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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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) 609-8256
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION> 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, 1997:
Common Stock, No Par Value $875,806,661
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The number of shares outstanding of each of Registrant's classes of
common stock as of March 15, 1997:
Common Stock, No Par Value 20,249,865
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Liberty Corporation Annual Report to Shareholders for
the year ended December 31, 1996 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 6, 1997 are incorporated into Part III, Items
10, 11, 12, and 13 by reference.
This report is comprised of pages 1 through 86. 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"). In addition to Liberty Life and Pierce National, Liberty Insurance
Services Corporation ("Liberty Insurance Services") provides home office
support services for the Company's insurance operations as well as unaffiliated
life and health insurance companies. 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.
Additional information concerning Liberty's subsidiaries and divisions is
included in "Management's Discussion and Analysis" in the Company's 1996 Annual
Report to Shareholders, which is incorporated herein by reference.
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.
Prior to 1995, the Company had an aggressive acquisition policy focused on
both home service (agency) and pre-need businesses. While the Company has not
completed any insurance acquisitions since 1994, Liberty will continue to
consider acquisitions that complement or fit with the Company's existing
marketing divisions and product lines. The Agency Home Service division
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. Two acquisitions during 1994 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 acquired pre-need companies into Pierce National.
Management's philosophy regarding broadcasting acquisitions is to make
selective acquisitions in local markets where it can be among the dominant
television stations.
During 1996, Liberty decided to de-emphasize its real estate investments,
particularly as related to its business rental properties and land held for
future business park development. In March, 1997 Liberty announced it had
signed a contract to contribute substantially all of its business rental
properties to a real estate investment trust in exchange for shares of the
trust and cash. Additionally, the real estate investment trust agreed to
acquire most of Liberty's business park land development projects over a 10
year period. The transaction is expected to close around April 30, 1997 and
will result in a pre-tax gain. Cash received from the transaction is expected
to be used to initially repay debt.
The following page summarizes the Company's acquisitions since 1992.
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<TABLE>
Annual Premiums
INSURANCE ACQUISITIONS Date Acquired
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<S> <C> <C>
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 subsidiary, October 1992 $15 million (1)
Magnolia Life Insurance Company, a Louisiana based provider of
primarily home service life insurance
Acquisition of assets and block of insurance business from Estate April 1993 $7 million (2)
Assurance Company, a Louisiana based provider of pre-need life (includes $6 million
insurance 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 million of
subsidiaries based in Ohio, Colorado and South Dakota that single pay premiums)
provide primarily pre-need and other ordinary life insurance and
accident and health insurance
Acquisition of American Funeral Assurance Company, a Mississippi February 1994 $59 million (3)
based provider of primarily pre-need life insurance (includes $44 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. While Liberty Life is licensed in
forty-nine states, and the District of Columbia, its focus has been the
Southeast. For 1996, the largest percentages of its premium income were from
South Carolina (26%), North Carolina (21%), Louisiana (9%) and Florida (4%).
The Company believes that Liberty Life is the largest provider of home service
business in the Carolinas.
Life insurance and annuity premiums contributed 77% of Liberty Life's
total premiums in 1996, 84% in 1995 and 83% in 1994. 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 Agency
Home Service and Mortgage Protection divisions. At December 31, 1996, Liberty
Life had approximately 470 employees in its home office in Greenville.
AGENCY HOME SERVICE DIVISION. The Agency Home Service Division is Liberty
Life's largest division, contributing 64% of Liberty Life's premiums in 1996.
Agency 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 1996, the Company had approximately 1,350
agents, managers and support staff in this division operating out of 52
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 in the Southeast.
MORTGAGE PROTECTION DIVISION. The Mortgage Protection Division contributed
32% of Liberty Life's premiums in 1996. The Mortgage Protection Division sells
decreasing term life, accident and disability insurance designed to extinguish
the unpaid portion of a residential mortgage upon the death or disability of
the insured. 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 (doing business as FamilySide) 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-two states, the District of
Columbia, and ten Canadian provinces. The largest percentages of premium income
for 1996 came from Canada (15%), Mississippi (11%) and California (11%).
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At December 31, 1996, Pierce National employed approximately 50 people who
perform marketing, administrative and clerical duties. Policy administration
for Pierce National is performed by Liberty Insurance Services.
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) 1996 1995 1994
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<S> <C> <C> <C>
Liberty Life
Home Service $137,930 $138,714 $136,187
Mortgage Protection 70,316 53,105 49,985
General Agency Marketing 4,881 5,966 6,143
Other 3,591 3,235 1,384
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216,718 201,020 193,699
Pierce National 104,653 130,350 122,090
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Total $321,371 $331,370 $315,789
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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 $4.1 billion (20%) of
its $20.7 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, 1996, 1995, and 1994, Liberty had ceded
life insurance premiums of $27.3 million, $27.8 million, and $26.4 million,
respectively. Accident and health premiums ceded made up the remainder of ceded
premiums which were $9.2 million, $6.9 million, and $3.7 million for the years
ended December 31, 1996, 1995 and 1994, 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, 1996, 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, 1996 was $2.6
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 provided by Liberty Insurance Services at the home office in Greenville,
South Carolina. The Company's strategy is to consolidate the administrative
functions of its operations in order to have a unified service platform across
the business units and improve operating leverage through productivity
improvements.
Liberty Insurance Services provides administrative support services for
Liberty's approximately 2.6 million policies representing $20.7 billion of life
insurance in force, of which $4.1 billion of insurance in force has been ceded
to other companies. Approximately 158,000 policies representing $2.8 billion of
life insurance in force were issued during 1996. 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 technology to further improve efficiency in its
operations.
LIBERTY INSURANCE SERVICES. Liberty Insurance Services provides a wide
range of home office support services to the Company's insurance subsidiaries,
as well as for unaffiliated life and health insurance companies on a fee basis.
These services include underwriting, issuance 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. In marketing to unaffiliated life and health insurance
companies 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.
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.
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 second nationally in
pre-need market share.
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The Company currently believes that it ranks third nationally in mortgage
protection insurance with an estimated 17% market share. Slightly over 80% of
the mortgage protection market share is believed to be held by four companies
and 33% 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 Week published December 23,
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 basis 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 the insurance subsidiaries' 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 ("RBC") 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. The NAIC risk-based
capital model act or similar initiatives may be adopted by South Carolina or
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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, 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, 1996.
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 1997 by Liberty Life without approval from the South Carolina Insurance
Commissioner is $25.9 million. Actual dividends and distributions paid by
Liberty Life were $21.0 million in 1996, $20.0 million in 1995, and $20.3
million in 1994. 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 1997 will be $10.4
million. Pierce National did not pay any dividends to Liberty in 1996 and paid
$2.7 million in dividends in 1995.
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 three years 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 1996 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 812 full-time employees and 126 part-time employees, including
its cable sales operations in Columbia, SC, Florence, SC, Sumter, SC,
Montgomery, AL 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. 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, 1996:
<TABLE>
<CAPTION>
Year ended December 31 1996 1995 1994
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<S> <C> <C> <C>
Local and Regional Advertising 60% 60% 57%
National Spot Advertising 26 28 30
Network Compensation 8 9 7
Political Advertising 6 3 6
</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.
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
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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 and is based on the local market rating strength of the affiliate and
the audience it helps bring to the network programs.
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
10
<PAGE> 11
households. 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 57
Chairman of the Board of Liberty since May, 1995 Chairman of the Board of
Cosmos 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
H. RAY EANES, Age 56
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
JENNIE M. JOHNSON, Age 49
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 54
President of Cosmos since February, 1992
Vice President, Operations, of Cosmos from December, 1989 to February, 1992
RONALD F. LOEWEN, Age 49
President of Liberty Life since January, 1997 General Manager of WIS-TV from
April, 1990 to January, 1997
M. PORTER B. ROSE, Age 55
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 44
Controller of Liberty since September, 1994
Previously Vice President/Finance of Liberty Life Insurance Company
MARTHA G. WILLIAMS, Age 54
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
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.
INDUSTRY SEGMENT DATA
Information concerning the Company's industry segments is contained in
Selected Financial Data on page 36 of The Liberty Corporation Annual Report to
Shareholders and is filed as Exhibit 13 on page 35 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 34 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 36 of The
Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on
page 35 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 7-11, 14-16 and 19 of The Liberty Corporation
Annual Report to Shareholders and is filed as Exhibit 13 on pages 36-44 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 6, 12, 13, 17, 18, and 20-35 and of The Liberty
Corporation Annual Report to Shareholders and is filed as Exhibit 13 on pages
45-66 of this report and are incorporated in this Item 8 by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 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 6, 1997 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 6, 1997 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
6, 1997 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 6, 1997 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, 1996, filed as Exhibit 13 to this report and
incorporated in Item 8 by reference:
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - For Each of the Three Years Ended
December 31, 1996 Consolidated Statements of Cash Flows - For Each of
the Three Years Ended December 31, 1996 Consolidated Statements of
Shareholders' Equity - For Each of the Three Years Ended December 31,
1996 Notes to Consolidated Financial Statements - December 31, 1996
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
<TABLE>
<S> <C>
3.1 Restated Articles of Incorporation, as amended through March 15, 1995
(filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference)
3.2 Bylaws, as amended through November 5, 1996
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, 1996:
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, 1996 and 1995
Consolidated Statements of Income - For the three years ended December 31, 1996
Consolidated Statements of Cash Flows - For the three years ended December 31, 1996
Consolidated Statements of Shareholders' Equity - For the three years ended December 31, 1996
Notes to Consolidated Financial Statements - December 31, 1996
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, 1989
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, 1994
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, 1995
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, 1996
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
27. Financial Data Schedule (Electronic Filing Only)
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, 1996
(B). REPORTS ON FORM 8-K FILED IN 1996
None
(C). EXHIBITS FILED WITH THIS REPORT
3.2 Bylaws, as amended through November 5, 1996
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, 1996:
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, 1996 and 1995
Consolidated Statements of Income - For the three years ended December 31, 1996
Consolidated Statements of Cash Flows - For the three years ended December 31, 1996
Consolidated Statements of Shareholders' Equity - For the three years ended December 31, 1996
Notes to Consolidated Financial Statements - December 31, 1996
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, 1996.
