's
largest division, contributing 69% of Liberty Life's premiums in 1995. Home
Service agents of Liberty Life sell primarily individual life, including
universal life and interest-sensitive whole life products, as well as health
insurance. As of December 1995, the Company had approximately 1,300 agents,
managers and support staff in this division operating out of 50 district
offices. These agents periodically visit the insureds' homes and businesses to
collect premiums. Although the Company has broadened this division's area of
concentration beyond the Carolinas, principally through strategic acquisitions,
the Company has maintained a regional focus for its home service business on
the Southeast.
MORTGAGE PROTECTION DIVISION. The Mortgage Protection Division
contributed 26% of Liberty Life's premiums in 1995. The Mortgage Protection
Division sells decreasing term life insurance designed to extinguish the unpaid
portion of a residential mortgage upon the death of the insured. This division
also sells accidental death, disability income and credit life insurance. A
staff of full-time representatives and independent brokers offer these products
through more than 1,000 financial institutions located throughout the United
States. The Company supports the marketing of these products through direct
mail and phone solicitations.
PIERCE NATIONAL. Pierce National provides life insurance products which
pre-fund funeral services, referred to as pre-need policies. Pierce National,
a stock life insurance company acquired in July 1992, is domiciled in
California, but its principal executive and administrative offices are in
Greenville, South Carolina. Pre-need policies consist primarily of ordinary
life insurance policies for which the premiums are paid in a single payment at
the outset or primarily over a three, five or ten-year period. In April 1993,
Pierce National acquired through coinsurance all of the ordinary life
insurance, representing pre-need life insurance, of Estate Assurance Company,
effective as of January 1, 1993. In 1994, Liberty acquired North American
National Corporation, an insurance holding company, and American Funeral. As
previously mentioned, the insurance subsidiaries of North American and American
Funeral were merged into Pierce National during 1995.
Pierce National is currently licensed in forty-one states, the District of
Columbia, and ten Canadian provinces. The current plan is to seek licensure in
the majority of the remaining states and the province of Quebec. The largest
percentages of premium income for 1995 came from Canada (14%), Mississippi
(10%) and California (8%).
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At December 31, 1995, the Pierce National employed approximately 30 people
in its home office in Greenville who perform marketing, administrative and
clerical duties. Policy administration for Pierce National is carried out by
Liberty Insurance Services who employs approximately 85 people in this area.
PREMIUM BREAKDOWN. The following table sets forth the insurance premiums
and policy charges for Liberty Life's marketing and distribution divisions and
Pierce National for the years ended December 31.
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
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<S> <C> <C> <C>
Liberty Life
Home Service $138,714 $136,187 $137,919
Mortgage Protection 53,105 49,985 54,058
General Agency Marketing 5,966 6,143 5,906
Other 3,235 1,384 1,670
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201,020 193,699 199,553
Pierce National 130,350 122,090 51,369
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Total $331,370 $315,789 $250,922
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</TABLE>
UNDERWRITING PRACTICES. Liberty Life's underwriting practices for
ordinary life insurance require medical examinations for applicants over age 60
or for policies in excess of certain prescribed face amounts. In accordance
with the general practice in the life insurance industry, Liberty Life writes
life insurance on substandard risks at increased premium rates. Generally,
home service life insurance for non-universal life products is written for
amounts under $5,000 and typically no medical examination is required.
Mortgage protection life insurance is usually written without medical
examination. Substantially all pre-need policies are written for amounts under
$5,000, and no medical examination is required unless the applicant requests a
preferred rate.
REINSURANCE. The Company's insurance subsidiaries use reinsurance in two
distinct ways: first, as a risk management tool in the normal course of
business and second, in isolated strategic transactions to effectively buy or
sell blocks of in force business. The Company has ceded $4.6 billion (21%) of
its $21.4 billion insurance in force to other companies; however, the Company's
insurance subsidiaries remain liable with respect to reinsurance ceded should
any reinsurer be unable to meet the obligations it has or will assume.
For the years ended December 31, 1995, 1994 and 1993, Liberty had ceded
life insurance premiums of $27.8 million, $26.4 million, and $26.1 million,
respectively. Accident and health premiums ceded made up the remainder of
ceded premiums which were $6.9 million, $3.7 million, and $3.5 million for the
years ended December 31, 1995, 1994 and 1993, respectively.
RISK MANAGEMENT REINSURANCE TRANSACTIONS. Liberty Life reinsures with
other insurance companies portions of the life insurance it writes in order to
limit its exposure on large or substandard risks. The maximum amount of life
insurance that Liberty Life will retain on any life is $300,000, plus an
additional $50,000 in the event of accidental death. This maximum is reduced
for higher ages and for special classes of risks. The maximum amount of life
insurance Pierce National will retain on any life is $50,000. Insurance in
excess of the retention limit is either automatically ceded under reinsurance
agreements or is reinsured on an individually agreed basis with other insurance
companies. Liberty Life has ceded a significant portion of its risks on
accidental death and disability coverage to other insurance companies. Liberty
Life and Pierce National also have coverage for catastrophic accidents. At
December 31, 1995, Liberty Life and Pierce National had ceded, in the normal
course of business, portions of their risks to a number of other insurance
companies.
STRATEGIC REINSURANCE TRANSACTIONS. In 1991, 80% or $3.2 billion face
amount of Liberty Life's General Agency Marketing Division net insurance in
force was coinsured with Life Reassurance Corporation ("Life Re"). The
original agreement with Life Re provided for the coinsurance of 50% of this
division's insurance in force issued after 1991. Effective July 1, 1995, the
amount coinsured on policies written after December 31, 1991, was increased to
80%. The
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total face value of amounts ceded to Life Re at December 31, 1995 was $2.9
billion. Under terms of the agreement, assets supporting the business ceded
are required to be held in escrow.
In order to facilitate the 1991 acquisition through reinsurance of a block
of business from Kentucky Central Life Insurance Company, Liberty Life
coinsured 50% of its home service traditional life insurance business with
Lincoln National Life Reinsurance Company. The Lincoln National reinsurance
has been accounted for under generally accepted accounting principles as
financial reinsurance. The reinsurance contract contains an escrow agreement
that requires assets equal to the reserves reinsured, as determined under
statutory accounting principles, be held in escrow for the benefit of this
block of business.
The Company uses assumption reinsurance to effectively acquire blocks of
in force business by acting as the "reinsurer" for other insurance companies.
For instance, the Company acquired the Kentucky Central and Estate Assurance
blocks in this manner.
OPERATIONS. The administrative functions of underwriting and issuing new
policies, and the ongoing servicing and claims settlement of in force policies,
are centralized at the home office in Greenville, South Carolina. In acquiring
additional blocks of insurance business, the Company's strategy is to integrate
the administrative functions into its existing operations, either directly or
through Liberty Insurance Services, as soon as practical after the effective
date of the acquisition. The Company believes that this centralization permits
economies of scale and promotes greater cost efficiencies.
The Company's insurance operation services approximately 3.0 million
policies representing $21.4 billion of life insurance in force, of which $4.6
billion of insurance in force has been ceded to other companies. Approximately
200,000 policies representing $3.0 billion of life insurance in force were
issued during 1995. The Company intends to continue its focus on reducing the
unit costs of administrative services by increasing the volume of business
through acquisitions of blocks of business similar in nature to its existing
business, by internal growth in those businesses, and by investing in
up-to-date technology to further improve efficiency in its operations.
LIBERTY INSURANCE SERVICES. Liberty Insurance Services provides a wide
range of home office support services to unaffiliated life and health insurance
companies on a fee basis, as well as to the Company's insurance subsidiaries.
These services include underwriting, preparation of policies, accounting,
customer service and claims processing and adjudication and can be tailored to
support the special features of insurance products offered by other companies
that desire these services. The Company's strategy is to target (i) insurance
companies that have closed blocks of business that are expensive to administer,
(ii) insurance companies that have start-up or new product lines requiring new
support levels, (iii) small to midsize insurance companies that cannot justify
large investments in home office technology, and (iv) insurance companies
acquired by financial investors lacking experience in providing home office
support. Liberty Insurance Services believes that its economies of scale will
permit its customers to reduce their home office support costs and focus
resources on marketing their insurance products.
Beginning in 1996, the operations of Liberty Insurance Services are
expected to be combined in a joint venture with Continuum Administrative
Services Company, the third party administrative arm of The Continuum Company.
The joint venture, operating under the name of ALLIANCE-ONE Services, LP, will
be the largest third party administrator of life insurance business in the
United States. Liberty will have a 40% ownership interest in the joint
venture.
INSURANCE COMPETITION AND RATINGS The Company's insurance subsidiaries
compete with numerous United States and Canadian insurance companies, some of
which have greater financial resources, broader product lines and larger
staffs. In addition, banks and savings and loan associations in some
jurisdictions compete with the Company's insurance subsidiaries for sales of
life insurance products, and the insurance subsidiaries compete with banks,
investment advisors, mutual funds and other financial entities to attract
investment funds generally.
Competition in the home service business is largely regional or local,
highly dependent on the quality of the local management, and is less price
competitive than other insurance markets. The home service business involves
frequent contacts by agents with their customers. Liberty emphasizes to its
agents the importance of taking advantage of these contacts to establish
personal relationships which the Company believes add stability to its home
service business.
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The Company believes that competition in the pre-need market is national
and, therefore, has expanded the market of its pre-need business. The Company
intends to capitalize on its affinity marketing expertise gained in the
mortgage protection insurance business by targeting national chains of funeral
homes and by supplementing this effort with direct marketing and telemarketing
campaigns.
The Company currently believes that it ranks third nationally in mortgage
protection insurance with an estimated 13% market share. Slightly over 85% of
the mortgage protection market share is believed to be held by four companies
and 40% of the market is held by the market leader.
Various independent companies issue ratings assessing the ability of
insurance companies to meet their policyholder and other contractual
obligations, as well as assessing the overall financial performance and
strength of companies. The most widely used ratings are those prepared and
published by A.M. Best Company, Inc. Ratings by A.M. Best range from "A++"
(Superior) to "F" (In Liquidation). In the Best's Rating Monitor published
March, 11, 1996, Liberty Life was rated "A" (Excellent) and Pierce National was
rated "B++" (Very Good). Liberty Life also has a current claims-paying rating
of "AA" (Very High) by Duff & Phelps Credit Rating Co. The rating agencies
base their ratings on information provided by the insurer and their own
analysis, studies and assumptions. The ratings apply only to the specific
company rated and do not extend to The Liberty Corporation as a whole, nor are
the ratings a recommendation to buy, sell or hold securities. The agencies can
change or withdraw their published ratings at any time the agency deems
circumstances warrant a change. Should Liberty Life's or Pierce National's
rating be downgraded, sales of their products and persistency of the existing
in-force business could be adversely affected. Insurance company ratings are
generally considered to be more important in the annuity and general agency
markets, neither of which are major markets for Liberty Life or Pierce
National.
INSURANCE REGULATION. Like other insurance companies, the Company's
insurance subsidiaries are subject to regulation and supervision by the state
or other insurance department of each jurisdiction in which they are licensed
to do business. These supervisory agencies have broad administrative powers
relating to the granting and revocation of licenses to transact business, the
licensing of agents, the approval of policy forms, reserve requirements and the
form and content of required statutory basis financial statements. As to its
investments, each of the Company's insurance subsidiaries must meet the
standards and tests established by the National Association of Insurance
Commissioners (the "NAIC") and, in particular, the investment laws and
regulations of the states in which each subsidiary is domiciled. All states
and jurisdictions (including the Canadian provinces where Pierce National is
also licensed) have their own statutes and regulations, which vary in certain
respects. However, the NAIC Model Act and regulations have tended to make the
various states' regulation more uniform. The insurance companies are also
subject to laws in most states that require solvent life insurance companies to
pay guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies.
The NAIC and state regulatory authorities require the Asset Valuation
Reserve or "AVR" and the Interest Maintenance Reserve or "IMR" to be
established as a liability on a life insurer's statutory financial statements,
but do not affect financial statements of the Company prepared in accordance
with generally accepted accounting principles. AVR establishes a statutory
reserve for mortgage loans, equity real estate and joint ventures, as well as
for fixed maturities and common and preferred stock. AVR generally captures
all realized and unrealized gains and losses on such assets, other than those
resulting from changes in interest rates. IMR captures the net gains or losses
that are realized upon the sale of fixed income securities (bonds, preferred
stocks, mortgage-backed securities and mortgage loans) and that result from
changes in the overall level of interest rates, and amortizes these net
realized gains or losses into income over the remaining life of each investment
sold, thus limiting the ability of an insurer to enhance statutory surplus by
taking gains on fixed income securities. The IMR and AVR requirements have not
had a material impact on the Company's insurance subsidiaries' surplus nor
Liberty Life's ability to pay dividends to the parent company.
In recent years the NAIC has approved and recommended to the states for
adoption and implementation several regulatory initiatives designed to decrease
the risk of insolvency of insurance companies in general. These initiatives
include the implementation of a risk-based capital formula for determining
adequate levels of capital and surplus and further restrictions on an insurance
company's payment of dividends to its shareholders. To date, South Carolina
has not adopted the NAIC risk-based capital model act; however, it does require
prior notice to the South Carolina Commissioner of Insurance of dividend
distributions to shareholders, and permits the Commissioner to disapprove or
limit the dividend within 30 days of notice if the dividend or distribution is
deemed an unreasonable strain on surplus.
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The NAIC risk-based capital model act or similar initiatives may be adopted by
South Carolina or the various states in which Liberty Life and the Company's
other insurance subsidiaries are licensed, but the ultimate content and timing
of any statutes and regulations adopted by the states cannot be determined at
this time.
Under the NAIC's risk-based capital requirements ("RBC"), insurance
companies must calculate and report information under a risk-based capital
formula in their annual statutory financial statement. This information is
intended to permit insurance regulators to identify and require remedial action
for inadequately capitalized insurance companies, but is not designed to rank
adequately capitalized companies. The NAIC requirements provide for four
levels of potential involvement by state regulators for inadequately
capitalized insurance companies, ranging from a requirement for the insurance
company to submit a plan to improve its capital, to regulatory control of the
insurance company. The RBC ratios for the Company's insurance subsidiaries
significantly exceed the minimum capital requirements at December 31, 1995.
Another NAIC Model Act limits dividends that may be paid in any calendar
year without regulatory approval to the lesser of (i) 10% of the insurer's
statutory surplus at the prior year-end, or (ii) the statutory net gain from
operations of the insurer (excluding realized capital gains and losses) for the
prior calendar year. The current South Carolina statutes applicable to Liberty
Life do not conform to the NAIC Model Act (South Carolina limits dividends to
the greater of 10% of statutory surplus or gain from operations). Under
current South Carolina law, without prior approval from the South Carolina
Commissioner of Insurance, dividend payments from Liberty Life to the Company
are limited to the greater of the prior year's statutory gain from operations
or 10% of the prior year's statutory surplus. The maximum allowable dividend
that can be paid in 1996 without approval from the South Carolina Insurance
Commissioner is $24.8 million. Actual dividends and distributions paid by
Liberty Life were $20.0 million in 1995, $20.3 million in 1994, and $22.0
million in 1993. Under regulations effective July 1, 1995, the South Carolina
Insurance Department must be notified of all dividends and distributions to
shareholders within five days following the declaration, and at least ten days
prior to the payment of the dividend or distribution, and will have the
authority to limit the amount of any dividends or distributions. Extraordinary
dividends, defined as distributions that, together with all other distributions
within a 12 month period, exceed the greater of the net gain from operations or
10% of statutory surplus, cannot be made without the approval of the South
Carolina Insurance Department, unless the department has not disapproved the
payment within 30 days following the notice of the declaration. The current
California statutes applicable to Pierce National limit dividend payments to
the Company to the greater of 10% of statutory surplus or the prior year's net
gain from operations (excluding realized capital gains and losses). The
maximum allowable dividend that Pierce National can pay during 1996 will be
$5.1 million; however, the Company does not currently plan to seek dividends
from Pierce National during 1996. During 1995, Pierce National paid $2.6
million in dividends to Liberty.
In accordance with the rules and practices of the NAIC and in accordance
with state law, every insurance company is generally examined once every three
years by examiners from its state of domicile and from several of the other
states where it is licensed to do business. Examinations of Liberty Life and
Pierce National for the periods ended December 31, 1994 have been completed and
the reports issued did not indicate any significant areas of concern.
The Office of the Superintendent of Financial Institutions -- Canada, and
the Canadian provinces regulate and supervise the Canadian operations of Pierce
National in the same manner as the NAIC and the states. Separate financial
statements are required to meet the Canadian regulatory requirements and a
separate examination is conducted by the Canadian regulatory agencies.
The Company's insurance subsidiaries are also subject to regulation as an
insurance holding company system under statutes which have been enacted in
their states of domicile and other states in which they are licensed to do
business. Pursuant to these statutes, Liberty Life and Pierce National are
required to file an annual registration statement with the Office of the
Commissioner of Insurance and to report all material changes or transactions.
In addition, these statutes restrict the ability of any person to acquire
control (generally presumed at 10% or more) of the outstanding voting
securities of the Company without prior regulatory approval.
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BROADCASTING OPERATIONS
Cosmos currently owns and operates the following television stations,
seven of which were ranked No. 1 in their market by the November 1995 Nielsen
ratings.
<TABLE>
<CAPTION>
Station Primary Market Affiliation VHF/UHF
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<S> <C> <C> <C>
WAVE-TV Louisville, Kentucky NBC VHF
WIS-TV Columbia, South Carolina NBC VHF
WSFA-TV Montgomery, Alabama NBC VHF
KPLC-TV Lake Charles, Louisiana NBC VHF
WTOL-TV Toledo, Ohio CBS VHF
KAIT-TV Jonesboro, Arkansas ABC VHF
WFIE-TV Evansville, Indiana NBC UHF
WLOX-TV Biloxi, Mississippi ABC VHF
</TABLE>
Cosmos has approximately 800 full-time employees and 110 part-time
employees, including its cable sales operations in Columbia, SC, Florence, SC,
Sumter, SC and Frankfort, KY.
NETWORK AFFILIATES. Each Cosmos station is affiliated with one of the
major networks - NBC, ABC, CBS. The affiliation contracts provide that the
network will offer to the affiliated station a variety of network programs,
both sponsored and unsponsored, for which the station has the right of first
refusal against any other television station located in its community. The
station has the right to reject or accept the programs offered by the network
and also has the right to broadcast programs either produced by the station or
acquired from other sources. The major networks provide their affiliated
stations with programming and sell the programs, or commercial time during the
programs, to national advertisers. Each affiliate is compensated by its
network for carrying the network's programs. That compensation is based on the
local market rating strength of the affiliate and the audience it helps bring
to the network programs. The major networks typically provide programming for
approximately 90 hours of the approximately 135 hours per week broadcast by
their affiliated stations.
The NBC affiliation contracts with each of Cosmos' NBC affiliated stations
have been continuously in effect for over thirty-nine years. Cosmos' CBS and
ABC affiliation contracts have each been continuously in effect for
approximately thirty years.
SOURCES OF COSMOS' TELEVISION OPERATING REVENUES. The following table
shows the approximate percentage of Cosmos' gross television operating revenues
by source excluding other income for the three years ended December 31, 1995:
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
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<S> <C> <C> <C>
Local and Regional Advertising 60% 57% 60%
National Spot Advertising 28 30 32
Network Compensation 9 7 7
Political Advertising 3 6 1
</TABLE>
Local and regional advertising is sold by each station's own sales
representatives to local and other non-national advertisers or agencies.
Generally these contracts are short-term, although occasionally longer-term
packages will be sold. National spot advertising (generally a series of spot
announcements between programs or within the station's own programs) is sold by
the station or its sales representatives directly to agencies representing
national advertisers. Most of these national sales contracts are also
short-term, often covering spot campaigns running for thirteen weeks or less.
Network compensation is paid by the network to its affiliated stations for
broadcasting network programs that include advertising sold by the network to
agencies representing national advertisers. Political advertising is generated
by national and local elections, which is by definition very cyclical.
9
<PAGE> 10
A television station's rates are primarily determined by the estimated
number of television homes it can provide for an advertiser's message. The
estimates of the total number of television homes in the market and of the
station's share of those homes is based on the AC Nielsen industry-wide
television rating service. The demographic make-up of the viewing audience is
equally important to advertisers. A station's rate card for national and local
advertisers takes into account, in addition to audience delivered, such
variables as the length of the commercial announcements and the quantity
purchased. The payments by a network to an affiliated station are largely
determined by the total homes delivered, the relative preference of the station
among the viewers in the market area and other factors related to management
and ownership.
TELEVISION BROADCASTING COMPETITION. The television broadcasting industry
competes with other leisure time activities for the time of viewers and with
all other advertising media for advertising dollars. Within its coverage area
a television station competes with other stations and with other advertising
media serving the same area. The outcome of the competition among stations for
advertising dollars in a market depends principally on share of audience,
advertising rates and the effectiveness of the sales effort.
Cosmos believes that each of its stations has a strong competitive
position in its local market, enabling it to deliver a high percentage of the
local television audience to local advertisers. Cosmos' commitment to local
news programming, combined with syndicated programming, are important elements
in maintaining Cosmos' current market positions.
Another source of competition is cable television, which brings additional
television programming, including pay cable (HBO, Showtime, Movie Channel,
etc.), into subscribers' homes in a television station's service area. Cable
television competes for the station's viewing audience and, on a more modest
scale, its advertising.
Federal law now requires that cable operators negotiate with television
operators for the right to carry a station's signal (programs) on cable
systems. Cosmos recently used this "retransmission consent" negotiation to
forge long-term partnerships with cable operators with the purpose of
developing secondary revenue streams from programs and services specifically
produced for cable. In 1994 Cosmos formed CableVantage Inc., a marketing
company designed to assist local cable operators in the sale of commercial time
available in cable network programs.
Subscription Television, an over-the-air pay television service, and
Multipoint Distribution Service, a microwave-distributed pay television
service, also compete for television audiences. In addition, licenses are now
being granted for Multichannel Multipoint Distribution Service. None of these
services has yet significantly fractionalized the audiences of commercial
television stations.
Two other television broadcast services are providing consumers with
additional technical delivery/programming opportunities. Low power television,
sometimes referred to as "neighborhood TV," is authorized to operate in a
limited coverage area. Authorizations are being granted by the Federal
Communication Commission ("FCC") on a lottery basis. Direct Broadcast
Satellite, which transmits television signals from satellite transponders to
parabolic home antennae, is now being actively marketed.
FEDERAL REGULATION OF BROADCASTING. Cosmos' broadcasting operations are
subject to the jurisdiction of the FCC under the Communications Act. The
Communications Act empowers the FCC, among other things, to issue, revoke or
modify broadcasting licenses; to assign frequency bands; to determine the
location of stations; to regulate the apparatus used by stations; to establish
areas to be served; to adopt such regulations as may be necessary to carry out
the provisions of the Communications Act and to impose certain penalties for
violation of such regulations. The Communications Act prohibits the transfer of
a license or the transfer of control or other change in control of a licensee
without prior approval of the FCC. The Hipp family is considered by the FCC to
have de facto control over Cosmos, and any action that would change such
control would require prior approval of the FCC.
The Telecommunications Act signed into law in 1996 (the "1996 Act")
changed many existing regulations concerning, among other things, the ownership
of television stations. Under previous regulations governing multiple
ownership, a license to operate a television station generally would not be
granted to any person (or persons under common control) if such person directly
or indirectly held a significant interest in more than 12 television stations
or less than 12 television stations if their audience coverage exceeded 25% of
total United States households. The 1996 Act allows for unlimited ownership of
stations as long as the audience coverage does not exceed 35% of total
households.
10
<PAGE> 11
Previous FCC regulations also limited ownership of television stations by those
having interests in cable television systems and daily newspapers serving the
same service area as the television stations. The 1996 Act dropped the
station/cable same market ownership prohibition. The 1996 Act also lengthened
the term for which television broadcasting licenses may be granted from a
maximum term of five years to a maximum term of eight years. In the absence of
adverse findings by the FCC as to the licensee's qualification, licenses are
usually renewed without hearing by the FCC for additional eight year terms.
Cosmos' renewal applications have always been granted without hearing for the
full term. The loosening of the ownership provisions, as well as the other
provisions included in the 1996 Act, are not expected to have any immediate
impact on the operations of Cosmos.
There are additional FCC Regulations and Policies, and regulations and
policies of other federal agencies, principally the Federal Trade Commission,
regulating network/affiliate relations, political broadcasts, children's
programming, advertising practices, equal employment opportunity, carriage of
television signals by CATV systems, application and reporting procedures and
other areas affecting the business and operations of television stations.
11
<PAGE> 12
EXECUTIVE OFFICERS
The following is a list of the Executive Officers of the Registrant
indicating their age and certain biographical data.
W. HAYNE HIPP, Age 56
Chairman of the Board of Liberty since May, 1995
President and Chief Executive Officer of Liberty since September, 1981
Chairman of the Board of Liberty Life from January, 1979 -- February, 1988;
September, 1989 -- present
Chairman of the Board of Cosmos -- May , 1989 -- February, 1992
MARTHA G. WILLIAMS, Age 53
Vice President, General Counsel & Secretary of Liberty since January, 1982
Vice President, General Counsel & Secretary of Liberty Life since January, 1982
Secretary and Counsel of Cosmos since February, 1982
H. RAY EANES, Age 55
Senior Vice President of Finance and Treasurer of Liberty since May, 1994
Prior to joining Liberty was Vice Chairman -- Finance and Administration of
Ernst & Young LLP
W. KENNETH HUNT, III, Age 42
President of Liberty Life Insurance Company since December, 1994
President of Pierce National Life Insurance Company from September, 1993
to December, 1994
President of Liberty Insurance Services Corporation from August, 1991 to
September, 1993
Chief Financial Officer of Liberty Life Insurance Company from February,
1987 to August, 1991
JENNIE M. JOHNSON, Age 48
President of Pierce National Life Insurance Company since August, 1995
Vice President, Administration of Liberty from February, 1994 to August, 1995
Vice President, Planning of Liberty from February, 1986 to December, 1994
JAMES M. KEELOR, Age 53
President of Cosmos since February, 1992
Vice President, Operations, of Cosmos from December, 1989 to February, 1992
M. PORTER B. ROSE, Age 54
President, Liberty Insurance Services, Inc. since June, 1995
President, Liberty Investment Group, Inc. since March, 1992
Chairman, Liberty Capital Advisors, Inc. since January, 1987
Chairman, Liberty Properties Group, Inc. since January, 1987
JOHN P. SMITH, Age 43
Controller of Liberty since September, 1994
Previously Vice President/Finance of Liberty Life Insurance Company
12
<PAGE> 13
OTHER BUSINESS
In addition to the operating subsidiaries, the Company has other minor
organizations. These include the Company's administrative staff, an investment
advisory company, a property development & management company and
transportation operations.
RESEARCH ACTIVITIES
The Company and its subsidiaries do not have a formal program of research
on new or improved products. As a part of its operation, each company
continues to seek improved methods and products. No material amounts were
spent in this area during 1995.
INDUSTRY SEGMENT DATA
Information concerning the Company's industry segments is contained in
Selected Financial Data on page 40 of The Liberty Corporation Annual Report to
Shareholders and is filed as Exhibit 13 on page 30 of this report and is
incorporated in this Item 1 by reference.
ITEM 2. PROPERTIES
MAIN OFFICES. The main office of the Company, Liberty Life, Pierce
National, Liberty Insurance Services, and Cosmos is located on a 30-acre tract
in Greenville, SC, and consists of three buildings totaling approximately
360,000 square feet plus parking. The main office facilities are owned by the
Company and Liberty Life. Liberty Life leases branch office space in various
cities. Leases are normally made for terms of one to ten years.
Cosmos owns its television broadcast studios, office buildings and
transmitter sites in Columbia, SC; Montgomery, AL; Toledo, OH; Louisville, KY;
Evansville, IN; Jonesboro, AR; Lake Charles, LA; and Biloxi, Mississippi.
ITEM 3. LEGAL PROCEEDINGS
In January 1996, a lawsuit was filed against the Company alleging breach
of contract in connection with an agreement to develop a state-of-art software
system to administer the Company's insurance operations. The suit was filed by
the software developer. Management of the Company, after consultation with
legal counsel, believes that the lawsuit filed against the Company is without
merit and intends to contest the suit vigorously. The Company believes the
suit filed against it was in response to a suit filed by the Company in
connection with failure of the software developer to deliver the system. The
suit against the software developer seeks to recover amounts paid to the
software developer, and other costs incurred by the Company, in an attempt to
develop the system. The Company believes it will be successful in its lawsuit
against the software developer; however, no reasonable estimate of the amount
of the recovery is known at this time.
In December 1995, a lawsuit was filed against the Company alleging breach
of contract. The lawsuit relates to a transaction in which the Company was
unsuccessful in acquiring certain entities partially owned by the plaintiff.
Management, after consultation with legal counsel, believes the lawsuit is
without merit and intends to contest the suit vigorously.
Other than the suits mentioned above, the Company is not currently engaged
in legal proceedings of material consequence other than ordinary routine
litigation incidental to its business. Any proceedings reported in prior
filings have been settled or otherwise satisfied.
13
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
STOCKHOLDER MATTERS
Information concerning the market for the Company's Common Stock and
related stockholder matters is contained on the inside back cover of The
Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on
page 29 of this report and is incorporated in this Item 5 by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the Company is contained on page 40 of The
Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on
page 30 of this report and is incorporated in this Item 6 by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is contained on pages 9-13, 16-18 and 21 of The Liberty Corporation
Annual Report to Shareholders and is filed as Exhibit 13 on pages 31 - 38 of
this report and is incorporated in this Item 7 by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
The Company's Consolidated Financial Statements and Report of Independent
Auditors are contained on pages 8, 14, 15, 19, 20, and 22 - 39 of The Liberty
Corporation Annual Report to Shareholders and is filed as Exhibit 13 on pages
39 - 61 of this report and are incorporated in this Item 8 by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors of the Company is contained in The
Liberty Corporation Proxy Statement for the May 7, 1996 Annual Meeting of
Shareholders and is incorporated in this Item 10 by reference.
Information concerning Executive Officers of the Company is submitted in a
separate section of this report in Part I, Item 1 on page 12 and is
incorporated in this Item 10 by reference.
14
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION
Information concerning Executive Compensation and transactions is
contained in The Liberty Corporation Proxy Statement for the May 7, 1996 Annual
Meeting of Shareholders and is incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning Security Ownership of Certain Beneficial Owners and
Management is contained in The Liberty Corporation Proxy Statement for the May
7, 1996 Annual Meeting of Shareholders and is incorporated in this Item 12 by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning Certain Relationships and Related Transactions is
contained in The Liberty Corporation Proxy Statement for the May 7, 1996 Annual
Meeting of Shareholders and is incorporated in this Item 13 by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) AND (2). LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of The Liberty Corporation
and Subsidiaries are included in the Company's Annual Report to Shareholders
for the year ended December 31, 1995, filed as Exhibit 13 to this report and
incorporated in Item 8 by reference:
Consolidated Balance Sheets -- December 31, 1995 and 1994
Consolidated Statements of Income -- For Each of the Three Years Ended
December 31, 1995
Consolidated Statements of Cash Flows -- For Each of the Three Years
Ended December 31, 1995
Consolidated Statements of Shareholders' Equity -- For Each of the Three
Years Ended December 31, 1995
Notes to Consolidated Financial Statements -- December 31, 1995
Report of Independent Auditors
The following consolidated financial statement schedules of The Liberty
Corporation and Subsidiaries are included in Item 14(d):
I- Summary of Investments
II- Condensed Financial Statements of The Liberty Corporation (Parent
Company)
III- Supplementary Insurance Information
IV - Reinsurance
V - Valuation and Qualifying Accounts and Reserves
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission, but which are
excluded from this report, are not required under the related instructions
or are inapplicable, and therefore have been omitted.
15
<PAGE> 16
(A)(3).LIST OF EXHIBITS
3.1 Restated Articles of Incorporation, as amended through March 15, 1995.
3.2 Bylaws, as amended (filed as Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and
incorporated herein by reference).
4.1 See Articles 4, 5, 7 and 9 of the Company's Restated Articles of
Incorporation (filed as Exhibit 3.1) and Articles I, II and VI of the
Company's Bylaws (filed as Exhibit 3.2).
4.2 See the Form of Rights Agreement dated as of August 7, 1990 between
The Liberty Corporation and The Bank of New York, as Rights Agent, which
includes as Exhibit B thereto the form of Right Certificate (filed as
Exhibits 1 and 2 to the Registrant's Form 8-A, dated August 10, 1990,
and incorporated herein by reference) with respect to the Rights to
purchase Series A Participating Cumulative Preferred Stock.
4.3 See Credit Agreement dated March 21, 1995 (filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10Q for the quarter ended June 30,
1995 and incorporated herein by reference).
10. See Credit Agreement dated March 21, 1995 (filed as Exhibit 4.3).
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per
Share Computation
13. Portions of The Liberty Corporation Annual Report to Shareholders for
the year ended December 31, 1995:
Market for the Registrant's Common Stock and Related Security
Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Statements and Supplementary Information:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - For the three years ended
December 31, 1995
Consolidated Statements of Cash Flows - For the three years ended
December 31, 1995
Consolidated Statements of Shareholders' Equity - For the three
years ended December 31, 1995
Notes to Consolidated Financial Statements - December 31, 1995
Report of Independent Auditors
21. The Liberty Corporation and Subsidiaries, List of Subsidiaries
23. Consent of Independent Auditors
24. A. Powers of Attorney applicable for certain signatures of members of
the Board of Directors in Registrant's 10-K filed for the year
ended December 31, 1983
B. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K filed for
the year ended December 31, 1985
C. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K filed for
the year ended December 31, 1986
D. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K filed for
the year ended December 31, 1989
E. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K filed for
the year ended December 31, 1994
F. Powers of Attorney applicable for certain signatures of
members of the Board of Directors in Registrant's 10-K filed for
the year ended December 31, 1995
16
<PAGE> 17
27. Financial Data Schedule
99. Additional Exhibits
A. Annual Statement on Form 11-K for The Liberty Corporation
and Related Adopting Employers' 401(k) Thrift Plan for the year
ended December 31, 1995
(b). REPORTS ON FORM 8-K FILED IN 1995
None
(c). EXHIBITS FILED WITH THIS REPORT
3.1 Amendment to Articles of Incorporation, as amended through March 15,
1995.
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per
Share Computation
13. Portions of The Liberty Corporation Annual Report to Shareholders for
the year ended December 31, 1995:
Market for the Registrant's Common Stock and Related Security
Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Statements and Supplementary Information:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - For the three years ended
December 31, 1995
Consolidated Statements of Cash Flows - For the three years ended
December 31, 1995
Consolidated Statements of Shareholders' Equity - For the three
years ended December 31, 1995
Notes to Consolidated Financial Statements - December 31, 1995
Report of Independent Auditors
21. The Liberty Corporation and Subsidiaries, List of Subsidiaries
23. Consent of Independent Auditors
24. Powers of Attorney applicable for certain signatures of members of
the Board of Directors in Registrant's 10-K filed for the year ended
December 31, 1995.