27. Financial Data Schedule (Electronic Filing Only)
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, 1996
(D). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES FILED WITH THIS REPORT
I- Summary of Investments - December 31, 1996
II- Condensed Financial Statements of The Liberty Corporation (Parent Company) December 31, 1996 and 1995
III- Supplementary Insurance Information - For the Three Years Ended December 31, 1996
IV- Reinsurance - For the Three Years Ended December 31, 1996
V- Valuation and Qualifying Accounts and Reserves - For the Three Years Ended December 31, 1996 Schedule I
</TABLE>
17
<PAGE> 18
Schedule 1
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
DECEMBER 31, 1996
(In $000's)
<TABLE>
<CAPTION>
Amount at
Which Shown
Type of Investment Cost Value on Balance
Sheet
- --------------------------------------------------------------------------- ----------- ------------
<S> <C> <C> <C>
Fixed maturity securities, available for sale
Bonds:
United States Government and government agencies and
authorities $ 417,386 $ 433,418 $ 433,418
States, municipalities, and political subdivisions 50 51 51
Foreign governments 7,080 7,261 7,261
Foreign corporate and other 98,669 104,633 104,633
Public utilities 149,473 161,982 161,982
Convertibles and bonds with warrants attached -- -- --
All other corporate bonds 750,722 767,923 767,923
Redeemable preferred stocks 41,833 42,271 42,271
----------- ----------- -----------
Total 1,465,213 1,517,539 1,517,539
----------- =========== -----------
Equity securities, available for sale
Common stocks:
Public utilities -- -- --
Banks, trusts and insurance companies $ 4,568 $ 8,536 $ 8,536
Industrial, miscellaneous, and all other 18,374 28,689 28,689
Nonredeemable preferred stocks 38,489 38,366 38,366
----------- ----------- -----------
Total 61,431 $ 75,591 75,591
----------- =========== -----------
Mortgage loans on real estate 230,910 230,910
Investment real estate 132,696 132,696
Policy loans 98,816 98,816
Other long-term investments 22,470 22,470
Short-term investments 250 250
----------- -----------
Total investments $ 2,011,786 $ 2,078,272
=========== ===========
</TABLE>
18
<PAGE> 19
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
(In $000's, except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Cash $ 1,450 $ 466
Investment securities 600 679
Loans, notes and other receivables 7,890 9,953
Investment properties, at cost less accumulated depreciation of
$10,118 in 1996 and $8,432 in 1995 79,941 70,875
Other long-term investments 6,139 11,689
Buildings and equipment, at cost less accumulated depreciation of
$11,919 in 1996 and $9,863 in 1995 19,066 21,379
Investment in affiliated companies* 657,194 652,420
Intercompany debt and advances* 96,921 96,606
Income taxes recoverable 10,823 12,053
Deferred income tax benefits (liabilities) 1,026 (59)
Other assets 8,973 9,865
---------- ----------
Total Assets $ 890,023 $ 885,926
========== ==========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes, mortgages and other debt $ 243,221 $ 249,881
Accounts payable and accrued expenses 16,826 11,637
Other liabilities 221 287
---------- ----------
Total Liabilities 260,268 261,805
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, 592,334 and 594,126
shares issued and outstanding in 1996 and 1995, respectively 22,212 22,280
---------- ----------
Total Redeemable Preferred Stock 45,599 45,667
Shareholders' Equity:
Common stock
Authorized - 50,000,000 shares, no par value
Issued and Outstanding - 20,214,738 in 1996 and 20,060,629 in 1995 163,443 158,735
Convertible Preferred Stock, 1995-A Series,
599,985 shares issued and outstanding 20,999 20,999
Unearned stock compensation (7,168) (6,050)
Unrealized appreciation (depreciation) on fixed maturity securities
available for sale and equity securities of subsidiaries 39,726 57,986
Cumulative foreign currency translation adjustment (204) (999)
Retained earnings 367,360 347,783
---------- ----------
Total Shareholders' Equity 584,156 578,454
---------- ----------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $ 890,023 $ 885,926
========== ==========
</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, 1996
(In $000's)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Dividends from subsidiaries* $ 33,250 $ 45,331 $ 39,973
Interest-unaffiliated 676 1,151 553
Intercompany interest* 8,519 8,303 7,068
Realized investment losses (5,407) (3,195) --
Other 27,123 30,059 25,927
---------- ---------- ----------
Total Revenues 64,161 81,649 73,521
EXPENSES
Salaries and wages 18,240 9,803 7,526
Interest-unaffiliated 15,007 14,867 10,475
Intercompany interest* 2,471 4,072 3,145
Taxes and licenses 2,250 1,508 1,206
Depreciation and amortization 8,645 5,275 4,552
Other 10,621 20,874 22,051
---------- ---------- ----------
Total Expenses 57,234 56,399 48,955
Income before income taxes 6,927 25,250 24,566
Income tax benefits (9,786) (7,359) (5,880)
---------- ---------- ----------
Income before earnings of subsidiaries 16,713 32,609 30,446
Earnings of subsidiaries
net of dividends paid to parent* 21,230 27,928 (4,371)
---------- ---------- ----------
NET INCOME $ 37,943*** $ 60,537*** $ 26,075**
========== ========== ==========
</TABLE>
* Eliminated in consolidation.
** Differs from consolidated net income by $103 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 $603 and $1,184 in 1996 and
1995, respectively, 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, 1996
(In $000's)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 37,943 $ 60,537 $ 26,075
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,645 5,275 4,552
Provision for deferred income taxes (1,143) 2,740 2,754
Earnings from subsidiary operations, net of
dividends paid to parent (21,230) (27,928) 4,371
Gain on disposal of assets (3,172) (3,231) (2,989)
Realized investment losses 5,407 3,195 --
Change in operating assets and liabilities:
Increase in intercompany debt and advances* (79) (27,434) (9,426)
Decrease (increase) in accounts and notes
receivable 2,063 (1,209) (97)
Increase in accounts payable and
accrued expenses 5,189 2,478 2,212
Decrease (increase) in other assets 892 (1,250) (5,334)
Increase (decrease) in other liabilities, and
accrued income taxes 1,164 (5,927) (969)
Other (2,083) 1,144 (3,869)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 33,596 8,390 17,280
INVESTING ACTIVITIES
Additional investment in subsidiaries* -- -- (1,907)
Reduction in investment in subsidiaries* -- 4,048 10,000
Purchase of investment properties (22,556) (34,177) (33,198)
Sale of investment properties 13,982 31,997 15,125
Net cash paid on purchase of insurance business -- -- (65,212)
Net cash paid on purchase of broadcasting business -- (5,638) --
Other 1,270 (9,264) --
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,304) (13,034) (75,192)
FINANCING ACTIVITIES
Proceeds from borrowings 2,957,704 1,901,001 2,537,169
Principal payments on debt (2,966,087) (1,888,820) (2,462,620)
Dividends paid (18,366) (16,814) (14,358)
Stock issued for employee benefit and performance
incentive compensation programs 1,441 2,908 3,487
----------- ----------- -----------
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (25,308) (1,725) 63,678
INCREASE (DECREASE) IN CASH 984 (6,369) 5,766
Cash at beginning of year 466 6,835 1,069
----------- ----------- -----------
CASH AT END OF YEAR $ 1,450 $ 466 $ 6,835
=========== =========== ===========
</TABLE>
*Eliminated in consolidation
See notes to condensed financial statements.
21
<PAGE> 22
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NOTES, MORTGAGES AND OTHER DEBT
The general debt obligations at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Average
(In 000's) Interest Rate Amount
------------- --------
<S> <C> <C>
Notes due to banks 6.1% $240,000
Mortgage loans on investment property 8.0 3,221
========
$243,221
========
</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 1999. Borrowings under the new
facility were used to refinance indebtedness under the $325,000,000
facility, as well as to provide funds to meet working capital
requirements. 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, 1996 are as follows:
<TABLE>
<CAPTION>
(In 000's) Amount
---------- --------
<S> <C>
1997 $ 23,739
1998 21,214
1999 153,000
2000 20,268
2001 20,000
Thereafter 5,000
--------
$243,221
========
</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, 1996,
$5.5 million was outstanding under the letter of credit.
3. RETAINED EARNINGS
As of December 31, 1996 and 1995, retained earnings of
$367,360,000 and $347,783,000 respectively, in The Liberty Corporation
(Parent Company) financial statements differs from The Liberty
Corporation and Subsidiaries consolidated financial statements. The
difference of $3,295,000 and $2,692,000 at December 31, 1996 and 1995,
respectively, relates to the elimination of gains on intercompany
transactions on a consolidated basis.
22
<PAGE> 23
Schedule III
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(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, 1996
Life/Health Insurance $262,182 $70,764 $1,848,762 $4,411 $59,938
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
</TABLE>
<TABLE>
<CAPTION>
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
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Life/Health Insurance $321,371 $150,413 $218,751 $73,967 $140,294 $50,523
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
</TABLE>
23
<PAGE> 24
Schedule IV
THE LIBERTY CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(In $000's)
<TABLE>
<CAPTION>
Amount Percentage of
Ceded to Assumed Amount
Gross Other From Net Assumed to
Amount Companies Companies Amount Net
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Life insurance in force $20,696,527 $4,087,097 $13,099 $16,622,529 0.1%
====================================================
Insurance premiums and policy charges:
Life, annuity and other considerations $ 298,327 $ 27,293 $ 234 $ 271,268 0.1%
Accident and health 58,333 9,205 975 50,103 1.9%
----------------------------------------------------
TOTAL $ 356,660 $ 36,498 $ 1,209 $ 321,371
====================================================
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
====================================================
</TABLE>
24
<PAGE> 25
Schedule V
THE LIBERTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(In the 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, 1996
Accounts receivable - 20(b)
reserve for bad debts $ 1,975 $ 567 $ 101 $ 313(a) $ 2,310
-------- -------- -------- -------- --------
Notes and other loans receivable -
discounts $ -- $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
Investment properties -
valuation reserves $ -- $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
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 $ -- $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
</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 25th day
of March, 1997
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 25th day of March, 1997.
<TABLE>
<S> <C>
By: /s/ John P. Smith *By: /s/ William O. McCoy
-------------------- --------------------
John P. Smith William O. McCoy
Corporate Controller Director
By: /s/ H. Ray Eanes *By: /s/ Buck Mickel
---------------------- ---------------
H. Ray Eanes Buck Mickel
Sr. Vice President Finance & Treasurer Director
*By: /s/ Rufus C. Barkley, Jr. *By: /s/ John H. Mullin III
------------------------- ----------------------
Rufus C. Barkley, Jr. John H. Mullin III
Director Director
*By: /s/ Edward E. Crutchfield *By: /s/ Benjamin F. Payton
------------------------- ----------------------
Edward E. Crutchfield Benjamin F. Payton
Director Director
*By: /s/ John R. Farmer *By: /s/ J. Thurston Roach
------------------ ---------------------
John R. Farmer J. Thurston Roach
Director Director
*By: /s/ Lawrence M. Gressette, Jr. *By: /s/ Martha G. Williams
------------------------------ ----------------------
Lawrence M. Gressette, Jr *Martha G. Williams, as
Director Special Attorney in Fact
By: /s/ Hayne Hipp *By: /s/ Eugene E. Stone, IV
-------------- -----------------------
Hayne Hipp Eugene E. Stone, IV
Director Director
*By: /s/ W. W. Johnson
------------------
W. W. Johnson
Director
</TABLE>
26
<PAGE> 27
Annual Report on Form 10-K
The Liberty Corporation
December 31, 1996
Index to Exhibits
<TABLE>
<CAPTION>
Exhibits Page Number
-------- -----------
<S> <C> <C>
3.2 Bylaws, as amended through November 5, 1996 28-32
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation 33
13. Portions of The Liberty Corporation Annual Report to Shareholders
for the year ended December 31, 1996:
Market for the Registrant's Common Stock and Related Security Stockholder Matters 34
Selected Financial Data 35
Management's Discussion and Analysis of Financial Condition and Results of Operations 36-44
Financial Statements and Supplementary Information:
Consolidated Balance Sheets - December 31, 1996 and 1995 45-46
Consolidated Statements of Income - For the three years ended December 31, 1996 47
Consolidated Statements of Cash Flows - For the three years ended December 31, 1996 48
Consolidated Shareholders' Equity - For the three years ended December 31, 1996 49
Notes to Consolidated Financial Statements - December 31, 1996 50-65
Report of Independent Auditors 66
21. The Liberty Corporation and Subsidiaries, List of Significant Subsidiaries 67
23. Consent of Independent Auditors 68
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, 1996. 69
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, 1996 70-86
</TABLE>
27
<PAGE> 1
Exhibit 3.2
THE LIBERTY CORPORATION
BYLAWS
ARTICLE I - SHAREHOLDERS
Section 1. Annual Meetings. The annual meeting of the shareholders of
the Company shall be held on such day during the first one hundred and fifty
days of the calendar year as the Board of Directors may determine.