27. Financial Data Schedule
99. Additional Exhibits
A. Annual Statement on Form 11-K for The Liberty Corporation
and Related Adopting Employers' 401(k) Thrift Plan for the year
ended December 31, 1995
(d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES FILED WITH THIS REPORT
I- Summary of Investments - December 31, 1995
II- Condensed Financial Statements of The Liberty Corporation (Parent
Company) December 31, 1995 and 1994
III-Supplementary Insurance Information - For the Three Years Ended
December 31, 1995
IV- Reinsurance - For the Three Years Ended December 31, 1995
V- Valuation and Qualifying Accounts and Reserves - For the Three
Years Ended December 31, 1995
17
<PAGE> 18
Schedule I
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
DECEMBER 31, 1995
(In 000's)
<TABLE>
<CAPTION>
Amount at Which
Shown on Balance
Type of Investment Cost Value Sheet
- ------------------------------------------------- ---------- ---------- ----------------
<S> <C> <C> <C>
Fixed maturity securities, available for sale
Bonds:
United States Government and government agencies
and authorities $ 512,740 $ 542,696 $ 542,696
States, municipalities, and political subdivisions 294 333 333
Foreign governments 93,819 95,031 95,031
Public utilities 153,876 174,072 174,072
Convertibles and bonds with warrants attached 515 528 528
All other corporate bonds 575,584 606,222 606,222
Redeemable preferred stocks 46,496 48,157 48,157
---------- ---------- ----------
Total 1,383,324 $1,467,039 1,467,039
---------- ========== ----------
Equity securities, available for sale
Common stocks:
Public utilities - -
Banks, trusts and insurance companies $ 4,767 $ 8,354 $ 8,354
Industrial, miscellaneous, and all other 21,228 31,982 31,982
Nonredeemable preferred stocks 42,642 42,172 42,172
---------- ---------- ----------
Total 68,637 $ 82,508 82,508
---------- ========== ----------
Mortgage loans on real estate 213,223 213,223
Investment real estate 135,306 135,306
Policy loans 98,369 98,369
Other long-term investments 27,535 27,535
---------- ----------
Total investments $1,926,394 $2,023,980
========== ==========
</TABLE>
18
<PAGE> 19
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 and 1994
(In $000's, except share data)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---------- ----------
<S> <C> <C>
Cash $ 466 $ 6,835
Investment securities 679 661
Short term investments - 3,409
Loans, notes and other receivables 9,953 8,744
Investment properties, at cost less accumulated depreciation of
$8,432 in 1995 and $7,659 in 1994 70,875 70,723
Other long-term investments 11,689 2,558
Buildings and equipment, at cost less accumulated depreciation of
$9,863 in 1995 and $8,766 in 1994 21,379 19,951
Investment in affiliated companies* 652,420 515,476
Intercompany debt and advances* 96,606 29,348
Income taxes recoverable 12,053 8,620
Deferred income tax (liabilities) benefits (59) 2,305
Other assets 9,865 8,615
---------- ----------
$ 885,926 $ 677,245
========== ==========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Liabilities
Notes, mortgages and other debt $ 249,881 $ 222,392
Accounts payable and accrued expenses 10,959 8,481
Other liabilities 965 3,459
---------- ----------
Total liabilities 261,805 234,332
Redeemable Preferred Stock
1994-A Series, $35.00 redemption value, 668,207
shares issued and outstanding 23,387 23,387
1994-B Series, $37.50 redemption value, 594,126 and 598,101
shares issued and outstanding in 1995 and 1994, respectively 22,280 22,429
Shareholders' equity
Common stock
Authorized - 50,000,000 shares, no par value
Issued and Outstanding - 20,060,629 in 1995 and 19,841,470 in 1994 158,735 152,956
Convertible Preferred Stock, 1995-A Series,
599,985 shares issued and outstanding 20,999 ---
Unearned stock compensation (6,050) (5,319)
Unrealized appreciation (depreciation) on fixed maturity securities
available for sale and equity securities of subsidiaries 57,986 (53,109)
Cumulative foreign currency translation adjustment (999) (1,491)
Retained earnings 347,783 304,060
---------- ----------
Total shareholders' equity 578,454 397,097
---------- ----------
$ 885,926 $ 677,245
========== ==========
</TABLE>
* Eliminated in consolidation.
See notes to condensed financial statements.
19
<PAGE> 20
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(In $000's)
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
REVENUES
Dividends from subsidiaries* $ 45,331 $ 39,973 $ 31,209
Interest-unaffiliated 1,151 553 59
Intercompany interest* 8,303 7,068 6,933
Realized investment losses (3,195) --- ---
Other 30,059 25,927 25,723
-------- --------- --------
Total Revenues 81,649 73,521 63,924
EXPENSES
Salaries and wages 9,803 7,526 6,072
Interest-unaffiliated 14,867 10,475 9,360
Intercompany interest* 4,072 3,145 3,642
Taxes and licenses 1,508 1,206 821
Depreciation and amortization 5,275 4,552 3,718
Other 20,874 22,051 23,682
-------- --------- --------
Total Expenses 56,399 48,955 47,295
Income before income taxes and
cumulative effect of accounting
changes 25,250 24,566 16,629
Income tax benefits (7,359) (5,880) (4,859)
-------- --------- --------
Income before cumulative effect
of accounting changes 32,609 30,446 21,488
Cumulative effect of accounting
changes --- --- (155)
-------- --------- --------
32,609 30,446 21,333
Earnings of subsidiaries
net of dividends paid to parent* 27,928 (4,371) 16,202
-------- --------- --------
NET INCOME $ 60,537*** $ 26,075** $ 37,535**
======== ======== ========
</TABLE>
* Eliminated in consolidation.
** Differs from consolidated net income by $103 and $1,612 in 1994 and
1993, respectively, due to gains recognized on a consolidated basis
previously recognized by subsidiaries on intercompany transactions.
Gains were deferred on a consolidated basis until completion of the
earnings process.
*** Differs from consolidated net income by $1,184 due to gains deferred
on a consolidated basis until completion of the earnings process.
See notes to condensed financial statements.
20
<PAGE> 21
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(In $000's)
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 60,537 $ 26,075 $ 37,535
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,275 4,552 3,718
Provision for deferred income taxes 2,740 2,754 (2,834)
Earnings from subsidiary operations, net of
dividends paid to parent (27,928) 4,371 (16,202)
(Gain) loss on disposal of assets (3,231) (2,989) 2,299
Realized investment losses 3,195 -- ---
Change in operating assets and liabilities:
Increase in intercompany debt and advances* (27,434) (9,426) (1,266)
Increase in accounts and notes receivable (1,209) (97) (7,907)
Increase (Decrease)in accounts payable and
accrued expenses 2,478 2,212 (970)
Increase in other assets (1,250) (5,334) (1,188)
Increase (Decrease) in other liabilities, and
accrued income taxes (5,927) (969) 3,075
Other 1,144 (3,869) (602)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 8,390 17,280 15,658
INVESTING ACTIVITIES
Additional investment in subsidiaries* --- (1,907) (6,500)
Reduction in investment in subsidiaries* 4,048 10,000 10,000
Purchase of investment properties (34,177) (33,198) (19,055)
Sale of investment properties 31,997 15,125 23,080
Net cash paid on purchase of insurance business --- (65,212) ---
Net cash paid on purchase of broadcasting business (5,638) ---
Other (9,264) --- (48)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (13,034) (75,192) 7,477
FINANCING ACTIVITIES
Proceeds from borrowings 1,901,001 2,537,169 2,192,635
Principal payments on debt (1,888,820) (2,462,620) (2,219,351)
Dividends paid (16,814) (14,358) (13,108)
Stock issued for employee benefit and performance
incentive compensation programs 2,908 3,487 7,181
Common stock offering --- --- 8,544
------------ ------------ ------------
NET CASH PROVIDED (USED) IN FINANCING
ACTIVITIES (1,725) 63,678 (24,099)
INCREASE (DECREASE) IN CASH (6,369) 5,766 (964)
Cash at beginning of year 6,835 1,069 2,033
------------ ------------ ------------
CASH AT END OF YEAR $ 466 $ 6,835 $ 1,069
============ ============ ============
* Eliminated in consolidation.
See notes to condensed financial statements.
</TABLE>
21
<PAGE> 22
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NOTES, MORTGAGES AND OTHER DEBT
The general debt obligations at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Average
(In 000's) Interest Rate Amount
- ---------- -----------------------------
<S> <C> <C>
Notes due to banks 6.4% $236,500
Mortgage loans on investment property 8.0 2,662
Notes payable on purchase of broadcasting business 5.9 10,493
Other 8.5 226
--------
$249,881
========
</TABLE>
On March 21, 1995, the Parent Company completed the restructuring of
its $325,000,000 revolving credit facility into a new $375,000,000,
multi-tranche credit facility which will mature on various dates beginning
in March 1998. This facility will be used to refinance indebtedness under
the $325,000,000 facility, as well as to provide funds to meet working
capital requirements and finance acquisitions. Note 5 of The Liberty
Corporation and Subsidiaries Consolidated Financial Statements provides
additional information as to this agreement. The maturities of the
general debt obligations at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In 000's) Amount
---------- --------
<S> <C>
1996 $ 22,383
1997 15,856
1998 146,374
1999 20,000
2000 20,268
Thereafter 25,000
--------
$249,881
========
</TABLE>
2. COMMITMENTS AND CONTINGENT LIABILITIES
The Parent Company has guaranteed a $7.0 million letter of credit for
an unaffiliated marketing company. As of December 31, 1995, $4.0 million
was outstanding under the letter of credit.
3. RETAINED EARNINGS
As of December 31, 1995 and 1994, retained earnings of $347,783,000
and $304,060,000 respectively, in The Liberty Corporation (Parent Company)
financial statements differs from The Liberty Corporation and Subsidiaries
consolidated financial statements. The difference of $2,692,000 and
$1,508,000 at December 31, 1995 and 1994, respectively, relates to the
capitalization of interest on a consolidated basis and the elimination of
gains on intercompany transactions.
22
<PAGE> 23
Schedule III
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(In $000's)
<TABLE>
<CAPTION>
Future Policy Other Policy
Deferred Policy Benefits, Claims &
Acquisition Cost of Business Losses, Claims Unearned Benefits
Segment Costs Acquired and Loss Expenses Premiums Payable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1995
Life/Health Insurance $265,188 $86,925 $1,807,339 $4,078 $51,442
December 31, 1994
Life/Health Insurance $259,799 $98,056 $1,727,119 $4,535 $51,969
December 31, 1993
Life/Health Insurance $231,873 $56,762 $1,342,369 $3,135 $43,672
Amortization
of Deferred
Benefits Acquisition Accident &
Net Claims, Losses Costs and Other Health
Premium Investment & Settlement Cost of Business Operating Premiums
Segment Revenue Income Benefits Acquired Expenses Written
- ------------------------------------------------------------------------------------------------------------------------------------
1995
Life/Health Insurance $331,370 $144,483 $236,774 $43,780 $122,400 $33,867
1994
Life/Health Insurance $315,789 $129,925 $225,745 $45,024 $137,092 $29,472
1993
Life/Health Insurance $250,922 $110,507 $159,452 $39,402 $112,025 $42,151
</TABLE>
23
<PAGE> 24
Schedule IV
THE LIBERTY CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(In $000's)
<TABLE>
<CAPTION>
Amount Percentage of
Assumed Amount
Gross Ceded to Other From Net Assumed to
Amount Companies Companies Amount Net
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Life insurance in force $21,334,019 $4,554,569 $17,578 $16,797,028 0.1%
===============================================================
Insurance premiums and policy charges:
Life, annuity and other considerations $ 325,571 $ 27,843 $ 169 $ 297,897 0.1%
Accident and health 39,226 6,898 1,145 33,473 3.4%
---------------------------------------------------------------
TOTAL $ 364,797 $ 34,741 $ 1,314 $ 331,370
===============================================================
Year ended December 31, 1994
Life insurance in force $21,600,665 $4,751,940 $15,391 $16,864,116 0.1%
===============================================================
Insurance premiums and policy charges:
Life, annuity and other considerations $ 311,551 $ 26,365 $ 222 $ 285,408 0.1%
Accident and health 32,568 3,693 1,506 30,381 4.9%
TOTAL $ 344,119 $ 30,058 $ 1,728 $ 315,789
===============================================================
Year ended December 31, 1993
Life insurance in force $20,202,101 $4,788,883 $20,431 $15,433,649 0.1%
===============================================================
Insurance premiums and policy charges:
Life, annuity and other considerations $ 233,263 $ 26,075 $ 208 $ 207,396 0.1%
Accident and health 45,191 3,546 1,881 43,526 4.3%
---------------------------------------------------------------
TOTAL $ 278,454 $ 29,621 $ 2,089 $ 250,922
===============================================================
</TABLE>
24
<PAGE> 25
Schedule V
THE LIBERTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(In 000's)
<TABLE>
<CAPTION>
Additions
-----------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Deducted From Asset Accounts of Period Expenses Accounts Deductions of Period
- ---------------------------- -------------- -------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Accounts receivable - 334(b)
reserve for bad debts $ 1,493 $ 858 $ 48 $ 90(a) $ 1,975
-------------- -------------- --------------- ----------------- ---------------
Notes and other loans receivable -
discounts $ --- $ --- $ --- $ --- $ ---
-------------- -------------- --------------- ----------------- ---------------
Investment properties -
valuation reserves $ --- $ --- $ --- $ --- $ ---
-------------- -------------- --------------- ----------------- ---------------
Year Ended December 31, 1994
Accounts receivable - 28(b)
reserve for bad debts $ 1,027 $ 408 $ 341 $ 255(a)$ 1,493
-------------- -------------- --------------- ----------------- ---------------
Notes and other loans receivable -
discounts $ --- $ --- $ --- $ --- $ ---
-------------- -------------- --------------- ----------------- ---------------
Investment properties -
valuation reserves $ --- $ --- $ --- $ --- $ ---
-------------- -------------- --------------- ----------------- ---------------
Year Ended December 31, 1993
Accounts receivable - 5(b)
reserve for bad debts $ 921 $ 1,004 $ --- $ 893(a) $ 1,027
-------------- -------------- --------------- ----------------- ---------------
Notes and other loans receivable -
discounts $ --- $ --- $ --- $ --- $ ---
-------------- -------------- --------------- ----------------- ---------------
Investment properties -
valuation reserves $ --- $ --- $ --- $ --- $ ---
-------------- -------------- --------------- ----------------- ---------------
</TABLE>
Notes:
(a) Uncollectible accounts written off, net of recoveries.
(b) Reversal of reserves no longer required.
25
<PAGE> 26
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 hereunto duly authorized, as of the 27th day of
March, 1996
THE LIBERTY CORPORATION By: /s/ Hayne Hipp
- ----------------------- ------------------------
Registrant Hayne Hipp
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, as of the 27th day of March, 1996.
By: /s/ John P. Smith *By: /s/ William S. Lee
----------------- ------------------
John P. Smith William S. Lee
Corporate Controller Director
By: /s/ H. Ray Eanes *By: /s/ William O. McCoy
------------------- --------------------
H. Ray Eanes William O. McCoy
Sr. Vice President Finance & Treasurer Director
*By: /s/ Rufus C. Barkley, Jr. *By: /s/ Buck Mickel
-------------------------- ---------------
Rufus C. Barkley, Jr. Buck Mickel
Director Director
*By: /s/ Edward E. Crutchfield *By: /s/ John H. Mullin III
------------------------- ----------------------
Edward E. Crutchfield John H. Mullin III
Director Director
*By: /s/ John R. Farmer *By: /s/ Benjamin F. Payton
------------------ ----------------------
John R. Farmer Benjamin F. Payton
Director Director
*By: /s/ Lawrence M. Gressette, Jr. *By: /s/ J. Thurston Roach
------------------------------ ---------------------
Lawrence M. Gressette, Jr J. Thurston Roach
Director Director
By: /s/ Hayne Hipp *By: /s/ Martha G. Williams
-------------- ----------------------
Hayne Hipp *Martha G. Williams, as
Director Special Attorney in Fact
*By: /s/ W. W. Johnson
-----------------
W. W. Johnson
Director
26
<PAGE> 27
Annual Report on Form 10-K
The Liberty Corporation
December 31, 1995
Index to Exhibits
<TABLE>
<CAPTION>
Exhibits Page Number
-------- -----------
<S> <C> <C>
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share
Computation 28
13. Portions of The Liberty Corporation Annual Report to Shareholders for the year
ended December 31, 1995:
Market for the Registrant's Common Stock and Related Security Stockholder Matters 29
Selected Financial Data 30
Management's Discussion and Analysis of Financial Condition and Results of 31 - 38
Operations
Financial Statements and Supplementary Information:
Consolidated Balance Sheets - December 31, 1995 and 1994 39 - 40
Consolidated Statements of Income - For the three years ended December 31, 1995 41
Consolidated Statements of Cash Flows - For the three years ended December 31,
1995 42
Consolidated Shareholders' Equity - For the three years ended December 31, 1995 43
Notes to Consolidated Financial Statements - December 31, 1995 44 - 60
Report of Independent Auditors 61
21. The Liberty Corporation and Subsidiaries, List of Significant Subsidiaries 62
23. Consent of Independent Auditors 63
Powers of Attorney applicable for certain signatures of members of the Board of
24. Directors in Registrant's 10-K filed for the year ended December 31, 1995. 64
27. Financial Data Schedule
99. Additional Exhibits
A. Annual Statement on Form 11-K for The Liberty Corporation and Adopting
Related Employers' 401(k) Thrift Plan for the year ended December 31, 1995 65 - 80
</TABLE>
27
<PAGE> 28
EXHIBIT 11
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED EARNINGS PER SHARE COMPUTATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(In $000's, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
PRIMARY SHARES
Weighted average common shares outstanding 19,951 19,721 19,327
Weighted average common stock options outstanding 119 87 169
Preferred stock considered a common stock equivalent 502 --- ---
Total primary shares 20,572 19,808 19,496
FULLY DILUTED SHARES
Weighted average common shares outstanding 19,951 19,721 19,327
Weighted average common stock options outstanding 136 89 174
Preferred stock considered a common stock equivalent 502 --- ---
Assumed conversion of redeemable preferred stock not
considered a common stock equivalent 1,265 1,010 ---
-------------------------------------
Total fully diluted shares 21,854 20,820 19,501
=====================================
NET INCOME
Earnings $ 59,353 $26,178 $39,147
=====================================
PREFERRED STOCK DIVIDENDS
Dividends paid on redeemable preferred stock $ 2,658 $ 2,117 $ ---
=====================================
Primary earnings per share (Net income minus
preferred dividends divided by total primary shares) $ 2.76 $ 1.22 $ 2.01
=====================================
Fully diluted earnings per share (Net income divided
by total fully diluted shares) $ 2.72 $ 1.26 $ 2.01
=====================================
</TABLE>
28
<PAGE> 29
EXHIBIT 13
STOCK DATA
The Liberty Corporation's Common Stock is listed on the New York Stock
Exchange. Its symbol is LC. As of December 31, 1995, 1,395 shareholders of
record in 44 states, the District of Columbia, Canada, Australia and New
Zealand held the 20,060,629 Common Stock shares outstanding. Quarterly high and
low stock prices and dividends per share as reported by the Wall Street Journal
were:
<TABLE>
<CAPTION>
Quarterly
Market Price Per Share Dividend Per
High Low Share
--------------------------------------------
<S> <C> <C> <C>
1995
- -------------------------
Fourth Quarter 34 31 1/4 .170
Third Quarter 33 3/4 27 5/8 .170
Second Quarter 28 1/4 25 3/4 .170
First Quarter 27 1/2 24 3/4 .155
1994
- -------------------------
Fourth Quarter 27 1/4 24 1/4 .155
Third Quarter 28 3/4 25 3/4 .155
Second Quarter 29 7/8 23 7/8 .155
First Quarter 28 24 1/8 .155
1993
- -------------------------
Fourth Quarter 31 24 .140
Third Quarter 34 5/8 30 .140
Second Quarter 33 5/8 29 .140
First Quarter 31 7/8 28 3/8 .140
</TABLE>
The Company expects to continue its policy of paying regular cash dividends,
although there is no assurance as to future dividends because they are
dependent on future earnings, capital requirements and financial condition.
Also, the payment of dividends is subject to the restrictions described in
Notes 5 and 8 of the Consolidated Financial Statements.
CO-REGISTRAR AND CO-TRANSFER AGENTS
- --------------------------------------------------------------------------------
Wachovia Bank of North Carolina, N.A. The Bank of New York
P. O. Box 3001 101 Barclay Street
Winston-Salem, NC 27102 New York, NY 10286
For a Copy of the 10-K or other information, contact:
The Liberty Corporation Shareholder Relations
Box 789
Greenville, SC 29602
Telephone (864) 609-8256
Stock Exchange Listing:
New York Stock Exchange
Symbol: LC
Annual Meeting
The Liberty Corporation will hold its annual meeting on Tuesday, May 7, 1996,
at 10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South
Carolina. All Shareholders are invited to attend.
29
<PAGE> 30
EXHIBIT 13
SELECTED FINANCIAL DATA The Liberty Corporation and Subsidiaries
December 31, 1995
<TABLE>
<CAPTION>
(In 000's, except per share data) 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Insurance $ 486,980 $ 439,451 $ 384,132 $ 305,934 $ 271,806 $ 246,661
Broadcasting 119,529 98,266 87,984 89,989 88,174 89,709
Parent & Minor Subsidiaries 19,090 19,600 16,089 20,301 19,254 12,936
Adjustments & Eliminations (19,918) (16,071) (15,260) (13,468) (14,752) (13,707)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues * $ 605,681 $ 541,246 $ 472,945 $ 402,756 $ 364,482 $ 335,599
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes &
Cumulative Effect of Accounting Changes
Insurance $ 83,483 $ 31,590 $ 71,518 $ 53,962 $ 43,255 $ 42,442
Broadcasting 27,127 21,701 16,180 16,859 16,417 22,158
Parent & Minor Subsidiaries (19,994) (14,423) (12,846) (13,690) (20,439) (25,911)
Adjustments & Eliminations (1,821) --- 2,472 4,768 4,217 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Income Before Income
Taxes & Cumulative Effect of Accounting
Changes $ 88,795 $ 38,868 $ 77,324 $ 61,899 $ 43,450 $ 38,689
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
Insurance $ 56,582 $ 21,803 $ 33,459 $ 35,369 $ 30,077 $ 28,094
Broadcasting 16,590 12,919 12,217 10,262 9,967 13,600
Parent & Minor Subsidiaries (12,635) (8,544) (8,141) (8,153) (12,514) (16,136)
Adjustments & Eliminations (1,184) --- 1,612 3,407 3,036 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 59,353 $ 26,178 $ 39,147 $ 40,885 $ 30,566 $ 25,558
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 2.76 $ 1.22 $ 2.01 $ 2.51 $ 1.93 $ 1.55
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Investment
Gains (Losses) $ 111,095 $ (58,286) $ 1,276 $ (78) $ 7,316 $ (4,613)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Per Common Share $ 0.665 $ 0.62 $ 0.56 $ 0.515 $ 0.47 $ 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization
Insurance $ 4,515 $ 5,125 $ 3,286 $ 3,424 $ 3,381 $ 3,371
Broadcasting 9,244 6,276 6,566 6,848 10,654 11,044
Parent & Minor Subsidiaries 5,275 4,618 3,670 4,628 4,631 4,814
- ------------------------------------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization $ 19,034 $ 16,019 $ 13,522 $ 14,900 $ 18,666 $ 19,229
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures
Insurance $ 4,413 $ 2,270 $ 5,814 $ 3,618 $ 2,264 $ 3,534
Broadcasting 5,863 3,900 2,168 2,513 2,961 6,476
Parent & Minor Subsidiaries 3,012 3,446 7,483 698 1,088 895
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 13,288 $ 9,616 $ 15,465 $ 6,829 $ 6,313 $ 10,905
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Insurance $2,769,619 $2,494,264 $2,057,126 $1,937,908 $1,528,901 $1,357,406
Broadcasting 168,672 98,705 101,982 110,849 119,714 141,467
Parent & Minor Subsidiaries 873,933 666,319 581,406 565,135 504,199 484,401
Adjustments & Eliminations (777,928) (592,024) (553,481) (539,014) (438,610) (438,899)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $3,034,296 $2,667,264 $2,187,033 $2,074,878 $1,714,204 $1,544,375
- ------------------------------------------------------------------------------------------------------------------------------------
Notes, Mortgages and Other Debts $258,444 $ 231,647 $ 149,489 $ 176,632 $ 226,925 $ 246,531
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock $45,667 $ 45,816 --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Shareholders' Equity $575,762 $ 395,589 $ 433,845 $ 389,188 $ 277,108 $ 243,465
- ------------------------------------------------------------------------------------------------------------------------------------
* See Note 14 to the Consolidated Financial Statements related to 1995 and 1994 acquisitions.
</TABLE>
30
<PAGE> 31
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS The Liberty Corporation and Subsidiaries
December 31, 1995
SUMMARY OF CONSOLIDATED RESULTS OF OPERATIONS
Consolidated income before income taxes and the cumulative effect of accounting
changes for 1995 was $88.8 million, up $49.9 million from the $38.9 million
reported for 1994. The amounts reported for 1994 included non-recurring
charges of $31.2 million.
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes and the cumulative effect of accounting changes $88,795 $38,868 $77,324
Income taxes 29,442 12,690 26,237
- ---------------------------------------------------------------------------------------------------------
Income before the cumulative effect of accounting changes 59,353 26,178 51,087
Cumulative effect of accounting changes --- --- (11,940)
- ---------------------------------------------------------------------------------------------------------
Net income $59,353 $26,178 $39,147
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Adjusting for realized investment losses of $2.9 million in 1995, income before
income taxes and the cumulative effect of accounting changes was $91.7 million,
compared with $82.2 million for 1994, after adjusting the 1994 results for the
non-recurring charges and realized investment losses. The increase for 1995
was the result of improvements in both the insurance (up $11.3 million) and
broadcasting operations (up $5.4 million) offset by higher interest costs at
the Corporate level.
Consolidated income before income taxes and the cumulative effect of accounting
changes for 1994 was $38.9 million ($70.1 million prior to the non-recurring
charges) and compares with $77.3 million earned in 1993. Excluding realized
investment gains and losses from both periods and the non-recurring charges
from 1994, earnings before income taxes were $82.2 million and $62.6 million
for 1994 and 1993, respectively. The increase in 1994 was primarily the result
of contributions from insurance acquisitions closed in 1994 ($10.3 million) and
improvement in broadcasting results ($5.5 million).
The non-recurring charges in 1994 related to 1) the write-off of previously
deferred costs associated with the development of a software system for
administration of Liberty's insurance business and 2) a decision to cease
marketing products through the general agency distribution system. The
deferred systems charges were in connection with an agreement with a software
developer to develop a state-of-the-art software system to handle the
administration of Liberty's insurance operations. The non-cash charge of $20.9
million (pre-tax) had no impact on Liberty's cash flow. In 1994 Liberty
decided to cease sales of its products through its general agency distribution
system due to the absence of critical volume. This decision resulted in a
pre-tax charge to earnings of $10.3 million, primarily to reduce deferred
acquisition costs no longer considered recoverable. Premiums and policy
charges from the general agency division represented approximately 2% of
Liberty's total premiums and policy charges at the time the decision was made
to cease sales though this marketing channel.
The cumulative effect of accounting changes reported in 1993 represented a
one-time, non-cash charge of $11.9 million relating to the implementation of
Statement of Financial Accounting Standard ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
Consolidated 1995 revenues of $605.7 million were up $64.5 million (12%) over
last year's $541.2 million. The 1995 revenue growth consisted primarily of a
$47.5 million increase in revenues from the insurance operations and a $21.3
million increase in broadcasting revenues. The increase in revenues from
insurance operations was a combination of the 1994 insurance acquisitions
contributing a full year of revenues and a $14.0 million increase from realized
investment gains.
Consolidated 1994 revenues of $541.2 million were up $68.3 million (14%) over
the $472.9 million reported in 1993. This revenue growth consisted primarily of
a $55.3 million increase in revenues from insurance operations and a $10.3
million increase in broadcasting revenues. The increase in revenue from
insurance operations was a combination of the 1994 insurance acquisitions
contributing revenues of $84.3 million offset by a decline of $29.0 million
from existing insurance operations. The decline from existing insurance
operations was due to a $26.2 million decline in realized investment gains
coupled with the 1993 sale of Liberty's medicare supplement business that
generated $12.5 million in revenues in 1993.
31
<PAGE> 32
EXHIBIT 13
BUSINESS SEGMENTS
Liberty reports the results of its business operations in two segments:
Insurance and Broadcasting. The insurance segment consists of Liberty's
insurance operations, which specializes in providing home service, pre-need and
mortgage protection life and health insurance. The broadcasting segment
consists of Cosmos Broadcasting, which owns and operates eight
network-affiliated television stations. Activities of Corporate and other
include financing and real estate operations. In order to make more meaningful
comparisons, the segment data excludes the effect of realized investment gains
and losses, non-recurring special charges, and accounting changes. A
reconciliation of the segment operations to net income is as follows:
<TABLE>
<CAPTION>
(in 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment Operating Earnings:
Insurance $54,789 $46,396 $41,107
Broadcasting 16,590 12,919 9,716
Corporate and other (10,546) (6,446) (5,456)
- ---------------------------------------------------------------------------------
Total operating earnings 60,833 52,869 45,367
Net realized investment gains (losses) (1,480) (6,440) 9,281
Non-recurring special charges --- (20,251) (3,561)
Cumulative effect of accounting changes --- --- (11,940)
- ---------------------------------------------------------------------------------
Net income $59,353 $26,178 $39,147
- ---------------------------------------------------------------------------------
Earnings per Common Share:
Operating earnings $ 2.83 $ 2.56 $ 2.33
Net realized investment gains (losses) (0.07) (0.32) 0.47
Non-recurring special charges --- (1.02) (0.18)
Cumulative effect of accounting changes --- --- (0.61)
- ---------------------------------------------------------------------------------
Earnings per common share $ 2.76 $ 1.22 $ 2.01
- ---------------------------------------------------------------------------------
</TABLE>
INSURANCE RESULTS OF OPERATIONS
Operating earnings from insurance operations were $54.8 million in 1995, an
increase of $8.4 million (18%) from the $46.4 million reported in 1994.
Liberty Life's operating earnings were $5.3 million higher in 1995 as net
investment income, policy benefits and general insurance expenses all improved.
Net investment income for Liberty Life was positively impacted by stronger
real estate development income in 1995. After a very high first quarter of
1995, Liberty Life's policy benefits improved each quarter and ended the year
60.8% of premium, down over 2% as a percent of premium from the prior year.
The decision to stop accepting new business in the general agency division
reduced expenses, resulting in a break-even performance in this division,
compared to a pre-tax loss of $2.1 million in 1994. The FamilySide pre-need
group also reported an increase in operating earnings of $2.3 million (20%)
over 1994. FamilySide benefited from having two significant 1994 acquisitions
included for a full year in 1995 compared to 10 months in 1994. And, for the
first time ever, Liberty Insurance Services reported a profit on its
unaffiliated client base.
The increase in 1995 operating earnings followed a 13% increase in 1994 over
1993. Substantially all of the increase in 1994 was due to acquisitions (see
Insurance Acquisitions section below). Operating earnings of Liberty Life were
flat during the period from 1993 to 1994 as lower investment yields and higher
mortality offset the benefit of lower general insurance expenses.
32
<PAGE> 33
EXHIBIT 13
<TABLE>
<CAPTION>
(in 000's) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues (exclusive of realized investment gains and losses)
Insurance premiums and policy charges $331,370 $315,789 $250,922
Net investment income 144,483 129,925 110,507
Service contract revenues 9,025 5,585 8,383
- ------------------------------------------------------------------------------------------------------------
Total revenues 484,878 $451,299 369,812
Policy benefits 236,774 225,745 159,452
Commissions 54,583 49,869 44,491
General insurance expenses 68,246 62,639 63,670
Amortization of deferred acquisition costs and cost of business acquired 43,697 41,443 39,402
Other 114 1,429 2,211
- ------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 81,464 70,174 60,586
Income taxes 26,675 23,778 19,479
- ------------------------------------------------------------------------------------------------------------
Income from operations $ 54,789 $ 46,396 $ 41,107
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues from insurance operations in 1995 were $484.9 million, increasing 7%
over last year's $451.3 million. Insurance premiums and policy charges were
$331.4 million, an increase of 5% from 1994, and net investment income
increased 11% to $144.5 million. FamilySide contributed the majority of the
increase in revenues on the strength of both higher premiums and policy charges
and higher investment income. Liberty Life reported a 4% increase in insurance
premiums and policy charges in 1995 and also reported higher investment income
for the year.
For 1994 revenues from insurance operations were $451.3 million, an increase of
22% over the $369.8 million reported in 1993. Premiums and policy charges were
$315.8 million in 1994, an increase of $64.9 million (26%). The increase in
premiums from 1993 was substantially due to the acquisitions closed in 1994.
Investment income increased 22% to $129.9 million in 1994. The acquisitions
fueled this increase as well. Without the acquisitions, investment income would
have been level with the prior year.
Policy benefits as a percent of premium were 71% in 1995, compared with 72% in
1994 and 64% in 1993. The increase in the benefit-to-premium ratio from 1993
to 1994 was principally attributable to the product characteristics of the
pre-need products. The pre-need products are primarily limited-pay or
single-premium products that have a higher benefit ratio than products
historically sold by Liberty. As pre-need became a larger percentage of total
company premiums in 1994, the overall benefit-to-premium ratio increased. In
1995 Liberty Life experienced higher than expected mortality in the first
quarter. Mortality studies were performed and changes were implemented as a
result of the studies. The consolidated benefit-to-premium ratio improved in
the second half of 1995 as the ratio declined from 74% reported for the first
half of 1995 to the annual rate of 71%. Management believes that some of the
improvement in the second half of 1995 was attributable to actions taken as a
result of the mortality studies; however, claims are inherently variable and
will fluctuate, particularly when measured over a short period of time.
The commissions-to-premium ratio was 16% in 1995 and 1994. The comparable
ratio in 1993 was 18%. The drop in the ratio from 1993 to 1994 occurred as the
pre-need products increased as a percent of total premium. The limited-pay
characteristics of the pre-need products results in a lower commission
structure than traditional life insurance.
33
<PAGE> 34
EXHIBIT 13
General insurance expenses increased $5.6 million (9%) over 1994 levels with
$3.6 million of the increase coming from expanding operations at Liberty
Insurance Services. Excluding Liberty Insurance Services, the
expense-to-premium ratio was 16% for 1995 and 1994, down from 21% in 1993. The
1994 decrease in the expense-to-premium ratio was after adding general expenses
of $9.4 million from the 1994 acquisitions and was the result of continued
emphasis on expense control.
Amortization of deferred acquisition costs and cost of business acquired
increased 5% over last year. The amortization-to-premium ratio remained
constant at 13% of premiums for 1995 and 1994. The primary variable in the
amortization expense from year to year is policy persistency, or lapses. For
1995 lapses were at a comparable level to 1994; however, the 1994 level was
down significantly from 1993. The amortization expense in 1993 reflected high
lapses in both home service and mortgage protection lines. Management believes
that the high lapse experience in 1993 in the home service line was related to
Liberty's consolidation of branch offices and, for mortgage protection, the
high level of home mortgage refinancing in 1993 due to low interest rates. As
expected, the persistency in both lines improved substantially in 1994,
resulting in reduced amortization expense. As noted earlier, the 1995
persistency levels were comparable to 1994 levels. In the latter half of 1995
and continuing into 1996, mortgage loan interest rates returned to levels
comparable to those of 1993; however, there has not been any indication of a
marked increase in the level of mortgage protection lapses.
INSURANCE OPERATIONS ACQUISITIONS AND EXPANSIONS
Beginning in 1992 and continuing through the first half of 1994, Liberty
established itself as a key player in the fast-growing pre-need market. The
purchase of Pierce National Life in July 1992 provided Liberty with a
substantial presence in the pre-need market and the opportunity to expand its
presence on an international level. Pierce National markets its products
through funeral directors and independent agents in the U.S. and Canada. In
April 1993, Liberty further expanded its presence in the pre-need market with
the acquisition of the assets of Estate Assurance Company, a pre-need insurance
subsidiary of Stewart Enterprises, Inc. Additional expansion of Liberty's
pre-need operations occurred in February 1994 with the acquisitions of North
American National Corporation, headquartered in Columbus, Ohio, and American
Funeral Assurance Company, headquartered in Amory, Mississippi. North American
was a holding company whose principal subsidiaries, Pan-Western Life Insurance
Company, Howard Life Insurance Company, and Brookings International Life
Insurance Company, were providers of pre-need life insurance. This acquisition
added strategic Midwest markets to Liberty's pre-need territory. American
Funeral was one of the largest providers of pre-need life insurance, with
extensive affiliations in the funeral industry.
During 1995, Liberty focused on consolidating its pre-need operations. By the
end of 1995 all of the pre-need operations had been relocated to Greenville and
the companies merged into Pierce National. To cap off the consolidation of the
pre-need acquisitions, Liberty introduced what it believes to be the
industry's most comprehensive pre-need product portfolio during November 1995.
The product portfolio is marketed under the brand name FamilySide. The actions
taken in 1995 to consolidate the operations will provide for improved product
profitability, focused marketing capability, and consistency and efficiency in
administrative support.
In addition to the pre-need acquisitions, Liberty grew its home service
division through acquisitions. In October 1992, Liberty expanded its home
service business with the acquisition of Magnolia Life Insurance Company
headquartered in Lake Charles, Louisiana. On April 1, 1994, Liberty acquired
State National Capital Corporation, headquartered in Baton Rouge, Louisiana..
These acquisitions gave Liberty a significant presence in the Louisiana home
service market. Both Magnolia Life and State National Life were integrated
into Liberty Life during 1994.
In the fourth quarter of 1995, Liberty announced that the operations of Liberty
Insurance Services will be combined in a joint venture with Continuum
Administrative Services Company, the third-party administrative arm of The
Continuum Company. The joint venture, operating under the name of ALLIANCE-ONE
Services, LP, will be the largest third party administrator of life insurance
business in the United States. Liberty believes there is substantial long-term
potential for the joint venture; however, it is not expected to add
substantially to Liberty's results in 1996.
34
<PAGE> 35
EXHIBIT 13
BROADCASTING RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross broadcasting revenues $119,529 $98,266 $87,984
Broadcasting expenses 83,849 69,523 64,705
- ---------------------------------------------------------------------------------------------------------------------
Income from operations before interest and taxes 35,680 28,743 23,279
Interest expense 8,553 7,042 7,099
- ---------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 27,127 21,701 16,180
Income taxes 10,537 8,782 6,464
- ---------------------------------------------------------------------------------------------------------------------
Income from operations $ 16,590 $12,919 $ 9,716
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross broadcasting revenues for 1995 were $119.5 million, an increase of $21.2
million (22%) over last year's $98.3 million. Excluding the $12.3 million in
revenues added from the February 1995 acquisition of WLOX-TV, gross revenues
were up 9%. Strong time sales (both national and local), coupled with
increased network compensation, overcame the decline in political revenues as
1995 was an off-year for major political races. The increased network
compensation came about as a result of the networks' competing for affiliations
with local stations. Cosmos, due to the strength of its stations in the local
market, was able to capitalize by re-negotiating network compensation contracts
and reported a $4.0 million increase in network compensation revenue in 1995.
Broadcasting expenses, excluding the impact of the WLOX-TV acquisition, rose
only 2% in 1995. As a result of the increased revenues and expense control,
Cosmos reported a $3.7 million increase in income from operations in 1995.
Substantially all of the increase in earnings was generated from the existing
station group as the WLOX-TV acquisition was not expected to, and did not,
contribute significantly to operating earnings in 1995.
Gross broadcasting revenues for 1994 were $98.3 million, an increase of $10.3
million (12%) from 1993 levels. Strong national revenues and the highest
political revenues ever drove the revenue increase in 1994. Income from
operations in 1994 was up $3.2 million (33%) over 1993, largely due to revenue
trends.
An additional measure of broadcasting performance is operating cash flow,
defined as operating earnings before depreciation and amortization, interest,
taxes and corporate expenses. Operating cash flow, and the related efficiency
ratio (operating cash flow divided by revenues net of agency commissions) are
measurements of broadcasting operating margins. For the year broadcasting cash
flow was $44.9 million compared to $33.0 million in 1994 and $27.8 million in
1993. The acquisition of WLOX-TV added $6.2 million to 1995 operating cash
flows. The efficiency ratio was at an all time high of 43% in 1995, compared
to 40% in 1994 and 38% in 1993.
The Company closed the acquisition of WLOX-TV on February 28, 1995. The
purchase price of $40.1 million was funded with a combination of 599,985 shares
of 1995-A Series convertible preferred stock with a stated value of $35 per
share; cash of $5.6 million; and a note payable for $13.5 million.
CORPORATE AND OTHER
Corporate and other includes general corporate activities such as the overall
management, legal and finance operations, debt service on debt not allocated to
segments, intercompany eliminations and the operations of Liberty Investment
Group. The increase in the loss in 1995 in this area was primarily due to
higher interest costs as both the outstanding debt and interest rates were at
higher levels than 1994.
35
<PAGE> 36
EXHIBIT 13
BALANCE SHEET
INVESTMENTS
As of December 31, 1995, Liberty's consolidated investment portfolio was
carried at $2.0 billion compared with $1.7 billion at the end of 1994. Of the
$290 million increase in the carrying value of the portfolio, approximately
$150 million was from the increase in the market value of the portfolio, with
the remainder of the increase coming from investment of cash generated from
operating and financing activities. Approximately 72% of consolidated invested
assets were in fixed maturity securities (bonds and redeemable preferred
stocks), 11% were in mortgage loans, 7% in real estate, with the balance
consisting of policy loans (5%), equity securities (4%) and other long-term
investments (1%).
The overall average credit rating of fixed maturity securities as of December
31, 1995 was AA. Less than investment grade securities comprised 3.3% of the
fixed maturity portfolio at December 31, 1995, compared with 5.3% at December
31, 1994.
Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" requires that all debt and
equity securities be classified into one of three categories -- held to
maturity, available for sale, or trading. As of December 31, 1995, all
securities have been classified as available for sale and are carried at fair
value. During 1995, the Company transferred the portion of fixed maturity
securities previously classified as held to maturity to the available for sale
classification. As a result of the transfer, shareholders' equity was
increased $14.6 million (net of deferred income taxes and adjustment to
deferred acquisition costs) to reflect the unrealized gain on securities
previously carried at cost. See Note 1 to the Consolidated Financial Statements
for additional discussion of the transfer.
SFAS 115 requires that available for sale securities be carried at fair value,
with unrealized gains and losses, net of adjustment for deferred income taxes
and deferred acquisition costs, be reported directly in shareholders' equity.
The fair value of Liberty's fixed maturity portfolio, and the related
adjustment to shareholders' equity, is significantly affected by changes in the
overall interest rate environment. For example, as interest rates fell
throughout 1995, shareholders' equity increased $111.1 million, reflecting the
change in the fair value of the portfolio. In contrast, primarily as a result
of the rising interest rate environment during 1994, the Company reported a net
unrealized loss of $69.6 million for the year ended December 31, 1994. While
the volatility experienced in 1995 and 1994 is not expected to be repeated on
an annual basis, it is likely that there will continue to be significant
fluctuations in shareholders' equity as a result of carrying fixed maturity
securities at market value.
Although Liberty's entire fixed maturity and equity securities portfolios have
been classified as available for sale, Liberty follows a value-oriented, as
opposed to a trading-oriented, investment philosophy concerning its securities
portfolios. Accordingly, turnover in the portfolios has historically been low,
although portfolio turnover in 1995 and particularly in 1994 was higher than
historical levels as 1) investment portfolios from the companies acquired in
1994 were restructured to meet Liberty guidelines as to quality, yield and
duration, and 2) Liberty took advantage of its tax position at the end of 1994
to sell securities with lower yields and reinvest in higher yielding securities
of equal or better credit quality. Gains trading, which Liberty believes is
short-sighted, is not consistent with its investment philosophy of longer term
value-oriented investing. Going into 1996, yields remain at historically low
levels and the yield curve is relatively flat. If this environment continues,
in order to generate incremental returns above market yields without
sacrificing credit quality, it may be necessary to more actively trade
securities.
Approximately 56% of Liberty's $1.5 billion fixed maturity portfolio at
December 31, 1995, was comprised of mortgage-backed securities. This compares
to approximately 54% at year-end 1994. Certain mortgage-backed securities are
subject to significant prepayment risk or extension risk due to changes in
interest rates. 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. In a rising interest rate environment refinancings are
significantly curtailed and the payments to the holders of the securities
decline, limiting the ability of the holder to reinvest at the higher interest
rates. Mortgage-backed pass-through securities and sequential collateralized
mortgage obligations ("CMO's"), which comprised 20% of the book value of
Liberty's mortgage-backed securities at December 31, 1995, and 17% at year-end
1994, are sensitive to prepayment or extension risk. The remaining 80% of
Liberty's mortgage-backed investment portfolio at December 31, 1995, consisted
of planned amortization class ("PAC") instruments. This compares to 83% at
December 31, 1994. These investments are designed to amortize in a more
predictable manner by shifting the primary prepayment and extension risk of the
underlying collateral to investors in other tranches of the CMO. PAC's are
tranches of CMO's specifically designed to protect against prepayment or
extension risk. In periods of declining interest rates, prepayments are first
applied to the non-PAC tranches of the CMO, creating improved call protection
for the PAC tranches. Only after all non-PAC tranches have been paid off are
prepayments applied to the PAC tranche. In periods of increasing interest
rates, prepayments are first applied to the PAC tranche, thus reducing
extension risk for PACs. As a result, PACs have a more stable cash flow than
most other mortgage securities because they have better call protection and
less extension risk.
Mortgage loans of $213.2 million comprised 11% of the consolidated investment
portfolio at December 31, 1995. This compares to mortgage loans of $203.4
million, or 12%, of the consolidated investment portfolio at December 31, 1994.
Substantially all of these mortgage loans are commercial mortgages with a
loan-to-value ratio not exceeding 75% when made. Approximately 50% of these
loans at December 31, 1995, are concentrated in North and South Carolina; and
91% are in the states of North Carolina, South Carolina, Virginia, Florida,
Georgia,
36
<PAGE> 37
EXHIBIT 13
Tennessee and Louisiana. Mortgage loan delinquencies, defined as payments 60
or more days past due, have historically been low and were 1.3% at the end of
1995 compared to the latest available industry rate of 2.4%.
As of December 31, 1995 and 1994, investment real estate totaled $135.3 million
and $135.5 million, representing 7% and 8%, respectively, of the consolidated
investment portfolio. Three property types make up the bulk of the portfolio.
Residential land development and industrial land development projects accounted
for 64% of the portfolio as of the end of 1995, with business property rentals
making up another 26%. In 1995, Liberty decided to sell its existing shopping
centers and not allocate future investments to this property type. At the end
of 1994 shopping center investments were 15% of the real estate portfolio;
however, substantially all of the shopping center properties were sold by the
end of 1995. Of Liberty's investment real estate, 96% is located in South
Carolina, Florida, Georgia, and North Carolina.
Liberty has experienced pre-tax impairments on investment assets of $9.5
million, $2.7 million, and $6.2 million for the years ended December 31, 1995,
1994, and 1993, respectively. The high level of impairments in 1995 was due
primarily to write-downs taken on an oil and gas investment. While the level
of impairments is not predictable, management does not expect impairments to
have a significant impact on Liberty's results of operations or liquidity.
Beginning in 1996 a new accounting standard will potentially change the amounts
of impairments recognized and the timing of the recognition. Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" prescribes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill that are used in the business, as well
as establishing accounting standards for long-lived assets and certain
identifiable intangibles to be disposed of. Under the provisions of the
statement certain of the Company's investment real estate assets will be
required to be valued at fair value, rather than net realizable value; however,
the adoption of the statement is not expected to have a material impact on the
net income or financial position of the Company.
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
In March 1995, Liberty refinanced its $325 million revolving credit facility
into a new $375 million multi-tranche credit facility. The new facility
consists of a $225 million three-year revolving credit facility; a $100 million
seven year term loan facility; and a $50 million facility substantially
identical to the revolving facility, which is convertible into terms
substantially identical to the term facility anytime prior to March 1997. The
credit facility contains various restrictive covenants typical of a credit
facility agreement of this size and nature. These restrictions primarily
pertain to levels of indebtedness, limitations on payment of dividends,
limitations on the quality and types of investments, and capital expenditures.
Additionally, Liberty must also comply with several financial covenant
restrictions under the revolving credit agreement including defined ratios of
consolidated debt to cash flow, consolidated debt to consolidated total
capital, and fixed charges coverage.
Liberty has entered into various interest rate swaps, caps and corridors in an
attempt to minimize the impact of a potential significant rise in short-term
interest rates on Liberty's outstanding variable-rate debt. See Note 5 to the
Consolidated Financial Statements for additional discussion of these contracts.
In 1994, Liberty issued 668,207 shares of Series 1994-A Voting Cumulative
Preferred Stock having a total redemption value of $23.4 million, or $35.00 per
share, in connection with the acquisition of State National Capital Corporation
and 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a
total redemption value of $22.4 million, or $37.50 per share, in connection
with the acquisition of American Funeral Assurance Company. The shares have
preference in liquidation and each share is entitled to one vote on any matters
submitted to a vote of the shareholders of the Company. Both the Company and
the holders of the preferred stock have the right to redeem any or all of the
shares from time to time beginning five years and one month after the date of
issue in exchange for cash or shares of the Company's common stock. There is
no sinking fund for the redemption of either series of preferred stock. Both
the 1994-A and 1994-B series of preferred stock are considered redeemable
preferred stock and are classified outside of permanent equity.
On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting
Cumulative Convertible Preferred Stock, having a total redemption value of
$21.0 million, or $35.00 per share, in connection with the acquisition of
WLOX-TV. The Company has the right to redeem any or all of the shares from
time to time at any time beginning five years and one month after the date of
issue in exchange for cash, common stock, or a combination of both. Generally,
the amount of consideration on the 1995-A Series will be equivalent to $35.00
per share plus the amount of any accumulated and unpaid dividends. There is no
sinking fund for the redemption of the preferred stock. These shares are
considered common stock equivalents for financial reporting purposes.
During December 1992 and January 1993, Liberty completed its public stock
offering of 2,725,100 shares of its common stock at a per share price of
$28.25, which generated $73 million in net proceeds that were used to pay down
outstanding bank debt. Of the total shares issued, 2,400,000 were issued
during December 1992. The remaining 325,100 shares were issued in January 1993
as a result of the underwriters exercising the over-allotment provision of the
stock offering
37
<PAGE> 38
EXHIBIT 13
The National Association of Insurance Commissioners (the "NAIC") has Risk-Based
Capital ("RBC") requirements for life/health insurance companies to evaluate
the adequacy of statutory capital and surplus in relation to investment and
insurance risks such as asset quality, mortality and morbidity, asset and
liability matching, and other business factors. The RBC formula will be used
by states as an early warning tool to identify companies that potentially are
inadequately capitalized for the purpose of initiating regulatory action. In
addition, the formula defines new minimum capital standards that will
supplement the current system of low fixed minimum capital and surplus
requirements on a state-by-state basis. The RBC ratios for the insurance
subsidiaries significantly exceed the minimum capital requirements at December
31, 1995.
CASH FLOWS
The parent company's short-term cash needs consist primarily of: (1) working
capital requirements, (2) interest on corporate debt, (3) dividends to
shareholders and (4) funds for real estate investments. The parent company's
primary long-term cash need is the repayment of corporate debt. The parent
company depends primarily on dividends, debt service payments and consolidated
tax return benefits paid to it by its subsidiaries to meet its short-term and
long-term cash needs. Historically, Liberty's primary businesses - insurance
and broadcasting - have provided sufficient liquidity to fund their operations
and the operations of the parent company. Liberty receives funds from its
insurance subsidiaries primarily in the form of dividends. Dividends from each
insurance subsidiary are restricted under applicable state law. Annual
dividends in excess of maximum amounts prescribed by state statutes
("extraordinary dividends") may not be paid without the approval of the
insurance commissioner of each state in which an insurance subsidiary is
domiciled. In 1994 the National Association of Insurance Commissioners
("NAIC") proposed, and certain states adopted, legislation that lowers the
threshold amount for determining what constitutes an extraordinary dividend.
Such legislative changes could make it more difficult for insurance
subsidiaries to pay dividends to their parent. See Note 8 to the Consolidated
Financial Statements.
On a consolidated basis, Liberty's net cash flow from operating activities was
$87.4 million for 1995 compared with $87.1 million for the preceding year.
Liberty's net cash used in investing activities was $133.6 million for 1995
compared to $176.3 million in 1994. The net cash used in investing activities
in 1995 was primarily to fund the purchase of investment securities. Cash used
in investing activities in 1994, in addition to funding investment security
purchases, was used to fund insurance acquisitions ($54.1 million) and a bulk
purchase of real estate assets ($43.0 million). Cash flow from financing
activities fluctuates primarily based on the level of borrowings or debt
repayment. In 1995 cash flow provided by financing activities was $38.5
million compared with cash provided of $111.2 million for 1994. Proceeds from
borrowings exceeded debt repayments by $11.4 million in 1995 compared with
$76.9 million in 1994. The excess of borrowings over repayments of debt in
1994 was used to fund insurance and real estate acquisitions. As a result of
its activities, Liberty had a net decrease in cash of $7.7 million in 1995
compared with a $21.9 million increase in cash in 1994.
Liberty believes that its current level of cash and future cash flows from
operations is sufficient to meet the needs of its business and to satisfy its
debt service. If suitable opportunities arise for additional acquisitions,
Liberty plans to draw on its revolving credit facility or use Common Stock or
Preferred Stock as payment of all or part of the consideration for such
acquisitions; or Liberty may seek additional funds in the equity or debt
markets. Under the restructured credit facility, there exists no restriction
on acquisition funding; however, consolidated debt is limited to a maximum of
$385 million. Outstanding debt at December 31, 1995 totaled $258 million.
Management believes liquidity risk of the insurance operations is minimized by
investment strategies that stress high quality assets and an integrated
asset/liability matching process. Investments are primarily in intermediate to
long-term maturities in order to match the long-term nature of insurance
liabilities. Liberty has a relatively small block of universal life products
that are interest-sensitive. Liberty actively manages the rates credited on
these policies to maintain an acceptable spread between the earned and credited
rate. In addition, Liberty has an integrated asset/liability matching process
to minimize the liquidity risk that is associated with interest-sensitive
products. Accordingly, most long-term investments are held to maturity and
interim market fluctuations present no significant liquidity problems.
Liberty's only use of derivative financial instruments is to minimize the
exposure on its variable rate debt.
Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies. Due to the recent increase in the number
of companies that are under regulatory supervision, there is expected to be an
increase in assessments by state guaranty funds. Under present law, most
assessments can be recovered through a credit against future premium taxes.
Liberty has reviewed its exposure to potential assessments, and the effect on
its financial position and results of operations is not expected to be
material.
Other Company commitments are shown in Note 7 to the Consolidated Financial
Statements. Further discussion of investments and valuation is contained in
Notes 1, 2 and 15 to the Consolidated Financial Statements.
38
<PAGE> 39
EXHIBIT 13
CONSOLIDATED BALANCE SHEETS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
At December 31 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities
Available for sale, at market, cost of $1,383,324 in 1995 and $947,522 in 1994 $1,467,039 $ 883,029
Held to maturity, at cost, market of $311,129 in 1994 --- 299,118
Equity securities, primarily at market, cost of $68,637 in 1995, $78,116 in 1994 82,508 78,208
Mortgage loans 213,223 203,381
Investment real estate, at cost less accumulated depreciation $11,671 in 1995,
$12,882 in 1994 135,306 135,545
Policy loans 98,369 96,160
Other long-term investments 27,535 31,624
Short-term investments --- 7,264
- ---------------------------------------------------------------------------------------------------------------------
Total Investments 2,023,980 1,734,329
- ---------------------------------------------------------------------------------------------------------------------
Cash 43,741 51,400
Accrued investment income 20,018 18,708
Receivables net of bad debt reserves, $1,975 in 1995, $1,493 in 1994 46,098 37,879
Receivable from reinsurers 275,090 258,969
Deferred acquisition costs 265,188 259,799
Cost of business acquired 86,925 98,056
Buildings and equipment, at cost, less accumulated depreciation $105,819 in
1995, $100,362 in 1994 79,789 66,360
Intangibles related to television operations, at cost, net of amortization
$20,192 in 1995, $16,278 in 1994 99,056 46,934
Goodwill related to insurance acquisitions, at cost, net of amortization $8,076
in 1995, $6,490 in 1994 37,239 40,308
Other assets 57,172 54,522
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $3,034,296 $2,667,264
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 40
EXHIBIT 13
<TABLE>
<CAPTION>
At December 31 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $1,811,417 $1,731,654
Claims and benefits payable 24,356 24,812
Policyholder funds 27,086 27,157
- ----------------------------------------------------------------------------------------------------------------------
1,862,859 1,783,623
Notes and mortgages payable 158,444 131,647
Long-term debt 100,000 100,000
Accrued income taxes 6,665 4,418
Deferred income taxes 182,083 112,707
Accounts payable and accrued expenses 67,094 66,608
Other liabilities 35,722 26,856
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,412,867 2,225,859
- ----------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock:
1994-A Series, $35.00 redemption value, 668,207 shares issued and outstanding 23,387 23,387
1994-B Series, $37.50 redemption value, 594,126 and 598,101 shares issued and
outstanding in 1995 and 1994, respectively 22,280 22,429
- ----------------------------------------------------------------------------------------------------------------------
Total Redeemable Preferred Stock 45,667 45,816
- ----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock
Authorized - 50,000,000 shares, no par value
Issued and outstanding - 20,060,629 shares in 1995, 19,841,470 shares in 1994 158,735 152,956
Convertible Preferred Stock 1995-A Series, 599,985 shares issued and outstanding 20,999 ---
Preferred Stock
Authorized - 10,000,000 shares
Issued and outstanding - 1,862,318 shares in 1995, 1,266,308 shares in 1994
Unearned stock compensation (6,050) (5,319)
Unrealized appreciation (depreciation) on fixed maturity securities available
for sale and equity securities 57,986 (53,109)
Cumulative foreign currency translation adjustment (999) (1,491)
Retained earnings 345,091 302,552
- ----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 575,762 395,589
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $3,034,296 $2,667,264
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
40
<PAGE> 41
EXHIBIT 13
CONSOLIDATED STATEMENTS OF INCOME
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In $000's, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Insurance premiums and policy charges $331,370 $315,789 $250,922
Broadcasting revenues 119,529 98,266 87,984
Net investment income 148,670 133,679 110,966
Service contract revenues 9,025 5,585 8,383
Realized investment gains (losses) (2,913) (12,073) 14,686
Other income --- --- 4
- -----------------------------------------------------------------------------------------------------------------
Total revenues 605,681 541,246 472,945
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Policyholder benefits 236,774 225,745 159,452
Insurance commissions 54,583 49,869 44,491
General insurance expenses 67,703 84,930 66,213
Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402
Broadcasting expenses 83,849 69,523 64,705
Interest expense 15,047 11,097 9,945
Other expenses 15,150 16,190 11,413
- -----------------------------------------------------------------------------------------------------------------
Total expenses 516,886 502,378 395,621
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting changes 88,795 38,868 77,324
Provision for income taxes 29,442 12,690 26,237
- -----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 59,353 26,178 51,087
Cumulative effect of accounting changes
SFAS 106 - Postretirement benefits --- --- (10,068)
SFAS 112 - Postemployment benefits --- --- (1,872)
- -----------------------------------------------------------------------------------------------------------------
Net income $ 59,353 $ 26,178 $ 39,147
- -----------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Income before cumulative effect of accounting changes $ 2.76 $ 1.22 $ 2.62
Cumulative effect of accounting changes
SFAS 106 - Postretirement benefits --- --- (.52)
SFAS 112 - Postemployment benefits --- --- (.09)
- -----------------------------------------------------------------------------------------------------------------
Net earnings per common share $ 2.76 $ 1.22 $ 2.01
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
41
<PAGE> 42
EXHIBIT 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
For the Years Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 59,353 $ 26,178 $ 39,147
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in policy liabilities 18,845 53,961 30,763
(Decrease) increase in accounts payable and accrued expenses (3,964) 1,142 4,948
Increase in receivables (3,311) (7,374) (11,569)
Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402
Policy acquisition costs deferred (54,522) (59,053) (58,017)
Realized investment (gains) losses 2,913 12,073 (14,686)
Gain on sale of operating assets (3,231) (3,214) (3,136)
Depreciation and amortization 19,034 16,019 13,522
Amortization of bond premium and discount (7,485) (4,904) (6,033)
Provision for deferred income taxes 6,225 (1,481) 2,089
All other operating activities, net 9,803 8,679 (1,730)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 87,440 87,050 34,700
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment securities sold:
Available for sale (equity securities in 1993) 155,670 225,100 40,698
Held to maturity (fixed maturities in 1993) --- --- 10,124
Investment securities matured or redeemed by issuer:
Available for sale 32,913 61,216 ---
Held to maturity 35,494 65,910 241,000
Cost of investment securities acquired:
Available for sale (329,918) (420,244) ---
Held to maturity --- --- (351,900)
Mortgage loans made (32,905) (31,957) (28,883)
Mortgage loan repayments 22,712 20,621 23,648
Purchase of investment properties, buildings and equipment (62,955) (87,115) (32,563)
Sale of investment properties, buildings and equipment 49,103 31,158 40,374
Purchases of short-term investments (43,607) (388,465) (381,400)
Sales of short-term investments 50,871 394,673 394,284
Net cash paid on purchases of insurance companies --- (54,087) (722)
Net cash paid on sale of insurance business --- --- (2,250)
Net cash paid on purchase of television station (5,140) --- ---
All other investment activities, net (5,828) 6,860 (1,439)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (133,590) (176,330) (49,029)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 1,901,901 2,544,735 2,192,635
Principal payments on debt (1,890,521) (2,467,819) (2,219,778)
Dividends paid (16,814) (14,358) (13,108)
Stock issued for employee benefit and compensation programs 2,909 3,487 5,771
Common stock offering --- --- 8,544
Return of policyholders' account balances (32,637) (30,025) (26,201)
Receipts credited to policyholders' account balances 73,653 75,173 63,773
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,491 111,193 11,636
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (7,659) 21,913 (2,693)
Cash at beginning of year 51,400 29,487 32,180
- ---------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 43,741 $ 51,400 $ 29,487
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 43
EXHIBIT 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE LIBERTY CORPORATION AND SUBSIDIARIES
(Amounts in 000's except per share data)
<TABLE>
<CAPTION>
UNREALIZED
COMMON CONVERTIBLE UNEARNED SECURITY
SHARES COMMON PREFERRED STOCK APPRECIATION
OUTSTANDING STOCK STOCK COMPENSATION (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 18,859 $126,961 $ --- $(3,222) $ 3,901
Net income
Net unrealized investment gains 1,276
Dividends - Common Stock - $0.56
per share
Foreign currency translation
adjustment
Stock issued for employee benefit
and performance incentive
compensation programs 314 8,434 (1,253)
Stock offering 325 8,544
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 19,498 143,939 --- (4,475) 5,177
Cumulative effect of change in
accounting principle 11,357
Net income
Net unrealized investment losses (69,643)
Dividends - Common Stock - $0.62
per share
Dividends - Redeemable Preferred
Stock - $1.672 per share
Foreign currency translation
adjustment
Stock issued for employee benefit
and performance incentive
compensation programs 229 5,816 (844)
Stock issued as part of the
purchase price of acquisitions 113 3,180
Stock issued for conversion of
redeemable preferred stock 1 21
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 19,841 152,956 --- (5,319) (53,109)
Net Income
Net unrealized investment gains 111,095
Dividends - Common Stock - $0.665
per share
Dividends - Redeemable Preferred
Stock - $2.10 per share
Dividends - Convertible Preferred
Stock - $1.4583 per share
Foreign currency translation
adjustment
Stock issued for employee benefit
and performance incentive
compensation programs 216 5,631 (731)
Stock issued as part of the
purchase price of acquisitions 20,999
Stock issued for conversion of
redeemable preferred stock 4 148
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 20,061 $158,735 $20,999 $(6,050) $ 57,986
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY RETAINED
TRANSLATION EARNINGS TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1993 $ (880) $262,428 $389,188
Net income 39,147 39,147
Net unrealized investment gains 1,276
Dividends - Common Stock - $0.56
per share (10,842) (10,842)
Foreign currency translation
adjustment (649) (649)
Stock issued for employee benefit
and performance incentive
compensation programs 7,181
Stock offering 8,544
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 (1,529) 290,733 433,845
Cumulative effect of change in
accounting principle 11,357
Net income 26,178 26,178
Net unrealized investment losses (69,643)
Dividends - Common Stock - $0.62
per share (12,242) (12,242)
Dividends - Redeemable Preferred
Stock - $1.672 per share (2,117) (2,117)
Foreign currency translation
adjustment 38 38
Stock issued for employee benefit
and performance incentive
compensation programs 4,972
Stock issued as part of the
purchase price of acquisitions 3,180
Stock issued for conversion of
redeemable preferred stock 21
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 (1,491) 302,552 395,589
Net Income 59,353 59,353
Net unrealized investment gains 111,095
Dividends - Common Stock - $0.665
per share (13,283) (13,283)
Dividends - Redeemable Preferred
Stock - $2.10 per share (2,658) (2,658)
Dividends - Convertible Preferred
Stock - $1.4583 per share (873) (873)
Foreign currency translation
adjustment 492 492
Stock issued for employee benefit
and performance incentive
compensation programs 4,900
Stock issued as part of the
purchase price of acquisitions 20,999
Stock issued for conversion of
redeemable preferred stock 148
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ (999) $345,091 $575,762
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 44
EXHIBIT 13
THE LIBERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements of The Liberty Corporation and Subsidiaries (the Company) include
the accounts of the Company after elimination of all significant intercompany
balances and transactions. The primary subsidiaries of the Company are Liberty
Life Insurance Company, Pierce National Life Insurance Company (doing business
as FamilySide) and Liberty Insurance Services Corporation (collectively
referred to as the insurance operations) and Cosmos Broadcasting Corporation.
ORGANIZATION - The Company's operations include the sale and service of life
insurance products in the United States and Canada and television broadcasting
operations in the United States. The insurance operations are licensed to do
business in 49 states and nine Canadian provinces. While the majority of the
Company's assets and revenues are generated from its insurance operations, the
Company also is a major television group broadcaster, owning and operating
eight network affiliated television stations throughout the southeastern and
midwestern states. Information on the Company's operations by segment is
included on page 40 of this report (see Note 16).
USE OF ESTIMATES AND ASSUMPTIONS - Financial statements prepared in accordance
with generally accepted accounting principles require management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates and assumptions.
INSURANCE PREMIUMS AND POLICY CHARGES - Revenues for traditional life insurance
and accident and health insurance are recognized over the premium paying period
as they become due. For limited payment whole life products, the excess of the
premiums received over the portion of the premiums required to establish
reserves is deferred and recognized in income over the anticipated life of the
policy. For universal life products, revenues consist of policy charges for
the cost of insurance, administration of the policies and surrender charges
during the period. Policy issue fees are deferred and recognized in income
over the life of the policies in relation to the incidence of expected gross
profits.
BENEFITS TO POLICYHOLDERS AND BENEFICIARIES - Benefits for traditional life
insurance and accident and health insurance products include claims paid during
the period, accrual for claims reported but not yet paid, and accrual for
claims incurred but not reported based on historical claims experience modified
for expected future trends. Benefits for universal life products are the
amount of claims paid in excess of the policy value accrued to the benefit of
the policyholder plus interest credited on account values.
INSURANCE RESERVES AND POLICY MAINTENANCE EXPENSES - Insurance reserves and
policy maintenance expenses for traditional life insurance and accident and
health insurance are associated with earned premiums so as to recognize profits
over the premium paying period. This association is accomplished by
recognizing the liabilities for insurance reserves on a net level premium
method based on assumptions deemed appropriate at the date of issue as to
future investment yield, mortality, morbidity, withdrawals and maintenance
expenses and including margins for adverse deviations. Interest assumptions
are based on Company experience. Mortality, morbidity, and withdrawal
assumptions are based on recognized actuarial tables or Company experience, as
appropriate. Accident and health reserves consist principally of unearned
premiums and claims reserves, including provisions for incurred but unreported
claims.
Insurance reserves for universal life products are determined following the
retrospective deposit method and consist of policy values that accrue to the
benefit of the policyholder, unreduced by surrender charges.
DEFERRED ACQUISITION COSTS - Acquisition costs incurred by the Company in the
process of acquiring new business are deferred and amortized to income as
discussed below. Costs deferred consist primarily of commissions and certain
policy underwriting, issue and agency expenses that vary with and are primarily
related to production of new business.
COST OF BUSINESS ACQUIRED is the value assigned the insurance inforce of
acquired insurance companies at the date of acquisition.
For traditional insurance products, the amortization of deferred acquisition
costs and the cost of business acquired is recognized in proportion to the
ratio of annual premium revenue to the total anticipated premium revenue, which
gives effect to actual terminations. Deferred acquisition costs and the cost of
business acquired are amortized over the premium paying period (not to exceed
30 years) of the related policies. Anticipated premium revenue is determined
using assumptions consistent with those utilized in the determination of
liabilities for insurance reserves.
44
<PAGE> 45
EXHIBIT 13
For universal life products, the deferred acquisition costs are amortized in
relation to the incidence of expected gross profits over the life of the
policies (not to exceed 30 years). Gross profits are equal to revenues, as
defined previously, plus investment income (including applicable realized
investments gains and losses) less expenses. Expenses include interest
credited to policy account balances, policy administration expenses, and
expected benefit payments in excess of policy account balances.
INVESTMENTS - Statement of Financial Accounting Standard ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" requires
that all debt and equity securities be classified into one of three categories
- -- held to maturity, available for sale, or trading. The Company has no
securities classified as trading. On November 15, 1995, the Financial
Accounting Standards Board issued a Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities". In accordance with the provisions in that Special Report, on
December 31, 1995, the Company chose to reclassify all securities previously
classified as held to maturity to available for sale. The market value and
amortized cost of the securities transferred were $307,100,000 and
$281,691,000, respectively, at December 31, 1995. As a result of the transfer,
shareholders' equity was increased $14,645,000 (net of deferred income taxes
and adjustment to deferred acquisition costs) to reflect the unrealized gain on
securities previously carried at cost. There were no sales of securities
previously included in the held to maturity category during 1995 or 1994.
Prior to December 31, 1995, the Company classified fixed maturity securities
(bonds and redeemable preferred stock) as either held to maturity or available
for sale. Management determined the appropriate classification of fixed
maturities at the time of purchase. Fixed maturities were classified as held
to maturity when the Company had the positive intent and ability to hold the
securities to maturity.
Investments are reported on the following basis:
- - Fixed maturities classified as available-for-sale are stated at fair value
with unrealized gains and losses, after adjustment for deferred income
taxes and deferred acquisition costs, reported directly in shareholders'
equity. Fixed maturities classified as held to maturity are stated at
amortized cost, including impairments for other than temporary declines in
value. Fair values for fixed maturity securities are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
- - Equity securities (common stocks and nonredeemable preferred stocks) are
all considered available for sale and are carried at fair value. The fair
values for equity securities are based on quoted market prices.
- - Mortgage loans on real estate are carried at amortized cost, less an
allowance for credit losses and provisions for impaired value, where
appropriate.
- - Investment real estate is carried at cost less accumulated depreciation
and provisions for impaired value where appropriate. Depreciation over
the estimated useful lives of the properties is determined principally
using the straight-line method.
- - Policy loans are carried at cost.
- - Other long-term investments are carried at cost which includes provisions
for impaired value where appropriate. Included in other long-term
investments are investments in venture capital funds and oil and gas
properties.
- - Short-term investments are carried at cost which approximates fair value.
UNREALIZED INVESTMENT GAINS AND LOSSES on investments carried at fair value,
net of deferred taxes and adjustment for deferred acquisition costs related to
universal life products, are recorded directly in shareholders' equity.
REALIZED INVESTMENT GAINS AND LOSSES are recognized using the specific
identification method to determine the cost of investments sold. Gains or
losses on the sale of real estate held for investment are included in realized
investment gains (losses). Gains and losses on the sale of real estate
acquired for development and resale are included in net investment income.
Realized gains and losses include write-downs for impaired values of investment
assets. The Company establishes impairments on individual, specific assets at
the time the Company judges the assets to have been impaired and this
impairment can be estimated (see Note 2).
BUILDINGS AND EQUIPMENT are recorded at cost. Depreciation over the estimated
useful lives of the properties is determined principally using the
straight-line method.
INTANGIBLE ASSETS arose in the acquisition of certain television stations.
Amounts not being amortized ($4,071,000) represent the excess of the total cost
over the underlying value of the tangible and amortizable intangible assets
acquired prior to 1970. Amounts being amortized are expensed principally over
forty years.
GOODWILL arose in the acquisition of insurance companies and is being amortized
over lives ranging from twenty to forty years.
FOREIGN CURRENCY TRANSLATION has been accounted for in accordance with SFAS No.
52, "Foreign Currency Translation." The assets and liabilities of the Canadian
operations of FamilySide are translated into U.S. dollars at the rate of
exchange in effect at the respective balance sheet date. Net exchange gains
and losses resulting from translation are included as a separate component of
shareholders' equity. Revenues and expenses are translated at average exchange
rates for the year. Gains and losses from foreign currency transactions are
included in net income.
45
<PAGE> 46
EXHIBIT 13
INTEREST RATE CAPS AND SWAPS are used to limit the impact of changing interest
rates on the Company's debt, which is substantially all floating rate (see Note
5). An interest rate swap is used to fix the interest rate on $100,000,000 of
debt. The net interest effect of the swap transaction is reported as an
adjustment to interest expense as incurred. Interest rate caps are used to
protect a portion of the remaining debt against significant increases in
interest rates. Premiums paid for the interest rate caps are being amortized
to interest expense over the terms of the caps.
INCOME TAXES are computed using the liability method required by Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes". Under
SFAS 109, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and law that will be in effect
when the differences are expected to reverse.
EARNINGS PER COMMON SHARE is based on net income after redeemable preferred
stock dividend requirements and the weighted average number of shares
outstanding during the year, including the average number of dilutive shares
under stock options.