Section 2. Special Meetings. Special meetings of the shareholders may
be called at any time by a majority of the Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President, or upon request of
shareholders holding at least one-tenth of the outstanding stock of the Company
entitled to vote at such meeting.
Section 3. Place of Meetings. Each annual and special meeting of the
shareholders shall be held at the principal office of the Company, or at such
other place within or without the State of South Carolina as shall be
designated by the Board of Directors or the officer calling such meeting.
Section 4. Notice of Meetings. Written or printed notice stating the
place, day and hour of meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be mailed by or at
the direction of the Secretary, an Assistant Secretary or officer calling the
meeting, not less than ten nor more than fifty days before the date of the
meeting, to each shareholder of record, addressed to him at his address as it
appears on the stock books of the Company, as of the date set pursuant to
Section 4 of Article VI hereof.
Section 5. Proxies. At a meeting of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder and filed with the
Secretary of the Company, bearing date within eleven months prior to the
meeting unless a longer period is provided therein and is permitted by law.
Section 6. Quorum. A majority of the issued and outstanding shares
of the Company, present in person or by proxy and entitled to vote thereat,
shall constitute a quorum at a meeting of shareholders.
Section 7. Voting. Subject to the laws of the State of South Carolina
with respect to multiple ownership of stock and the provisions of the Articles
of Incorporation and Article VI hereof, each shareholder shall be entitled to
one vote for each share of stock standing in his name on the books of the
Company. Only those whose names appear as shareholders on the books of the
Company, or their proxies or legal representatives, shall be entitled to vote
or to participate in any meeting of shareholders. A majority of the votes cast
at a duly called meeting at which a quorum is present shall decide any question
that may come before the meeting, except as otherwise provided by law, these
Bylaws or the Articles of Incorporation of the Company.
Section 8. Control Share Statute. Article 1 of Title 36, Chapter 2 of
the Code of Laws of South Carolina 1976 does not apply to control share
acquisition of shares of this Corporation (as defined in such Article).
Section 9. Shareholder Nominations and Proposals. At a meeting of the
shareholders, only such business shall be conducted which has been properly
brought before the meeting. To be properly brought before a meeting, business
must be specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
otherwise properly brought before the meeting by a shareholder.
For business to be properly brought before a meeting by a shareholder,
the Secretary of the Company must have received written notice thereof from the
shareholder describing the nomination or proposal not less than sixty days nor
more than ninety days prior to the meeting; provided, however, that in the
event less than fifty days' prior public disclosure of the date of the meeting
is given or made by the Company, the required notice by the shareholder of such
nomination or proposal to be timely must be received by the Secretary of the
Company no later than the close of business on the tenth day following the date
on which such public disclosure was made.
In the case of shareholder nominations for election to the Board of
Directors, the shareholder's notice to the Secretary shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or
re-election as a director: (i) the name, age, business address and, if known,
residence address, (ii) the principal occupation or employment for the past
five years, (iii) the class and number of shares of the Company which are
legally or beneficially owned, (iv) other directorships held, (v) the names of
28
<PAGE> 2
Exhibit 3.2
business entities of which each such nominee owns a ten percent or more legal
or beneficial interest, and (vi) all other information with respect to the
nominees required by the Federal proxy rules in effect at the time the notice
is submitted; and (b) as to the shareholder giving the notice (i) the name and
record address of the shareholder and (ii) the class and number of shares of
capital stock of the Company which are legally or beneficially owned by the
shareholder. In addition, the notice shall be accompanied by a written
statement of each proposed nominee consenting to the proposed nomination,
agreeing to serve as a director if elected, and confirming the accuracy of the
information relating to the proposed nominee as set forth in the notice. The
Company may require any proposed nominee to furnish such other information as
may be reasonably required to determine the eligibility of such nominee to
serve as a director of the Company. No person shall be eligible for election as
a director of the Company unless nominated in accordance with the procedures
set forth herein.
In the case of shareholder proposals other than the election of
directors, the shareholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before the meeting (i) a brief description of the
business to be brought before the meeting, (ii) the name, business and
residence address of each of the shareholders submitting the proposal, (iii)
the principal occupation or employment of that shareholder, (iv) the class and
number of shares of the Company which are legally or beneficially owned by such
shareholder, (v) any material interest of the shareholder in such business, and
(vi) such other information as the Board of Directors reasonably determines is
necessary or appropriate.
The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a shareholder nomination or proposal was not made
in accordance with the procedures prescribed in these Bylaws or is otherwise
not in accordance with law. If the Chairman should so determine, he shall so
declare to the meeting and the defective nomination or proposal shall be
disregarded. Notwithstanding anything in these Bylaws to the contrary, no
elections or other business shall be conducted at any meeting of the
shareholders except in accordance with the procedures set forth in Section 9 of
Article I hereof.
ARTICLE II - DIRECTORS
Section 1. General Powers and Authority. The business and property of
the Company shall be managed by the Board of Directors and they shall and may
exercise all powers and authority of the Company except as limited by law, the
Articles of Incorporation, or elsewhere by these Bylaws. They shall have power
and authority to make all necessary rules and regulations for their government
and for the regulation of the business of the Company which are not
inconsistent with the Articles of Incorporation and these Bylaws, and shall
have general management and control of the Company. The Board of Directors may
delegate from time to time to any committee, officer or agent, such power and
authority as permitted by law.
Section 2. Number, Election and Terms. Except as otherwise fixed
pursuant to Article 4 of the Restated Articles of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation (the "Preferred Stock") to
elect additional directors under specified circumstances, the number of
directors shall be 12; provided however, that the number of directors may be
fixed from time to time at any number, not less than 9 nor more than 16, by
resolution adopted by the Board of Directors. The directors, other than those
who may be elected under specified circumstances by the holders of any class or
series of Preferred Stock, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
of members as possible, as determined by the Board of Directors. One such class
shall hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1986, another class shall hold office initially for
a term expiring at the annual meeting of shareholders to be held in 1987, and
another class shall hold office initially for a term expiring at the annual
meeting of shareholders to be held in 1988. At each annual meeting of
shareholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year following the year of their
election, and the successor to any director previously elected by the directors
pursuant to Section 3 below as a member of a class whose term is not expiring
at that meeting shall be elected by the shareholders for the remainder of the
full term of the class of directors in which the new directorship was created
or the vacancy occurred. The members of each class of directors shall hold
office until their successors are elected and qualified or until their earlier
resignation, disqualification, disability, death or removal from office.
Section 3. Newly Created Directorships and Vacancies. Except for any
directors who may be elected under specified circumstances by the holders of
any class or series of Preferred Stock, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office until the next shareholders' meeting at which directors of
any class are elected and until such director's successor shall have been
elected and qualified, or until his earlier resignation, disqualification,
disability, death or removal from office. At the time of any increase in the
number of directors, except in the case of directors elected in specified
circumstances by the holders of any class or series of
29
<PAGE> 3
Exhibit 3.2
Preferred Stock, the Board of Directors shall specifically allocate the
additional directorships among the three classes so as to make the three
classes as nearly equal in number of members as possible. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director, but subject to this restriction, the Board of
Directors shall effect and allocate any decrease in the number of directors in
a manner and at such time or times so as to keep the three classes as nearly
equal in number of members as possible.
Section 4. Removal. Except for any directors who may be elected under
specified circumstances by the holders of any class or series of Preferred
Stock, any director may be removed from office, without cause, only by the
affirmative vote of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
Section 5. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the date, time and place, either within
or without the State of South Carolina, for the holding of additional regular
meetings without other notice than such resolution.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Executive Committee, the Chairman of the Board,
the Vice Chairman of the Board, the Chief Executive Officer or upon request of
a majority of the Board, and may be held at such time and place, either within
or without the State of South Carolina, as may be specified in the notice
thereof. To the extent permitted by applicable law, special meetings of the
Board of Directors, or of any committee thereof, may be held by conference
telephone communication.
Section 7. Notice of Meetings. Notice of each special meeting of the
Board of Directors, stating the time, manner and place where the meeting is to
be held, shall be given by or at the direction of the Secretary or an Assistant
Secretary by mailing the same to each director at his residence or business
address not less than three days before such meeting, or by giving the same to
him personally or telegraphing or telephoning the same to him at his residence
or business address not later than the day before the day on which the meeting
is to be held. Any and all requirements for call and notice of meetings may be
dispensed with if all directors are present at the meeting or if those not
present at the meeting shall at any time waive or have waived notice thereof.
Section 8. Quorum and Manner of Action. A majority of the number of
directors then in office shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. Except as otherwise provided
in the Restated Articles of Incorporation, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 9. Compensation. The directors shall receive such fees,
retainers, expenses and the like for attendance at meetings of the Board and
performance of their duties, as may be determined by the Board of Directors;
provided, however, that no salaried officer shall receive a fee or retainer for
attendance at such meetings or performance of such Board duties.
ARTICLE III - COMMITTEES
Section 1. Executive Committee. The Executive Committee shall consist
of not less than two members, all of whom shall be members of the Board of
Directors. Except as otherwise limited by law, the Executive Committee shall be
vested with full authority to act for and on behalf of the Board of Directors
in the management of the business and affairs of the Company and to do all
things, including actions specified by these Bylaws to be performed by the
Board of Directors, in the same manner and with the same authority and effect
as if such acts had been performed by the Board of Directors.
The members of the Executive Committee shall be elected by the Board
of Directors and shall serve at the pleasure of the Board of Directors. The
Board of Directors shall designate the chairman of such committee, or if for
any reason the Board shall fail to designate the chairman, then such committee
shall elect its own chairman. Meetings of each such committee shall be held at
such times and places as may be determined by its chairman or as may be agreed
upon by members of the committee. A quorum at any meeting of such committee
shall consist of a majority of the committee, and any action taken by such
committee shall require the assent of at least a majority of the members who
are present. Notice of meetings shall be given in the same manner as for
special meetings of the Board of Directors. Any action taken by the Executive
Committee shall be deemed to be action taken by the Board of Directors and
shall be binding on the Company, but the Board of Directors shall at all times
have the power to reverse and overrule any action taken by such committee,
provided that the exercise of such power by the Board of Directors shall not in
any way abrogate the obligations or duties owing by the Company to third
parties who have acted in reliance on the action taken by such
30
<PAGE> 4
Exhibit 3.2
committee. All proceedings by such committee and all action taken by each such
committee shall be reported to the Board of Directors at the meeting of the
Board of Directors next following such proceedings or action.
Section 2. Other Committees. There shall be such other committees
consisting of directors, officers and employees of the Company as the Board of
Directors, chairman of the Board, or the Chief Executive Officer of the Company
may appoint from time to time.
Section 3. Compensation. Members of committees shall receive such
fees, retainers and expenses for attendance at committee meetings and
performance of committee duties as may be determined by the Board of Directors;
provided, however, that no salaried officer of the Company shall receive a fee
or retainer for attendance at such meetings or performance of such committee
duties.
ARTICLE IV - OFFICERS
Section 1. Designation and Number. The officers of the Company shall
be a Chairman of the Board, a Chief Executive officer, a President, one or more
Vice-Presidents, a Secretary, a Treasurer, and a controller, with such
designation of rank, powers and duties as the Board of Directors may from time
to time designate and determine. Such other officers or assistant officers as
may be deemed necessary may be elected or appointed by the Board of Directors
with such duties and powers as the Board may from time to time designate and
determine. Any two or more of said offices may be held by one person at the
same time, except that the Chairman, Chief Executive Officer, or President may
not also be the Secretary or Treasurer.