NON-PENSION POSTEMPLOYMENT BENEFITS - The Company provides certain health and
life insurance benefits to eligible retirees and their dependents. Effective
January 1, 1993, the Company adopted Statement of Financial Accounting Standard
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" whereby the cost of providing the benefits is accrued during the
employees' working years. The Company elected to immediately recognize this
obligation, resulting in a $15,254,000 charge ($10,068,000 after-tax) to 1993
operations. The Company also provides certain other postemployment benefits to
qualified former and inactive employees. To account for these benefits the
Company adopted Statement of Financial Accounting Standard No. 112, "Employers'
Accounting for Postemployment Benefits," effective January 1, 1993. SFAS 112
requires the accrual of benefits provided to former or inactive employees after
employment but before retirement, be accrued when it is probable a benefit will
be provided. The adoption of this standard resulted in a $2,837,000 charge
($1,872,000 after-tax) which was expensed during 1993. With the exception of
the one-time transition obligations, the adoption of these accounting standards
did not have a material impact on the Company's annual earnings.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 114, "Accounting by Creditors
for Impairments of a Loan" and Statement of Financial Accounting Standard No.
118, "Accounting by Creditors for Impairments of a Loan--Income Recognition and
Disclosures" were adopted by the Company effective January 1, 1995. Under the
standards, the Company provides for estimated credit losses related to the
mortgage loans where it is probable that all amounts due according to the
contractual terms of the mortgage agreement will not be collected. This
provision for credit losses is based on discounting the expected cash flows
from the loan using the loan's initial effective interest rate, or the fair
value of the collateral for certain collateral dependent loans. The initial
adoption of the standards resulted in recording an allowance for credit losses
of $507,000 ($330,000 after-tax), which has been included in realized
investment gains (losses) in the consolidated statement of income.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
was issued by the Financial Accounting Standards Board in March 1995. This
statement prescribes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill that are used in the
business, as well as establishing accounting standards for long-lived assets
and certain identifiable intangibles to be disposed of. The Company expects to
adopt this standard as of January 1, 1996. Under the provisions of the
statement certain of the Company's investment real estate assets will be
required to be valued at fair value, rather than net realizable value as
previously required; however, the adoption of the statement is not expected to
have a material impact on the net income or financial position of the Company.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 123, "Accounting for Stock-Based
Compensation" was issued by the Financial Accounting Standards Board in October
1995. This statement requires companies to measure the fair value of employee
stock options at the date granted and expense the estimated fair value of
grants or, alternatively, disclose the pro forma impact on net income and
earnings per share of the grants in the notes to the financial statement. The
Company will adopt this statement as of January 1, 1996 and make the pro forma
disclosures required by SFAS 123 in its 1996 financial statements.
RECLASSIFICATIONS have been made in the 1994 and 1993 Consolidated Financial
Statements to conform to the 1995 presentation.
46
<PAGE> 47
Exhibit 13
2. INVESTMENTS
Amortized cost and estimated fair values of investments in available for sale
and held to maturity securities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
1995 (In 000's) Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Fixed maturity securities
US government obligations $ 25,733 $ 993 $ 41 $ 26,685
States and political subdivisions 294 39 --- 333
Foreign obligations 93,819 3,746 2,534 95,031
Corporate securities 485,735 41,645 2,774 524,606
Mortgage-backed securities 777,743 43,530 889 820,384
- --------------------------------------------------------------------------------------------
Total 1,383,324 89,953 6,238 1,467,039
Equity securities 68,637 19,161 5,290 82,508
- --------------------------------------------------------------------------------------------
Total $1,451,961 $109,114 $11,528 $1,549,547
- --------------------------------------------------------------------------------------------
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
1994 (In 000's) Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Fixed maturity securities
US government obligations $ 33,723 $ 3 $ 2,341 $ 31,385
States and political subdivisions 45,514 3 3,081 42,436
Foreign obligations 23,543 1 2,916 20,628
Corporate securities 381,823 2,222 28,666 355,379
Mortgage-backed securities 462,919 267 29,985 433,201
- -----------------------------------------------------------------------------------------------
Total 947,522 2,496 66,989 883,029
Equity securities 78,116 7,503 7,411 78,208
- -----------------------------------------------------------------------------------------------
Total $1,025,638 $ 9,999 $74,400 $961,237
- -----------------------------------------------------------------------------------------------
HELD TO MATURITY:
US government obligations $ 5,574 $ 38 $ 319 $ 5,293
Foreign obligations 454 104 -- 558
Corporate securities 86,723 10,352 1,019 96,056
Mortgage-backed securities 206,367 4,787 1,932 209,222
- -----------------------------------------------------------------------------------------------
Total $ 299,118 $15,281 $ 3,270 $311,129
- -----------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, the Company reclassified all securities previously
classified as held to maturity to available for sale (See Note 1).
47
<PAGE> 48
EXHIBIT 13
Realized gains (losses) and the change in unrealized gains (losses) on the
Company's fixed maturities and equity securities are summarized as follows:
<TABLE>
<CAPTION>
Total Gains
Fixed Equity (Losses) on
(In 000's) Maturities Securities Investments
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Realized investment gains (losses) $ (2,347) $ 8,071 $ 5,724
Change in unrealized investment gains (losses) 136,197 13,779 149,976
- ---------------------------------------------------------------------------------------------------------
Combined $ 133,850 $21,850 $ 155,700
- ---------------------------------------------------------------------------------------------------------
1994
Realized investment gains (losses) $ (11,957) $ 2,699 $ (9,258)
Change in unrealized investment gains (losses) (118,937) (7,494) (126,431)
- ---------------------------------------------------------------------------------------------------------
Combined $(130,894) $(4,795) $(135,689)
- ---------------------------------------------------------------------------------------------------------
1993
Realized investment gains $ 10,705 $ 6,546 $ 17,251
Change in unrealized investment gains (losses) 1,084 1,965 3,049
- ---------------------------------------------------------------------------------------------------------
Combined $ 11,789 $ 8,511 $ 20,300
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The schedule below details consolidated investment income and related
investment expenses for the years ended December 31.
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on
Bonds $107,825 $ 89,518 $ 74,438
Mortgage loans 18,247 18,137 15,452
Policy loans 4,872 4,946 4,162
Short-term investments 752 869 1,376
Dividends on
Preferred stocks 6,624 8,370 7,469
Common stocks 1,180 1,361 376
Investment property rentals 9,238 6,255 4,265
Net gain on investment real estate held for development 6,947 5,268 4,501
Other investment income 3,269 7,556 5,987
- -----------------------------------------------------------------------------------------------
Total investment income 158,954 142,280 118,026
Investment expenses 10,284 8,601 7,060
- -----------------------------------------------------------------------------------------------
Net investment income $148,670 $133,679 $110,966
- -----------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturities and the related gross realized gains
and losses for the three years ended December 31 are shown below. The amounts
shown below do not include those related to unscheduled redemptions or
prepayments, nor do they reflect any impairments taken during the years
presented. No held to maturity securities were sold during 1995 or 1994.
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $111,260 $187,597 $10,124
Gross realized gains 1,750 986 383
Gross realized losses (3,910) (13,437) (294)
</TABLE>
48
<PAGE> 49
EXHIBIT 13
The following investment assets were non-income producing for the twelve months
ended December 31, 1995:
<TABLE>
<CAPTION>
(In 000's) Balance Sheet
Amount
- -----------------------------------------------------------------------------------------------------
<S> <C>
Investment real estate $11,827
Other long-term investments 24,834
Mortgage loans 50
Fixed maturities 71
- -----------------------------------------------------------------------------------------------------
Total $36,782
- -----------------------------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1995, the Company incurred realized losses of
$9,462,000 due to impairment of assets included in the year-end investment
portfolio. Cumulative provisions for impairments on the total investment
portfolio by asset category at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
(In 000's) CUMULATIVE
PROVISION FOR
IMPAIRMENTS
- ------------------------------------------------------------------
<S> <C>
Mortgage loans $ 2,893
Investment real estate 4,401
Other long-term investments 7,462
Fixed maturities 1,380
- ------------------------------------------------------------------
Total $16,136
- ------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(In 000's) Amortized Cost Fair Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 21,005 $ 21,103
Due after one year through five years 166,973 178,644
Due after five years through ten years 247,643 267,709
Due after ten years 169,960 179,199
- ------------------------------------------------------------------------------------------
605,581 646,655
Mortgage-backed securities primarily maturing in
five to twenty-five years 777,743 820,384
- ------------------------------------------------------------------------------------------
Total $1,383,324 $1,467,039
- ------------------------------------------------------------------------------------------
</TABLE>
3. REINSURANCE AGREEMENTS
The Company uses reinsurance as a risk management tool in the normal course of
business and in isolated, strategic assumption transactions to effectively buy
or sell blocks of in force business. The reinsurance contracts do not relieve
the Company from its contract with its policyholders, and it remains liable
should any reinsurer be unable to meet its obligations. At December 31, 1995,
$4.6 billion (21%) of the Insurance Group's total $21.4 billion gross insurance
in force was ceded to other companies. In the accompanying financial
statements, insurance premiums and policy charges, policyholder benefits and
deferred acquisition costs are reported net of reinsurance ceded with policy
liabilities being reported gross of reinsurance ceded.
Amounts paid or deemed to be paid for reinsurance contracts are recorded as
reinsurance receivables. The cost of reinsurance related to long-term duration
contracts is accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the underlying
policies.
In 1991 Liberty Life entered into an agreement with Life Reassurance
Corporation (Life Re) to coinsure the Company's General Agency Division's
universal life policies in force. The initial agreement provided for 80%
coinsurance on policies in force at December 31, 1991, and 50% coinsurance on
policies issued subsequent to such date. Effective July 1, 1995, the amount
coinsured on policies written after December 31, 1991, was increased to 80%.
Under the terms of the agreement, assets supporting the business ceded are
required to be held in escrow. At December 31, 1995, Liberty Life's interest
in the assets held in escrow consisted of investments with an amortized cost of
$56.3 million and a fair value of $59.7 million. Comparable book and fair
value at December 31, 1994 was $62.7 million and $59.3
49
<PAGE> 50
EXHIBIT 13
million, respectively. These investments had an average rating of AA+. The
total face value of insurance ceded to Life Re at December 31, 1995, was $2.9
billion and the Company has recorded a receivable related to this transaction
from Life Re of $257.7 million as of December 31, 1995. Currently, Life Re has
an A.M. Best rating of A+. During 1995 and 1994, Liberty Life had ceded
premiums and policy charges of $19.3 and $18.0 million, respectively, under the
agreement.
Effective September 30, 1991, Liberty Life entered into an agreement to
coinsure 50% of its Home Service line of business. Under generally accepted
accounting principles this agreement has been treated as financial reinsurance,
and no reserve reduction had been taken for the business ceded. The
reinsurance contract contains an escrow agreement that requires assets equal to
the reserves reinsured, as determined under statutory accounting principles, be
held in escrow for the benefit of this block of business. At December 31,
1995, the amortized cost of the invested assets held in escrow was
approximately $228.9 million.
The insurance subsidiaries also reinsures with other insurance companies
portions of the life insurance they write in order to limit exposure on large
or substandard risks. Due to this broad allocation of reinsurance with several
insurance companies, there exists no significant concentration of credit risk.
The maximum amount of life insurance that Liberty Life will retain on any life
is $300,000, plus an additional $50,000 in the event of accidental death. This
maximum is reduced for higher ages and for special classes of risks. The
maximum amount of life insurance that the other insurance subsidiaries will
retain on any life is $50,000. Insurance in excess of the retention limits is
either automatically ceded under reinsurance agreements or is reinsured on an
individually agreed basis with other insurance companies.
The effect of reinsurance on premiums and policy charges and benefits was as
follows for the years ending December 31:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums and policy charges $364,797 $344,119 $278,454
Reinsurance assumed 1,314 1,728 2,089
Reinsurance ceded (34,741) (30,058) (29,621)
- -----------------------------------------------------------------------------------------------------
Net premiums and policy charges $331,370 $315,789 $250,922
- -----------------------------------------------------------------------------------------------------
Gross benefits $249,861 $242,869 $174,588
Reinsurance recoveries (13,087) (17,124) (15,136)
- -----------------------------------------------------------------------------------------------------
Net benefits $236,774 $225,745 $159,452
- -----------------------------------------------------------------------------------------------------
</TABLE>
4. DEFERRED ACQUISITION COSTS, COST OF BUSINESS ACQUIRED
AND FUTURE POLICY BENEFITS
A summary of the changes in deferred acquisition costs is as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $259,799 $231,873 $211,945
Deferred during the year 54,522 59,053 58,017
Amortized during the year (32,594) (33,313) (31,917)
Adjustment related to unrealized investment (gains) losses (10,327) 2,379 ---
Insurance in force ceded (6,331) --- (6,082)
Foreign currency translation 119 (193) (90)
- -------------------------------------------------------------------------------------------------------
Ending balance $265,188 $259,799 $231,873
- -------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 51
EXHIBIT 13
A summary of the changes in costs of business acquired through acquisitions is
as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $98,056 $56,762 $63,930
Additions from acquisitions --- 53,139 317
Interest accrued 6,621 6,620 4,426
Foreign currency adjustment 55 (134) ---
Amortized during the year (17,807) (18,331) (11,911)
- ------------------------------------------------------------------------------------
Ending balance $86,925 $98,056 $56,762
- ------------------------------------------------------------------------------------
</TABLE>
The Company accounts for these costs in a manner consistent with deferred
acquisition costs. The Company's interest rate used to amortize these costs is
7.75% for a majority of the asset. Periodically, the Company performs tests to
determine that the cost of business acquired remains recoverable from future
premiums on the acquired business. The Company incurred no write-offs due to
impairments as a result of these tests during the three years ended December
31, 1995. Under current assumptions amortization of these costs, prior to
consideration of accrued interest implicit in the calculation of the
amortization, for the next five years is expected to be as follows:
<TABLE>
<CAPTION>
(In 000's) Amortization
- -------------------------------------------------------------------------------------------
<S> <C>
1996 $15,779
1997 13,693
1998 12,126
1999 10,819
2000 9,624
</TABLE>
The liabilities for traditional life insurance and accident and health
insurance policy benefits and expenses are computed using a net level premium
method, including assumptions based on the Company's experience, modified as
necessary to reflect anticipated trends and to include provisions for possible
unfavorable deviations. Reserve interest assumptions are graded and range from
3.5% to 9.5%. Such liabilities are, for some plans, graded to equal statutory
values or cash values at or prior to maturity. The weighted average assumed
investment yield for all traditional life and accident and health policy
reserves was 6.6%, 6.8%, and 6.8% in 1995, 1994, and 1993, respectively.
Benefit reserves for traditional life insurance policies include certain
deferred profits on limited-payment policies that are being recognized in
income over the policy term. Policy benefit claims are charged to expense in
the period that the claims are incurred.
Benefit reserves for universal life insurance and investment products are
computed under a retrospective deposit method and represent policy account
balances before applicable surrender charges. Policy benefits and claims that
are charged to expense include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates for universal
life and investment products range from 5.5% to 6.8% in 1995, 5.5% to 7.0% in
1994, and 5.8% to 8.0% in 1993.
Participating business accounts for approximately 1% of the Company's life
insurance in force and premium income. The dividend to be paid is determined
annually by the Board of Directors.
5. DEBT
The debt obligations at December 31 are as follows:
<TABLE>
<CAPTION>
(In 000's) INTEREST RATE 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings under revolving credit
agreement and lines of credit 6.1% $136,500 $120,500
Long-term debt 6.7% 100,000 100,000
Other notes due to banks 4.8% 158 554
Mortgage loans on investment property 7.5% to 8.5% 5,469 4,882
Other Various 16,317 5,711
- ---------------------------------------------------------------------------------------------------------------------
Total $258,444 $231,647
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The mortgage loans are secured by property with a net carrying value of $19.6
million at December 31, 1995.
51
<PAGE> 52
EXHIBIT 13
Maturities of the debt obligations at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Maturities Amount
- ---------------------------------------------------------------------------------------
<S> <C>
1996 $ 26,306
1997 17,057
1998 147,095
1999 20,724
2000 20,946
Thereafter 26,316
- ---------------------------------------------------------------------------------------
Total $258,444
- ---------------------------------------------------------------------------------------
</TABLE>
On March 21, 1995, the Company refinanced its then-existing $325,000,000
revolving credit facility into a new $375,000,000, multi-tranche credit
facility. The current facility consists of a $225,000,000 three-year revolving
credit facility; a $100,000,000 seven-year term loan facility; and a
$50,000,000 facility substantially identical to the revolving facility, which
is convertible into terms substantially identical to the term facility within
two years of the closing date of this loan. The revolving portion of the
facility will mature in March 1998, while the term portion shall be repaid in
twenty quarterly installments of $5,000,000 commencing June 1997, and ending in
March 2002.
The Company's borrowings against the revolving credit facility were
$126,000,000 and against the term facility were $100,000,000 at December 31,
1995. During 1995, the maximum amount outstanding on the revolving facility
amounted to approximately $162,000,000, with an average balance outstanding of
approximately $129,250,000 and an average weighted interest rate of 6.26%. In
addition to the revolving facility, the Company also uses several lines of
credit totaling $35,500,000 as of December 31, 1995, to manage day-to-day cash
flow. The amount borrowed against the lines of credit at December 31, 1995 was
$10,500,000. The average balance outstanding on the lines of credit was
approximately $16,400,000 during 1995, with a maximum borrowing of $50,500,000
and an average weighted interest rate of 6.46%.
The Company has the option to solicit money market interest quotes from the
bank group for borrowings under the revolving credit facility. The revolving
credit agreement also provides for borrowing at interest rates based on a
formula that incorporates the use of the London Interbank Offered Rate
("LIBOR") plus an interest rate margin. The interest rate for the term loan is
based upon LIBOR, plus an interest rate margin. A facility fee is charged on
the facility based on $275,000,000 of the total commitment. The facility fee
and the interest rate margin for the revolving credit facility and the term
loan are all based upon the ratio of consolidated debt to cash flow, as defined
in the credit agreement.
The credit agreement contains various restrictive covenants typical of a credit
facility of this size and nature. These restrictions primarily pertain to
levels of indebtedness, limitations on payment of dividends, limitations on the
quality and types of investments, and capital expenditures. Additionally, the
Company must also comply with several financial covenant restrictions under the
revolving credit agreement, including defined ratios of consolidated debt to
cash flow, consolidated debt to consolidated total capital, and fixed charges
coverage. As of December 31, 1995, the Company was in compliance with all
covenants under its debt agreement.
The Company has entered into interest rate swap and cap agreements as a means
of managing its interest rate exposure on its floating rate debt. The interest
rate swap effectively fixes the interest rate on the $100,000,000 seven-year
term loan facility at 5.965% plus the interest rate margin and will expire in
March, 2002. The agreement is a contract to exchange fixed and floating
interest rate payments periodically over the life of the agreement without the
exchange of the underlying notional amounts. The Company will pay the
counterparty interest at 5.965%, and the counterparty will pay the Company
interest at a variable rate based on the 3-month LIBOR rate. The notional
principal amount under the agreement will amortize proportionately to the
paydown of the $100,000,000 term loan as described above. The interest
differential to be paid or received on interest rate swaps is accrued and
included in interest expense for financial reporting purposes. The agreement
is with a major financial institution and the Company's credit exposure is
limited to the value of the interest-rate swap that has, or may become
favorable to the Company.
The Company has entered into interest rate caps and corridors in an attempt to
minimize the impact of a potential significant rise in short-term interest
rates on the Company's outstanding floating rate debt. As of December 31,
1995, the Company had the following interest rate protection instruments: (1) a
$50,000,000 notional amount, interest rate corridor from 8%-10%, which is based
on the 3-month LIBOR rate and caps the Company's rate at 8% if the index rate
exceeds 8% but is less than 10%, and at LIBOR minus 2% if the rate exceeds 10%,
and expiring in December 1996; and (2) a $50,000,000 notional amount cap with a
strike rate of 9%, which will be permanently eliminated if rates exceed 11%,
based on the 3-month LIBOR rate and expiring in December 1997. The
combination of the above instruments protects a portion ($100,000,000 for one
year, and $50,000,000 for two years) of the Company's variable rate debt from a
potential significant rise in short-term interest rates. The Company was
required to pay up-front fees related to these instruments at inception of each
contract, which are being amortized straight-line over the term of each
contract.
Interest paid, net of amounts capitalized, amounted to approximately
$14,021,000, $12,957,000, and $12,580,000 in 1995, 1994, and 1993,
respectively. Interest capitalized amounted to $2,303,000, $2,030,000, and
$1,161,000, in 1995, 1994, and 1993, respectively.
52
<PAGE> 53
EXHIBIT 13
6. 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 $22,449,000, 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 $23,387,000, or $35.00 per share, in connection with the
acquisition of State National Capital Corporation. The shares have preference
in liquidation, and each share is entitled to one vote on any matters submitted
to a vote of the shareholders of the Company. In accordance with the
financial reporting requirements of the Securities and Exchange Commission, the
preferred stock has been classified outside of permanent equity as Redeemable
Preferred Stock.
Both the Company and the holders of the preferred stock have the right to
redeem any or all of the shares from time to time beginning five years and one
month after the date of issue in exchange for cash or shares of the Company's
common stock. The Company will determine the form of all redemptions, which
will consist of cash, common stock, or a combination of both. Generally, the
amount of consideration on the 1994-A Series will be equivalent to $35.00 per
share plus the amount of any accumulated and unpaid dividends; and for the
1994-B Series will be equivalent to $37.50 per share plus the amount of any
accumulated and unpaid dividends. In addition, each share of the 1994-A Series
and 1994-B Series is convertible, at the option of the shareholder, at any time
into one share of the Company's common stock (plus a corresponding attached
right to acquire a share of the Company's Series A Participating Cumulative
Preferred Stock). There is no sinking fund for the redemption of either series
of preferred stock.
Dividends shall be paid on the 1994-A Series at the rate of 6% per annum and on
the 1994-B Series at the rate of 5.6% per annum. Dividends accrue daily, are
cumulative, and are payable quarterly. Both the 1994-A Series and the 1994-B
Series are on a parity in rank with all other series of preferred stock of the
Company whether or not such series exist now or are created in the future, with
respect to payment of all dividends and distributions, unless a series of
preferred stock expressly provides that it is junior or senior to the 1994-A
and 1994-B Series. No dividends or distributions on the Company's common stock
shall be declared or paid until all accumulated and unpaid dividends on the
1994-A Series and 1994-B Series have been declared and set aside for payment.
7. COMMITMENTS AND CONTINGENCIES
In January 1996, a lawsuit was filed against the Company alleging breach of
contract in connection with an agreement to develop a state-of-art software
system to administer the Company's insurance operations. The suit was filed by
the software developer. Management of the Company, after consultation with
legal counsel, believes that the lawsuit filed against the Company is without
merit and intends to contest the suit vigorously. The Company believes the
suit filed against it was in response to a suit filed by the Company in
connection with failure of the software developer to deliver the system. The
suit against the software developer seeks to recover amounts paid to the
software developer, and other costs incurred by the Company, in the attempt to
develop the system (see Note 12 to the Consolidated Financial Statements
concerning the 1994 charge taken to write-off deferred system costs). The
Company believes it will be successful in its lawsuit against the software
developer; however, no estimated recovery is included in the accompanying
financial statements.
In December 1995, a lawsuit was filed against the Company alleging breach of
contract. The lawsuit relates to a transaction in which the Company was
unsuccessful in acquiring certain entities partially owned by the plaintiff.
Management, after consultation with legal counsel, believes the lawsuit is
without merit and intends to contest the suit vigorously.
The Company and its subsidiaries are also defendants in various lawsuits
arising primarily from claims made under insurance policies. Where applicable,
these lawsuits are considered in establishing the Company's policy liabilities.
It is the opinion of management and legal counsel that the settlement of these
actions will not have a material effect on the financial position or results of
operations of the Company.
The Company has lease agreements, primarily for branch offices, data processing
and telephone equipment, which expire on various dates through 2004, none of
which are material capital leases. Most of these agreements have optional
renewal provisions covering additional periods of one to ten years. All leases
were made in the ordinary course of business and contain no significant
restrictions or obligations. Future commitments under operating leases are not
material. Annual rental expense amounted to approximately $5,825,000,
$5,497,000, and $6,225,000 in 1995, 1994, and 1993, respectively.
Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies. Due to the recent increase in the number
of companies that are under regulatory supervision, there is expected to be an
increase in assessments by state guaranty funds. Under present law, most
assessments can be recovered through a credit against future premium taxes.
The Company has reviewed its exposure to potential assessments, and the effect
on its financial position and results of operations is not expected to be
material.
At December 31, 1995, the Company had commitments for additional investments
and other items totaling $44,341,000.
53
<PAGE> 54
EXHIBIT 13
8. SHAREHOLDERS' EQUITY
On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting
Cumulative Convertible Preferred Stock having a total redemption value of
$20,999,475 or $35.00 per share in connection with the acquisition of WLOX-TV.
The shares have preference in liquidation, and each share is entitled to one
vote on any matters submitted to a vote of the shareholders of the Company.
Each share of preferred stock is convertible at the option of the holder into
one share of common stock. The Company has the right to redeem any or all of
the shares from time to time at any time beginning five years and one month
after the date of issue in exchange for cash, common stock, or a combination of
both. Generally, the amount of consideration on the 1995-A Series will be
equivalent to $35.00 per share plus the amount of any accumulated and unpaid
dividends. There is no sinking fund for the redemption of the preferred stock.
Dividends shall be paid on the preferred stock at the rate of 5% per annum.
Dividends accrue daily, are cumulative, and are payable quarterly. The 1995-A
Series preferred stock is on a parity in rank with all other series of
preferred stock of the Company whether or not such series exist now or are
created in the future, with respect to payment of all dividends and
distributions, unless a series of preferred stock expressly provides that it is
junior or senior to the 1995-A Series. No dividends or distributions on the
Company's common stock shall be declared or paid until all accumulated and
unpaid dividends on the 1995-A Series have been declared and set aside for
payment.
The Company has adopted a Shareholder Rights Plan and declared a dividend of
one preferred stock purchase right for each outstanding share of common stock.
Upon becoming exercisable, each right entitles the holder to purchase for a
price of $150.00 one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock. All of the rights may be redeemed by the Company at
a price of $.01 per right until ten business days (or such later date as the
Board of Directors determines) after the public announcement that a person or
group has acquired beneficial ownership of 20 percent or more of the
outstanding common shares ("Acquiring Person"). Upon existence of an Acquiring
Person, the Company may redeem the rights only with the concurrence of a
majority of the directors not affiliated with the Acquiring Person. The
rights, which do not have voting power and are not entitled to dividends,
expire on August 7, 2000. The rights are not exercisable until ten business
days after the public announcement that a person either (i) has become an
Acquiring Person, or (ii) has commenced, or announced an intention, to make a
tender offer or exchange offer if, upon consummation, such person or group
would become an Acquiring Person. If, after the rights become exercisable, the
Company becomes involved in a merger or certain other major corporate
transactions, each right will entitle its holder, other than the Acquiring
Person, to receive common shares with a deemed market value of twice such
exercise price.
There are 10,000,000 shares of preferred stock, no par value per share
authorized for issuance. At December 31, 1995, there were 1,862,318 shares of
preferred stock outstanding (See Note 6 for discussion of Redeemable Preferred
Stock), and 140,000 shares of preferred stock were reserved for issuance in
connection with the Shareholder Rights Plan.
Shareholders' equity as determined under generally accepted accounting
principles of the Company's insurance operations was $672,694,000 and
$525,478,000 at December 31, 1995 and 1994, respectively. The comparable
amounts as determined under statutory accounting practices were $166,469,000
and $161,023,000 at December 31, 1995 and 1994, respectively. The amount that
retained earnings exceed statutory unassigned surplus ($448,826,000) is
restricted and, therefore, not available for dividends. Without regulatory
approval, dividends are generally limited to prior year statutory gain from
operations.
The components of the balance sheet caption unrealized appreciation
(depreciation) on fixed maturity securities available for sale and equity
securities in shareholders' equity as of December 31 are as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value of securities $1,549,547 $ 961,237
Amortized cost of securities 1,451,961 1,025,638
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 97,586 (64,401)
Adjustment to deferred acquisition costs (7,948) 2,379
Deferred income taxes (net of a valuation allowance of $11,021 in 1994) (31,652) 8,913
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 57,986 $ (53,109)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
9. STOCK OWNERSHIP AND STOCK OPTION PLANS
The Company has a Performance Incentive Compensation Program (the "Program")
which provides that the Compensation Committee of the Board of Directors may
grant: (a) incentive stock options within the meaning of Section 422 of the
Internal Revenue Code; (b) non-qualified stock options; (c) performance units;
(d) awards of restricted shares of the Company's common stock; or (e) all or
any combination of the foregoing to officers and key employees. Only common
stock, not to exceed 2,800,000 shares, may be delivered under the Program; and
shares so delivered will be made available from the authorized but unissued
shares or from shares reacquired by the
54
<PAGE> 55
EXHIBIT 13
Company, including shares purchased in the open market. The aggregate number
of shares that may be acquired by any participant in the Program shall not
exceed 20% of the shares subject to the Program. As of December 31, 1995,
fifty-nine officers and employees were participants in the Program.
Restricted shares awarded to participants under the Program vest in equal
annual installments, generally over the five-year period commencing on the date
the shares are awarded. Non-vested shares may not be assigned, transferred,
pledged or otherwise encumbered or disposed of. During the applicable
restriction period, the Company retains possession of the certificates for the
restricted shares with executed stock powers attached. Participants are
entitled to dividends and voting rights with respect to the restricted shares.
Stock options under the Program are issued at 100% of the market price on the
date of grant, are vested over such period of time, which may not be less than
one year, as may be established by the Compensation Committee, and expire ten
years after the grant. Of the incentive stock options outstanding, 51,165 were
exercisable at December 31, 1995; 81,465 were exercisable at December 31, 1994;
and 116,240 were exercisable at December 31, 1993. Of the non-qualified
options outstanding, 290,480 were exercisable at December 31, 1995; 268,500
were exercisable at December 31, 1994; and 191,800 were exercisable at December
31, 1993. The options expire on various dates beginning February 12, 1996, and
ending August 15, 2005.
The following schedule summarizes activity in the Program during the three
years ending December 31, 1995.
<TABLE>
<CAPTION>
Restricted Shares Incentive Stock Options Non-Qualified Stock Options
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Market Price Number of Average Number of Average
Shares at Date Given Options Exercise Price Options Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding 1/1/93 271,850 191,700 $16.75 404,000 $22.26
Awarded 90,220 $29.23 --- 75,500 29.38
Vested (98,638) 31.43
Exercised (75,460) 14.80 (30,200) 20.20
Forfeited (4,749) 27.97 --- (3,200) 24.31
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/93 258,683 116,240 $18.02 446,100 $23.59
Awarded 108,835 25.78 --- 104,500 25.76
Vested (85,643) 26.90
Exercised --- (34,775) 17.35 (4,000) 25.63
Forfeited (19,241) 24.82 --- (6,000) 25.63
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/94 262,634 81,465 $18.31 540,600 $23.97
Awarded 108,915 26.35 --- 56,500 26.80
Vested (80,679) 24.98
Exercised (30,300) 17.98 (37,900) 21.20
Forfeited (15,826) 26.84 --- (46,000) 23.37
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/95 275,044 51,165 $18.50 513,200 $24.54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, there were 414,380 shares of the Company's stock reserved
for future grants under the Program.
10. EMPLOYEE BENEFITS
The Company has several postretirement plans that provide medical and life
insurance benefits for qualified retired employees. The postretirement medical
plans are generally contributory with retiree contributions adjusted annually
to limit employer contributions to predetermined amounts. The postretirement
life plans provide free insurance coverage up to a maximum of $5,000 for
retirees prior to January 1, 1993, of the Company with the exception of Cosmos,
whose retirees are insured with an outside company.
55
<PAGE> 56
EXHIBIT 13
Net periodic postretirement benefit cost was $1,506,000, $1,516,000, and
$1,477,000 for the years ended December 31, 1995, 1994, and 1993, respectively,
and included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------
(In $000's) Medical Life Medical Life Medical Life
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 140 $--- $ 139 $--- $ 129 $---
Interest cost 1,082 284 1,067 282 1,071 277
Amortization of
unrecognized
net loss --- --- 22 6 --- ---
- -----------------------------------------------------------------------------------------------
Net periodic
postretirement
benefit cost $1,222 $284 $1,228 $288 $1,200 $277
- -----------------------------------------------------------------------------------------------
</TABLE>
The following schedule reconciles the status of the Company's plans with the
unfunded postretirement benefit obligation included in its balance sheets at
December 31:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------
(In $000's) Medical Life Medical Life
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirees $12,632 $3,996 $12,457 $3,678
Fully eligible active plan participants 834 --- 771 ---
Other active plan participants 1,119 --- 920 ---
- ----------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 14,585 3,996 14,148 3,678
Unrecognized net gain (loss) 183 (265) (158) (80)
- ----------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $14,768 $3,731 $13,990 $3,598
- ----------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the weighted-average annual assumed rate of increase in
the per capita cost of covered medical benefits is 9.5% for 1996, and is
assumed to decrease by 0.5% per year to 8% in 1999, then decrease 1% per year
to 5.5% in 2002 and thereafter. At December 31, 1994, the health care cost
trend rate assumption was 10% and the rate graded down by 0.5% per year to 8%
in 1999, then decreased 1% per year to 6% in 2001 and thereafter. A 1%
increase in the per capita cost of health care benefits results in a $679,000
increase in the accrued postretirement benefit obligation and a $55,000
increase in postretirement benefit expense. The assumed weighted average
discount rate used in determining the accrued postretirement medical and life
benefit obligation was 7.5% and 8% at December 31, 1995 and 1994, respectively.
The Company has profit sharing plans for substantially all of its employees.
Contributions to these plans are made at the discretion of the Board of
Directors and are paid into a trust that is administered by a separate trustee.
Contributions for these plans were $5,067,000, $4,840,000, and $4,234,000, in
1995, 1994 and 1993, respectively.
The Company has a voluntary thrift and investment plan, qualified under Section
401(k) of the Internal Revenue Code, for substantially all of its employees.
The Company makes a matching contribution to the plan of up to 3% of the
employee's compensation. The Company's matching contribution percentage may be
changed at the discretion of each participating subsidiary's Board of
Directors. The Company's contributions for this plan were $2,102,000,
$2,148,000, and $2,020,000 in 1995, 1994, and 1993, respectively.
11. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $21,761 $12,625 $23,017
State 1,456 1,546 1,131
- --------------------------------------------------------------------------
Total current 23,217 14,171 24,148
Deferred:
Federal 6,226 (1,361) 2,217
State (1) (120) (128)
- --------------------------------------------------------------------------
Total deferred 6,225 (1,481) 2,089
- --------------------------------------------------------------------------
Total tax provision $29,442 $12,690 $26,237
- --------------------------------------------------------------------------
</TABLE>
56
<PAGE> 57
EXHIBIT 13
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31, 1995 and 1994,
are as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance operations deferred tax liabilities:
Deferred acquisition costs $ 98,190 $100,601
Policy liabilities 22,205 21,922
Market discount on investments 10,477 8,044
Tax over book partnership losses 2,909 4,651
Unrealized investment gains recognized in equity 31,652 ---
Non-insurance companies deferred tax liabilities:
Book over tax basis in acquired television station 21,836 ---
Tax over book depreciation 6,697 6,446
Tax over book amortization 4,594 4,485
- -----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $198,560 $146,149
- -----------------------------------------------------------------------------------------------------------
Insurance operations deferred tax assets:
Taxable income from financial reinsurance not included in income per books $ 1,680 $ 3,359
Employee benefit accruals 6,881 6,752
Unrealized investment losses recognized in equity --- 19,934
Other 4,093 7,930
Non-insurance companies deferred tax assets:
Net operating loss carryover 1,918 3,889
Other 1,905 3,441
- -----------------------------------------------------------------------------------------------------------
Total deferred tax assets before valuation allowance 16,477 45,305
Valuation allowance --- (11,863)
- -----------------------------------------------------------------------------------------------------------
Deferred tax asset net of valuation allowance 16,477 33,442
- -----------------------------------------------------------------------------------------------------------
Net deferred tax liability $182,083 $112,707
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the Company had unrealized gains from securities
classified as available for sale and equity securities of $97,586,000, for
which a deferred tax liability has been established. At December 31, 1994, the
Company had unrealized losses from securities classified as available for sale
and equity securities of $64,401,000. For financial reporting purposes, a
valuation allowance of $11,021,000 was established to offset a portion of the
deferred tax asset related to these unrealized losses. The Company also
established a valuation allowance of $842,000 in connection with certain
capital loss carryforwards in 1994. No valuation allowances were recognized at
December 31, 1995, because the December 31, 1994 unrealized losses and capital
loss carryforwards were offset against 1995 unrealized and realized gains.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Rate applied to pre-tax income before the cumulative
effect of accounting changes $31,078 $13,604 $27,063
Release of tax reserves (300) (500) (3,350)
Rate change expense on beginning deferred tax liability --- --- 3,216
Tax exempt interest and dividends (1,384) (1,765) (1,466)
State and local income taxes 948 928 652
Other (900) 423 122
- --------------------------------------------------------------------------------------------------
Provision for income taxes $29,442 $12,690 $26,237
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company has net operating loss carryforwards of $5,481,000 and $11,110,000
at December 31, 1995 and 1994, which will expire between the years 2006 and
2008. The utilization of these carryforwards are subject to special rules
which provide that these loss carryforwards can only be utilized through
earnings from the non-life insurance companies.