Section 2. Election and Tenure. The officers of the Company shall be
elected annually at the first regular meeting of the Board of Directors held
after each annual meeting of shareholders, or at a special meeting called for
that purpose if for any reason officers should not be elected at such first
meeting, and shall hold office until the first regular meeting of the Board of
Directors held after the next annual meeting of shareholders and their
successors are duly elected and qualified; provided, however, that any officer
may be removed from office by the Board of Directors at any regular or special
meeting, meeting, and any vacancy in any office, however caused, may be filled
by the Board of Directors at any regular or special meeting.
Section 3. Duties of Officers. The Board of Directors shall, from time
to time, in its discretion, designate and prescribe the duties incident to each
office, and it may, at any time, expressly authorize any officer to perform any
duty or function which is usually performed by any other officer.
Section 4. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors or by a committee of the Board. No
officer shall be prevented from receiving such salary by reason of the fact
that he is also a director of the Company.
ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the extent permitted by and subject to the laws of the State of
South Carolina, any present or former director, officer or employee of the
Company, or any person who, at the request of the Company, express or implied,
may have served as a director or officer of another Company in which this
Company owns shares or of which this Company is a creditor, shall be entitled
to reimbursement of expenses and other liabilities, including attorney's fees
actually and reasonably incurred by him and any amount owing or paid by him in
discharge of a judgment, fine, penalty of costs against him or paid by him in a
settlement approved by a court of competent jurisdiction, in any action or
proceeding, including any civil, criminal or administrative action, suit,
hearing or proceeding, to which he is a party by reason of being or having been
a director, officer or employee of this or such other Company.
To the extent permitted by and subject to the laws of the State of
South Carolina, the Company is authorized to purchase and maintain insurance on
behalf of any present or former director, officer, or employee of the Company,
or any person who, at the request of the Company, express or implied, may have
served as a director or officer of another company in which this Company owns
shares or of which this Company is a creditor, against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such together with such costs, fees, penalties, fines and the like
with respect thereto, all as set forth hereinabove.
This section is not intended to extend or to limit in any way the
rights and remedies provided with respect to indemnification of directors,
officers, employees, and other persons provided by the laws of the State of
South Carolina but is
31
<PAGE> 5
Exhibit 3.2
intended to express the desire of the shareholders of this Company that
indemnification be granted to such directors, officers, employees and other
persons to the fullest extent allowable by such laws.
ARTICLE VI - CAPITAL STOCK
Section 1. Certificates of Stock. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and every holder of
uncertificated shares, upon request, shall be entitled to have a certificate,
which shall be in such form as may be prescribed by the Board of Directors,
shall be signed by the Chairman, Vice Chairman, Chief Executive Officer,
President or a Vice President and by the Treasurer or the Secretary or an
Assistant Secretary, and shall be sealed with the Company's seal or a facsimile
thereof; provided, however, that if the certificate is countersigned by a
transfer agent or any assistant transfer agent, or is registered by a
registrar, other than the Company itself or an employee of the Company, such
certificates may be signed with the facsimile signatures of the officers
authorized to execute such certificates. All certificates shall be
consecutively numbered or otherwise identified. Except as otherwise expressly
provided by law, the rights and obligations of the holders of uncertificated
stock and the rights and obligations of the holders of certificates
representing stock of the same class and series shall be identical.
Section 2. Stock Record. The name and address of the person or entity
to whom shares of the capital stock are issued, together with the certificate
number, if a certificate is issued, number of shares and date of issue, shall
be entered on the stock transfer books of the Company. All certificates
surrendered to the Company for transfer shall be canceled, and no new
certificate or record of uncertificated shares shall be issued or made until
the former certificate for a like number of shares shall have been surrendered
and canceled. In the case of a lost, destroyed or mutilated certificate, a new
certificate of stock or record of uncertificated shares may be issued or made
therefor upon such terms and indemnity to the Company as the Board of Directors
may prescribe.
Section 3. Transfer of Stock. Transfer of stock of the Company shall
be made on the books of the Company by direction of the person or entity named
in the certificate or, in the case of uncertificated shares, by the person or
entity in whose name shares stand on the books of the Company, or his attorney,
lawfully constituted in writing, and upon the surrender of the certificate or
certificates for such shares, where certificated, properly endorsed, with such
evidence of the authenticity of such transfer, authorization and other matters
as the Company or its agents may reasonably require, and accompanied by any
necessary stock transfer tax stamps; or if the Board of Directors shall by
resolution so provide, transfer of stock may be made in any other manner
provided by law. Any such resolution providing for the issuance of
uncertificated shares shall not apply to shares represented by a certificate
until such certificate is surrendered to the Company. The person or entity in
whose name shares stand on the books of the Company shall be deemed by the
Company to be the owner thereof for all purposes.
Section 4. Closing Stock Transfer Books and Fixing Record Date. The
Board of Directors shall have power to close the stock transfer books of the
Company for a period not exceeding fifty days preceding the date of any meeting
of shareholders, payment of dividends, allocation of rights, change, conversion
or exchange of capital stock, or the date of determining shareholders for any
other purpose. In lieu of closing the stock transfer books, in order to
determine the holders of record of the Company's stock who are entitled to
notice of meetings, to vote at a meeting or adjournment thereof or to receive
payment of any dividend or allotment of rights, or to exercise rights with
respect to any change, conversion or exchange of capital stock, or to give
consent, or to make a determination of the shareholders of record for any other
purpose, the Board of Directors of the Company may fix in advance a record date
for such determination of shareholders, which date shall not be more than fifty
days prior to the date of the action which requires such determination, nor, in
the case of a shareholders' meeting, shall it be less than ten days in advance
of such meeting.
ARTICLE VII - AMENDMENTS
Section 1. Amendment by Shareholders. These Bylaws may be added to,
amended or repealed, by the majority vote of the entire outstanding stock of
the Company at any regular meeting of the shareholders, or at any special
meeting, where such proposed action has been announced in the call and notice
of such meeting.
Section 2. Amendment by Board of Directors. Subject to the right of
the shareholders to adopt, amend or repeal Bylaws, the Board of Directors shall
have the power to adopt, amend or repeal Bylaws, by an affirmative vote of a
majority of all directors then holding office, provided that notice of the
proposal to adopt, amend or repeal the Bylaws is included in the notice to the
directors with respect to the meeting at which such action takes place.
32
<PAGE> 1
EXHIBIT 11
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED EARNINGS PER SHARE COMPUTATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(In $000's, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------
<S> <C> <C> <C>
PRIMARY SHARES
Weighted average common shares outstanding 20,150 19,951 19,721
Weighted average common stock options outstanding 153 119 87
Preferred stock considered a common stock equivalent 600 502 --
---------------------------
Total primary shares 20,903 20,572 19,808
===========================
FULLY DILUTED SHARES
Weighted average common shares outstanding 20,150 19,951 19,721
Weighted average common stock options outstanding 168 136 89
Preferred stock considered a common stock equivalent 600 502 --
Assumed conversion of redeemable preferred stock not considered a
common stock equivalent 1,262 1,265 1,010
---------------------------
Total fully diluted shares 22,180 21,854 20,820
===========================
NET INCOME
Earnings $37,340 $59,353 $26,178
===========================
PREFERRED STOCK DIVIDENDS
Dividends paid on redeemable preferred stock $ 2,652 $ 2,658 $ 2,117
===========================
Primary earnings per share (Net income minus preferred dividends
divided by total primary shares) $ 1.66 $ 2.76 $ 1.22
===========================
Fully diluted earnings per share (Net income divided by total fully
diluted shares) $ 1.68 $ 2.72 $ 1.26
===========================
</TABLE>
33
<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, 1996, 1,308 shareholders of
record in 42 states, the District of Columbia, Canada, Australia and New
Zealand held the 20,214,738 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>
1996
- -------------------------------
Fourth Quarter 41 1/4 32 1/4 .185
Third Quarter 35 7/8 30 1/8 .185
Second Quarter 33 3/8 30 7/8 .185
First Quarter 36 33 .17
1995
- -------------------------------
Fourth Quarter 34 31 1/4 .17
Third Quarter 33 3/4 27 5/8 .17
Second Quarter 28 1/4 25 3/4 .17
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
</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
Winston-Salem, North Carolina 101 Barclay Street
1-800-633-4236 New York, New York 10286
1-800-524-4458
Written shareholder correspondence and requests for transfer
should be sent to:
Wachovia Bank of North Carolina, N.A.
P.O. Box 8217
Boston, Massachusetts 02266-8217
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 6, 1997,
at 10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South
Carolina. All Shareholders are invited to attend.
34
<PAGE> 2
Exhibit 13
SELECTED FINANCIAL DATA The Liberty Corporation and Subsidiaries
December 31, 1996
<TABLE>
<CAPTION>
(In 000's, except per share data) 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Insurance $ 482,500 $ 486,980 $ 439,451 $ 384,132 $ 305,934 $ 271,806
Broadcasting 137,336 119,529 97,381 87,984 89,989 88,174
Parent & Minor Subsidiaries 17,008 19,090 19,600 16,089 20,301 19,254
Adjustments & Eliminations (17,747) (19,918) (16,071) (15,260) (13,468) (14,752)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Revenues * $ 619,097 $ 605,681 $ 540,361 $ 472,945 $ 402,756 $ 364,482
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes &
Cumulative Effect of Accounting Changes
Insurance $ 50,009 $ 83,483 $ 31,590 $ 71,518 $ 53,962 $ 43,255
Broadcasting 33,739 27,127 21,701 16,180 16,859 16,417
Parent & Minor Subsidiaries (28,686) (19,994) (14,423) (12,846) (13,690) (20,439)
Adjustments & Eliminations 1,437 (1,821) -- 2,472 4,768 4,217
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Income Before Income
Taxes & Cumulative Effect of Accounting
Changes $ 56,499 $ 88,795 $ 38,868 $ 77,324 $ 61,899 $ 43,450
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
Insurance $ 34,196 $ 56,582 $ 21,803 $ 33,459 $ 35,369 $ 30,077
Broadcasting 20,284 16,590 12,919 12,217 10,262 9,967
Parent & Minor Subsidiaries (18,117) (12,635) (8,544) (8,141) (8,153) (12,514)
Adjustments & Eliminations 977 (1,184) -- 1,612 3,407 3,036
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 37,340 $ 59,353 $ 26,178 $ 39,147 $ 40,885 $ 30,566
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 1.66 $ 2.76 $ 1.22 $ 2.01 $ 2.51 $ 1.93
- ----------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Investment
Gains (Losses) $ (18,260) $ 111,095 $ (58,286) $ 1,276 $ (78) $ 7,316
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends Per Common Share $ 0.725 $ 0.665 $ 0.62 $ 0.56 $ 0.515 $ 0.47
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and Amortization
Insurance $ 3,815 $ 4,515 $ 5,125 $ 3,286 $ 3,424 $ 3,381
Broadcasting 9,927 9,244 6,276 6,566 6,848 10,654
Parent & Minor Subsidiaries 8,645 5,275 4,618 3,670 4,628 4,631
- ----------------------------------------------------------------------------------------------------------------------------------
Total Depreciation and Amortization $ 22,387 $ 19,034 $ 16,019 $ 13,522 $ 14,900 $ 18,666
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures
Insurance $ 4,391 $ 4,413 $ 2,270 $ 5,814 $ 3,618 $ 2,264
Broadcasting 6,030 5,863 3,900 2,168 2,513 2,961
Parent & Minor Subsidiaries 470 3,012 3,446 7,483 698 1,088
- ----------------------------------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 10,891 $ 13,288 $ 9,616 $ 15,465 $ 6,829 $ 6,313
- ----------------------------------------------------------------------------------------------------------------------------------
Assets
Insurance $ 2,785,468 $ 2,769,619 $ 2,494,264 $2,057,126 $ 1,937,908 $ 1,528,901
Broadcasting 169,477 168,672 98,705 101,982 110,849 119,714
Parent & Minor Subsidiaries 878,182 873,933 666,319 581,406 565,135 504,199
Adjustments & Eliminations (772,362) (777,928) (592,024) (553,481) (539,014) (438,610)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 3,060,765 $ 3,034,296 $ 2,667,264 $2,187,033 $ 2,074,878 $ 1,714,204
- ----------------------------------------------------------------------------------------------------------------------------------
Notes, Mortgages and Other Debts $ 247,861 $ 258,444 $ 231,647 $ 149,489 $ 176,632 $ 226,925
- ----------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock $ 45,599 $ 45,667 $ 45,816 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Shareholders' Equity $ 580,861 $ 575,762 $ 395,589 $ 433,845 $ 389,188 $ 277,108
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* See Note 14 to the Consolidated Financial Statements related to 1995
and 1994 acquisitions.