Income taxes paid were approximately $21,199,000, $21,911,000, and $18,437,000
in 1995, 1994, and 1993, respectively.
Under prior tax law, a portion of the life insurance subsidiaries' earnings was
not taxed when earned. Such accumulated income ("policyholders' surplus")
amounts to approximately $65,293,000 at December 31, 1983 and, under the Tax
Reform Act of 1984, was frozen at that amount. That amount is not taxable
unless it is distributed to the Company or unless it exceeds certain
limitations under the Internal Revenue Code. The Company does not intend to
take actions nor does it expect any events to occur that would cause tax to be
57
<PAGE> 1
EXHIBIT 11
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED EARNINGS PER SHARE COMPUTATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(In $000's, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
PRIMARY SHARES
Weighted average common shares outstanding 19,951 19,721 19,327
Weighted average common stock options outstanding 119 87 169
Preferred stock considered a common stock equivalent 502 --- ---
Total primary shares 20,572 19,808 19,496
FULLY DILUTED SHARES
Weighted average common shares outstanding 19,951 19,721 19,327
Weighted average common stock options outstanding 136 89 174
Preferred stock considered a common stock equivalent 502 --- ---
Assumed conversion of redeemable preferred stock not
considered a common stock equivalent 1,265 1,010 ---
-------------------------------------
Total fully diluted shares 21,854 20,820 19,501
=====================================
NET INCOME
Earnings $ 59,353 $26,178 $39,147
=====================================
PREFERRED STOCK DIVIDENDS
Dividends paid on redeemable preferred stock $ 2,658 $ 2,117 $ ---
=====================================
Primary earnings per share (Net income minus
preferred dividends divided by total primary shares) $ 2.76 $ 1.22 $ 2.01
=====================================
Fully diluted earnings per share (Net income divided
by total fully diluted shares) $ 2.72 $ 1.26 $ 2.01
=====================================
</TABLE>
28
<PAGE> 1
EXHIBIT 13
STOCK DATA
The Liberty Corporation's Common Stock is listed on the New York Stock
Exchange. Its symbol is LC. As of December 31, 1995, 1,395 shareholders of
record in 44 states, the District of Columbia, Canada, Australia and New
Zealand held the 20,060,629 Common Stock shares outstanding. Quarterly high and
low stock prices and dividends per share as reported by the Wall Street Journal
were:
<TABLE>
<CAPTION>
Quarterly
Market Price Per Share Dividend Per
High Low Share
--------------------------------------------
<S> <C> <C> <C>
1995
- -------------------------
Fourth Quarter 34 31 1/4 .170
Third Quarter 33 3/4 27 5/8 .170
Second Quarter 28 1/4 25 3/4 .170
First Quarter 27 1/2 24 3/4 .155
1994
- -------------------------
Fourth Quarter 27 1/4 24 1/4 .155
Third Quarter 28 3/4 25 3/4 .155
Second Quarter 29 7/8 23 7/8 .155
First Quarter 28 24 1/8 .155
1993
- -------------------------
Fourth Quarter 31 24 .140
Third Quarter 34 5/8 30 .140
Second Quarter 33 5/8 29 .140
First Quarter 31 7/8 28 3/8 .140
</TABLE>
The Company expects to continue its policy of paying regular cash dividends,
although there is no assurance as to future dividends because they are
dependent on future earnings, capital requirements and financial condition.
Also, the payment of dividends is subject to the restrictions described in
Notes 5 and 8 of the Consolidated Financial Statements.
CO-REGISTRAR AND CO-TRANSFER AGENTS
- --------------------------------------------------------------------------------
Wachovia Bank of North Carolina, N.A. The Bank of New York
P. O. Box 3001 101 Barclay Street
Winston-Salem, NC 27102 New York, NY 10286
For a Copy of the 10-K or other information, contact:
The Liberty Corporation Shareholder Relations
Box 789
Greenville, SC 29602
Telephone (864) 609-8256
Stock Exchange Listing:
New York Stock Exchange
Symbol: LC
Annual Meeting
The Liberty Corporation will hold its annual meeting on Tuesday, May 7, 1996,
at 10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South
Carolina. All Shareholders are invited to attend.
29
<PAGE> 2
EXHIBIT 13
SELECTED FINANCIAL DATA The Liberty Corporation and Subsidiaries
December 31, 1995
<TABLE>
<CAPTION>
(In 000's, except per share data) 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Insurance $ 486,980 $ 439,451 $ 384,132 $ 305,934 $ 271,806 $ 246,661
Broadcasting 119,529 98,266 87,984 89,989 88,174 89,709
Parent & Minor Subsidiaries 19,090 19,600 16,089 20,301 19,254 12,936
Adjustments & Eliminations (19,918) (16,071) (15,260) (13,468) (14,752) (13,707)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues * $ 605,681 $ 541,246 $ 472,945 $ 402,756 $ 364,482 $ 335,599
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes &
Cumulative Effect of Accounting Changes
Insurance $ 83,483 $ 31,590 $ 71,518 $ 53,962 $ 43,255 $ 42,442
Broadcasting 27,127 21,701 16,180 16,859 16,417 22,158
Parent & Minor Subsidiaries (19,994) (14,423) (12,846) (13,690) (20,439) (25,911)
Adjustments & Eliminations (1,821) --- 2,472 4,768 4,217 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Income Before Income
Taxes & Cumulative Effect of Accounting
Changes $ 88,795 $ 38,868 $ 77,324 $ 61,899 $ 43,450 $ 38,689
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
Insurance $ 56,582 $ 21,803 $ 33,459 $ 35,369 $ 30,077 $ 28,094
Broadcasting 16,590 12,919 12,217 10,262 9,967 13,600
Parent & Minor Subsidiaries (12,635) (8,544) (8,141) (8,153) (12,514) (16,136)
Adjustments & Eliminations (1,184) --- 1,612 3,407 3,036 ---
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 59,353 $ 26,178 $ 39,147 $ 40,885 $ 30,566 $ 25,558
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 2.76 $ 1.22 $ 2.01 $ 2.51 $ 1.93 $ 1.55
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Investment
Gains (Losses) $ 111,095 $ (58,286) $ 1,276 $ (78) $ 7,316 $ (4,613)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Per Common Share $ 0.665 $ 0.62 $ 0.56 $ 0.515 $ 0.47 $ 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization
Insurance $ 4,515 $ 5,125 $ 3,286 $ 3,424 $ 3,381 $ 3,371
Broadcasting 9,244 6,276 6,566 6,848 10,654 11,044
Parent & Minor Subsidiaries 5,275 4,618 3,670 4,628 4,631 4,814
- ------------------------------------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization $ 19,034 $ 16,019 $ 13,522 $ 14,900 $ 18,666 $ 19,229
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures
Insurance $ 4,413 $ 2,270 $ 5,814 $ 3,618 $ 2,264 $ 3,534
Broadcasting 5,863 3,900 2,168 2,513 2,961 6,476
Parent & Minor Subsidiaries 3,012 3,446 7,483 698 1,088 895
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 13,288 $ 9,616 $ 15,465 $ 6,829 $ 6,313 $ 10,905
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Insurance $2,769,619 $2,494,264 $2,057,126 $1,937,908 $1,528,901 $1,357,406
Broadcasting 168,672 98,705 101,982 110,849 119,714 141,467
Parent & Minor Subsidiaries 873,933 666,319 581,406 565,135 504,199 484,401
Adjustments & Eliminations (777,928) (592,024) (553,481) (539,014) (438,610) (438,899)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $3,034,296 $2,667,264 $2,187,033 $2,074,878 $1,714,204 $1,544,375
- ------------------------------------------------------------------------------------------------------------------------------------
Notes, Mortgages and Other Debts $258,444 $ 231,647 $ 149,489 $ 176,632 $ 226,925 $ 246,531
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock $45,667 $ 45,816 --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Shareholders' Equity $575,762 $ 395,589 $ 433,845 $ 389,188 $ 277,108 $ 243,465
- ------------------------------------------------------------------------------------------------------------------------------------
* See Note 14 to the Consolidated Financial Statements related to 1995 and 1994 acquisitions.
</TABLE>
30
<PAGE> 3
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS The Liberty Corporation and Subsidiaries
December 31, 1995
SUMMARY OF CONSOLIDATED RESULTS OF OPERATIONS
Consolidated income before income taxes and the cumulative effect of accounting
changes for 1995 was $88.8 million, up $49.9 million from the $38.9 million
reported for 1994. The amounts reported for 1994 included non-recurring
charges of $31.2 million.
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes and the cumulative effect of accounting changes $88,795 $38,868 $77,324
Income taxes 29,442 12,690 26,237
- ---------------------------------------------------------------------------------------------------------
Income before the cumulative effect of accounting changes 59,353 26,178 51,087
Cumulative effect of accounting changes --- --- (11,940)
- ---------------------------------------------------------------------------------------------------------
Net income $59,353 $26,178 $39,147
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Adjusting for realized investment losses of $2.9 million in 1995, income before
income taxes and the cumulative effect of accounting changes was $91.7 million,
compared with $82.2 million for 1994, after adjusting the 1994 results for the
non-recurring charges and realized investment losses. The increase for 1995
was the result of improvements in both the insurance (up $11.3 million) and
broadcasting operations (up $5.4 million) offset by higher interest costs at
the Corporate level.
Consolidated income before income taxes and the cumulative effect of accounting
changes for 1994 was $38.9 million ($70.1 million prior to the non-recurring
charges) and compares with $77.3 million earned in 1993. Excluding realized
investment gains and losses from both periods and the non-recurring charges
from 1994, earnings before income taxes were $82.2 million and $62.6 million
for 1994 and 1993, respectively. The increase in 1994 was primarily the result
of contributions from insurance acquisitions closed in 1994 ($10.3 million) and
improvement in broadcasting results ($5.5 million).
The non-recurring charges in 1994 related to 1) the write-off of previously
deferred costs associated with the development of a software system for
administration of Liberty's insurance business and 2) a decision to cease
marketing products through the general agency distribution system. The
deferred systems charges were in connection with an agreement with a software
developer to develop a state-of-the-art software system to handle the
administration of Liberty's insurance operations. The non-cash charge of $20.9
million (pre-tax) had no impact on Liberty's cash flow. In 1994 Liberty
decided to cease sales of its products through its general agency distribution
system due to the absence of critical volume. This decision resulted in a
pre-tax charge to earnings of $10.3 million, primarily to reduce deferred
acquisition costs no longer considered recoverable. Premiums and policy
charges from the general agency division represented approximately 2% of
Liberty's total premiums and policy charges at the time the decision was made
to cease sales though this marketing channel.
The cumulative effect of accounting changes reported in 1993 represented a
one-time, non-cash charge of $11.9 million relating to the implementation of
Statement of Financial Accounting Standard ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
Consolidated 1995 revenues of $605.7 million were up $64.5 million (12%) over
last year's $541.2 million. The 1995 revenue growth consisted primarily of a
$47.5 million increase in revenues from the insurance operations and a $21.3
million increase in broadcasting revenues. The increase in revenues from
insurance operations was a combination of the 1994 insurance acquisitions
contributing a full year of revenues and a $14.0 million increase from realized
investment gains.
Consolidated 1994 revenues of $541.2 million were up $68.3 million (14%) over
the $472.9 million reported in 1993. This revenue growth consisted primarily of
a $55.3 million increase in revenues from insurance operations and a $10.3
million increase in broadcasting revenues. The increase in revenue from
insurance operations was a combination of the 1994 insurance acquisitions
contributing revenues of $84.3 million offset by a decline of $29.0 million
from existing insurance operations. The decline from existing insurance
operations was due to a $26.2 million decline in realized investment gains
coupled with the 1993 sale of Liberty's medicare supplement business that
generated $12.5 million in revenues in 1993.
31
<PAGE> 4
EXHIBIT 13
BUSINESS SEGMENTS
Liberty reports the results of its business operations in two segments:
Insurance and Broadcasting. The insurance segment consists of Liberty's
insurance operations, which specializes in providing home service, pre-need and
mortgage protection life and health insurance. The broadcasting segment
consists of Cosmos Broadcasting, which owns and operates eight
network-affiliated television stations. Activities of Corporate and other
include financing and real estate operations. In order to make more meaningful
comparisons, the segment data excludes the effect of realized investment gains
and losses, non-recurring special charges, and accounting changes. A
reconciliation of the segment operations to net income is as follows:
<TABLE>
<CAPTION>
(in 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment Operating Earnings:
Insurance $54,789 $46,396 $41,107
Broadcasting 16,590 12,919 9,716
Corporate and other (10,546) (6,446) (5,456)
- ---------------------------------------------------------------------------------
Total operating earnings 60,833 52,869 45,367
Net realized investment gains (losses) (1,480) (6,440) 9,281
Non-recurring special charges --- (20,251) (3,561)
Cumulative effect of accounting changes --- --- (11,940)
- ---------------------------------------------------------------------------------
Net income $59,353 $26,178 $39,147
- ---------------------------------------------------------------------------------
Earnings per Common Share:
Operating earnings $ 2.83 $ 2.56 $ 2.33
Net realized investment gains (losses) (0.07) (0.32) 0.47
Non-recurring special charges --- (1.02) (0.18)
Cumulative effect of accounting changes --- --- (0.61)
- ---------------------------------------------------------------------------------
Earnings per common share $ 2.76 $ 1.22 $ 2.01
- ---------------------------------------------------------------------------------
</TABLE>
INSURANCE RESULTS OF OPERATIONS
Operating earnings from insurance operations were $54.8 million in 1995, an
increase of $8.4 million (18%) from the $46.4 million reported in 1994.
Liberty Life's operating earnings were $5.3 million higher in 1995 as net
investment income, policy benefits and general insurance expenses all improved.
Net investment income for Liberty Life was positively impacted by stronger
real estate development income in 1995. After a very high first quarter of
1995, Liberty Life's policy benefits improved each quarter and ended the year
60.8% of premium, down over 2% as a percent of premium from the prior year.
The decision to stop accepting new business in the general agency division
reduced expenses, resulting in a break-even performance in this division,
compared to a pre-tax loss of $2.1 million in 1994. The FamilySide pre-need
group also reported an increase in operating earnings of $2.3 million (20%)
over 1994. FamilySide benefited from having two significant 1994 acquisitions
included for a full year in 1995 compared to 10 months in 1994. And, for the
first time ever, Liberty Insurance Services reported a profit on its
unaffiliated client base.
The increase in 1995 operating earnings followed a 13% increase in 1994 over
1993. Substantially all of the increase in 1994 was due to acquisitions (see
Insurance Acquisitions section below). Operating earnings of Liberty Life were
flat during the period from 1993 to 1994 as lower investment yields and higher
mortality offset the benefit of lower general insurance expenses.
32
<PAGE> 5
EXHIBIT 13
<TABLE>
<CAPTION>
(in 000's) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues (exclusive of realized investment gains and losses)
Insurance premiums and policy charges $331,370 $315,789 $250,922
Net investment income 144,483 129,925 110,507
Service contract revenues 9,025 5,585 8,383
- ------------------------------------------------------------------------------------------------------------
Total revenues 484,878 $451,299 369,812
Policy benefits 236,774 225,745 159,452
Commissions 54,583 49,869 44,491
General insurance expenses 68,246 62,639 63,670
Amortization of deferred acquisition costs and cost of business acquired 43,697 41,443 39,402
Other 114 1,429 2,211
- ------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 81,464 70,174 60,586
Income taxes 26,675 23,778 19,479
- ------------------------------------------------------------------------------------------------------------
Income from operations $ 54,789 $ 46,396 $ 41,107
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues from insurance operations in 1995 were $484.9 million, increasing 7%
over last year's $451.3 million. Insurance premiums and policy charges were
$331.4 million, an increase of 5% from 1994, and net investment income
increased 11% to $144.5 million. FamilySide contributed the majority of the
increase in revenues on the strength of both higher premiums and policy charges
and higher investment income. Liberty Life reported a 4% increase in insurance
premiums and policy charges in 1995 and also reported higher investment income
for the year.
For 1994 revenues from insurance operations were $451.3 million, an increase of
22% over the $369.8 million reported in 1993. Premiums and policy charges were
$315.8 million in 1994, an increase of $64.9 million (26%). The increase in
premiums from 1993 was substantially due to the acquisitions closed in 1994.
Investment income increased 22% to $129.9 million in 1994. The acquisitions
fueled this increase as well. Without the acquisitions, investment income would
have been level with the prior year.
Policy benefits as a percent of premium were 71% in 1995, compared with 72% in
1994 and 64% in 1993. The increase in the benefit-to-premium ratio from 1993
to 1994 was principally attributable to the product characteristics of the
pre-need products. The pre-need products are primarily limited-pay or
single-premium products that have a higher benefit ratio than products
historically sold by Liberty. As pre-need became a larger percentage of total
company premiums in 1994, the overall benefit-to-premium ratio increased. In
1995 Liberty Life experienced higher than expected mortality in the first
quarter. Mortality studies were performed and changes were implemented as a
result of the studies. The consolidated benefit-to-premium ratio improved in
the second half of 1995 as the ratio declined from 74% reported for the first
half of 1995 to the annual rate of 71%. Management believes that some of the
improvement in the second half of 1995 was attributable to actions taken as a
result of the mortality studies; however, claims are inherently variable and
will fluctuate, particularly when measured over a short period of time.
The commissions-to-premium ratio was 16% in 1995 and 1994. The comparable
ratio in 1993 was 18%. The drop in the ratio from 1993 to 1994 occurred as the
pre-need products increased as a percent of total premium. The limited-pay
characteristics of the pre-need products results in a lower commission
structure than traditional life insurance.
33
<PAGE> 6
EXHIBIT 13
General insurance expenses increased $5.6 million (9%) over 1994 levels with
$3.6 million of the increase coming from expanding operations at Liberty
Insurance Services. Excluding Liberty Insurance Services, the
expense-to-premium ratio was 16% for 1995 and 1994, down from 21% in 1993. The
1994 decrease in the expense-to-premium ratio was after adding general expenses
of $9.4 million from the 1994 acquisitions and was the result of continued
emphasis on expense control.
Amortization of deferred acquisition costs and cost of business acquired
increased 5% over last year. The amortization-to-premium ratio remained
constant at 13% of premiums for 1995 and 1994. The primary variable in the
amortization expense from year to year is policy persistency, or lapses. For
1995 lapses were at a comparable level to 1994; however, the 1994 level was
down significantly from 1993. The amortization expense in 1993 reflected high
lapses in both home service and mortgage protection lines. Management believes
that the high lapse experience in 1993 in the home service line was related to
Liberty's consolidation of branch offices and, for mortgage protection, the
high level of home mortgage refinancing in 1993 due to low interest rates. As
expected, the persistency in both lines improved substantially in 1994,
resulting in reduced amortization expense. As noted earlier, the 1995
persistency levels were comparable to 1994 levels. In the latter half of 1995
and continuing into 1996, mortgage loan interest rates returned to levels
comparable to those of 1993; however, there has not been any indication of a
marked increase in the level of mortgage protection lapses.
INSURANCE OPERATIONS ACQUISITIONS AND EXPANSIONS
Beginning in 1992 and continuing through the first half of 1994, Liberty
established itself as a key player in the fast-growing pre-need market. The
purchase of Pierce National Life in July 1992 provided Liberty with a
substantial presence in the pre-need market and the opportunity to expand its
presence on an international level. Pierce National markets its products
through funeral directors and independent agents in the U.S. and Canada. In
April 1993, Liberty further expanded its presence in the pre-need market with
the acquisition of the assets of Estate Assurance Company, a pre-need insurance
subsidiary of Stewart Enterprises, Inc. Additional expansion of Liberty's
pre-need operations occurred in February 1994 with the acquisitions of North
American National Corporation, headquartered in Columbus, Ohio, and American
Funeral Assurance Company, headquartered in Amory, Mississippi. North American
was a holding company whose principal subsidiaries, Pan-Western Life Insurance
Company, Howard Life Insurance Company, and Brookings International Life
Insurance Company, were providers of pre-need life insurance. This acquisition
added strategic Midwest markets to Liberty's pre-need territory. American
Funeral was one of the largest providers of pre-need life insurance, with
extensive affiliations in the funeral industry.
During 1995, Liberty focused on consolidating its pre-need operations. By the
end of 1995 all of the pre-need operations had been relocated to Greenville and
the companies merged into Pierce National. To cap off the consolidation of the
pre-need acquisitions, Liberty introduced what it believes to be the
industry's most comprehensive pre-need product portfolio during November 1995.
The product portfolio is marketed under the brand name FamilySide. The actions
taken in 1995 to consolidate the operations will provide for improved product
profitability, focused marketing capability, and consistency and efficiency in
administrative support.
In addition to the pre-need acquisitions, Liberty grew its home service
division through acquisitions. In October 1992, Liberty expanded its home
service business with the acquisition of Magnolia Life Insurance Company
headquartered in Lake Charles, Louisiana. On April 1, 1994, Liberty acquired
State National Capital Corporation, headquartered in Baton Rouge, Louisiana..
These acquisitions gave Liberty a significant presence in the Louisiana home
service market. Both Magnolia Life and State National Life were integrated
into Liberty Life during 1994.
In the fourth quarter of 1995, Liberty announced that the operations of Liberty
Insurance Services will be combined in a joint venture with Continuum
Administrative Services Company, the third-party administrative arm of The
Continuum Company. The joint venture, operating under the name of ALLIANCE-ONE
Services, LP, will be the largest third party administrator of life insurance
business in the United States. Liberty believes there is substantial long-term
potential for the joint venture; however, it is not expected to add
substantially to Liberty's results in 1996.
34
<PAGE> 7
EXHIBIT 13
BROADCASTING RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross broadcasting revenues $119,529 $98,266 $87,984
Broadcasting expenses 83,849 69,523 64,705
- ---------------------------------------------------------------------------------------------------------------------
Income from operations before interest and taxes 35,680 28,743 23,279
Interest expense 8,553 7,042 7,099
- ---------------------------------------------------------------------------------------------------------------------
Income from operations before income taxes 27,127 21,701 16,180
Income taxes 10,537 8,782 6,464
- ---------------------------------------------------------------------------------------------------------------------
Income from operations $ 16,590 $12,919 $ 9,716
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross broadcasting revenues for 1995 were $119.5 million, an increase of $21.2
million (22%) over last year's $98.3 million. Excluding the $12.3 million in
revenues added from the February 1995 acquisition of WLOX-TV, gross revenues
were up 9%. Strong time sales (both national and local), coupled with
increased network compensation, overcame the decline in political revenues as
1995 was an off-year for major political races. The increased network
compensation came about as a result of the networks' competing for affiliations
with local stations. Cosmos, due to the strength of its stations in the local
market, was able to capitalize by re-negotiating network compensation contracts
and reported a $4.0 million increase in network compensation revenue in 1995.
Broadcasting expenses, excluding the impact of the WLOX-TV acquisition, rose
only 2% in 1995. As a result of the increased revenues and expense control,
Cosmos reported a $3.7 million increase in income from operations in 1995.
Substantially all of the increase in earnings was generated from the existing
station group as the WLOX-TV acquisition was not expected to, and did not,
contribute significantly to operating earnings in 1995.
Gross broadcasting revenues for 1994 were $98.3 million, an increase of $10.3
million (12%) from 1993 levels. Strong national revenues and the highest
political revenues ever drove the revenue increase in 1994. Income from
operations in 1994 was up $3.2 million (33%) over 1993, largely due to revenue
trends.
An additional measure of broadcasting performance is operating cash flow,
defined as operating earnings before depreciation and amortization, interest,
taxes and corporate expenses. Operating cash flow, and the related efficiency
ratio (operating cash flow divided by revenues net of agency commissions) are
measurements of broadcasting operating margins. For the year broadcasting cash
flow was $44.9 million compared to $33.0 million in 1994 and $27.8 million in
1993. The acquisition of WLOX-TV added $6.2 million to 1995 operating cash
flows. The efficiency ratio was at an all time high of 43% in 1995, compared
to 40% in 1994 and 38% in 1993.
The Company closed the acquisition of WLOX-TV on February 28, 1995. The
purchase price of $40.1 million was funded with a combination of 599,985 shares
of 1995-A Series convertible preferred stock with a stated value of $35 per
share; cash of $5.6 million; and a note payable for $13.5 million.
CORPORATE AND OTHER
Corporate and other includes general corporate activities such as the overall
management, legal and finance operations, debt service on debt not allocated to
segments, intercompany eliminations and the operations of Liberty Investment
Group. The increase in the loss in 1995 in this area was primarily due to
higher interest costs as both the outstanding debt and interest rates were at
higher levels than 1994.
35
<PAGE> 8
EXHIBIT 13
BALANCE SHEET
INVESTMENTS
As of December 31, 1995, Liberty's consolidated investment portfolio was
carried at $2.0 billion compared with $1.7 billion at the end of 1994. Of the
$290 million increase in the carrying value of the portfolio, approximately
$150 million was from the increase in the market value of the portfolio, with
the remainder of the increase coming from investment of cash generated from
operating and financing activities. Approximately 72% of consolidated invested
assets were in fixed maturity securities (bonds and redeemable preferred
stocks), 11% were in mortgage loans, 7% in real estate, with the balance
consisting of policy loans (5%), equity securities (4%) and other long-term
investments (1%).
The overall average credit rating of fixed maturity securities as of December
31, 1995 was AA. Less than investment grade securities comprised 3.3% of the
fixed maturity portfolio at December 31, 1995, compared with 5.3% at December
31, 1994.
Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" requires that all debt and
equity securities be classified into one of three categories -- held to
maturity, available for sale, or trading. As of December 31, 1995, all
securities have been classified as available for sale and are carried at fair
value. During 1995, the Company transferred the portion of fixed maturity
securities previously classified as held to maturity to the available for sale
classification. As a result of the transfer, shareholders' equity was
increased $14.6 million (net of deferred income taxes and adjustment to
deferred acquisition costs) to reflect the unrealized gain on securities
previously carried at cost. See Note 1 to the Consolidated Financial Statements
for additional discussion of the transfer.
SFAS 115 requires that available for sale securities be carried at fair value,
with unrealized gains and losses, net of adjustment for deferred income taxes
and deferred acquisition costs, be reported directly in shareholders' equity.
The fair value of Liberty's fixed maturity portfolio, and the related
adjustment to shareholders' equity, is significantly affected by changes in the
overall interest rate environment. For example, as interest rates fell
throughout 1995, shareholders' equity increased $111.1 million, reflecting the
change in the fair value of the portfolio. In contrast, primarily as a result
of the rising interest rate environment during 1994, the Company reported a net
unrealized loss of $69.6 million for the year ended December 31, 1994. While
the volatility experienced in 1995 and 1994 is not expected to be repeated on
an annual basis, it is likely that there will continue to be significant
fluctuations in shareholders' equity as a result of carrying fixed maturity
securities at market value.
Although Liberty's entire fixed maturity and equity securities portfolios have
been classified as available for sale, Liberty follows a value-oriented, as
opposed to a trading-oriented, investment philosophy concerning its securities
portfolios. Accordingly, turnover in the portfolios has historically been low,
although portfolio turnover in 1995 and particularly in 1994 was higher than
historical levels as 1) investment portfolios from the companies acquired in
1994 were restructured to meet Liberty guidelines as to quality, yield and
duration, and 2) Liberty took advantage of its tax position at the end of 1994
to sell securities with lower yields and reinvest in higher yielding securities
of equal or better credit quality. Gains trading, which Liberty believes is
short-sighted, is not consistent with its investment philosophy of longer term
value-oriented investing. Going into 1996, yields remain at historically low
levels and the yield curve is relatively flat. If this environment continues,
in order to generate incremental returns above market yields without
sacrificing credit quality, it may be necessary to more actively trade
securities.
Approximately 56% of Liberty's $1.5 billion fixed maturity portfolio at
December 31, 1995, was comprised of mortgage-backed securities. This compares
to approximately 54% at year-end 1994. Certain mortgage-backed securities are
subject to significant prepayment risk or extension risk due to changes in
interest rates. 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. In a rising interest rate environment refinancings are
significantly curtailed and the payments to the holders of the securities
decline, limiting the ability of the holder to reinvest at the higher interest
rates. Mortgage-backed pass-through securities and sequential collateralized
mortgage obligations ("CMO's"), which comprised 20% of the book value of
Liberty's mortgage-backed securities at December 31, 1995, and 17% at year-end
1994, are sensitive to prepayment or extension risk. The remaining 80% of
Liberty's mortgage-backed investment portfolio at December 31, 1995, consisted
of planned amortization class ("PAC") instruments. This compares to 83% at
December 31, 1994. These investments are designed to amortize in a more
predictable manner by shifting the primary prepayment and extension risk of the
underlying collateral to investors in other tranches of the CMO. PAC's are
tranches of CMO's specifically designed to protect against prepayment or
extension risk. In periods of declining interest rates, prepayments are first
applied to the non-PAC tranches of the CMO, creating improved call protection
for the PAC tranches. Only after all non-PAC tranches have been paid off are
prepayments applied to the PAC tranche. In periods of increasing interest
rates, prepayments are first applied to the PAC tranche, thus reducing
extension risk for PACs. As a result, PACs have a more stable cash flow than
most other mortgage securities because they have better call protection and
less extension risk.
Mortgage loans of $213.2 million comprised 11% of the consolidated investment
portfolio at December 31, 1995. This compares to mortgage loans of $203.4
million, or 12%, of the consolidated investment portfolio at December 31, 1994.
Substantially all of these mortgage loans are commercial mortgages with a
loan-to-value ratio not exceeding 75% when made. Approximately 50% of these
loans at December 31, 1995, are concentrated in North and South Carolina; and
91% are in the states of North Carolina, South Carolina, Virginia, Florida,
Georgia,
36
<PAGE> 9
EXHIBIT 13
Tennessee and Louisiana. Mortgage loan delinquencies, defined as payments 60
or more days past due, have historically been low and were 1.3% at the end of
1995 compared to the latest available industry rate of 2.4%.
As of December 31, 1995 and 1994, investment real estate totaled $135.3 million
and $135.5 million, representing 7% and 8%, respectively, of the consolidated
investment portfolio. Three property types make up the bulk of the portfolio.
Residential land development and industrial land development projects accounted
for 64% of the portfolio as of the end of 1995, with business property rentals
making up another 26%. In 1995, Liberty decided to sell its existing shopping
centers and not allocate future investments to this property type. At the end
of 1994 shopping center investments were 15% of the real estate portfolio;
however, substantially all of the shopping center properties were sold by the
end of 1995. Of Liberty's investment real estate, 96% is located in South
Carolina, Florida, Georgia, and North Carolina.
Liberty has experienced pre-tax impairments on investment assets of $9.5
million, $2.7 million, and $6.2 million for the years ended December 31, 1995,
1994, and 1993, respectively. The high level of impairments in 1995 was due
primarily to write-downs taken on an oil and gas investment. While the level
of impairments is not predictable, management does not expect impairments to
have a significant impact on Liberty's results of operations or liquidity.
Beginning in 1996 a new accounting standard will potentially change the amounts
of impairments recognized and the timing of the recognition. Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" prescribes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill that are used in the business, as well
as establishing accounting standards for long-lived assets and certain
identifiable intangibles to be disposed of. Under the provisions of the
statement certain of the Company's investment real estate assets will be
required to be valued at fair value, rather than net realizable value; however,
the adoption of the statement is not expected to have a material impact on the
net income or financial position of the Company.
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
In March 1995, Liberty refinanced its $325 million revolving credit facility
into a new $375 million multi-tranche credit facility. The new facility
consists of a $225 million three-year revolving credit facility; a $100 million
seven year term loan facility; and a $50 million facility substantially
identical to the revolving facility, which is convertible into terms
substantially identical to the term facility anytime prior to March 1997. The
credit facility contains various restrictive covenants typical of a credit
facility agreement of this size and nature. These restrictions primarily
pertain to levels of indebtedness, limitations on payment of dividends,
limitations on the quality and types of investments, and capital expenditures.
Additionally, Liberty must also comply with several financial covenant
restrictions under the revolving credit agreement including defined ratios of
consolidated debt to cash flow, consolidated debt to consolidated total
capital, and fixed charges coverage.
Liberty has entered into various interest rate swaps, caps and corridors in an
attempt to minimize the impact of a potential significant rise in short-term
interest rates on Liberty's outstanding variable-rate debt. See Note 5 to the
Consolidated Financial Statements for additional discussion of these contracts.
In 1994, Liberty issued 668,207 shares of Series 1994-A Voting Cumulative
Preferred Stock having a total redemption value of $23.4 million, or $35.00 per
share, in connection with the acquisition of State National Capital Corporation
and 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a
total redemption value of $22.4 million, or $37.50 per share, in connection
with the acquisition of American Funeral Assurance Company. The shares have
preference in liquidation and each share is entitled to one vote on any matters
submitted to a vote of the shareholders of the Company. Both the Company and
the holders of the preferred stock have the right to redeem any or all of the
shares from time to time beginning five years and one month after the date of
issue in exchange for cash or shares of the Company's common stock. There is
no sinking fund for the redemption of either series of preferred stock. Both
the 1994-A and 1994-B series of preferred stock are considered redeemable
preferred stock and are classified outside of permanent equity.
On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting
Cumulative Convertible Preferred Stock, having a total redemption value of
$21.0 million, or $35.00 per share, in connection with the acquisition of
WLOX-TV. The Company has the right to redeem any or all of the shares from
time to time at any time beginning five years and one month after the date of
issue in exchange for cash, common stock, or a combination of both. Generally,
the amount of consideration on the 1995-A Series will be equivalent to $35.00
per share plus the amount of any accumulated and unpaid dividends. There is no
sinking fund for the redemption of the preferred stock. These shares are
considered common stock equivalents for financial reporting purposes.
During December 1992 and January 1993, Liberty completed its public stock
offering of 2,725,100 shares of its common stock at a per share price of
$28.25, which generated $73 million in net proceeds that were used to pay down
outstanding bank debt. Of the total shares issued, 2,400,000 were issued
during December 1992. The remaining 325,100 shares were issued in January 1993
as a result of the underwriters exercising the over-allotment provision of the
stock offering
37
<PAGE> 10
EXHIBIT 13
The National Association of Insurance Commissioners (the "NAIC") has Risk-Based
Capital ("RBC") requirements for life/health insurance companies to evaluate
the adequacy of statutory capital and surplus in relation to investment and
insurance risks such as asset quality, mortality and morbidity, asset and
liability matching, and other business factors. The RBC formula will be used
by states as an early warning tool to identify companies that potentially are
inadequately capitalized for the purpose of initiating regulatory action. In
addition, the formula defines new minimum capital standards that will
supplement the current system of low fixed minimum capital and surplus
requirements on a state-by-state basis. The RBC ratios for the insurance
subsidiaries significantly exceed the minimum capital requirements at December
31, 1995.
CASH FLOWS
The parent company's short-term cash needs consist primarily of: (1) working
capital requirements, (2) interest on corporate debt, (3) dividends to
shareholders and (4) funds for real estate investments. The parent company's
primary long-term cash need is the repayment of corporate debt. The parent
company depends primarily on dividends, debt service payments and consolidated
tax return benefits paid to it by its subsidiaries to meet its short-term and
long-term cash needs. Historically, Liberty's primary businesses - insurance
and broadcasting - have provided sufficient liquidity to fund their operations
and the operations of the parent company. Liberty receives funds from its
insurance subsidiaries primarily in the form of dividends. Dividends from each
insurance subsidiary are restricted under applicable state law. Annual
dividends in excess of maximum amounts prescribed by state statutes
("extraordinary dividends") may not be paid without the approval of the
insurance commissioner of each state in which an insurance subsidiary is
domiciled. In 1994 the National Association of Insurance Commissioners
("NAIC") proposed, and certain states adopted, legislation that lowers the
threshold amount for determining what constitutes an extraordinary dividend.
Such legislative changes could make it more difficult for insurance
subsidiaries to pay dividends to their parent. See Note 8 to the Consolidated
Financial Statements.
On a consolidated basis, Liberty's net cash flow from operating activities was
$87.4 million for 1995 compared with $87.1 million for the preceding year.
Liberty's net cash used in investing activities was $133.6 million for 1995
compared to $176.3 million in 1994. The net cash used in investing activities
in 1995 was primarily to fund the purchase of investment securities. Cash used
in investing activities in 1994, in addition to funding investment security
purchases, was used to fund insurance acquisitions ($54.1 million) and a bulk
purchase of real estate assets ($43.0 million). Cash flow from financing
activities fluctuates primarily based on the level of borrowings or debt
repayment. In 1995 cash flow provided by financing activities was $38.5
million compared with cash provided of $111.2 million for 1994. Proceeds from
borrowings exceeded debt repayments by $11.4 million in 1995 compared with
$76.9 million in 1994. The excess of borrowings over repayments of debt in
1994 was used to fund insurance and real estate acquisitions. As a result of
its activities, Liberty had a net decrease in cash of $7.7 million in 1995
compared with a $21.9 million increase in cash in 1994.
Liberty believes that its current level of cash and future cash flows from
operations is sufficient to meet the needs of its business and to satisfy its
debt service. If suitable opportunities arise for additional acquisitions,
Liberty plans to draw on its revolving credit facility or use Common Stock or
Preferred Stock as payment of all or part of the consideration for such
acquisitions; or Liberty may seek additional funds in the equity or debt
markets. Under the restructured credit facility, there exists no restriction
on acquisition funding; however, consolidated debt is limited to a maximum of
$385 million. Outstanding debt at December 31, 1995 totaled $258 million.
Management believes liquidity risk of the insurance operations is minimized by
investment strategies that stress high quality assets and an integrated
asset/liability matching process. Investments are primarily in intermediate to
long-term maturities in order to match the long-term nature of insurance
liabilities. Liberty has a relatively small block of universal life products
that are interest-sensitive. Liberty actively manages the rates credited on
these policies to maintain an acceptable spread between the earned and credited
rate. In addition, Liberty has an integrated asset/liability matching process
to minimize the liquidity risk that is associated with interest-sensitive
products. Accordingly, most long-term investments are held to maturity and
interim market fluctuations present no significant liquidity problems.
Liberty's only use of derivative financial instruments is to minimize the
exposure on its variable rate debt.
Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies. Due to the recent increase in the number
of companies that are under regulatory supervision, there is expected to be an
increase in assessments by state guaranty funds. Under present law, most
assessments can be recovered through a credit against future premium taxes.
Liberty has reviewed its exposure to potential assessments, and the effect on
its financial position and results of operations is not expected to be
material.
Other Company commitments are shown in Note 7 to the Consolidated Financial
Statements. Further discussion of investments and valuation is contained in
Notes 1, 2 and 15 to the Consolidated Financial Statements.
38
<PAGE> 11
EXHIBIT 13
CONSOLIDATED BALANCE SHEETS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
At December 31 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities
Available for sale, at market, cost of $1,383,324 in 1995 and $947,522 in 1994 $1,467,039 $ 883,029
Held to maturity, at cost, market of $311,129 in 1994 --- 299,118
Equity securities, primarily at market, cost of $68,637 in 1995, $78,116 in 1994 82,508 78,208
Mortgage loans 213,223 203,381
Investment real estate, at cost less accumulated depreciation $11,671 in 1995,
$12,882 in 1994 135,306 135,545
Policy loans 98,369 96,160
Other long-term investments 27,535 31,624
Short-term investments --- 7,264
- ---------------------------------------------------------------------------------------------------------------------
Total Investments 2,023,980 1,734,329
- ---------------------------------------------------------------------------------------------------------------------
Cash 43,741 51,400
Accrued investment income 20,018 18,708
Receivables net of bad debt reserves, $1,975 in 1995, $1,493 in 1994 46,098 37,879
Receivable from reinsurers 275,090 258,969
Deferred acquisition costs 265,188 259,799
Cost of business acquired 86,925 98,056
Buildings and equipment, at cost, less accumulated depreciation $105,819 in
1995, $100,362 in 1994 79,789 66,360
Intangibles related to television operations, at cost, net of amortization
$20,192 in 1995, $16,278 in 1994 99,056 46,934
Goodwill related to insurance acquisitions, at cost, net of amortization $8,076
in 1995, $6,490 in 1994 37,239 40,308
Other assets 57,172 54,522
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $3,034,296 $2,667,264
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 12
EXHIBIT 13
<TABLE>
<CAPTION>
At December 31 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $1,811,417 $1,731,654
Claims and benefits payable 24,356 24,812
Policyholder funds 27,086 27,157
- ----------------------------------------------------------------------------------------------------------------------
1,862,859 1,783,623
Notes and mortgages payable 158,444 131,647
Long-term debt 100,000 100,000
Accrued income taxes 6,665 4,418
Deferred income taxes 182,083 112,707
Accounts payable and accrued expenses 67,094 66,608
Other liabilities 35,722 26,856
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,412,867 2,225,859
- ----------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock:
1994-A Series, $35.00 redemption value, 668,207 shares issued and outstanding 23,387 23,387
1994-B Series, $37.50 redemption value, 594,126 and 598,101 shares issued and
outstanding in 1995 and 1994, respectively 22,280 22,429
- ----------------------------------------------------------------------------------------------------------------------
Total Redeemable Preferred Stock 45,667 45,816
- ----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock
Authorized - 50,000,000 shares, no par value
Issued and outstanding - 20,060,629 shares in 1995, 19,841,470 shares in 1994 158,735 152,956
Convertible Preferred Stock 1995-A Series, 599,985 shares issued and outstanding 20,999 ---
Preferred Stock
Authorized - 10,000,000 shares
Issued and outstanding - 1,862,318 shares in 1995, 1,266,308 shares in 1994
Unearned stock compensation (6,050) (5,319)
Unrealized appreciation (depreciation) on fixed maturity securities available
for sale and equity securities 57,986 (53,109)
Cumulative foreign currency translation adjustment (999) (1,491)
Retained earnings 345,091 302,552
- ----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 575,762 395,589
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $3,034,296 $2,667,264
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
40
<PAGE> 13
EXHIBIT 13
CONSOLIDATED STATEMENTS OF INCOME
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In $000's, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Insurance premiums and policy charges $331,370 $315,789 $250,922
Broadcasting revenues 119,529 98,266 87,984
Net investment income 148,670 133,679 110,966
Service contract revenues 9,025 5,585 8,383
Realized investment gains (losses) (2,913) (12,073) 14,686
Other income --- --- 4
- -----------------------------------------------------------------------------------------------------------------
Total revenues 605,681 541,246 472,945
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Policyholder benefits 236,774 225,745 159,452
Insurance commissions 54,583 49,869 44,491
General insurance expenses 67,703 84,930 66,213
Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402
Broadcasting expenses 83,849 69,523 64,705
Interest expense 15,047 11,097 9,945
Other expenses 15,150 16,190 11,413
- -----------------------------------------------------------------------------------------------------------------
Total expenses 516,886 502,378 395,621
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting changes 88,795 38,868 77,324
Provision for income taxes 29,442 12,690 26,237
- -----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 59,353 26,178 51,087
Cumulative effect of accounting changes
SFAS 106 - Postretirement benefits --- --- (10,068)
SFAS 112 - Postemployment benefits --- --- (1,872)
- -----------------------------------------------------------------------------------------------------------------
Net income $ 59,353 $ 26,178 $ 39,147
- -----------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Income before cumulative effect of accounting changes $ 2.76 $ 1.22 $ 2.62
Cumulative effect of accounting changes
SFAS 106 - Postretirement benefits --- --- (.52)
SFAS 112 - Postemployment benefits --- --- (.09)
- -----------------------------------------------------------------------------------------------------------------
Net earnings per common share $ 2.76 $ 1.22 $ 2.01
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
41
<PAGE> 14
EXHIBIT 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
For the Years Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 59,353 $ 26,178 $ 39,147
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in policy liabilities 18,845 53,961 30,763
(Decrease) increase in accounts payable and accrued expenses (3,964) 1,142 4,948
Increase in receivables (3,311) (7,374) (11,569)
Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402
Policy acquisition costs deferred (54,522) (59,053) (58,017)
Realized investment (gains) losses 2,913 12,073 (14,686)
Gain on sale of operating assets (3,231) (3,214) (3,136)
Depreciation and amortization 19,034 16,019 13,522
Amortization of bond premium and discount (7,485) (4,904) (6,033)
Provision for deferred income taxes 6,225 (1,481) 2,089
All other operating activities, net 9,803 8,679 (1,730)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 87,440 87,050 34,700
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment securities sold:
Available for sale (equity securities in 1993) 155,670 225,100 40,698
Held to maturity (fixed maturities in 1993) --- --- 10,124
Investment securities matured or redeemed by issuer:
Available for sale 32,913 61,216 ---
Held to maturity 35,494 65,910 241,000
Cost of investment securities acquired:
Available for sale (329,918) (420,244) ---
Held to maturity --- --- (351,900)
Mortgage loans made (32,905) (31,957) (28,883)
Mortgage loan repayments 22,712 20,621 23,648
Purchase of investment properties, buildings and equipment (62,955) (87,115) (32,563)
Sale of investment properties, buildings and equipment 49,103 31,158 40,374
Purchases of short-term investments (43,607) (388,465) (381,400)
Sales of short-term investments 50,871 394,673 394,284
Net cash paid on purchases of insurance companies --- (54,087) (722)
Net cash paid on sale of insurance business --- --- (2,250)
Net cash paid on purchase of television station (5,140) --- ---
All other investment activities, net (5,828) 6,860 (1,439)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (133,590) (176,330) (49,029)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 1,901,901 2,544,735 2,192,635
Principal payments on debt (1,890,521) (2,467,819) (2,219,778)
Dividends paid (16,814) (14,358) (13,108)
Stock issued for employee benefit and compensation programs 2,909 3,487 5,771
Common stock offering --- --- 8,544
Return of policyholders' account balances (32,637) (30,025) (26,201)
Receipts credited to policyholders' account balances 73,653 75,173 63,773
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 38,491 111,193 11,636
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (7,659) 21,913 (2,693)
Cash at beginning of year 51,400 29,487 32,180
- ---------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 43,741 $ 51,400 $ 29,487
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 15
EXHIBIT 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE LIBERTY CORPORATION AND SUBSIDIARIES
(Amounts in 000's except per share data)
<TABLE>
<CAPTION>
UNREALIZED
COMMON CONVERTIBLE UNEARNED SECURITY
SHARES COMMON PREFERRED STOCK APPRECIATION
OUTSTANDING STOCK STOCK COMPENSATION (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 18,859 $126,961 $ --- $(3,222) $ 3,901
Net income
Net unrealized investment gains 1,276
Dividends - Common Stock - $0.56
per share
Foreign currency translation
adjustment
Stock issued for employee benefit
and performance incentive
compensation programs 314 8,434 (1,253)
Stock offering 325 8,544
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 19,498 143,939 --- (4,475) 5,177
Cumulative effect of change in
accounting principle 11,357
Net income
Net unrealized investment losses (69,643)
Dividends - Common Stock - $0.62
per share
Dividends - Redeemable Preferred
Stock - $1.672 per share
Foreign currency translation
adjustment
Stock issued for employee benefit
and performance incentive
compensation programs 229 5,816 (844)
Stock issued as part of the
purchase price of acquisitions 113 3,180
Stock issued for conversion of
redeemable preferred stock 1 21
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 19,841 152,956 --- (5,319) (53,109)
Net Income
Net unrealized investment gains 111,095
Dividends - Common Stock - $0.665
per share
Dividends - Redeemable Preferred
Stock - $2.10 per share
Dividends - Convertible Preferred
Stock - $1.4583 per share
Foreign currency translation
adjustment
Stock issued for employee benefit
and performance incentive
compensation programs 216 5,631 (731)
Stock issued as part of the
purchase price of acquisitions 20,999
Stock issued for conversion of
redeemable preferred stock 4 148
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 20,061 $158,735 $20,999 $(6,050) $ 57,986
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY RETAINED
TRANSLATION EARNINGS TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1993 $ (880) $262,428 $389,188
Net income 39,147 39,147
Net unrealized investment gains 1,276
Dividends - Common Stock - $0.56
per share (10,842) (10,842)
Foreign currency translation
adjustment (649) (649)
Stock issued for employee benefit
and performance incentive
compensation programs 7,181
Stock offering 8,544
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 (1,529) 290,733 433,845
Cumulative effect of change in
accounting principle 11,357
Net income 26,178 26,178
Net unrealized investment losses (69,643)
Dividends - Common Stock - $0.62
per share (12,242) (12,242)
Dividends - Redeemable Preferred
Stock - $1.672 per share (2,117) (2,117)
Foreign currency translation
adjustment 38 38
Stock issued for employee benefit
and performance incentive
compensation programs 4,972
Stock issued as part of the
purchase price of acquisitions 3,180
Stock issued for conversion of
redeemable preferred stock 21
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 (1,491) 302,552 395,589
Net Income 59,353 59,353
Net unrealized investment gains 111,095
Dividends - Common Stock - $0.665
per share (13,283) (13,283)
Dividends - Redeemable Preferred
Stock - $2.10 per share (2,658) (2,658)
Dividends - Convertible Preferred
Stock - $1.4583 per share (873) (873)
Foreign currency translation
adjustment 492 492
Stock issued for employee benefit
and performance incentive
compensation programs 4,900
Stock issued as part of the
purchase price of acquisitions 20,999
Stock issued for conversion of
redeemable preferred stock 148
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ (999) $345,091 $575,762
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 16
EXHIBIT 13
THE LIBERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements of The Liberty Corporation and Subsidiaries (the Company) include
the accounts of the Company after elimination of all significant intercompany
balances and transactions. The primary subsidiaries of the Company are Liberty
Life Insurance Company, Pierce National Life Insurance Company (doing business
as FamilySide) and Liberty Insurance Services Corporation (collectively
referred to as the insurance operations) and Cosmos Broadcasting Corporation.
ORGANIZATION - The Company's operations include the sale and service of life
insurance products in the United States and Canada and television broadcasting
operations in the United States. The insurance operations are licensed to do
business in 49 states and nine Canadian provinces. While the majority of the
Company's assets and revenues are generated from its insurance operations, the
Company also is a major television group broadcaster, owning and operating
eight network affiliated television stations throughout the southeastern and
midwestern states. Information on the Company's operations by segment is
included on page 40 of this report (see Note 16).
USE OF ESTIMATES AND ASSUMPTIONS - Financial statements prepared in accordance
with generally accepted accounting principles require management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates and assumptions.
INSURANCE PREMIUMS AND POLICY CHARGES - Revenues for traditional life insurance
and accident and health insurance are recognized over the premium paying period
as they become due. For limited payment whole life products, the excess of the
premiums received over the portion of the premiums required to establish
reserves is deferred and recognized in income over the anticipated life of the
policy. For universal life products, revenues consist of policy charges for
the cost of insurance, administration of the policies and surrender charges
during the period. Policy issue fees are deferred and recognized in income
over the life of the policies in relation to the incidence of expected gross
profits.
BENEFITS TO POLICYHOLDERS AND BENEFICIARIES - Benefits for traditional life
insurance and accident and health insurance products include claims paid during
the period, accrual for claims reported but not yet paid, and accrual for
claims incurred but not reported based on historical claims experience modified
for expected future trends. Benefits for universal life products are the
amount of claims paid in excess of the policy value accrued to the benefit of
the policyholder plus interest credited on account values.
INSURANCE RESERVES AND POLICY MAINTENANCE EXPENSES - Insurance reserves and
policy maintenance expenses for traditional life insurance and accident and
health insurance are associated with earned premiums so as to recognize profits
over the premium paying period. This association is accomplished by
recognizing the liabilities for insurance reserves on a net level premium
method based on assumptions deemed appropriate at the date of issue as to
future investment yield, mortality, morbidity, withdrawals and maintenance
expenses and including margins for adverse deviations. Interest assumptions
are based on Company experience. Mortality, morbidity, and withdrawal
assumptions are based on recognized actuarial tables or Company experience, as
appropriate. Accident and health reserves consist principally of unearned
premiums and claims reserves, including provisions for incurred but unreported
claims.
Insurance reserves for universal life products are determined following the
retrospective deposit method and consist of policy values that accrue to the
benefit of the policyholder, unreduced by surrender charges.
DEFERRED ACQUISITION COSTS - Acquisition costs incurred by the Company in the
process of acquiring new business are deferred and amortized to income as
discussed below. Costs deferred consist primarily of commissions and certain
policy underwriting, issue and agency expenses that vary with and are primarily
related to production of new business.
COST OF BUSINESS ACQUIRED is the value assigned the insurance inforce of
acquired insurance companies at the date of acquisition.
For traditional insurance products, the amortization of deferred acquisition
costs and the cost of business acquired is recognized in proportion to the
ratio of annual premium revenue to the total anticipated premium revenue, which
gives effect to actual terminations. Deferred acquisition costs and the cost of
business acquired are amortized over the premium paying period (not to exceed
30 years) of the related policies. Anticipated premium revenue is determined
using assumptions consistent with those utilized in the determination of
liabilities for insurance reserves.
44
<PAGE> 17
EXHIBIT 13
For universal life products, the deferred acquisition costs are amortized in
relation to the incidence of expected gross profits over the life of the
policies (not to exceed 30 years). Gross profits are equal to revenues, as
defined previously, plus investment income (including applicable realized
investments gains and losses) less expenses. Expenses include interest
credited to policy account balances, policy administration expenses, and
expected benefit payments in excess of policy account balances.
INVESTMENTS - Statement of Financial Accounting Standard ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" requires
that all debt and equity securities be classified into one of three categories
- -- held to maturity, available for sale, or trading. The Company has no
securities classified as trading. On November 15, 1995, the Financial
Accounting Standards Board issued a Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities". In accordance with the provisions in that Special Report, on
December 31, 1995, the Company chose to reclassify all securities previously
classified as held to maturity to available for sale. The market value and
amortized cost of the securities transferred were $307,100,000 and
$281,691,000, respectively, at December 31, 1995. As a result of the transfer,
shareholders' equity was increased $14,645,000 (net of deferred income taxes
and adjustment to deferred acquisition costs) to reflect the unrealized gain on
securities previously carried at cost. There were no sales of securities
previously included in the held to maturity category during 1995 or 1994.
Prior to December 31, 1995, the Company classified fixed maturity securities
(bonds and redeemable preferred stock) as either held to maturity or available
for sale. Management determined the appropriate classification of fixed
maturities at the time of purchase. Fixed maturities were classified as held
to maturity when the Company had the positive intent and ability to hold the
securities to maturity.
Investments are reported on the following basis:
- - Fixed maturities classified as available-for-sale are stated at fair value
with unrealized gains and losses, after adjustment for deferred income
taxes and deferred acquisition costs, reported directly in shareholders'
equity. Fixed maturities classified as held to maturity are stated at
amortized cost, including impairments for other than temporary declines in
value. Fair values for fixed maturity securities are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
- - Equity securities (common stocks and nonredeemable preferred stocks) are
all considered available for sale and are carried at fair value. The fair
values for equity securities are based on quoted market prices.
- - Mortgage loans on real estate are carried at amortized cost, less an
allowance for credit losses and provisions for impaired value, where
appropriate.
- - Investment real estate is carried at cost less accumulated depreciation
and provisions for impaired value where appropriate. Depreciation over
the estimated useful lives of the properties is determined principally
using the straight-line method.
- - Policy loans are carried at cost.
- - Other long-term investments are carried at cost which includes provisions
for impaired value where appropriate. Included in other long-term
investments are investments in venture capital funds and oil and gas
properties.
- - Short-term investments are carried at cost which approximates fair value.
UNREALIZED INVESTMENT GAINS AND LOSSES on investments carried at fair value,
net of deferred taxes and adjustment for deferred acquisition costs related to
universal life products, are recorded directly in shareholders' equity.
REALIZED INVESTMENT GAINS AND LOSSES are recognized using the specific
identification method to determine the cost of investments sold. Gains or
losses on the sale of real estate held for investment are included in realized
investment gains (losses). Gains and losses on the sale of real estate
acquired for development and resale are included in net investment income.
Realized gains and losses include write-downs for impaired values of investment
assets. The Company establishes impairments on individual, specific assets at
the time the Company judges the assets to have been impaired and this
impairment can be estimated (see Note 2).
BUILDINGS AND EQUIPMENT are recorded at cost. Depreciation over the estimated
useful lives of the properties is determined principally using the
straight-line method.
INTANGIBLE ASSETS arose in the acquisition of certain television stations.
Amounts not being amortized ($4,071,000) represent the excess of the total cost
over the underlying value of the tangible and amortizable intangible assets
acquired prior to 1970. Amounts being amortized are expensed principally over
forty years.
GOODWILL arose in the acquisition of insurance companies and is being amortized
over lives ranging from twenty to forty years.
FOREIGN CURRENCY TRANSLATION has been accounted for in accordance with SFAS No.
52, "Foreign Currency Translation." The assets and liabilities of the Canadian
operations of FamilySide are translated into U.S. dollars at the rate of
exchange in effect at the respective balance sheet date. Net exchange gains
and losses resulting from translation are included as a separate component of
shareholders' equity. Revenues and expenses are translated at average exchange
rates for the year. Gains and losses from foreign currency transactions are
included in net income.
45
<PAGE> 18
EXHIBIT 13
INTEREST RATE CAPS AND SWAPS are used to limit the impact of changing interest
rates on the Company's debt, which is substantially all floating rate (see Note
5). An interest rate swap is used to fix the interest rate on $100,000,000 of
debt. The net interest effect of the swap transaction is reported as an
adjustment to interest expense as incurred. Interest rate caps are used to
protect a portion of the remaining debt against significant increases in
interest rates. Premiums paid for the interest rate caps are being amortized
to interest expense over the terms of the caps.
INCOME TAXES are computed using the liability method required by Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes". Under
SFAS 109, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and law that will be in effect
when the differences are expected to reverse.
EARNINGS PER COMMON SHARE is based on net income after redeemable preferred
stock dividend requirements and the weighted average number of shares
outstanding during the year, including the average number of dilutive shares
under stock options.
NON-PENSION POSTEMPLOYMENT BENEFITS - The Company provides certain health and
life insurance benefits to eligible retirees and their dependents. Effective
January 1, 1993, the Company adopted Statement of Financial Accounting Standard
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" whereby the cost of providing the benefits is accrued during the
employees' working years. The Company elected to immediately recognize this
obligation, resulting in a $15,254,000 charge ($10,068,000 after-tax) to 1993
operations. The Company also provides certain other postemployment benefits to
qualified former and inactive employees. To account for these benefits the
Company adopted Statement of Financial Accounting Standard No. 112, "Employers'
Accounting for Postemployment Benefits," effective January 1, 1993. SFAS 112
requires the accrual of benefits provided to former or inactive employees after
employment but before retirement, be accrued when it is probable a benefit will
be provided. The adoption of this standard resulted in a $2,837,000 charge
($1,872,000 after-tax) which was expensed during 1993. With the exception of
the one-time transition obligations, the adoption of these accounting standards
did not have a material impact on the Company's annual earnings.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 114, "Accounting by Creditors
for Impairments of a Loan" and Statement of Financial Accounting Standard No.
118, "Accounting by Creditors for Impairments of a Loan--Income Recognition and
Disclosures" were adopted by the Company effective January 1, 1995. Under the
standards, the Company provides for estimated credit losses related to the
mortgage loans where it is probable that all amounts due according to the
contractual terms of the mortgage agreement will not be collected. This
provision for credit losses is based on discounting the expected cash flows
from the loan using the loan's initial effective interest rate, or the fair
value of the collateral for certain collateral dependent loans. The initial
adoption of the standards resulted in recording an allowance for credit losses
of $507,000 ($330,000 after-tax), which has been included in realized
investment gains (losses) in the consolidated statement of income.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
was issued by the Financial Accounting Standards Board in March 1995. This
statement prescribes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill that are used in the
business, as well as establishing accounting standards for long-lived assets
and certain identifiable intangibles to be disposed of. The Company expects to
adopt this standard as of January 1, 1996. Under the provisions of the
statement certain of the Company's investment real estate assets will be
required to be valued at fair value, rather than net realizable value as
previously required; however, the adoption of the statement is not expected to
have a material impact on the net income or financial position of the Company.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 123, "Accounting for Stock-Based
Compensation" was issued by the Financial Accounting Standards Board in October
1995. This statement requires companies to measure the fair value of employee
stock options at the date granted and expense the estimated fair value of
grants or, alternatively, disclose the pro forma impact on net income and
earnings per share of the grants in the notes to the financial statement. The
Company will adopt this statement as of January 1, 1996 and make the pro forma
disclosures required by SFAS 123 in its 1996 financial statements.
RECLASSIFICATIONS have been made in the 1994 and 1993 Consolidated Financial
Statements to conform to the 1995 presentation.
46
<PAGE> 19
Exhibit 13
2. INVESTMENTS
Amortized cost and estimated fair values of investments in available for sale
and held to maturity securities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
1995 (In 000's) Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Fixed maturity securities
US government obligations $ 25,733 $ 993 $ 41 $ 26,685
States and political subdivisions 294 39 --- 333
Foreign obligations 93,819 3,746 2,534 95,031
Corporate securities 485,735 41,645 2,774 524,606
Mortgage-backed securities 777,743 43,530 889 820,384
- --------------------------------------------------------------------------------------------
Total 1,383,324 89,953 6,238 1,467,039
Equity securities 68,637 19,161 5,290 82,508
- --------------------------------------------------------------------------------------------
Total $1,451,961 $109,114 $11,528 $1,549,547
- --------------------------------------------------------------------------------------------
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
1994 (In 000's) Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Fixed maturity securities
US government obligations $ 33,723 $ 3 $ 2,341 $ 31,385
States and political subdivisions 45,514 3 3,081 42,436
Foreign obligations 23,543 1 2,916 20,628
Corporate securities 381,823 2,222 28,666 355,379
Mortgage-backed securities 462,919 267 29,985 433,201
- -----------------------------------------------------------------------------------------------
Total 947,522 2,496 66,989 883,029
Equity securities 78,116 7,503 7,411 78,208
- -----------------------------------------------------------------------------------------------
Total $1,025,638 $ 9,999 $74,400 $961,237
- -----------------------------------------------------------------------------------------------
HELD TO MATURITY:
US government obligations $ 5,574 $ 38 $ 319 $ 5,293
Foreign obligations 454 104 -- 558
Corporate securities 86,723 10,352 1,019 96,056
Mortgage-backed securities 206,367 4,787 1,932 209,222
- -----------------------------------------------------------------------------------------------
Total $ 299,118 $15,281 $ 3,270 $311,129
- -----------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, the Company reclassified all securities previously
classified as held to maturity to available for sale (See Note 1).
47
<PAGE> 20
EXHIBIT 13
Realized gains (losses) and the change in unrealized gains (losses) on the
Company's fixed maturities and equity securities are summarized as follows:
<TABLE>
<CAPTION>
Total Gains
Fixed Equity (Losses) on
(In 000's) Maturities Securities Investments
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Realized investment gains (losses) $ (2,347) $ 8,071 $ 5,724
Change in unrealized investment gains (losses) 136,197 13,779 149,976
- ---------------------------------------------------------------------------------------------------------
Combined $ 133,850 $21,850 $ 155,700
- ---------------------------------------------------------------------------------------------------------
1994
Realized investment gains (losses) $ (11,957) $ 2,699 $ (9,258)
Change in unrealized investment gains (losses) (118,937) (7,494) (126,431)
- ---------------------------------------------------------------------------------------------------------
Combined $(130,894) $(4,795) $(135,689)
- ---------------------------------------------------------------------------------------------------------
1993
Realized investment gains $ 10,705 $ 6,546 $ 17,251
Change in unrealized investment gains (losses) 1,084 1,965 3,049
- ---------------------------------------------------------------------------------------------------------
Combined $ 11,789 $ 8,511 $ 20,300
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The schedule below details consolidated investment income and related
investment expenses for the years ended December 31.
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on
Bonds $107,825 $ 89,518 $ 74,438
Mortgage loans 18,247 18,137 15,452
Policy loans 4,872 4,946 4,162
Short-term investments 752 869 1,376
Dividends on
Preferred stocks 6,624 8,370 7,469
Common stocks 1,180 1,361 376
Investment property rentals 9,238 6,255 4,265
Net gain on investment real estate held for development 6,947 5,268 4,501
Other investment income 3,269 7,556 5,987
- -----------------------------------------------------------------------------------------------
Total investment income 158,954 142,280 118,026
Investment expenses 10,284 8,601 7,060
- -----------------------------------------------------------------------------------------------
Net investment income $148,670 $133,679 $110,966
- -----------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturities and the related gross realized gains
and losses for the three years ended December 31 are shown below. The amounts
shown below do not include those related to unscheduled redemptions or
prepayments, nor do they reflect any impairments taken during the years
presented. No held to maturity securities were sold during 1995 or 1994.
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $111,260 $187,597 $10,124
Gross realized gains 1,750 986 383
Gross realized losses (3,910) (13,437) (294)
</TABLE>
48
<PAGE> 21
EXHIBIT 13
The following investment assets were non-income producing for the twelve months
ended December 31, 1995:
<TABLE>
<CAPTION>
(In 000's) Balance Sheet
Amount
- -----------------------------------------------------------------------------------------------------
<S> <C>
Investment real estate $11,827
Other long-term investments 24,834
Mortgage loans 50
Fixed maturities 71
- -----------------------------------------------------------------------------------------------------
Total $36,782
- -----------------------------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1995, the Company incurred realized losses of
$9,462,000 due to impairment of assets included in the year-end investment
portfolio. Cumulative provisions for impairments on the total investment
portfolio by asset category at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
(In 000's) CUMULATIVE
PROVISION FOR
IMPAIRMENTS
- ------------------------------------------------------------------
<S> <C>
Mortgage loans $ 2,893
Investment real estate 4,401
Other long-term investments 7,462
Fixed maturities 1,380
- ------------------------------------------------------------------
Total $16,136
- ------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(In 000's) Amortized Cost Fair Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 21,005 $ 21,103
Due after one year through five years 166,973 178,644
Due after five years through ten years 247,643 267,709
Due after ten years 169,960 179,199
- ------------------------------------------------------------------------------------------
605,581 646,655
Mortgage-backed securities primarily maturing in
five to twenty-five years 777,743 820,384
- ------------------------------------------------------------------------------------------
Total $1,383,324 $1,467,039
- ------------------------------------------------------------------------------------------
</TABLE>
3. REINSURANCE AGREEMENTS
The Company uses reinsurance as a risk management tool in the normal course of
business and in isolated, strategic assumption transactions to effectively buy
or sell blocks of in force business. The reinsurance contracts do not relieve
the Company from its contract with its policyholders, and it remains liable
should any reinsurer be unable to meet its obligations. At December 31, 1995,
$4.6 billion (21%) of the Insurance Group's total $21.4 billion gross insurance
in force was ceded to other companies. In the accompanying financial
statements, insurance premiums and policy charges, policyholder benefits and
deferred acquisition costs are reported net of reinsurance ceded with policy
liabilities being reported gross of reinsurance ceded.
Amounts paid or deemed to be paid for reinsurance contracts are recorded as
reinsurance receivables. The cost of reinsurance related to long-term duration
contracts is accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the underlying
policies.
In 1991 Liberty Life entered into an agreement with Life Reassurance
Corporation (Life Re) to coinsure the Company's General Agency Division's
universal life policies in force. The initial agreement provided for 80%
coinsurance on policies in force at December 31, 1991, and 50% coinsurance on
policies issued subsequent to such date. Effective July 1, 1995, the amount
coinsured on policies written after December 31, 1991, was increased to 80%.
Under the terms of the agreement, assets supporting the business ceded are
required to be held in escrow. At December 31, 1995, Liberty Life's interest
in the assets held in escrow consisted of investments with an amortized cost of
$56.3 million and a fair value of $59.7 million. Comparable book and fair
value at December 31, 1994 was $62.7 million and $59.3
49
<PAGE> 22
EXHIBIT 13
million, respectively. These investments had an average rating of AA+. The
total face value of insurance ceded to Life Re at December 31, 1995, was $2.9
billion and the Company has recorded a receivable related to this transaction
from Life Re of $257.7 million as of December 31, 1995. Currently, Life Re has
an A.M. Best rating of A+. During 1995 and 1994, Liberty Life had ceded
premiums and policy charges of $19.3 and $18.0 million, respectively, under the
agreement.
Effective September 30, 1991, Liberty Life entered into an agreement to
coinsure 50% of its Home Service line of business. Under generally accepted
accounting principles this agreement has been treated as financial reinsurance,
and no reserve reduction had been taken for the business ceded. The
reinsurance contract contains an escrow agreement that requires assets equal to
the reserves reinsured, as determined under statutory accounting principles, be
held in escrow for the benefit of this block of business. At December 31,
1995, the amortized cost of the invested assets held in escrow was
approximately $228.9 million.
The insurance subsidiaries also reinsures with other insurance companies
portions of the life insurance they write in order to limit exposure on large
or substandard risks. Due to this broad allocation of reinsurance with several
insurance companies, there exists no significant concentration of credit risk.
The maximum amount of life insurance that Liberty Life will retain on any life
is $300,000, plus an additional $50,000 in the event of accidental death. This
maximum is reduced for higher ages and for special classes of risks. The
maximum amount of life insurance that the other insurance subsidiaries will
retain on any life is $50,000. Insurance in excess of the retention limits is
either automatically ceded under reinsurance agreements or is reinsured on an
individually agreed basis with other insurance companies.
The effect of reinsurance on premiums and policy charges and benefits was as
follows for the years ending December 31:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums and policy charges $364,797 $344,119 $278,454
Reinsurance assumed 1,314 1,728 2,089
Reinsurance ceded (34,741) (30,058) (29,621)
- -----------------------------------------------------------------------------------------------------
Net premiums and policy charges $331,370 $315,789 $250,922
- -----------------------------------------------------------------------------------------------------
Gross benefits $249,861 $242,869 $174,588
Reinsurance recoveries (13,087) (17,124) (15,136)
- -----------------------------------------------------------------------------------------------------
Net benefits $236,774 $225,745 $159,452
- -----------------------------------------------------------------------------------------------------
</TABLE>
4. DEFERRED ACQUISITION COSTS, COST OF BUSINESS ACQUIRED
AND FUTURE POLICY BENEFITS
A summary of the changes in deferred acquisition costs is as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $259,799 $231,873 $211,945
Deferred during the year 54,522 59,053 58,017
Amortized during the year (32,594) (33,313) (31,917)
Adjustment related to unrealized investment (gains) losses (10,327) 2,379 ---
Insurance in force ceded (6,331) --- (6,082)
Foreign currency translation 119 (193) (90)
- -------------------------------------------------------------------------------------------------------
Ending balance $265,188 $259,799 $231,873
- -------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 23
EXHIBIT 13
A summary of the changes in costs of business acquired through acquisitions is
as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $98,056 $56,762 $63,930
Additions from acquisitions --- 53,139 317
Interest accrued 6,621 6,620 4,426
Foreign currency adjustment 55 (134) ---
Amortized during the year (17,807) (18,331) (11,911)
- ------------------------------------------------------------------------------------
Ending balance $86,925 $98,056 $56,762
- ------------------------------------------------------------------------------------
</TABLE>
The Company accounts for these costs in a manner consistent with deferred
acquisition costs. The Company's interest rate used to amortize these costs is
7.75% for a majority of the asset. Periodically, the Company performs tests to
determine that the cost of business acquired remains recoverable from future
premiums on the acquired business. The Company incurred no write-offs due to
impairments as a result of these tests during the three years ended December
31, 1995. Under current assumptions amortization of these costs, prior to
consideration of accrued interest implicit in the calculation of the
amortization, for the next five years is expected to be as follows:
<TABLE>
<CAPTION>
(In 000's) Amortization
- -------------------------------------------------------------------------------------------
<S> <C>
1996 $15,779
1997 13,693
1998 12,126
1999 10,819
2000 9,624
</TABLE>
The liabilities for traditional life insurance and accident and health
insurance policy benefits and expenses are computed using a net level premium
method, including assumptions based on the Company's experience, modified as
necessary to reflect anticipated trends and to include provisions for possible
unfavorable deviations. Reserve interest assumptions are graded and range from
3.5% to 9.5%. Such liabilities are, for some plans, graded to equal statutory
values or cash values at or prior to maturity. The weighted average assumed
investment yield for all traditional life and accident and health policy
reserves was 6.6%, 6.8%, and 6.8% in 1995, 1994, and 1993, respectively.