35
<PAGE> 3
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Liberty Corporation and Subsidiaries
SUMMARY OF CONSOLIDATED
RESULTS OF OPERATIONS
Consolidated net income for 1996 was $37.3 million, a decrease of $22.1
million from the $59.4 million reported for 1995. The amounts reported for 1996
included a special charge of $26.9 million related principally to losses on
unprofitable insurance products.
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Revenues $619,097 $605,681 $540,361
- ----------------------------------------------------------
Income before income
taxes $ 56,499 $ 88,795 $ 38,868
Income taxes 19,159 29,442 12,690
- ----------------------------------------------------------
Net income $ 37,340 $ 59,353 $ 26,178
- ----------------------------------------------------------
</TABLE>
Adjusting for the special charges of $26.9 million in 1996, net income was
$64.3 million, compared with $59.4 million for 1995, an increase of 8%. The
increase for 1996 was primarily the result of earnings growth of $3.7 million
in Cosmos Broadcasting.
The special charges for 1996 resulted from a detailed study of the
profitability of all of Liberty's insurance products. The study identified a
small group of products whose mortality and expense experience was
significantly worse than assumed when the products were sold. Approximately $22
million of the special charges were provisions for losses related to these
products. In addition to the product-related charges, the Company wrote-off
previously deferred costs associated with acquiring and modifying an
administrative system for the Company's pre-need business based on a decision
to move to a new administrative platform for pre-need. All of the charges
represented non-cash items, and had no material impact on the insurance
companies' statutory financial condition.
Consolidated net income for 1995 was $59.4 million and compares with $26.2
million earned in 1994. The results for 1994 include $20.3 million (after tax)
of special charges and net of tax realized investment losses of $6.4 million.
Earnings for 1994, after adjusting 1994 for the special charge and net realized
investment losses were $52.9 million. The 1995 increase over the adjusted 1994
amounts was the result of improvements in both insurance (up $8.4 million) and
broadcasting operations (up $3.7 million) offset by higher financing costs at
the Corporate level.
The special 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 $13.6 million (after
taxes) 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 an after-tax charge to
earnings of $6.7 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 through this
marketing channel.
Consolidated 1996 revenues of $619.1 million were up 2% compared with the
$605.7 million reported in 1995. A $17.8 million increase in broadcasting
operations was partially offset by a $4.5 million decline in insurance
revenues. Contributing to the decline in insurance operations revenues was a
decrease of $23.9 million in the FamilySide pre-need operations as actions
taken in mid-1995 to increase the profitability of the product portfolio had a
detrimental impact on 1996 revenues.
Consolidated 1995 revenues of $605.7 million were up $65.3 million (12%)
over 1994's $540.4 million. The 1995 revenue growth consisted primarily of a
$47.5 million increase in revenues from the insurance operations and a $22.1
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.
BUSINESS SEGMENTS
Chart 1
Consolidated Income from Operations (in millions)
<TABLE>
<CAPTION>
Data
<S> <C>
1996 $66.0
1995 $60.8
1994 $52.9
1993 $45.4
1992 $37.1
1991 $29.9
</TABLE>
36
<PAGE> 4
Exhibit 13
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 agency (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 and special charges. A reconciliation of the segment operations to
net income is as follows:
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Segment Operating Earnings:
Insurance $ 56,508 $ 54,789 $ 46,396
Broadcasting 20,284 16,590 12,919
Corporate and other (10,760) (10,546) (6,446)
- --------------------------------------------------------------------
Total operating earnings 66,032 60,833 52,869
- --------------------------------------------------------------------
Net realized investment
gains (losses) (1,748) (1,480) (6,440)
Special charges (26,944) -- (20,251)
- --------------------------------------------------------------------
Net income $ 37,340 $ 59,353 $ 26,178
- --------------------------------------------------------------------
Earnings per Common Share:
Operating earnings $ 3.03 $ 2.83 $ 2.56
Net realized investment
gains (losses) (0.08) (0.07) (0.32)
Special charges (1.29) -- (1.02)
- --------------------------------------------------------------------
Earnings per common share $ 1.66 $ 2.76 $ 1.22
====================================================================
</TABLE>
INSURANCE RESULTS OF OPERATIONS
Operating earnings from insurance operations for 1996 were $56.5 million,
an increase of 3% over the $54.8 million reported in 1995. Liberty Life's
operating earnings increased $1.4 million to $42.0 million in 1996. Strong
premium and profit growth from an accidental death product in Liberty Life's
Mortgage Protection division was partially offset as the Agency Home Service
division reported lower profits due primarily to higher deferred policy
acquisition cost amortization resulting from higher lapse experience. The
Mortgage Protection product line historically has contributed a relatively
small portion of Liberty Life's earnings but over the past two years it has
shown substantial premium growth. Mortgage Protection premium income increased
over 30% to $70.3 million in 1996 and earnings more than doubled to
approximately $4.5 million. The FamilySide pre-need operating earnings of $14.0
million in 1996 represented a 3% increase compared with 1995. The increase in
1996 earnings came notwithstanding a 20% decline in premiums in 1996 compared
with 1995. Several actions taken in 1995 and 1996 to consolidate the operations
and improve the profitability of several prior year acquisitions combined to
have a negative impact on premium revenues in 1996.
Chart 2
Insurance Operations
Income from Operations (in millions)
<TABLE>
<CAPTION>
Data
<S> <C>
1996 $56.5
1995 $54.8
1994 $46.4
1993 $41.4
1992 $35.7
1991 $32.6
</TABLE>
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. 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.
<TABLE>
<CAPTION>
Insurance Operating Earnings (in 000's)
1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues (exclusive of realized
investment gains and losses)
Insurance premiums and
policy charges $321,671 $331,370 $315,789
Net investment income 150,349 144,483 129,925
Service contract revenues 7,751 9,025 5,585
- -------------------------------------------------------------------------
Total revenues 479,771 484,878 451,299
Policy benefits 218,901 236,774 225,745
Commissions 66,146 54,583 49,869
General insurance expenses 64,326 68,246 62,639
Amortization of deferred
acquisition costs and
cost of business
acquired 47,142 43,697 41,443
Other 21 114 1,429
- -------------------------------------------------------------------------
Income from operations
before income taxes 83,235 81,464 70,174
Income taxes 26,727 26,675 23,778
- -------------------------------------------------------------------------
Income from operations $ 56,508 $ 54,789 $ 46,396
=========================================================================
</TABLE>
For 1996 revenues from insurance operations were $479.8 million, a decrease
of $5.1 million compared with 1995. Liberty Life had a $17.5 million increase
on the strength of the growth in Mortgage Protection premiums. Offsetting the
growth in Liberty
37
<PAGE> 5
Exhibit 13
Life was a $21.3 million reduction in FamilySide operating revenues as premiums
declined for the reasons previously discussed.
Revenues from insurance operations in 1995 were $484.9 million, an increase
of 7% over the $451.3 million reported in 1994. 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.
Pie Charts
Insurance Premiums and Policy Charges (in millions)
<TABLE>
<CAPTION>
1996
<S> <C>
Agency Home Service 43%
FamilySide Pre-need 32%
Mortgage Protection 22%
Other 3 %
1995
Agency Home Service 42%
FamilySide Pre-need 39%
Mortgage Protection 16%
Other 3 %
</TABLE>
Policy benefits as a percent of premium were 68% in 1996, compared with 71%
in 1995 and 72% in 1994. The decline in the ratio from 1995 to 1996 was more a
function of a change in the mix of business than an actual decline in
mortality. The growth of Mortgage Protection premiums combined with the decline
in FamilySide premiums has the effect of reducing the overall benefit to
premium ratio. The death benefit on the product that is providing the growth in
Mortgage Protection is fully reinsured and there is no mortality cost
associated with the product. The FamilySide products are primarily limited-pay
or single pay products that have higher benefit to premium ratios than other
Liberty products. Adjusting for the fluctuation in ratio caused by the change
in mix of business, the Liberty Life benefit-to-premium ratio was 68% in 1996
compared with 67% in 1995, and the benefit-to-premium ratio for FamilySide was
91% and 88% for 1996 and 1995, respectively. Overall, the benefit-to-premium
ratio for 1996 was within the expected levels, considering that claims are
inherently variable and will fluctuate, particularly when measured over a short
period of time.
The commission-to-premium ratio was 21% in 1996, an increase from the 16%
reported in both 1995 and 1994. Similar to the benefit-to-premium ratio, the
increase for 1996 was caused primarily by a change in the mix of business due
to the growth of the Mortgage Protection accidental death product. The product
is marketed by a third party marketing group. Payments to the group include the
traditional commissions as well as compensation for certain general and
administrative functions performed by the marketing group. For financial
reporting purposes all payments to the marketing group are classified as
commissions.
General insurance expenses declined $3.9 million in 1996 from the amounts
reported in 1995 as expense levels in both FamilySide and Liberty Insurance
Services were reduced in response to lower revenues. Excluding Liberty
Insurance Services expenses from all years, the expense-to-premium ratio was
18% for 1996 and 1995, compared with 16% reported in 1994.
Amortization of deferred acquisition costs and cost of business acquired
increased $3.4 million (8%) over last year. The amortization-to-premium ratio
was 15% in 1996, an increase from the 13% reported for both 1995 and 1994. The
primary variable in the amortization expense from year to year is policy
persistency, or lapses. Following two years of favorable lapse experience in
Liberty Life's Agency Home Service division lapses increased in 1996, resulting
in higher amortization expense. Also contributing to the increase in the
amortization expense as a percentage of premium was the decline in FamilySide
premiums in 1996. Most of the amortization expense in any given year relates to
the business sold in prior years, and in 1996 the FamilySide amortization is
compared to the lower 1996 premiums. Mortgage Protection lapses are influenced
by, among other factors, the level of mortgage loan refinancing activity. In
the latter half of 1995 and continuing into 1996, mortgage loan interest rates
decreased; however, there has not been any marked increase in the level of
mortgage protection lapses.
38
<PAGE> 6
Exhibit 13
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 pre-need market through several
acquisitions. 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 in Canada. Liberty further
expanded its presence in the pre-need market with the acquisition of the assets
of Estate Assurance Company in 1993 and the 1994 acquisitions of American
Funeral Assurance Company, and North American National Corporation, a holding
company whose principal subsidiaries were Pan-Western Life Insurance Company,
Howard Life Insurance Company, and Brookings International Life Insurance
Company.
During 1995 and continuing through 1996, 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.
During 1996, Liberty introduced an entirely new product portfolio marketed
under the brand name FamilySide. The actions taken to consolidate the
operations and introduce the new product portfolio caused a short-term
disruption in revenue growth, but have provided for improved product
profitability, focused marketing capability, and consistency and efficiency in
administrative support.
In addition to the pre-need acquisitions, Liberty grew its Agency Home
Service division through acquisitions. In 1992, Liberty expanded its home
service business with the acquisition of Magnolia Life Insurance Company. In
1994, Liberty acquired State National Capital Corporation. These companies were
both located in Louisiana and 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.
BROADCASTING RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Gross broadcasting revenues $137,336 $119,529 $ 97,381
Agency commissions 19,433 16,378 13,909
- --------------------------------------------------------------------------
Net broadcasting revenues 117,903 103,151 83,472
Broadcasting expenses 75,534 67,568 54,852
- --------------------------------------------------------------------------
Income from operations
before interest and
taxes 42,369 35,583 28,620
Interest expense 8,630 8,456 6,919
- --------------------------------------------------------------------------
Income from operations
before income taxes 33,739 27,127 21,701
- --------------------------------------------------------------------------
Income taxes 13,455 10,537 8,782
- --------------------------------------------------------------------------
Income from operations $ 20,284 $ 16,590 $ 12,919
==========================================================================
</TABLE>
Gross broadcasting revenues for 1996 were $137.3 million, an increase of
$17.8 million (15%) from 1995. All revenue categories increased in 1996, with
political revenues more than doubling to $8.1 million as Cosmos capitalized on
the strength on its stations in its local markets to capture a significant
portion of the political dollars spent. The summer Olympics also provided
incremental revenue as 5 of the 8 Cosmos stations are NBC affiliates. The 1996
revenue growth followed an increase of $22.1 million (23%) in 1995 over 1994.
The 1995 revenue growth included $12.3 million in revenues added from the
February 1995 acquisition of WLOX-TV. Cable advertising sales, a business
entered by Cosmos in 1994, produced revenue of $6.3 million in 1996, compared
with $5.1 million and $2.4 million in 1995 and 1994, respectively.
Broadcasting expenses rose 12% in 1996 compared with 1995. A portion of the
expense increase in 1996 came from the cost of the extensive coverage of the
Olympics. Excluding the impact of the WLOX-TV acquisition, expenses rose only
2% in 1995 compared with 1994.
Broadcasting Operations
Income from Operations (in millions)
<TABLE>
<S> <C>
1996 $20.3
1995 $16.6
1994 $12.9
1993 $ 9.7
1992 $10.3
1991 $10.0
</TABLE>
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
39
<PAGE> 7
Exhibit 13
divided by revenues net of agency commissions) are measurements of broadcasting
operating margins. For the year broadcasting cash flow was $52.5 million
compared to $44.9 million in 1995 and $33.0 million in 1994. 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 both 1996 and 1995, compared with 40% in
1994.
<TABLE>
<CAPTION>
Broadcasting Operations
Cash Flow (in millions)
<S> <C>
1996 $52.5
1995 $44.9
1994 $33.0
1993 $27.8
1992 $28.2
1991 $26.0
</TABLE>
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. There was no significant change in the financial results in
this area for 1996 compared with 1995. The increase in the loss in 1995
compared with 1994 was primarily due to higher interest costs as both the
outstanding debt and interest rates were at higher levels in 1995.
40
<PAGE> 8
Exhibit 13
BALANCE SHEET
INVESTMENTS
As of December 31, 1996, Liberty's consolidated investment portfolio was
carried at $2.1 billion compared with $2.0 billion at the end of 1995.
Approximately 73% of consolidated invested assets were in fixed maturity
securities (bonds and redeemable preferred stocks), 11% were in mortgage loans,
6% 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, 1996 was AA-. Less than investment grade securities comprised 2.6%
of the fixed maturity portfolio at December 31, 1996, compared with 3.3% at
December 31, 1995.
<TABLE>
<CAPTION>
Bond Portfolio Quality Rating
<S> <C>
AAA 49.2%
AA 11.8%
A 16.5%
BBB 19.9%
Below BBB 2.6%
</TABLE>
Statement of Financial Accounting Standards ("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, 1996, 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 related to universal life products) 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 related to universal life products,
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.
During 1996 interest rates were relatively stable and shareholders' equity only
decreased $18.3 million as a result of changes in fair value of security
holdings. The 1996 results were in marked contrast to the significant
fluctuations reported in the past two years. 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 1996 was not as great as that
experienced in 1995 and 1994, 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.
<TABLE>
<CAPTION>
Fixed Maturity Securities
Ratio of Fair Value to Amortized Cost Chart
<S> <C>
1996 103.6%
1995 106.1%
1994 95.7%
1993 107.4%
1992 107.9%
1991 112.5%
</TABLE>
Although Liberty's entire fixed maturity and equity security 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
and has related primarily to restructuring portfolios acquired through
acquisitions or to manage Liberty's tax position. Gains trading, which Liberty
believes is short-sighted, is not consistent with its investment philosophy of
longer term value-oriented investing. In 1996 and going in to 1997, yields were
at historically low levels and the yield curve is relatively flat. In this
environment, in order to generate incremental returns above market yields
without sacrificing credit quality, it may be necessary to more actively trade
securities.
Approximately 45% of Liberty's $1.5 billion fixed maturity portfolio at
December 31, 1996, was composed of mortgage-backed securities. This compares
with approximately 56% at year-end
41
<PAGE> 9
Exhibit 13
1995. 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 that 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
17% of the book value of Liberty's mortgage-backed securities at December 31,
1996, and 20% at year-end 1995, are sensitive to prepayment or extension risk.
The remaining 83% of Liberty's mortgage-backed investment portfolio at December
31, 1996, consisted of planned amortization class ("PAC") instruments. This
compares to 80% at December 31, 1995. 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 $230.9 million comprised 11% of the consolidated
investment portfolio at December 31, 1996. This compares to mortgage loans of
$213.2 million, or 11%, of the consolidated investment portfolio at December
31, 1995. 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, 1996, are concentrated in North and South Carolina;
and 90% are in the states of North Carolina, South Carolina, Virginia, Florida,
Georgia, Tennessee and Louisiana. Mortgage loan delinquencies, defined as
payments 60 or more days past due, have historically been low and were 0.7% at
the end of 1996 compared to the latest available industry rate of 2.5%.
As of December 31, 1996 and 1995, investment real estate totaled $132.7
million and $135.3 million, representing 6% and 7%, respectively, of the
consolidated investment portfolio. Three property types (38% in residential
land development; 21% in business park land development and 34% in business
rental properties) accounted for 93% of the portfolio as of the end of 1996.
Substantially all of Liberty's investment real estate is located in South
Carolina, Florida, Georgia, and North Carolina. On March 7, 1997, Liberty
announced that it had signed a contract to contribute substantially all of its
business rental property to a real estate investment trust in exchange for
shares of the trust and cash. Additionally, the real estate investment trust
agreed to acquire most of Liberty's business park land development projects
over a 10 year period. The transaction is expected to close around April 30,
1997, and will result in a gain. Cash received from the transaction is expected
to be used to initially repay debt.
Liberty has experienced pre-tax impairments on investment assets of $4.3
million, $9.5 million, and $2.7 million for the years ended December 31, 1996,
1995, and 1994, 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.
42
<PAGE> 10
Exhibit 13
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
In March 1995, Liberty entered into a $375 million multi-tranche credit
facility. The facility consists of a $225 million revolving credit facility
maturing in 1999; 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. There is no current plan to exercise the term conversion
feature of the $50 million tranche. 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.
<TABLE>
<CAPTION>
Debt to Capital Ratio
Excluding Unrealized Investment Gains and Losses
<S> <C>
1996 29.7%
1995 31.4%
1994 31.9%
1993 25.9%
1992 31.4%
1991 45.4%
</TABLE>
Liberty has entered into interest rate swaps and caps 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 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.
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 is
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 minimum capital standards that 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, 1996.
43
<PAGE> 11
Exhibit 13
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 $74.2 million for 1996 compared with $87.4 million for 1995 and $87.1
million for 1994. Liberty's net cash used in investing activities was $88.9
million for 1996 compared with $133.6 million in 1995 and $176.3 million in
1994. The net cash used in investing activities in 1996 and 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 1996 cash flow
provided by financing activities was $7.7 million, compared with $38.5 million
and $111.2 million provided for 1995 and 1994, respectively. Debt repayments
exceed borrowing proceeds by $12.3 million in 1996. In prior years proceeds
from borrowings exceeded debt repayments by $11.4 million in 1995 and $76.9
million in 1994. The large 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 $7.0 million in 1996, a $7.7
million decrease in 1995 and 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 Liberty's credit facility, there exists no restriction on
acquisition funding; however, consolidated debt is limited to a maximum of $385
million and the total debt to capital ratio is limited to 35%. At December 31,
1996 outstanding debt totaled $247.9 million and the debt to capital ratio was
29.7%.
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.