Benefit reserves for traditional life insurance policies include certain
deferred profits on limited-payment policies that are being recognized in
income over the policy term. Policy benefit claims are charged to expense in
the period that the claims are incurred.
Benefit reserves for universal life insurance and investment products are
computed under a retrospective deposit method and represent policy account
balances before applicable surrender charges. Policy benefits and claims that
are charged to expense include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates for universal
life and investment products range from 5.5% to 6.8% in 1995, 5.5% to 7.0% in
1994, and 5.8% to 8.0% in 1993.
Participating business accounts for approximately 1% of the Company's life
insurance in force and premium income. The dividend to be paid is determined
annually by the Board of Directors.
5. DEBT
The debt obligations at December 31 are as follows:
<TABLE>
<CAPTION>
(In 000's) INTEREST RATE 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings under revolving credit
agreement and lines of credit 6.1% $136,500 $120,500
Long-term debt 6.7% 100,000 100,000
Other notes due to banks 4.8% 158 554
Mortgage loans on investment property 7.5% to 8.5% 5,469 4,882
Other Various 16,317 5,711
- ---------------------------------------------------------------------------------------------------------------------
Total $258,444 $231,647
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The mortgage loans are secured by property with a net carrying value of $19.6
million at December 31, 1995.
51
<PAGE> 24
EXHIBIT 13
Maturities of the debt obligations at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Maturities Amount
- ---------------------------------------------------------------------------------------
<S> <C>
1996 $ 26,306
1997 17,057
1998 147,095
1999 20,724
2000 20,946
Thereafter 26,316
- ---------------------------------------------------------------------------------------
Total $258,444
- ---------------------------------------------------------------------------------------
</TABLE>
On March 21, 1995, the Company refinanced its then-existing $325,000,000
revolving credit facility into a new $375,000,000, multi-tranche credit
facility. The current facility consists of a $225,000,000 three-year revolving
credit facility; a $100,000,000 seven-year term loan facility; and a
$50,000,000 facility substantially identical to the revolving facility, which
is convertible into terms substantially identical to the term facility within
two years of the closing date of this loan. The revolving portion of the
facility will mature in March 1998, while the term portion shall be repaid in
twenty quarterly installments of $5,000,000 commencing June 1997, and ending in
March 2002.
The Company's borrowings against the revolving credit facility were
$126,000,000 and against the term facility were $100,000,000 at December 31,
1995. During 1995, the maximum amount outstanding on the revolving facility
amounted to approximately $162,000,000, with an average balance outstanding of
approximately $129,250,000 and an average weighted interest rate of 6.26%. In
addition to the revolving facility, the Company also uses several lines of
credit totaling $35,500,000 as of December 31, 1995, to manage day-to-day cash
flow. The amount borrowed against the lines of credit at December 31, 1995 was
$10,500,000. The average balance outstanding on the lines of credit was
approximately $16,400,000 during 1995, with a maximum borrowing of $50,500,000
and an average weighted interest rate of 6.46%.
The Company has the option to solicit money market interest quotes from the
bank group for borrowings under the revolving credit facility. The revolving
credit agreement also provides for borrowing at interest rates based on a
formula that incorporates the use of the London Interbank Offered Rate
("LIBOR") plus an interest rate margin. The interest rate for the term loan is
based upon LIBOR, plus an interest rate margin. A facility fee is charged on
the facility based on $275,000,000 of the total commitment. The facility fee
and the interest rate margin for the revolving credit facility and the term
loan are all based upon the ratio of consolidated debt to cash flow, as defined
in the credit agreement.
The credit agreement contains various restrictive covenants typical of a credit
facility of this size and nature. These restrictions primarily pertain to
levels of indebtedness, limitations on payment of dividends, limitations on the
quality and types of investments, and capital expenditures. Additionally, the
Company must also comply with several financial covenant restrictions under the
revolving credit agreement, including defined ratios of consolidated debt to
cash flow, consolidated debt to consolidated total capital, and fixed charges
coverage. As of December 31, 1995, the Company was in compliance with all
covenants under its debt agreement.
The Company has entered into interest rate swap and cap agreements as a means
of managing its interest rate exposure on its floating rate debt. The interest
rate swap effectively fixes the interest rate on the $100,000,000 seven-year
term loan facility at 5.965% plus the interest rate margin and will expire in
March, 2002. The agreement is a contract to exchange fixed and floating
interest rate payments periodically over the life of the agreement without the
exchange of the underlying notional amounts. The Company will pay the
counterparty interest at 5.965%, and the counterparty will pay the Company
interest at a variable rate based on the 3-month LIBOR rate. The notional
principal amount under the agreement will amortize proportionately to the
paydown of the $100,000,000 term loan as described above. The interest
differential to be paid or received on interest rate swaps is accrued and
included in interest expense for financial reporting purposes. The agreement
is with a major financial institution and the Company's credit exposure is
limited to the value of the interest-rate swap that has, or may become
favorable to the Company.
The Company has entered into interest rate caps and corridors in an attempt to
minimize the impact of a potential significant rise in short-term interest
rates on the Company's outstanding floating rate debt. As of December 31,
1995, the Company had the following interest rate protection instruments: (1) a
$50,000,000 notional amount, interest rate corridor from 8%-10%, which is based
on the 3-month LIBOR rate and caps the Company's rate at 8% if the index rate
exceeds 8% but is less than 10%, and at LIBOR minus 2% if the rate exceeds 10%,
and expiring in December 1996; and (2) a $50,000,000 notional amount cap with a
strike rate of 9%, which will be permanently eliminated if rates exceed 11%,
based on the 3-month LIBOR rate and expiring in December 1997. The
combination of the above instruments protects a portion ($100,000,000 for one
year, and $50,000,000 for two years) of the Company's variable rate debt from a
potential significant rise in short-term interest rates. The Company was
required to pay up-front fees related to these instruments at inception of each
contract, which are being amortized straight-line over the term of each
contract.
Interest paid, net of amounts capitalized, amounted to approximately
$14,021,000, $12,957,000, and $12,580,000 in 1995, 1994, and 1993,
respectively. Interest capitalized amounted to $2,303,000, $2,030,000, and
$1,161,000, in 1995, 1994, and 1993, respectively.
52
<PAGE> 25
EXHIBIT 13
6. 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 $22,449,000, 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 $23,387,000, or $35.00 per share, in connection with the
acquisition of State National Capital Corporation. The shares have preference
in liquidation, and each share is entitled to one vote on any matters submitted
to a vote of the shareholders of the Company. In accordance with the
financial reporting requirements of the Securities and Exchange Commission, the
preferred stock has been classified outside of permanent equity as Redeemable
Preferred Stock.
Both the Company and the holders of the preferred stock have the right to
redeem any or all of the shares from time to time beginning five years and one
month after the date of issue in exchange for cash or shares of the Company's
common stock. The Company will determine the form of all redemptions, which
will consist of cash, common stock, or a combination of both. Generally, the
amount of consideration on the 1994-A Series will be equivalent to $35.00 per
share plus the amount of any accumulated and unpaid dividends; and for the
1994-B Series will be equivalent to $37.50 per share plus the amount of any
accumulated and unpaid dividends. In addition, each share of the 1994-A Series
and 1994-B Series is convertible, at the option of the shareholder, at any time
into one share of the Company's common stock (plus a corresponding attached
right to acquire a share of the Company's Series A Participating Cumulative
Preferred Stock). There is no sinking fund for the redemption of either series
of preferred stock.
Dividends shall be paid on the 1994-A Series at the rate of 6% per annum and on
the 1994-B Series at the rate of 5.6% per annum. Dividends accrue daily, are
cumulative, and are payable quarterly. Both the 1994-A Series and the 1994-B
Series are on a parity in rank with all other series of preferred stock of the
Company whether or not such series exist now or are created in the future, with
respect to payment of all dividends and distributions, unless a series of
preferred stock expressly provides that it is junior or senior to the 1994-A
and 1994-B Series. No dividends or distributions on the Company's common stock
shall be declared or paid until all accumulated and unpaid dividends on the
1994-A Series and 1994-B Series have been declared and set aside for payment.
7. COMMITMENTS AND CONTINGENCIES
In January 1996, a lawsuit was filed against the Company alleging breach of
contract in connection with an agreement to develop a state-of-art software
system to administer the Company's insurance operations. The suit was filed by
the software developer. Management of the Company, after consultation with
legal counsel, believes that the lawsuit filed against the Company is without
merit and intends to contest the suit vigorously. The Company believes the
suit filed against it was in response to a suit filed by the Company in
connection with failure of the software developer to deliver the system. The
suit against the software developer seeks to recover amounts paid to the
software developer, and other costs incurred by the Company, in the attempt to
develop the system (see Note 12 to the Consolidated Financial Statements
concerning the 1994 charge taken to write-off deferred system costs). The
Company believes it will be successful in its lawsuit against the software
developer; however, no estimated recovery is included in the accompanying
financial statements.
In December 1995, a lawsuit was filed against the Company alleging breach of
contract. The lawsuit relates to a transaction in which the Company was
unsuccessful in acquiring certain entities partially owned by the plaintiff.
Management, after consultation with legal counsel, believes the lawsuit is
without merit and intends to contest the suit vigorously.
The Company and its subsidiaries are also defendants in various lawsuits
arising primarily from claims made under insurance policies. Where applicable,
these lawsuits are considered in establishing the Company's policy liabilities.
It is the opinion of management and legal counsel that the settlement of these
actions will not have a material effect on the financial position or results of
operations of the Company.
The Company has lease agreements, primarily for branch offices, data processing
and telephone equipment, which expire on various dates through 2004, none of
which are material capital leases. Most of these agreements have optional
renewal provisions covering additional periods of one to ten years. All leases
were made in the ordinary course of business and contain no significant
restrictions or obligations. Future commitments under operating leases are not
material. Annual rental expense amounted to approximately $5,825,000,
$5,497,000, and $6,225,000 in 1995, 1994, and 1993, respectively.
Most states have laws requiring solvent life insurance companies to pay
guaranty fund assessments to protect the interests of policyholders of
insolvent life insurance companies. Due to the recent increase in the number
of companies that are under regulatory supervision, there is expected to be an
increase in assessments by state guaranty funds. Under present law, most
assessments can be recovered through a credit against future premium taxes.
The Company has reviewed its exposure to potential assessments, and the effect
on its financial position and results of operations is not expected to be
material.
At December 31, 1995, the Company had commitments for additional investments
and other items totaling $44,341,000.
53
<PAGE> 26
EXHIBIT 13
8. SHAREHOLDERS' EQUITY
On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting
Cumulative Convertible Preferred Stock having a total redemption value of
$20,999,475 or $35.00 per share in connection with the acquisition of WLOX-TV.
The shares have preference in liquidation, and each share is entitled to one
vote on any matters submitted to a vote of the shareholders of the Company.
Each share of preferred stock is convertible at the option of the holder into
one share of common stock. The Company has the right to redeem any or all of
the shares from time to time at any time beginning five years and one month
after the date of issue in exchange for cash, common stock, or a combination of
both. Generally, the amount of consideration on the 1995-A Series will be
equivalent to $35.00 per share plus the amount of any accumulated and unpaid
dividends. There is no sinking fund for the redemption of the preferred stock.
Dividends shall be paid on the preferred stock at the rate of 5% per annum.
Dividends accrue daily, are cumulative, and are payable quarterly. The 1995-A
Series preferred stock is on a parity in rank with all other series of
preferred stock of the Company whether or not such series exist now or are
created in the future, with respect to payment of all dividends and
distributions, unless a series of preferred stock expressly provides that it is
junior or senior to the 1995-A Series. No dividends or distributions on the
Company's common stock shall be declared or paid until all accumulated and
unpaid dividends on the 1995-A Series have been declared and set aside for
payment.
The Company has adopted a Shareholder Rights Plan and declared a dividend of
one preferred stock purchase right for each outstanding share of common stock.
Upon becoming exercisable, each right entitles the holder to purchase for a
price of $150.00 one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock. All of the rights may be redeemed by the Company at
a price of $.01 per right until ten business days (or such later date as the
Board of Directors determines) after the public announcement that a person or
group has acquired beneficial ownership of 20 percent or more of the
outstanding common shares ("Acquiring Person"). Upon existence of an Acquiring
Person, the Company may redeem the rights only with the concurrence of a
majority of the directors not affiliated with the Acquiring Person. The
rights, which do not have voting power and are not entitled to dividends,
expire on August 7, 2000. The rights are not exercisable until ten business
days after the public announcement that a person either (i) has become an
Acquiring Person, or (ii) has commenced, or announced an intention, to make a
tender offer or exchange offer if, upon consummation, such person or group
would become an Acquiring Person. If, after the rights become exercisable, the
Company becomes involved in a merger or certain other major corporate
transactions, each right will entitle its holder, other than the Acquiring
Person, to receive common shares with a deemed market value of twice such
exercise price.
There are 10,000,000 shares of preferred stock, no par value per share
authorized for issuance. At December 31, 1995, there were 1,862,318 shares of
preferred stock outstanding (See Note 6 for discussion of Redeemable Preferred
Stock), and 140,000 shares of preferred stock were reserved for issuance in
connection with the Shareholder Rights Plan.
Shareholders' equity as determined under generally accepted accounting
principles of the Company's insurance operations was $672,694,000 and
$525,478,000 at December 31, 1995 and 1994, respectively. The comparable
amounts as determined under statutory accounting practices were $166,469,000
and $161,023,000 at December 31, 1995 and 1994, respectively. The amount that
retained earnings exceed statutory unassigned surplus ($448,826,000) is
restricted and, therefore, not available for dividends. Without regulatory
approval, dividends are generally limited to prior year statutory gain from
operations.
The components of the balance sheet caption unrealized appreciation
(depreciation) on fixed maturity securities available for sale and equity
securities in shareholders' equity as of December 31 are as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value of securities $1,549,547 $ 961,237
Amortized cost of securities 1,451,961 1,025,638
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 97,586 (64,401)
Adjustment to deferred acquisition costs (7,948) 2,379
Deferred income taxes (net of a valuation allowance of $11,021 in 1994) (31,652) 8,913
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 57,986 $ (53,109)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
9. STOCK OWNERSHIP AND STOCK OPTION PLANS
The Company has a Performance Incentive Compensation Program (the "Program")
which provides that the Compensation Committee of the Board of Directors may
grant: (a) incentive stock options within the meaning of Section 422 of the
Internal Revenue Code; (b) non-qualified stock options; (c) performance units;
(d) awards of restricted shares of the Company's common stock; or (e) all or
any combination of the foregoing to officers and key employees. Only common
stock, not to exceed 2,800,000 shares, may be delivered under the Program; and
shares so delivered will be made available from the authorized but unissued
shares or from shares reacquired by the
54
<PAGE> 27
EXHIBIT 13
Company, including shares purchased in the open market. The aggregate number
of shares that may be acquired by any participant in the Program shall not
exceed 20% of the shares subject to the Program. As of December 31, 1995,
fifty-nine officers and employees were participants in the Program.
Restricted shares awarded to participants under the Program vest in equal
annual installments, generally over the five-year period commencing on the date
the shares are awarded. Non-vested shares may not be assigned, transferred,
pledged or otherwise encumbered or disposed of. During the applicable
restriction period, the Company retains possession of the certificates for the
restricted shares with executed stock powers attached. Participants are
entitled to dividends and voting rights with respect to the restricted shares.
Stock options under the Program are issued at 100% of the market price on the
date of grant, are vested over such period of time, which may not be less than
one year, as may be established by the Compensation Committee, and expire ten
years after the grant. Of the incentive stock options outstanding, 51,165 were
exercisable at December 31, 1995; 81,465 were exercisable at December 31, 1994;
and 116,240 were exercisable at December 31, 1993. Of the non-qualified
options outstanding, 290,480 were exercisable at December 31, 1995; 268,500
were exercisable at December 31, 1994; and 191,800 were exercisable at December
31, 1993. The options expire on various dates beginning February 12, 1996, and
ending August 15, 2005.
The following schedule summarizes activity in the Program during the three
years ending December 31, 1995.
<TABLE>
<CAPTION>
Restricted Shares Incentive Stock Options Non-Qualified Stock Options
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Market Price Number of Average Number of Average
Shares at Date Given Options Exercise Price Options Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding 1/1/93 271,850 191,700 $16.75 404,000 $22.26
Awarded 90,220 $29.23 --- 75,500 29.38
Vested (98,638) 31.43
Exercised (75,460) 14.80 (30,200) 20.20
Forfeited (4,749) 27.97 --- (3,200) 24.31
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/93 258,683 116,240 $18.02 446,100 $23.59
Awarded 108,835 25.78 --- 104,500 25.76
Vested (85,643) 26.90
Exercised --- (34,775) 17.35 (4,000) 25.63
Forfeited (19,241) 24.82 --- (6,000) 25.63
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/94 262,634 81,465 $18.31 540,600 $23.97
Awarded 108,915 26.35 --- 56,500 26.80
Vested (80,679) 24.98
Exercised (30,300) 17.98 (37,900) 21.20
Forfeited (15,826) 26.84 --- (46,000) 23.37
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/95 275,044 51,165 $18.50 513,200 $24.54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, there were 414,380 shares of the Company's stock reserved
for future grants under the Program.
10. EMPLOYEE BENEFITS
The Company has several postretirement plans that provide medical and life
insurance benefits for qualified retired employees. The postretirement medical
plans are generally contributory with retiree contributions adjusted annually
to limit employer contributions to predetermined amounts. The postretirement
life plans provide free insurance coverage up to a maximum of $5,000 for
retirees prior to January 1, 1993, of the Company with the exception of Cosmos,
whose retirees are insured with an outside company.
55
<PAGE> 28
EXHIBIT 13
Net periodic postretirement benefit cost was $1,506,000, $1,516,000, and
$1,477,000 for the years ended December 31, 1995, 1994, and 1993, respectively,
and included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------
(In $000's) Medical Life Medical Life Medical Life
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 140 $--- $ 139 $--- $ 129 $---
Interest cost 1,082 284 1,067 282 1,071 277
Amortization of
unrecognized
net loss --- --- 22 6 --- ---
- -----------------------------------------------------------------------------------------------
Net periodic
postretirement
benefit cost $1,222 $284 $1,228 $288 $1,200 $277
- -----------------------------------------------------------------------------------------------
</TABLE>
The following schedule reconciles the status of the Company's plans with the
unfunded postretirement benefit obligation included in its balance sheets at
December 31:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------
(In $000's) Medical Life Medical Life
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirees $12,632 $3,996 $12,457 $3,678
Fully eligible active plan participants 834 --- 771 ---
Other active plan participants 1,119 --- 920 ---
- ----------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 14,585 3,996 14,148 3,678
Unrecognized net gain (loss) 183 (265) (158) (80)
- ----------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligation $14,768 $3,731 $13,990 $3,598
- ----------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the weighted-average annual assumed rate of increase in
the per capita cost of covered medical benefits is 9.5% for 1996, and is
assumed to decrease by 0.5% per year to 8% in 1999, then decrease 1% per year
to 5.5% in 2002 and thereafter. At December 31, 1994, the health care cost
trend rate assumption was 10% and the rate graded down by 0.5% per year to 8%
in 1999, then decreased 1% per year to 6% in 2001 and thereafter. A 1%
increase in the per capita cost of health care benefits results in a $679,000
increase in the accrued postretirement benefit obligation and a $55,000
increase in postretirement benefit expense. The assumed weighted average
discount rate used in determining the accrued postretirement medical and life
benefit obligation was 7.5% and 8% at December 31, 1995 and 1994, respectively.
The Company has profit sharing plans for substantially all of its employees.
Contributions to these plans are made at the discretion of the Board of
Directors and are paid into a trust that is administered by a separate trustee.
Contributions for these plans were $5,067,000, $4,840,000, and $4,234,000, in
1995, 1994 and 1993, respectively.
The Company has a voluntary thrift and investment plan, qualified under Section
401(k) of the Internal Revenue Code, for substantially all of its employees.
The Company makes a matching contribution to the plan of up to 3% of the
employee's compensation. The Company's matching contribution percentage may be
changed at the discretion of each participating subsidiary's Board of
Directors. The Company's contributions for this plan were $2,102,000,
$2,148,000, and $2,020,000 in 1995, 1994, and 1993, respectively.
11. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $21,761 $12,625 $23,017
State 1,456 1,546 1,131
- --------------------------------------------------------------------------
Total current 23,217 14,171 24,148
Deferred:
Federal 6,226 (1,361) 2,217
State (1) (120) (128)
- --------------------------------------------------------------------------
Total deferred 6,225 (1,481) 2,089
- --------------------------------------------------------------------------
Total tax provision $29,442 $12,690 $26,237
- --------------------------------------------------------------------------
</TABLE>
56
<PAGE> 29
EXHIBIT 13
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31, 1995 and 1994,
are as follows:
<TABLE>
<CAPTION>
(In 000's) 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance operations deferred tax liabilities:
Deferred acquisition costs $ 98,190 $100,601
Policy liabilities 22,205 21,922
Market discount on investments 10,477 8,044
Tax over book partnership losses 2,909 4,651
Unrealized investment gains recognized in equity 31,652 ---
Non-insurance companies deferred tax liabilities:
Book over tax basis in acquired television station 21,836 ---
Tax over book depreciation 6,697 6,446
Tax over book amortization 4,594 4,485
- -----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $198,560 $146,149
- -----------------------------------------------------------------------------------------------------------
Insurance operations deferred tax assets:
Taxable income from financial reinsurance not included in income per books $ 1,680 $ 3,359
Employee benefit accruals 6,881 6,752
Unrealized investment losses recognized in equity --- 19,934
Other 4,093 7,930
Non-insurance companies deferred tax assets:
Net operating loss carryover 1,918 3,889
Other 1,905 3,441
- -----------------------------------------------------------------------------------------------------------
Total deferred tax assets before valuation allowance 16,477 45,305
Valuation allowance --- (11,863)
- -----------------------------------------------------------------------------------------------------------
Deferred tax asset net of valuation allowance 16,477 33,442
- -----------------------------------------------------------------------------------------------------------
Net deferred tax liability $182,083 $112,707
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the Company had unrealized gains from securities
classified as available for sale and equity securities of $97,586,000, for
which a deferred tax liability has been established. At December 31, 1994, the
Company had unrealized losses from securities classified as available for sale
and equity securities of $64,401,000. For financial reporting purposes, a
valuation allowance of $11,021,000 was established to offset a portion of the
deferred tax asset related to these unrealized losses. The Company also
established a valuation allowance of $842,000 in connection with certain
capital loss carryforwards in 1994. No valuation allowances were recognized at
December 31, 1995, because the December 31, 1994 unrealized losses and capital
loss carryforwards were offset against 1995 unrealized and realized gains.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
(In 000's) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Rate applied to pre-tax income before the cumulative
effect of accounting changes $31,078 $13,604 $27,063
Release of tax reserves (300) (500) (3,350)
Rate change expense on beginning deferred tax liability --- --- 3,216
Tax exempt interest and dividends (1,384) (1,765) (1,466)
State and local income taxes 948 928 652
Other (900) 423 122
- --------------------------------------------------------------------------------------------------
Provision for income taxes $29,442 $12,690 $26,237
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company has net operating loss carryforwards of $5,481,000 and $11,110,000
at December 31, 1995 and 1994, which will expire between the years 2006 and
2008. The utilization of these carryforwards are subject to special rules
which provide that these loss carryforwards can only be utilized through
earnings from the non-life insurance companies.
Income taxes paid were approximately $21,199,000, $21,911,000, and $18,437,000
in 1995, 1994, and 1993, respectively.
Under prior tax law, a portion of the life insurance subsidiaries' earnings was
not taxed when earned. Such accumulated income ("policyholders' surplus")
amounts to approximately $65,293,000 at December 31, 1983 and, under the Tax
Reform Act of 1984, was frozen at that amount. That amount is not taxable
unless it is distributed to the Company or unless it exceeds certain
limitations under the Internal Revenue Code. The Company does not intend to
take actions nor does it expect any events to occur that would cause tax to be
57
<PAGE> 30
EXHIBIT 13
payable on policyholders' surplus; therefore, no income tax provision on that
amount has been made in the accompanying financial statements. However, if
such taxes were assessed, the amount of the taxes payable would be
approximately $22,853,000.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations for each of the years ended December 31, 1995
and 1994, are as follows:
<TABLE>
<CAPTION>
Quarter Ended
- ------------------------------------------------------------------------------------------------------------
1995 (In 000's except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $143,485 $155,126 $153,233 $153,837
- ------------------------------------------------------------------------------------------------------------
Income before income taxes $ 16,080 $ 22,846 $ 23,622 $ 26,247
- ------------------------------------------------------------------------------------------------------------
Net income $ 10,538 $ 15,405 $ 15,218 $ 18,192
- ------------------------------------------------------------------------------------------------------------
Earnings per common share $ 0.49 $ 0.72 $ 0.70 $ 0.84
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Quarter Ended
- ------------------------------------------------------------------------------------------------------------
1994 (In 000's except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $119,621 $143,124 $141,562 $136,939
- ------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 16,135 $ 22,343 $ 19,631 $(19,241)
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $ 10,573 $ 14,600 $ 12,902 $(11,897)
- ------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share $ 0.53 $ 0.70 $ 0.62 $ (0.63)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The fourth quarter of 1994 contained an after-tax charge of $20,300,000 related
to two unique situations: a write-off of deferred costs connected with the
development of a software system for administration of the Company's insurance
business, and a decision to cease marketing products through the general agency
distribution system.
The write-off of the deferred systems costs was in connection with an agreement
with a software developer to develop a state-of-the-art software system to
handle the administration of the Company's insurance operations. After an
internal review of the project, the Company engaged an independent consultant
to provide an estimate of the value of the software. The value was less than
the cost previously deferred by the Company, resulting in an after-tax charge
to earnings of $13,600,000.
The Company's decision to cease sales of its products through its general
agency distribution system was due to the absence of critical volume. The
decision to close the general agency distribution system resulted in an
after-tax charge to earnings of $6,700,000 million, primarily to reduce
deferred acquisition costs no longer considered recoverable. For 1994,
approximately 2% of total premiums and policy charges were generated by the
general agency division.
13. STATUTORY RESULTS OF OPERATIONS
Statutory net income of the Insurance Group for each of the years ended
December 31, 1995, 1994, and 1993 was $32.4, $16.4 million, and $22.1, million,
respectively. The results of the insurance companies acquired (See Note 14)
are included in the above amounts from the date of acquisition.
14. ACQUISITIONS
In February 1995, the Company completed the acquisition of WLOX television
located in Biloxi, Mississippi. WLOX-TV is affiliated with the ABC television
network. This acquisition was accounted for as a purchase, and the results of
operations of WLOX have been included in the accompanying consolidated
financial statements since the date of acquisition. The purchase price of
$40.1 million was funded through a combination of proceeds from the Company's
credit facility totaling $5.6 million, a new class of convertible preferred
stock totaling $21.0 million (See Note 8), and notes payable totaling $13.5
million. The following unaudited proforma results of operations for the year
ended December 31, 1994, give effect to the acquisition of WLOX as though it
had occurred at the beginning of that year. Pro forma results are not
necessarily indicative of the results that actually would have occurred or that
will be obtained in the future.
58
<PAGE> 31
EXHIBIT 13
<TABLE>
<CAPTION>
(In 000's, except per share data) 1994 1994
- -----------------------------------------------------------------------------------------------
<S> <C>
Revenues $552,174
Net income $ 25,045
Earnings per share $ 1.12
- -----------------------------------------------------------------------------------------------
</TABLE>
In February 1994, the Company completed the acquisition of North American and
American Funeral, two pre-need companies which have significantly expanded the
Company's pre-need life insurance business.
North American was a holding company whose principal subsidiaries, Pan-Western
Life Insurance Company, Howard Life Insurance Company and Brookings
International Life Insurance Company, were providers of pre-need life
insurance. The acquisition added strategic midwest markets to Liberty's
pre-need territory. The $51.9 million purchase price was funded with proceeds
from the Company's credit facility. North American was relocated to
Greenville, South Carolina, in May 1994. Effective September 26, 1995,
Brookings was merged into Pan-Western. On September 27, 1995, Pan-Western was
merged into Pierce National Life Insurance Company.
American Funeral, previously headquartered in Amory, Mississippi, was one of
the largest providers of pre-need insurance. The $28.1 million purchase price
was funded through a combination of proceeds from the Company's credit facility
and a new class of redeemable preferred stock (see Note 6) issued at the time
of closing. Effective November 1, 1995, American Funeral was relocated to
Greenville, South Carolina and merged into Pierce National Life Insurance
Company.
In addition to the pre-need insurance acquisitions, the Company completed the
purchase of State National headquartered in Baton Rouge, Louisiana in April
1994. State National was the parent company of State National Life Insurance
Company, a home service company, and several other small subsidiaries. The
$27.5 million purchase price was funded through a combination of proceeds from
the Company's credit facility, a new class of redeemable preferred stock issued
at closing (see Note 6), and the issuance of 113,611 shares of common stock.
State National was relocated to Greenville, South Carolina, in August 1994 and
merged into Liberty Life.
In May 1994, the Company completed the purchase of a portion of the real estate
assets of SCANA Development Corporation, a subsidiary of SCANA Corporation for
approximately $43 million. The real estate assets acquired from SCANA
consisted of residential properties under development, undeveloped land held
for future development, business parks, and retail and office properties
(rental income producing). A substantial majority of the projects are located
in South Carolina. The purchase price was funded with proceeds from a
combination of internally generated funds and the Company's credit facility.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires
the disclosure of the estimated fair value of all financial instruments,
including both assets and liabilities unless specifically exempted. The
following methods were used to estimate the fair values of the Company's
financial instruments.
- - Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
- - Investment securities: Fair values for fixed maturity securities are
based on quoted market prices, where available. For fixed maturity
securities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows using
a current market rate applicable to the yield, credit quality, and
maturity of the investments. The fair values for equity securities are
based on quoted market prices.
- - Mortgage loans and policy loans: The fair values for mortgage loans and
policy loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers with
similar credit ratings. Loans with similar characteristics are aggregated
for purposes of the calculations.
- - Other long-term investments: Other long-term investments consist
primarily of venture capital investments and investments in oil and gas
producing property. The Company determined that it was not practicable to
estimate the fair values of its venture capital investments because of a
lack of primary and secondary market prices and the inability to estimate
fair values without incurring excessive costs. The Company's investment
in venture capital totaled $20,382,000 and $16,055,000 at December 31,
1995 and 1994, respectively.
- - Policy liabilities: Fair values for the Company's liabilities under
investment-type insurance contracts that are not subject to policyholder
mortality or morbidity risk are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with remaining maturities consistent with those for the
contracts being valued.
59
<PAGE> 32
EXHIBIT 13
- - Short and long-term debt: Substantially all of the Company's short and
long-term debt is floating rate debt. Accordingly, the carrying amount
approximates its fair value.
- - Other liabilities: Fair values on film contract obligations related to
the Company's broadcasting operations were determined by discounting
future cash flows using current fixed borrowing rates for similar types of
borrowing arrangements.
- - Interest Rate Swap: Fair value of the interest rate swap is based on an
estimate provided by the financial institution which is the counterparty
to the swap, and was determined by discounting the value of estimated
future cash flows.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in 000's) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturity securities
available for sale $1,467,039 $1,467,039 $883,029 $883,029
Fixed maturity securities
held to maturity --- --- 299,118 311,129
Equity securities 82,508 82,508 78,208 78,208
Mortgage loans 213,223 215,774 203,381 197,715
Policy loans 98,369 94,196 96,160 93,678
Other long-term investments 27,535 27,535 31,624 31,624
Short-term investments and cash 43,741 43,741 58,664 58,664
LIABILITIES
Investment-type insurance contracts 69,287 65,057 59,208 55,907
Notes, mortgages and other debt 158,444 158,444 131,647 131,647
Long-term debt 100,000 100,000 100,000 100,000
Film contract obligations included in other liabilities 7,462 6,611 5,365 4,963
Interest rate swap --- 1,416 --- ---
</TABLE>
SFAS No. 107 excludes insurance contract liabilities, except for
investment-type contracts, from the definition of financial instruments.
However, the fair value of the liabilities under all insurance contracts is
taken into consideration in the overall management of interest rate risk.
Because of the exclusion of the majority of the Company's insurance contracts
as well as other non-financial assets and liabilities from fair value
disclosure, care should be taken in deriving conclusions about the Company's
financial position based on the fair value information presented above.
16. BUSINESS SEGMENT INFORMATION
The Company is actively engaged through certain of its subsidiaries in two
major business segments: insurance and broadcasting. Sales between the
various subsidiaries of the Company are not material and are eliminated.
Information for these segments is contained in the Selected Financial Data on
page 40 and, with respect to the years 1993 through 1995, is incorporated by
reference.
60
<PAGE> 33
EXHIBIT 13
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements included in this Annual Report have been
prepared by management which is responsible for the integrity and fair
presentation of the financial data and related disclosures. The consolidated
financial statements are in accordance with generally accepted accounting
principles and necessarily include amounts that are based on management's
estimates and assumptions. Management believes that the consolidated financial
statements fairly reflect the Company's financial position and results of
operations.
To gather and control financial data, the Company maintains accounting systems
supported by internal controls that provide reasonable assurance over the
preparation of reliable financial statements. Management believes that a high
level of internal control is maintained by the selection and training of
qualified personnel, by the establishment and communication of accounting and
business policies, and by internal audits.
Ernst & Young LLP, independent auditors, are engaged to audit and to render an
opinion as to whether the Company's financial statements, considered in the
entirety, present the Company's financial condition and operating results
fairly. Their audit is conducted in accordance with generally accepted
auditing standards, and their report is included on this page.
The Audit Committee of the Board of Directors, composed of four outside
directors, reviews the Company's accounting and auditing policies and meets
regularly with the Company's internal audit staff and the independent auditors.
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
THE LIBERTY CORPORATION
We have audited the accompanying consolidated balance sheets of The Liberty
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Liberty Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for certain
investments in debt securities and, effective January 1, 1993, the Company
changed its methods of accounting for postemployment benefits and
postretirement benefits other than pensions.
/s/ Ernst & Young LLP
Greenville, South Carolina
February 9, 1996
61
<PAGE> 1
EXHIBIT 21
THE LIBERTY CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Percentage of Voting Stock
Jurisdiction of Incorporation Owned by Immediate Parent
----------------------------- --------------------------
<S> <C> <C>
A. The Liberty Corporation S. C.
B. Liberty Life Insurance Company S. C. 100
C. Orion Life Insurance Company Delaware 100
C. Park Avenue Associates, Inc. S. C. 100
C. Tanyard Creek Partnership S. C. 60
C. Exchange Place Corporation N. C. 100
C. Greensboro Holdings, Inc. S. C. 100
C. State National Fire Insurance Company Louisiana 100
C. State National Title Guaranty Company Louisiana 100
C. State National Mortgage Corporation Louisiana 100
B. Liberty Insurance Services Corporation S. C. 100
B. Pierce National Life Insurance Co. California 100
B. Delta National Life Insurance Company Louisiana 100
B. Cosmos Broadcasting Corporation S. C. 100
C. CableVantage Inc. S. C. 100
D. Special Services Corporation S. C. 100
D. Hampton Insurance Agency, Inc. S. C. 100
D. The Liberty Marketing Corporation S. C. 100
D. Bent Tree Corporation Georgia 100
D. TLC Business Ventures, Inc. S. C. 100
D. LC Insurance Limited Bermuda 100
D. Liberty Investment Group, Inc. S. C. 100
D. Liberty Capital Advisors, Inc. S. C. 100
D. Liberty Properties Group, Inc. S. C. 100
D. LPG Development Corporation S. C. 100
D. SouthChase Development Corporation S. C. 100
D. LIBCO of Florida, Inc. Florida 100
D. LPC of S. C., Inc. S. C. 100
D. Johnson/Liberty LLC S. C. 22
D. Commerce Center of Greenville, Inc. S. C. 100
D. Park Place Associates S. C. 50
D. Liberty Stone Associates, Inc. S. C. 50
</TABLE>
A. Separate condensed financial statements filed as a schedule to the
consolidated financial statements. Also included in the consolidated
financial statements.
B. Separate financial statements not filed. Included in the consolidated
financial statements.
C. Consolidated with the applicable parent.
D. Minor subsidiaries. Included in the condensed financial statements of
The Liberty Corporation.
62
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference and the inclusion herein in this
Annual Report (Form 10-K) of The Liberty Corporation of our report dated
February 9, 1996, included in the 1995 Annual Report to Shareholders of The
Liberty Corporation and included in Form 10-K in Exhibit 13.
Our audits also included the financial statement schedules of The Liberty
Corporation listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Post-Effective Amendment
No. 5 to the Registration Statement (form S-8 No. 2-53890) pertaining to the
Company's Stock Option Plan, in the Registration Statement (Form S-8 No.
33-34314) pertaining to the 1983 Performance Incentive Compensation Program, in
the Registration Statement (Form S-8 No. 33-34816) pertaining to The Liberty
Corporation and Adopting Related Employers' 401(k) Thrift Plan, in the
Registration Statement (Form S-8 No. 33-34814) pertaining to the Cosmos Profit
Sharing Retirement Plan and Trust, and in the Registration Statement (Form S-8
No. 33-34815) pertaining to The Liberty Corporation Profit Sharing Plan and
Trust of our report dated February 9, 1996 with respect to the consolidated
financial statements and schedules of The Liberty Corporation included and
incorporated by reference in the annual report on Form 10-K and our report
dated March 8, 1996 with respect to the financial statements and schedules
included in the annual report on Form 11-K of The Liberty Corporation and
Adopting Related Employers' 401(k) Thrift Plan for the year ended December 31,
1995.
/s/ Ernst & Young LLP
March 29, 1996
63
<PAGE> 2
EXHIBIT 24
SPECIAL POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, John R. Farmer, Director of The
Liberty Corporation, do hereby appoint Martha G. Williams and R. David Black,
or either of them, Special Attorney for me and in my name and on my behalf to
sign the Annual Report on Form 10-K and any amendments thereto for The Liberty
Corporation to be filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, for each fiscal year ended December 31, and
generally to do and to perform all things necessary to be done in the premises
as fully and effectually in all respects as I could do if personally present.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of
May, 1995.
/s/ John R. Farmer
-------------------
John R. Farmer
Director, The Liberty Corporation
A South Carolina Corporation
KNOW ALL MEN BY THESE PRESENTS that I, Benjamin F. Payton, Director of The
Liberty Corporation, do hereby appoint Martha G. Williams and R. David Black,
or either of them, Special Attorney for me and in my name and on my behalf to
sign the Annual Report on Form 10-K and any amendments thereto for The Liberty
Corporation to be filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, for each fiscal year ended December 31, and
generally to do and to perform all things necessary to be done in the premises
as fully and effectually in all respects as I could do if personally present.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of
May, 1995.
/s/ Benjamin F. Payton
---------------------------------
Benjamin F. Payton
Director, The Liberty Corporation
A South Carolina Corporation
64
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LIBERTY CORPORATION FOR THE YEAR ENDED DEC-31-1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 1,467,039
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 82,508
<MORTGAGE> 213,223
<REAL-ESTATE> 135,306
<TOTAL-INVEST> 2,023,980
<CASH> 43,741
<RECOVER-REINSURE> 275,090
<DEFERRED-ACQUISITION> 352,113
<TOTAL-ASSETS> 3,034,296
<POLICY-LOSSES> 1,811,417
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 24,356
<POLICY-HOLDER-FUNDS> 27,086
<NOTES-PAYABLE> 258,444
45,667
20,999
<COMMON> 158,735
<OTHER-SE> 396,028
<TOTAL-LIABILITY-AND-EQUITY> 3,034,296
331,370
<INVESTMENT-INCOME> 148,670
<INVESTMENT-GAINS> (2,913)
<OTHER-INCOME> 9,025
<BENEFITS> 236,774
<UNDERWRITING-AMORTIZATION> 43,780
<UNDERWRITING-OTHER> 122,286
<INCOME-PRETAX> 88,795
<INCOME-TAX> 29,442
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,353
<EPS-PRIMARY> 2.76
<EPS-DILUTED> 2.72
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
EXHIBIT 99-A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------
FORM 11-K
---------
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE LIBERTY CORPORATION
2000 WADE HAMPTON BOULEVARD
GREENVILLE, SOUTH CAROLINA 29615
FOR THE YEAR ENDED DECEMBER 31, 1995
---------
THE LIBERTY CORPORATION
AND ADOPTING RELATED EMPLOYERS'
401(K) THRIFT PLAN
THE LIBERTY CORPORATION
2000 WADE HAMPTON BOULEVARD
GREENVILLE, SOUTH CAROLINA 29615
-1-
65
<PAGE> 2
ITEM 1. CHANGES IN THE PLAN
None.
ITEM 2. CHANGES IN INVESTMENT POLICY
None.
ITEM 3. CONTRIBUTIONS UNDER THE PLAN
Contributions under the Plan by The Liberty Corporation (the "Company") and its
participating subsidiaries (the Company and the participating subsidiaries
being collectively referred to as the "employers") are measured by reference to
the employees' contributions which may be on a pre-tax or after-tax basis.
Employer matching contributions are made only on pre-tax employee contributions
in accordance with a formula set each year by the employer's board of
directors. During 1995, the Company and all participating subsidiaries,
contributed an amount equal to 100% of a participant's pre-tax contribution, up
to a maximum of 3% of the participant's compensation.
Employer matching contributions totaling $2,127,000 in 1995, $2,045,000 in
1994, $2,052,000 in 1993, $1,655,000 in 1992, and $1,388,000 in 1991, were
credited to the accounts of participating employees.
ITEM 4. PARTICIPATING EMPLOYEES
There were 1,927 enrolled participants in the Plan as of December 31, 1995.
-2-
66
<PAGE> 3
ITEM 5. ADMINISTRATION OF THE PLAN
(a) Parties responsible for the administration of the Plan are: (1) the Plan
Committee, made up of at least three members named by the Company, (2) the
Trustee and (3) the Plan Administrator which is named by the Plan
Committee.
The Plan Committee is responsible for the administration and operation of
the Plan, except as to responsibilities which have been specifically
assigned to the Trustee, to an Investment Manager, or to the Plan
Administrator. Present members of the Plan Committee, their positions
with the Company and its subsidiaries, and their addresses are as follows:
Jennie M. Johnson
President, Pierce National Life Insurance Company
Vice President, Administration
The Liberty Corporation
P.O. Box 789
Greenville, South Carolina 29602
Porter B. Rose
President
Liberty Insurance Services Corporation
Liberty Investment Group, Inc.
Chairman of the Board
Liberty Capital Advisors, Inc.
Liberty Properties Group, Inc.
P.O. Box 789
Greenville, South Carolina 29602
Susan W. Mink
Director, Human Resources
The Liberty Corporation
P.O. Box 789
Greenville, South Carolina 29602
Neil Smith
Vice President, Controller
Cosmos Broadcasting Corporation
P.O. Box 789
Greenville, South Carolina 29602
Martha G. Williams
Vice President, General Counsel and Secretary
The Liberty Corporation
P.O. Box 789
Greenville, South Carolina 29602
-3-
67
<PAGE> 4
The Trustee is responsible for the management, investment and control of
the assets of the Trust established by the Plan, and for the disbursements
of benefits therefrom, except to the extent that the Trustee may be
relieved of investment responsibility by the appointment of an Investment
Manager or by direction of the Plan Committee. The present Trustee is
Wachovia Bank of NC, N.A., P.O. Box 3099, Winston-Salem, North Carolina
27102. Wachovia Bank of NC, N.A., is also trustee under Profit-Sharing
Plans maintained by the Company and its subsidiaries for employees.
Neuberger & Berman Pension Management, Inc. ("Neuberger & Berman") is
Investment Manager of a portion of the Common Stock Fund, one of the four
funds comprising the Plan (see page 9, Notes to Financial Statements -
Description of Plan for further details). Neuberger & Berman's address is
522 Fifth Avenue, New York, New York 10036. Hellman, Jordan Management
Company, Inc. ("Hellman, Jordan") is also Investment Manager of a portion
of the Common Stock Fund. Their address is P.O. Box 389, Boston, MA
02101. Wachovia has investment responsibility for one of the Plan's other
three funds, The Liberty Corporation Stock Fund. Liberty Capital
Advisors, Inc., a subsidiary of the Company and a participating employer
of the Plan, was given investment responsibility of the Plan's Money
Market Fund, effective January 1, 1988 and of the Plan's Intermediate Bond
Fund, effective July 1, 1990. Liberty Capital Advisor's address is Post
Office Box 789, Greenville, South Carolina 29602.
The Plan Administrator is currently an Administrative Committee which is
responsible for the daily administration and operational functions of the
Plan, including filing all reports with governmental agencies, providing
Plan participants with information, preparing year-end reports to
participants, maintaining all required records, interpreting the
provisions of the Plan and settling disputes over the rights of employees,
participants and beneficiaries. Present members of the Administrative
Committee, their positions with the Company and its subsidiaries, and
their addresses are as follows:
Mary Anne Bunton, Assistant Vice President of the Benefits
Department of The Liberty Corporation, whose address is P.O. Box
789, Greenville, South Carolina 29602
Susan E. Cyr, Counsel and Assistant Secretary of the Legal
Department of The Liberty Corporation, whose address is P.O. Box
789, Greenville, South Carolina 29602
The Plan Committee members, the Trustee and the Administrative Committee
members do not have any positions or offices with the Company or any of
its affiliates except as indicated above.
(b) For the year ended December 31, 1995, expenses of administration of the
Plan of approximately $285,000, including fees and expenses of the Trustee
and two of the Investment Managers, Neuberger & Berman and Hellman,
Jordan, were paid out of the assets of the Plan. Expenses of Liberty
Capital Advisors were paid by the employers rather than out of the Plan
assets.
ITEM 6. CUSTODIAN OF INVESTMENTS
(a) Wachovia Bank of NC, N.A., P.O. Box 3099, Winston-Salem, North Carolina
27102 serves as Trustee of the Plan and the assets of the Plan.
(b) The Trustee received compensation from the assets of the Plan of $29,959
during the year ended December 31, 1995.
(c) No bond was furnished by the custodian (Wachovia).
ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES
Each Plan participant receives a quarterly statement showing the balance in his
Plan account (including a breakdown of the amounts invested in each investment
medium offered), amounts contributed by him and by his Employer, dividends,
interest and other gains credited to his account, any amounts forfeited or
otherwise charged against his account, and additional shares purchased if the
employee has elected to have some or all of his and his Employer's
contributions invested in the Company's stock. These individualized reports, a
copy of the proxy statement and a copy of the annual report are the reports
that were distributed to Plan participants during the year ended December 31,
1995.
-4-
68
<PAGE> 5
ITEM 8. INVESTMENT OF FUNDS
(a) Employee contributions and matching Employer contributions may be
invested in increments of 25% in: the Liberty Corporation Stock Fund which
consists solely of Company common stock, the Money Market Fund which
consists of various money market instruments and U.S. Government
securities, the Intermediate Bond Fund which consists of intermediate -
term government and good quality corporate bonds, or the Common Stock Fund
which consists of high quality common stock or securities convertible into
common stock, other than Company stock. For the years ended December 31,
1995, 1994, and 1993, there were no brokerage commissions paid by the Plan
for the Intermediate Bond Fund and the Money Market Fund, but there were
brokerage commissions paid by the Plan for the Common Stock Fund.
(b) No brokerage transactions effected for the Plan, during the three years
ended December 31, 1995, were directed to brokers because of research
services provided.
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(a) Financial Statements
Report of Independent Auditors 6
(The Consent of Independent Auditors is Exhibit 23 of
the Form 10-K of which this report is also an exhibit.)
Statements of Net Assets Available for Plan Benefits -
December 31, 1995 and 1994 7
Statements of Changes in Net Assets Available for Plan
Benefits - For the Years Ended December 31, 1995 and 1994 8
Notes to Financial Statements - December 31, 1995 9 to 13
Schedule of Assets Held for Investments - December 31, 1995 14 and 15
Schedule of Transactions or Series of Transactions in Excess
of 5% of the Current Value of Plan Assets - December 31, 1995 16
(b) Exhibits
None
</TABLE>
-5-
69
<PAGE> 6
REPORT OF INDEPENDENT AUDITORS
To the Administrative Committee of The Liberty Corporation
and Adopting Related Employers' 401(k) Thrift Plan
and Board of Directors
The Liberty Corporation
We have audited the accompanying statements of net assets available for plan
benefits of The Liberty Corporation and Adopting Related Employers' 401(k)
Thrift Plan as of December 31, 1995 and 1994, and the related statements of
changes in net assets available for plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial status of the Plan at December 31, 1995
and 1994, and the changes in its financial status for the years then ended, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment as of December 31, 1995 and transactions or
series of transactions in excess of 5% of the current value of plan assets for
the year then ended are presented for purposes of complying with the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1976 and are not a required part of
the basic financial statements. The supplemental schedules have been subjected
to the auditing procedures applied in our audit of the 1995 financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the 1995 financial statements taken as a whole.
/s/ Ernst & Young LLP
March 8, 1996
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<PAGE> 7
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1995 AND 1994
(IN $000'S)
<TABLE>
<CAPTION>
1995 1994
------------------------------------------ -----------------------------------------
LIBERTY MONEY COMMON INTER. LIBERTY MONEY COMMON INTER.
STOCK MARKET STOCK BOND STOCK MARKET STOCK BOND
FUND FUND FUND FUND TOTAL FUND FUND FUND FUND TOTAL
------ ------ ------ ------ ----- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ -- $ -- $ 1 $ -- $ 1 $ -- $ 10 $ 3 $ -- $ 13
Investments
Short-term investments
(total cost of $10,032 in
1995 and $6,129 in 1994) 9 8,405 605 1,013 10,032 12 4,224 982 911 6,129
The Liberty Corporation
common stock (total cost of
$9,049 in 1995 and $8,420
in 1994) 12,320 -- -- -- 12,320 9,004 -- -- -- 9,004
Other common stocks
(total cost of $21,658 in 1995
and $17,346 in 1994) -- -- 27,121 -- 27,121 -- -- 18,518 -- 18,518
Securities of US government and
agencies (total cost of $5,327
in 1995 and $9,306 in 1994) -- 1,757 -- 3,521 5,278 -- 5,699 -- 3,266 8,965
Corporate collateralized mortgage
obligations (total cost of $451
in 1995 and $193 in 1994) -- -- -- 459 459 -- -- -- 194 194
Corporate asset-backed securities
(total cost of $510 in 1995) -- 505 -- -- 505 -- -- -- -- --
Due from broker for securities sold -- -- 61 5 66 212 10 156 5 383
Participant loans receivable 869 916 1,483 121 3,389 831 971 1,383 143 3,328
Accrued investment income 63 86 51 41 241 55 113 24 43 235
------- ------- ------- ------ ------- ------- ------- ------- ------ -------
13,261 11,669 29,322 5,160 59,412 10,114 11,027 21,066 4,562 46,769
------- ------- ------- ------ ------- ------- ------- ------- ------ -------
LIABILITIES
Expenses payable 17 18 34 8 77 16 16 31 7 70
Due to broker for securities
purchased -- -- -- -- -- 212 10 192 -- 414
------- ------- ------- ------ ------- ------- ------- ------- ------ -------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $13,244 $11,651 $29,288 $5,152 $59,335 $9,886 $11,001 $20,843 $4,555 $46,285
======= ======= ======= ====== ======= ======= ======= ======= ====== =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-7-
71
<PAGE> 8
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN $000'S)
<TABLE>
<CAPTION>
1995 1994
----------------------------------------- -----------------------------------------
LIBERTY MONEY COMMON INTER. LIBERTY MONEY COMMON INTER.
STOCK MARKET STOCK BOND STOCK MARKET STOCK BOND
FUND FUND FUND FUND TOTAL FUND FUND FUND FUND TOTAL
------ ------ ------ ------ ----- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Income
Dividends
The Liberty Corporation
common stock $ 244 $ -- $ -- $ -- $ 244 $ 215 $ -- $ -- $ -- $ 215
Other stocks -- -- 372 -- 372 -- -- 268 -- 268
Interest on securities 2 634 94 280 1,010 1 492 68 239 800
Interest on participant loans 62 40 109 18 229 50 35 85 15 185
Miscellaneous -- -- -- 2 2 -- -- 4 3 7
-------- ------- ------- ------ ------- ------ ------- ------- ------ -------
TOTAL INVESTMENT INCOME 308 674 575 300 1,857 266 527 425 257 1,475
NET REALIZED AND UNREALIZED
APPRECIATION (DEPRECIATION) IN
FAIR VALUE OF INVESTMENTS 3,028 54 7,047 254 10,383 330 (206) (481) (251) (608)
CONTRIBUTIONS
Employer 460 443 970 254 2,127 477 408 913 247 2,045
Employee 851 725 1,844 481 3,901 872 675 1,686 475 3,708
-------- ------- ------- ------ ------- ------ ------- ------- ------ -------
TOTAL CONTRIBUTIONS 1,311 1,168 2,814 735 6,028 1,349 1,083 2,599 722 5,753
-------- ------- ------- ------ ------- ------ ------- ------- ------ -------
TRANSFERS FROM OTHER
QUALIFIED PLANS 3 39 16 6 64 3 4 13 2 22
TRANSFERS BETWEEN FUNDS (249) 373 122 (246) -- (25) 177 131 (283) --
WITHDRAWALS
BENEFITS PAID (1,020) (1,626) (1,911) (440) (4,997) (602) (998) (920) (261) (2,781)
PLAN EXPENSES (23) (32) (218) (12) (285) (23) (23) (184) (11) (241)
-------- ------- ------- ------ ------- ------ ------- ------- ------ -------
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS 3,358 650 8,445 597 13,050 1,298 564 1,583 175 3,620
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT BEGINNING OF YEAR 9,886 11,001 20,843 4,555 46,285 8,588 10,437 19,260 4,380 42,665
-------- ------- ------- ------ ------- ------ ------- ------- ------ -------
NET ASSETS AVAILABLE FOR PLAN
BENEFITS AT END OF YEAR $13,244 $11,651 $29,288 $5,152 $59,335 $9,886 $11,001 $20,843 $4,555 $46,285
======= ======= ======= ====== ======= ====== ======= ======= ====== =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-8-
72
<PAGE> 9
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting records of the Plan are maintained on the accrual basis.
Investments are carried in the financial statements at market value.
Securities traded on a national securities exchange are valued at the last
reported sales price on the last business day of the Plan year;
investments traded in the over-the-counter market and listed securities
for which no sale was reported on that date are valued at the average of
the last reported bid and ask prices. The difference between proceeds
received and the cost of investments sold is recognized as realized gains
(losses) in the statements of changes in net assets available for plan
benefits. Cost is determined based on the average cost method for The
Liberty Corporation (the "Company") stock, and the first-in, first-out
basis for other investments. The net change in the aggregate market value
of investments is reflected in the statements of net assets available for
plan benefits as unrealized gains (losses).
2. DESCRIPTION OF THE PLAN
The Plan was first offered to eligible employees beginning January, 1982.
Effective July 1, 1985, the Plan was amended to include a provision for a
"qualified cash or deferred arrangement" under Section 401(k) of the
Internal Revenue Code, to provide for the merger and consolidation of the
Cosmos Broadcasting Corporation Thrift and Investment Plan into the
Company's Plan and to rename the Plan "The Liberty Corporation and
Adopting Related Employers' 401(k) Thrift Plan". Any employee of the
Company or participating subsidiaries who (a) is at least 21 years old,
(b) works a minimum of 500 hours per year and (c) has completed at least
one year of service in which they worked at least 1,000 hours is eligible
to participate in the Plan. Subsidiaries of the Company presently
participating in the Plan consist of Liberty Life Insurance Company,
Special Services Corporation, Cosmos Broadcasting Corporation, Liberty
Capital Advisors, Inc., Liberty Properties Group, Inc., Liberty Insurance
Services Corporation, Liberty Investment Group, Inc., and Pierce National
Life Insurance Company. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). Administrative
costs of the Plan incurred are paid either out of Plan assets or by the
Company or its subsidiaries.
Participation in the Plan is voluntary and eligible employees may elect to
contribute up to a total of 13% of their compensation on either a pre-tax
or after-tax basis, or a combination of both, through payroll deductions.
Each participating employer makes matching contributions on pre-tax
employee contributions of up to 3% of each employee participants' annual
compensation. The matching percentage may be changed by resolution of the
Board of Directors of a participating company, effective at the beginning
of any plan year (January 1).
Each participant's account is credited with the participant's
contributions and allocations of (a) the Company's contributions and (b)
Plan earnings, and is charged with an allocation of administrative
expenses. Allocations are based on participant contributions or account
balances, as defined. Forfeited balances of terminated participants'
nonvested accounts are used to reduce future company contributions.
The Plan is comprised of four separate funds with different investment
alternatives. The Liberty Corporation Stock Fund ("Liberty Stock Fund")
invests in the common stock of The Liberty Corporation. The Money Market
Fund invests in certificates of deposit, government securities and other
money market instruments. The Intermediate Bond Fund invests in
intermediate term government and good quality corporate bonds with three
year to seven year average maturity. The Common Stock Fund invests in
common stock, or securities convertible into common stock, other than The
Liberty Corporation stock. Certain investments in the Money Market Fund
and idle investments waiting to be invested in stock in The Liberty Stock
Fund, Intermediate Bond Fund, and Common Stock Fund are invested in
short-term investments.
Employee participants may elect to invest their contributions in
increments of 25% in any fund. Beginning January 1, 1993, the plan was
changed to provide for the quarterly transfers of a participant's or
former participant's future and/or existing account balances under the
plan. Matching employer contributions will be invested in the same way as
the employee's pre-tax contributions upon which they are based. At
December 31, 1995, there were 1,927 active participants in the Plan of
whom 1,043; 887; 671 and 1,495 were electing to invest, either wholly or
partially, in the Liberty Stock Fund, Money Market Fund, Intermediate Bond
Fund and Common Stock Fund, respectively.
-9-
73
<PAGE> 10
Amounts credited to a participant's employee account, either before tax or
after tax, are fully vested at all times. Amounts credited to a
participant's employer matching account vest based on the total number of
years of service (as defined under the Plan) with the Company or its
Related Employers:
<TABLE>
<CAPTION>
NUMBER OF YEARS PERCENTAGE
OF SERVICE OF VESTING
------------------ ----------------
<S> <C>
Less than 3 years ---
3 years 25%
4 years 50%
5 years 75%
6 years 100%
</TABLE>
All amounts credited to a participant's employee (before tax or after tax)
and employer matching accounts are fully vested upon termination of
employment due to a participant's death, total disability or retirement,
or after a participant has completed six or more years of service.
A participant who has completed less than six years of service and is
terminated for any reason other than those mentioned above forfeits the
non-vested amounts in his employer matching account. All amounts credited
to the employee's account (before tax or after tax) and all vested amounts
credited to the employer's matching account are distributable upon
termination.
The Plan allows participants to obtain loans, within stated limits, from
the vested portion of their account balance. Repayment is required over a
period not to exceed five years, unless the loan is used for the purchase
of a principal residence. Interest is charged on outstanding loans at a
rate determined by the plan administrator.
-10-
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<PAGE> 11
3. INVESTMENTS
During 1995 and 1994, the Plan's investments (including investments
bought, sold, and held during the year) appreciated (depreciated) in value
by $10,383,000 and $608,000, respectively, as follows:
<TABLE>
<CAPTION>
NET APPRECIATION
(DEPRECIATION) IN FAIR VALUE
FAIR VALUE AT END OF
DURING YEAR YEAR
----------- ----
($000'S)
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
- ----------------------------
Short-term investments $ --- $10,032
The Liberty Corporation
common stock 3,028 12,320
Other common stock 7,047 27,121
U.S. Government and
agency securities 306 5,278
Collateralized mortgage obligations 7 459
Corporate asset-backed securities (5) 505
------- -------
$10,383 $55,715
======= =======
YEAR ENDED DECEMBER 31, 1994
- ----------------------------
Short-term investments $ --- $ 6,129
The Liberty Corporation
common stock 330 9,004
Other common stock (481) 18,518
U.S. Government and
agency securities (458) 8,965
Collateralized mortgage obligations 1 194
------- -------
$ (608) $42,810
======= =======
</TABLE>
The market value of individual investments that represent 5% or more of
the Plan's total assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------- -----------
($000'S)
<S> <C> <C>
Wachovia Short-Term Investment Fund $10,032 $6,129
The Liberty Corporation Common Stock 12,320 9,004
(365,042 shares and 354,830 shares
in 1995 and 1994, respectively)
</TABLE>
4. INCOME TAX STATUS
The Plan is an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974. The Plan has received a
determination letter from the Internal Revenue Service stating that the
Plan is qualified under Section 401(a) of the Internal Revenue Code, and
is not subject to income taxation. The Plan is required to operate in
conformity with the Internal Revenue Code to maintain its qualification.
The Plan Committee is not aware of any course of action or events that
have occurred that might adversely affect the Plan's qualified status.
-11-
75
<PAGE> 12
Contributions made by a participant and a participating Company on or
after July 1, 1985 which constitute employee before-tax contributions will
not be currently taxable to participants when they are contributed to the
Plan, assuming this part of the Plan constitutes a "qualified cash or
deferred arrangement" within the meaning of section 401(k) of the Code.
To constitute a "qualified cash or deferred arrangement," the ratio of
contributions to compensation for highly compensated eligible employees
must not exceed the ratio of contributions to compensation for the
non-highly compensated eligible employees by more than certain percentages
specified in section 401(k) and 401(m) of the Code. These percentage
tests have been satisfied, and the above tax consequences relating to
employee before tax contributions are based on the assumption that they
are governed by the provisions of section 401(k).
Participating Company matching contributions and investment earnings on
all contributions are not taxable to a participant until these amounts are
paid to the participant. The participating Company is entitled to a
business expense deduction for its contributions.
After-tax contributions (contributions not designated as employee
before-tax contributions) made by a participant are not deductible in
computing the participant's federal taxable income.
5. SOURCES OF CONTRIBUTIONS
The sources of contributions for the two years ended December 31, 1995,
consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
($000'S)
<S> <C> <C>
Employer:
The Liberty Corporation $ 125 $ 83
Liberty Life Insurance Company 1,113 1,180
Cosmos Broadcasting Corporation 497 460
Special Services Corporation 5 6
Liberty Capital Advisors, Inc. 13 12
Liberty Properties Group, Inc. 37 33
Pierce National Life Insurance Co. 80 41
Liberty Investment Group, Inc. 19 17
Liberty Insurance Services Corporation 238 213
Total employer contributions 2,127 2,045
------ ------
Employee:
The Liberty Corporation 263 180
Liberty Life Insurance Company 2,017 2,138
Cosmos Broadcasting Corporation 901 822
Special Services Corporation 8 12
Liberty Capital Advisors, Inc. 38 31
Liberty Properties Group, Inc. 73 62
Pierce National Life Insurance Co. 151 74
Liberty Investment Group, Inc. 36 32
Liberty Insurance Services Corporation 414 357
------ ------
Total employee contributions 3,901 3,708
------ ------
TOTAL CONTRIBUTIONS $6,028 $5,753
====== ======
</TABLE>
Forfeitures of non-vested balances in employer accounts of $112,000 in
1995 and $124,000 in 1994 were used to reduce employer contributions.
Additionally, amounts contributed by the employer during 1995 and 1994
included non-cash contributions of the Company's common stock which had a
market value, at date of contribution, of $1,561,000 and $1,579,000,
respectively. All other employer contributions were made in cash.
-12-
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<PAGE> 13
6. PRIORITIES ON TERMINATION OF PLAN
In the event that the Plan is terminated, all expenses will be paid and
the accounts of the affected participants will be proportionately adjusted
to reflect such expenses and all contributions and withdrawals up to the
date of termination. The Plan will then be revalued and each participant
will be paid all amounts credited to his accounts. The accounts of all
participants become fully vested as of the date of termination.
An exception to this method of distribution at termination is made for the
case in which termination is due to revocation of the Plan's exemption
from income taxes under Section 401 of the Internal Revenue Code. In that
case, all contributions, including those made by the employer, would be
returned to the respective contributors.
7. TRANSACTIONS WITH PARTIES-IN-INTEREST
During 1995 and 1994, the Plan purchased and sold securities of
parties-in-interest as summarized below:
<TABLE>
<CAPTION>
1995 1994
--------------------- ------------------------
SHARES OR SHARES OR
PRINCIPAL PRINCIPAL
AMOUNT COST AMOUNT COST
--------- --------- ---------- ---------
(IN $000'S, EXCEPT NUMBER OF SHARE DATA)
<S> <C> <C> <C> <C>
Common Stock of The Liberty Corporation:
Purchases 88,696 $ 2,535 88,755 $ 2,329
Sales 78,484 $ 1,910 60,251 $ 1,520
Short-term investments of Plan Trustee
(Wachovia Bank & Trust Co., N.A.):
Purchases $26,313 $26,313 $21,823 $21,823
Sales $22,410 $22,410 $21,649 $21,649
</TABLE>
The Plan also received dividends of $243,000 in 1995 and $215,000 in 1994
from The Liberty Corporation and interest of $499,000 in 1995 and $256,000
in 1994 from a short-term investment fund sponsored by the Plan trustee.
Liberty Capital Advisors, Inc., a subsidiary of The Liberty Corporation
and a participating employer in the Plan, was given investment
responsibility of the Money Market Fund effective January 1, 1988 and the
Intermediate Bond Fund effective July 1, 1990. All expenses for services
performed by Liberty Capital Advisors, Inc. were paid by the participating
employers.
8. AMOUNTS PAYABLE TO WITHDRAWN PARTICIPANTS
At December 31, 1995 and 1994, amounts payable to withdrawn participants
totaled $807,000 and $742,000, respectively. These amounts were disbursed
in the first quarter of the following year.
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<PAGE> 14
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1995
(IN $000'S EXCEPT NUMBER OF SHARES DATA)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF ISSUER AND OF BONDS & NOTES, PURCHASE MARKET
TITLE OF EACH ISSUE NUMBER OF SHARES PRICE VALUE
- ---------------------------------------------------- ---------------- -------- -------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Wachovia Short-Term Investment Fund $ 10,032 $10,032 $10,032
COMMON STOCKS
The Liberty Corporation 365,042 9,049 12,320
OTHER COMMON STOCKS
McDonnell Douglas Corp. 6,000 232 552
Rockwell Intl Corp. 8,000 285 423
Chrysler Corp. 21,300 945 1,174
Ford Motor Co 10,600 317 306
General Mtrs Corp. 11,000 503 582
Citicorp 14,000 550 942
Du Pont De Nemours & Co E I 8,500 557 594
Hercules Inc. 7,500 250 423
Monsanto Company 6,500 512 796
Bay Networks Inc. 9,450 128 389
Cisco Sys Inc. 3,100 72 231
Compaq Computer Corp. 14,000 644 672
Dell Computer Corporation 6,000 133 208
International Business Machs Corp 6,000 559 548
Seagate Technology 5,000 215 238
Microsoft Corp 4,300 261 377
Triple P N.V. 8,000 80 80
Colgate Palmolive Co. 8,500 567 597
Procter & Gamble Co. 6,000 339 498
Magainin Pharmaceuticals Inc. 8,000 81 105
DSC Communications Corp. 5,200 147 192
Ucar International Inc. 12,000 285 405
Avid Technology Inc. 2,800 84 53
Intel Corp. 18,000 572 1,022
Loral Corp. 15,000 263 531
Micron Technology Inc. 5,000 93 198
Tandy Corp. 5,100 252 212
Texas Instrs Inc. 15,800 908 814
Varian Assoc Inc. 12,000 582 574
Trump Hotels & Casino Resorts Inc 6,200 85 133
Merrill Lynch & Co Inc. 17,000 666 867
Morgan Stanley Group Inc 2,300 185 185
Paine Webber Group inc. 13,800 264 276
Travelers Group Inc. 5,500 252 345
Premark Intl Inc. 12,000 610 607
General Re Corp. 1,100 148 170
MBIA Inc. 8,500 464 637
Applied Matls Inc. 7,000 405 276
Varity Corp 10,000 372 371
Baxter Intl Inc. 15,000 533 628
Columbia/HCA Healthcare Corp. 17,000 554 863
Value Health Inc. 7,900 278 217
American Standard Companies Inc. 20,000 588 560
First USA Inc. 18,100 653 803
Atlantic Richfield Co. 2,100 231 233
Enron Oil & Gas Co. 14,000 304 336
Petro-Canada 25,000 125 144
Texaco Inc. 2,200 157 173
Kimberly Clark Corp. 11,700 642 968
Xerox Corp. 3,500 329 479
Time Warner Inc. 14,000 512 530
Liberty Ppty Tr. 11,700 228 243
GAP Inc. 6,600 310 277
Lowes Companies Inc. 7,000 191 234
Officemax Inc. 7,400 114 166
Rite-Aid Corp. 20,000 400 685
Goodyear Tire & Rubr Co. 12,000 429 545
Philip Morris Cos Inc. 7,000 449 632
UST, Inc. 7,000 192 234
Viacom Inc. 12,000 572 568
------- -------
TOTAL OTHER COMMON STOCK 21,658 27,121
------- -------
</TABLE>
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<PAGE> 15
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
ASSETS HELD FOR INVESTMENT (CONTINUED)
DECEMBER 31, 1995
(IN $000'S EXCEPT NUMBER OF SHARES DATA)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF ISSUER AND OF BONDS & NOTES, PURCHASE MARKET
TITLE OF EACH ISSUE NUMBER OF SHARES PRICE VALUE
- ---------------------------------------------------------------- ---------------- -------- --------
<S> <C> <C> <C>
SECURITIES OF UNITED STATES GOVERMENT & AGENCIES
United States Treasury Notes 4.375% due 08/15/1996 250 250 249
United States Treasury Notes 4.375% due 11/15/1996 500 498 496
United States Treasury Notes 4.25% due 12/31/1995 250 250 250
United States Treasury Notes 7.375% due 05/15/1996 750 780 756
United States Treasury Notes 7.50% due 01/31/1996 1,000 1,051 1,002
Federal Home Loan Banks Cons DB 6.85% due 02/25/1997 250 259 254
Federal National Mortgage Assn Deb 6.10% due 02/10/2000 500 516 510
Federal National Mortgage Corp 7.00% due 05/15/2020 262 251 264
Federal Home Loan Mortgage Corp 7.00% due 04/15/2002 400 417 413
Federal Home Loan Mortgage Corp 6.00% due 11/15/2006 350 334 351
Federal Home Loan Mortgage Corp 7.00% due 08/25/2005 127 121 130
Federal National Mortgage Assn 6.25% due 09/25/2007 300 296 304
Federal National Mortgage Assn 6.00% due 04/25/2001 300 304 299
------- -------
TOTAL SECURITIES OF UNITED STATES GOVERNMENT & AGENCIES 5,327 5,278
------- -------
COLLATERALIZED MORTGAGE OBLIGATIONS
Prudential Home Mtg Secs Co 7.75% 10/25/2024 200 193 206
Mississippi Home Corp 8.81% due 09/15/2011 250 258 253
------- -------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 451 459
------- -------
CORPORATE ASSET-BACKED SECURITIES
Sears Cr Account Tr 8.60% due 5/15/1998 500 510 505
TOTAL INVESTMENTS $47,027 $55,715
======= =======
</TABLE>
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<PAGE> 16
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
TRANSACTIONS OR SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT
VALUE OF PLAN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN $000'S, EXCEPT NUMBER OF SHARES DATA)
CATEGORY (III) - SERIES OF SECURITIES TRANSACTIONS
- --------------------------------------------------
<TABLE>
<CAPTION>
PURCHASE SALES EXPENSES
PARTY INVOLVED DESCRIPTION OF ASSETS PRICE PRICE INCURRED COST
- ------------------------ ------------------------------------------------ --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$26,313 principal amount, various interest rates $26,313 $ --- $--- $26,313
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$22,410 principal amount, various interest rates $ --- $22,410 $--- $22,410
The Liberty Corporation The Liberty Corporation Common Stock - 88,696 shares $ 2,535 $ --- $--- $ 2,535
The Liberty Corporation The Liberty Corporation Common Stock - 78,484 shares $ --- $ 2,246 $--- $ 1,910
<CAPTION>
VALUE ON REALIZED
TRANSACTION GAIN
PARTY INVOLVED DESCRIPTION OF ASSETS DATE (LOSS)
- ------------------------ ------------------------------------------------ ------------ ----------
<S> <C> <C> <C>
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$26,313 principal amount, various interest rates $26,313 $---
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$22,410 principal amount, various interest rates $22,410 $---
The Liberty Corporation The Liberty Corporation Common Stock - 88,696 share $ 2,535 $---
The Liberty Corporation The Liberty Corporation Common Stock - 78,484 share $ --- $336
</TABLE>
THERE WERE NO CATEGORY (I), (II), OR (IV) REPORTABLE TRANSACTIONS DURING 1995.
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80