44
<PAGE> 12
EXHIBIT 13
CONSOLIDATED BALANCE SHEETS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
At December 31 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities
Available for sale, at market, cost of $1,465,213 in 1996 and $1,383,324 in 1995 $1,517,539 $1,467,039
Equity securities, primarily at market, cost of $61,431 in 1996, $68,637 in 1995 75,591 82,508
Mortgage loans 230,910 213,223
Investment real estate, at cost less accumulated depreciation $13,619 in 1996,
$11,671 in 1995 132,696 135,306
Policy loans 98,816 98,369
Other long-term investments 22,470 27,535
Short-term investments 250 --
- ------------------------------------------------------------------------------------------------------------------
Total Investments 2,078,272 2,023,980
- ------------------------------------------------------------------------------------------------------------------
Cash 36,774 43,741
Accrued investment income 20,817 20,018
Receivables net of bad debt reserves, $2,310 in 1996, $1,975 in 1995 74,175 56,912
Receivable from reinsurers 277,578 275,090
Deferred acquisition costs 262,182 265,188
Cost of business acquired 70,764 86,925
Buildings and equipment, at cost, less accumulated depreciation $106,513 in 1996,
$105,819 in 1995 79,808 79,789
Intangibles related to television operations, at cost, net of amortization $25,269 in
1996, $20,192 in 1995 93,979 99,056
Goodwill related to insurance acquisitions, at cost, net of amortization $9,315 in
1996, $8,076 in 1995 35,608 37,239
Other assets 30,808 46,358
- ------------------------------------------------------------------------------------------------------------------
Total Assets $3,060,765 $3,034,296
==================================================================================================================
</TABLE>
45
<PAGE> 13
Exhibit 13
<TABLE>
<CAPTION>
At December 31 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $1,853,173 $1,811,417
Claims and benefits payable 31,450 24,356
Policyholder funds 28,488 27,086
- ------------------------------------------------------------------------------------------------------------------
1,913,111 1,862,859
Notes and mortgages payable 147,861 158,444
Long-term debt 100,000 100,000
Accrued income taxes 5,163 6,665
Deferred income taxes 163,139 182,083
Accounts payable and accrued expenses 101,209 98,956
Other liabilities 3,822 3,860
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,434,305 2,412,867
- ------------------------------------------------------------------------------------------------------------------
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, 592,334 and 594,126 shares issued and
outstanding in 1996 and 1995, respectively 22,212 22,280
- ------------------------------------------------------------------------------------------------------------------
Total Redeemable Preferred Stock 45,599 45,667
- ------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock
Authorized - 50,000,000 shares, no par value
Issued and outstanding - 20,214,738 shares in 1996, 20,060,629 shares in 1995 163,443 158,735
Convertible Preferred Stock 1995-A Series, 599,985 shares issued and outstanding 20,999 20,999
Preferred Stock
Authorized - 10,000,000 shares
Issued and outstanding - 1,860,526 shares in 1996, 1,862,318 shares in 1995
Unearned stock compensation (7,168) (6,050)
Unrealized appreciation (depreciation) on fixed maturity securities available for
sale and equity securities 39,726 57,986
Cumulative foreign currency translation adjustment (204) (999)
Retained earnings 364,065 345,091
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 580,861 575,762
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $3,060,765 $3,034,296
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
46
<PAGE> 14
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 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Insurance premiums and policy charges $ 321,371 $ 331,370 $ 315,789
Broadcasting revenues 137,336 119,529 97,381
Net investment income 155,221 148,670 133,679
Service contract revenues 7,751 9,025 5,585
Realized investment gains (losses) (2,582) (2,913) (12,073)
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 619,097 605,681 540,361
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES
Policyholder benefits 218,751 236,774 225,745
Insurance commissions 66,483 54,583 49,869
General insurance expenses 73,790 67,703 84,930
Amortization of deferred acquisition costs and cost of business
acquired 73,967 43,780 45,024
Broadcasting expenses 94,867 83,849 68,638
Interest expense 15,139 15,047 11,097
Other expenses 19,601 15,150 16,190
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 562,598 516,886 501,493
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 56,499 88,795 38,868
Provision for income taxes 19,159 29,442 12,690
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 37,340 $ 59,353 $ 26,178
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
- -----------------------------------------------------------------------------------------------------------------------
Net earnings per common share $ 1.66 $ 2.76 $ 1.22
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
47
<PAGE> 15
Exhibit 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
For the Years Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 37,340 $ 59,353 $ 26,178
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in policy liabilities 5,545 18,845 53,961
(Decrease) increase in accounts payable and accrued expenses 14,050 (3,964) 1,142
Increase in receivables (4,645) (3,311) (7,374)
Amortization of deferred acquisition costs and cost of business
acquired 73,967 43,780 45,024
Policy acquisition costs deferred (51,122) (54,522) (59,053)
Realized investment (gains) losses 2,582 2,913 12,073
Gain on sale of operating assets (3,172) (3,231) (3,214)
Depreciation and amortization 22,387 19,034 16,019
Amortization of bond premium and discount (5,835) (7,485) (4,904)
Provision for deferred income taxes (8,905) 6,225 (1,481)
All other operating activities, net (7,957) 9,803 8,679
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 74,235 87,440 87,050
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment securities sold - Available for sale 181,572 155,670 225,100
Investment securities matured or redeemed by issuer:
Available for sale 75,369 32,913 61,216
Held to maturity -- 35,494 65,910
Cost of investment securities acquired - Available for sale (322,633) (329,918) (420,244)
Mortgage loans made (38,845) (32,905) (31,957)
Mortgage loan repayments 21,111 22,712 20,621
Purchase of investment properties, buildings and equipment (43,926) (62,955) (87,115)
Sale of investment properties, buildings and equipment 37,858 49,103 31,158
Purchases of short-term investments (73,602) (43,607) (388,465)
Sales of short-term investments 73,352 50,871 394,673
Net cash paid on purchases of insurance companies -- -- (54,087)
Net cash paid on purchase of television station -- (5,140) --
All other investment activities, net 823 (5,828) 6,860
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (88,921) (133,590) (176,330)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 2,957,704 1,901,901 2,544,735
Principal payments on debt (2,970,011) (1,890,521) (2,467,819)
Dividends paid (18,366) (16,814) (14,358)
Stock issued for employee benefit and compensation programs 1,441 2,909 3,487
Return of policyholders' account balances (35,966) (32,637) (30,025)
Receipts credited to policyholders' account balances 72,917 73,653 75,173
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,719 38,491 111,193
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (6,967) (7,659) 21,913
Cash at beginning of year 43,741 51,400 29,487
- -----------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 36,774 $ 43,741 $ 51,400
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
48
<PAGE> 16
Exhibit 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE LIBERTY CORPORATION AND SUBSIDIARIES
(Amounts in 000's except per share data)
<TABLE>
<CAPTION>
UNEARNED UNREALIZED CUMULATIVE
COMMON CONVERTIBLE STOCK SECURITY FOREIGN
SHARES COMMON PREFERRED COMPEN- APPRECIATION CURRENCY RETAINED
OUTSTANDING STOCK STOCK SATION (DEPRECIATION) TRANSLATION EARNINGS TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 19,498 $143,939 $ -- $(4,475) $ 5,177 $(1,529) $ 290,733 $ 433,845
Cumulative effect of change in
accounting principle 11,357 11,357
Net income 26,178 26,178
Net unrealized investment losses (69,643) (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 229 5,816 (844) 4,972
Stock issued as part of the
purchase price of
acquisitions 113 3,180 3,180
Stock issued for conversion of
redeemable preferred stock 1 21 21
- ---------------------------------------------------------------------------------------- -----------------------------------
Balance at December 31, 1994 19,841 152,956 -- (5,319) (53,109) (1,491) 302,552 395,589
Net income 59,353 59,353
Net unrealized investment gains 111,095 111,095
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 216 5,631 (731) 4,900
Stock issued as part of the
purchase price of
acquisitions 20,999 20,999
Stock issued for conversion of
redeemable preferred stock 4 148 148
- ---------------------------------------------------------------------------------------- -----------------------------------
Balance at December 31, 1995 20,061 158,735 20,999 (6,050) 57,986 (999) 345,091 575,762
Net income 37,340 37,340
Net unrealized investment losses (18,260) (18,260)
Dividends - Common Stock -
$0.725 per share (14,666) (14,666)
Dividends - Redeemable Preferred
Stock - $2.10 per share (2,652) (2,652)
Dividends - Convertible
Preferred Stock - $1.75 per
share (1,048) (1,048)
Foreign currency translation
adjustment 795 795
Stock issued for employee
benefit and performance
incentive compensation
programs 152 4,641 (1,118) 3,523
Stock issued for conversion of
redeemable preferred stock 2 67 67
- ---------------------------------------------------------------------------------------- -----------------------------------
Balance at December 31, 1996 20,215 $163,443 $20,999 $(7,168) $ 39,726 $ (204) $ 364,065 $ 580,861
- ---------------------------------------------------------------------------------------- -----------------------------------
</TABLE>
See notes to consolidated financial statements.
49
<PAGE> 17
Exhibit 13
THE LIBERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 ten 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 36 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.
POLICYHOLDER BENEFITS - 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, accrual for claims incurred but not
reported based on historical claims experience modified for expected future
trends, and changes in the liability for future policy benefits. 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.
FUTURE POLICY BENEFITS include insurance reserves and policy maintenance
expenses for traditional life insurance and accident and health insurance.
Future policy benefits 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.
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 - The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" effective January 1, 1994. SFAS No. 115 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. Prior to the adoption of SFAS No. 115, all fixed
maturity securities were carried at amortized cost. As of January 1, 1994,
shareholders' equity was increased $11,357,000 (net of deferred income taxes
and adjustment to deferred acquisition costs related to universal life
products) to reflect the unrealized gain on securities previously carried at
cost. On November 15, 1995, the Financial Accounting Standards Board issued a
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain
50
<PAGE> 18
Exhibit 13
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 related to
universal life products) 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. 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 related to universal life products, reported
directly in shareholders' equity. Fixed maturities classified as held to
maturity in 1995 and 1994 were 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), in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" which is discussed below. 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.
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 Standards 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.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 114, "Accounting by
Creditors for Impairments of a Loan" and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairments of a Loan--Income
Recognition and
51
<PAGE> 19
Exhibit 13
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 STANDARDS NO. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
was adopted by the Company effective January 1, 1996. 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. Under the provisions of the
statement certain of the Company's investment real estate assets were required
to be valued at fair value, rather than net realizable value as previously
required. The adoption of this standard resulted in a $1,800,000 charge which
was reported as a component of realized investment gains and losses.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123, "Accounting for
Stock-Based Compensation" was adopted by the Company on January 1, 1996. 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 statements. The Company has
adopted SFAS 123 by disclosing the pro forma net income and earnings per share
impact. The pro forma amounts are not materially different from the actual
amounts reported (see Note 9).
RECLASSIFICATIONS have been made in the 1995 and 1994 Consolidated Financial
Statements to conform to the 1996 presentation.
2. INVESTMENTS
Amortized cost and estimated fair values of investments in available for
sale securities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1996 (In 000's) Cost Gains Losses Value
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Fixed maturity securities
US government
obligations $ 14,795 255 $ 83 $ 14,967
States and
political
subdivisions 50 1 --- 51
Foreign
Government 7,080 184 3 7,261
Foreign
Corporate and
Other 98,669 6,452 488 104,633
Corporate
securities 697,521 27,665 5,130 720,056
Mortgage-backed
securities 647,098 24,924 1,451 670,571
- -----------------------------------------------------------------
Total 1,465,213 59,481 7,155 1,517,539
Equity securities 61,431 17,074 2,914 75,591
- -----------------------------------------------------------------
Total $1,526,644 $ 76,555 $ 10,069 $1,593,130
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1995 (In 000's) Cost Gains Losses 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
Government 11,719 194 --- 11,913
Foreign
Corporate and
Other 82,100 3,552 2,534 83,118
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
- ----------------------------------------------------------------------
</TABLE>
52
<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
Maturities Securities Investments
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Realized investment
gains (losses) $ (2,864) $ 10,160 $ 7,296
Change in unrealized
investment gains
(losses) (31,389) 289 (31,100)
- --------------------------------------------------------------------------------
Combined $ (34,253) $ 10,449 $ (23,804)
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
</TABLE>
The schedule below details consolidated investment income and related
investment expenses for the years ended December 31.
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on
Bonds $ 113,016 $ 107,825 $ 89,518
Mortgage loans 19,858 18,247 18,137
Policy loans 4,932 4,872 4,946
Short-term investments 600 752 869
Dividends on
Preferred stocks 6,196 6,624 8,370
Common stocks 1,050 1,180 1,361
Investment property rentals 9,712 9,238 6,255
Net gain on investment
real estate held for
development 6,518 6,947 5,268
Other investment income 5,643 3,269 7,556
- --------------------------------------------------------------------------------
Total investment income 167,525 158,954 142,280
Investment expenses 12,304 10,284 8,601
- --------------------------------------------------------------------------------
Net investment income $ 155,221 $ 148,670 $ 133,679
- --------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $ 157,425 $ 111,260 $ 187,597
Gross realized gains 1,088 1,750 986
Gross realized losses (4,832) (3,910) (13,437)
</TABLE>
53
<PAGE> 21
Exhibit 13
The following investment assets were non-income producing for the twelve months
ended December 31, 1996:
<TABLE>
<CAPTION>
Balance Sheet
(In 000's) Amount
- -------------------------------------------------------------
<S> <C>
Investment real estate $22,725
Other long-term investments 23,114
Mortgage loans 135
Fixed maturities --
- -------------------------------------------------------------
Total $45,974
- -------------------------------------------------------------
</TABLE>
For the year ended December 31, 1996, the Company incurred realized losses
of $4,343,000 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, 1996, are as follows:
<TABLE>
<CAPTION>
Cumulative Provision
(In 000's) for Impairments
- -------------------------------------------------------------
<S> <C>
Mortgage loans $ 1,782
Investment real estate 5,832
Other long-term investments 12,136
Fixed maturities 1,060
- -------------------------------------------------------------
Total $20,810
- -------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December
31, 1996, 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>
Amortized Fair
(In 000's) Cost Value
- --------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 22,844 $ 23,242
Due after one year through five years 197,630 210,804
Due after five years through ten years 282,927 293,733
Due after ten years 314,714 319,189
- --------------------------------------------------------------------------
818,115 846,968
Mortgage-backed securities primarily
maturing in five to twenty-five years 647,098 670,571
- --------------------------------------------------------------------------
Total $1,465,213 $1,517,539
- --------------------------------------------------------------------------
</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,
1996, $4.1 billion (20%) of the Company's total $20.7 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-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, 1996, Liberty Life's interest in
the assets held in escrow consisted of investments with an amortized cost of
$58.5 million and a fair value of $59.9 million. Comparable book and fair value
at December 31, 1995 was $56.3 million and $59.7 million, respectively. These
investments had an average rating of AA+. The total face value of insurance
ceded to Life Re at December 31, 1996, was $2.6 billion and the Company has
recorded a receivable related to this transaction from Life Re of $253.3
million as of December 31, 1996. Currently, Life Re has an A.M. Best rating of
A+. During 1996 and 1995, Liberty Life had ceded premiums and policy charges of
$18.6 million and $19.3 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, 1996,
the amortized cost and fair value of the invested assets held in escrow was
$236.3 million and $250.6 million, respectively.
The insurance subsidiaries also reinsure 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 FamilySide 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.
54
<PAGE> 22
Exhibit 13
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) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums and
policy charges $ 356,660 $ 364,797 $ 344,119
Reinsurance assumed 1,209 1,314 1,728
Reinsurance ceded (36,498) (34,741) (30,058)
- ---------------------------------------------------------------------------------------
Net premiums and policy
charges $ 321,371 $ 331,370 $ 315,789
- ---------------------------------------------------------------------------------------
Gross benefits $ 243,584 $ 249,861 $ 242,869
Reinsurance recoveries (24,833) (13,087) (17,124)
- ---------------------------------------------------------------------------------------
Net benefits $ 218,751 $ 236,774 $ 225,745
- ---------------------------------------------------------------------------------------
</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) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 265,188 $ 259,799 $ 231,873
Deferred during the year 51,122 54,522 59,053
Amortized during the year (57,812) (32,594) (33,313)
Adjustment related to
unrealized investment
(gains) losses 3,712 (10,327) 2,379
Insurance in force ceded -- (6,331) --
Foreign currency
translation (28) 119 (193)
- ---------------------------------------------------------------------------------------
Ending balance $ 262,182 $ 265,188 $ 259,799
- ---------------------------------------------------------------------------------------
</TABLE>
Included in amortization for 1996 is $20.1 million of costs determined not
to be recoverable from future premiums on certain lines of business. Actual
experience on these lines of business was significantly less favorable than
what was projected at the time the policies were sold.
A summary of the changes in costs of business acquired through acquisitions
is as follows:
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 86,925 $ 98,056 $ 56,762
Additions from
acquisitions -- -- 53,139
Interest accrued 5,860 6,621 6,620
Foreign currency
adjustment (6) 55 (134)
Amortized during the year (22,015) (17,807) (18,331)
- ---------------------------------------------------------------------------------------
Ending balance $ 70,764 $ 86,925 $ 98,056
- ---------------------------------------------------------------------------------------
</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 from the business acquired. During 1996 the Company determined that
actual experience was materially different than what was assumed at the time of
acquisition for certain blocks of acquired business. Accordingly, $6.1 million
of cost of business acquired was determined not to be recoverable based on the
expected present value of the future cash flows from the business. The charge
has been included in amortization expense. There were no similar charges in
either 1995 or 1994.
Under current assumptions, amortization of cost of business acquired, 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>
1997 $13,803
1998 11,551
1999 10,230
2000 9,044
2001 7,929
</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% for both 1996 and 1995, and 6.8% for 1994. 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 4.0% to 6.75% in 1996, 5.5% to 6.8% in 1995,
and 5.5% to 7.0% in 1994.
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.
55
<PAGE> 23
Exhibit 13
5. DEBT
The debt obligations at December 31 are as follows:
<TABLE>
<CAPTION>
Interest
(In 000's) Rate 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings under
revolving credit
agreement and lines
of credit 6.0% $ 140,000 $ 136,500
Long-term debt 6.3% 100,000 100,000
Other notes due to banks -- -- 158
Mortgage loans on 7.5% to -- --
investment property 8.0% 3,703 5,469
Other Various 4,158 16,317
- ---------------------------------------------------------------------------------------
Total $ 247,861 $ 258,444
- ---------------------------------------------------------------------------------------
</TABLE>
The mortgage loans are secured by property with a net carrying value of
$15.2 million at December 31, 1996.
Maturities of the debt obligations at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Maturities Amount
--------------------------------------------------------
<S> <C>
1997 $24,940
1998 21,935
1999 153,724
2000 20,945
2001 20,681
Thereafter 5,636
--------------------------------------------------------
Total $247,861
--------------------------------------------------------
</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 1999, 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
$133,000,000 and against the term facility were $100,000,000 at December 31,
1996. During 1996, the maximum amount outstanding on the revolving facility
amounted to approximately $158,000,000, with an average balance outstanding of
approximately $142,250,000 and an average weighted interest rate of 5.71%. In
addition to the revolving facility, the Company also uses several lines of
credit totaling $35,000,000 as of December 31, 1996, to manage day-to-day cash
flow. The amount borrowed against the lines of credit at December 31, 1996 was
$7,000,000. The average balance outstanding on the lines of credit was
approximately $4,700,000 during 1996, with a maximum borrowing of $16,000,000
and an average weighted interest rate of 6.07%.
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, 1996, 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 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, 1996, the Company
had 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. This cap protects $50,000,000 of the Company's
variable rate debt from a potential significant rise in short-term interest
rates. The Company was required to pay an up-front fee related to this
instrument at inception of the contract, which is being amortized straight-line
over the term of each contract.
Interest paid, net of amounts capitalized, amounted to approximately
$18,102,000, $14,021,000, and $12,957,000 in 1996, 1995, and 1994,
respectively. Interest capitalized amounted to $2,367,000, $2,303,000, and
$2,030,000, in 1996, 1995, and 1994, respectively.
56
<PAGE> 24
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.
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
$5,601,000, $5,825,000, and $5,497,000 in 1996, 1995, and 1994, 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, 1996, the Company had commitments for additional investments
and other items totaling $60,997,000.
57
<PAGE> 25
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, 1996, there were 1,860,526
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 $669,411,000 and
$672,694,000 at December 31, 1996 and 1995, respectively. The comparable
amounts as determined under statutory accounting practices were $183,506,000
and $166,469,000 at December 31, 1996 and 1995, respectively. The amount that
retained earnings exceed statutory unassigned surplus ($443,186,000) 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) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Carrying value of securities $1,593,130 $1,549,547
Amortized cost of securities 1,526,644 1,451,961
- ---------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) 66,486 97,586
Adjustment to deferred acquisition
costs (4,236) (7,948)
Deferred income taxes (22,524) (31,652)
- ---------------------------------------------------------------------------
Total $ 39,726 $ 57,986
- ---------------------------------------------------------------------------
</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 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, 1996, sixty-three 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, 25,500
were exercisable at December 31, 1996; 51,165 were exercisable at December 31,
1995; and 81,465 were exercisable at December 31, 1994. Of the non-qualified
options outstanding, 323,900 were exercisable at December
58
<PAGE> 26
Exhibit 13
31, 1996; 290,480 were exercisable at December 31, 1995; and 268,500 were
exercisable at December 31, 1994. The options expire on various dates beginning
February 12, 1997, and ending December 18, 2006.
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with the
provisions of SFAS 123, the Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
awards of restricted shares. Expense is recognized over the vesting period of
the restricted shares, and totaled $2,143,000, $1,714,000, and $1,484,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized. Pro forma information regarding net income and earnings
per share is required by SFAS 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of
that statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1996 and 1995, respectively: risk free interest rates
of 6.2% and 6.6%; dividend yields of 2%; volatility factors of the expected
market price of the Company's common stock of .16 for both periods; and a
weighted average expected life of 7 years for both periods. The weighted
average fair value of options granted for the two years ending December 31,
1996 and 1995, respectively was $8.39 and $6.73.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
IN $000'S, EXCEPT PER SHARE AMOUNTS 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Net Income:
As Reported $ 37,340 $ 59,353
Pro forma $ 37,225 $ 59,326
Primary Earnings per Share:
As Reported $ 1.66 $ 2.76
Pro forma $ 1.65 $ 2.75
Fully diluted Earnings per Share:
As Reported $ 1.68 $ 2.72
Pro forma $ 1.68 $ 2.71
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
59
<PAGE> 27
Exhibit 13
The following schedule summarizes activity in the Program during the three
years ending December 31, 1996.
<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 1/1/94 258,683 116,240 $ 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
Awarded 109,375 32.09 -- 129,945 32.97
Vested (83,564) 25.51
Exercised (25,665) 18.50 (37,800) 21.81
Forfeited (9,600) 25.86 -- (9,100) 23.20
- -------------------------------------------------------------------------------------------------------------------------
Outstanding 12/31/96 291,255 25,500 $ 18.50 596,245 $ 26.52
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable stock options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE EXERCISE AVERAGE EXCERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE NUMBER EXERCISABLE PRICE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16-$19.50 76,300 1.2 years $ 18.54 76,300 $ 18.54
$20-$24.31 124,000 3.8 22.37 124,000 22.37
$25-$38.13 421,445 7.6 28.70 148,300 26.78
- ------------------------------------------------------------------------------------------------------------------------
621,745 6.1 $ 26.19 348,600 $ 23.41
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, there were 184,160 shares of the Company's stock
reserved for future grants under the Program.
60
<PAGE> 28
Exhibit 13
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.
Net periodic postretirement benefit cost was $1,494,000, $1,506,000, and
$1,516,000 for the years ended December 31, 1996, 1995, and 1994, respectively,
and included the following components:
<TABLE>
<CAPTION>
(In $000,s) 1996 1995 1994
- --------------------------------------------------------------------------
Medical Life Medical Life Medical Life
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service
cost $ 162 $--- $ 140 $--- $ 139 $---
Interest
cost 1,042 290 1,082 284 1,067 282
Amortiza
- -tion
of
unrecognized
net loss -- -- -- -- 22 6
- --------------------------------------------------------------------------
Net
periodic
postretirement
benefit
cost $1,204 $290 $1,222 $284 $1,228 $288
- --------------------------------------------------------------------------
</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>
1996 1995
- ----------------------------------------------------------------
(In $000's) Medical Life Medical Life
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirees $11,374 $ 4,121 $12,632 $ 3,996
Fully eligible
active plan
participants 802 -- 834 --
Other active plan
participants 936 -- 1,119 --
- ----------------------------------------------------------------
Accumulated
postretirement
benefit
obligation 13,112 4,121 14,585 3,996
Unrecognized net
gain (loss) 1,657 (347) 183 (265)
- ----------------------------------------------------------------
Accrued
postretirement
benefit
obligation $14,769 $ 3,774 $14,768 $ 3,731
- ----------------------------------------------------------------
</TABLE>
At December 31, 1996, the weighted-average annual assumed rate of increase
in the per capita cost of covered medical benefits is 9.0% for 1997, 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, 1995, the health care cost
trend rate assumption was 9.5% and the rate graded down by 0.5% per year to 8%
in 1999, then decreased 1% per year to 5.5% in 2002 and thereafter. A 1%
increase in the per capita cost of health care benefits results in a $694,000
increase in the accrued postretirement benefit obligation and a $51,000
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% at both December 31, 1996 and 1995.
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 $4,959,000, $5,067,000, and $4,840,000, in
1996, 1995 and 1994, 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 $2,218,000,
$2,102,000, and $2,148,000 in 1996, 1995, and 1994, respectively.
<PAGE> 29
Exhibit 13
11. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 25,717 $ 21,761 $ 12,625
State and local 2,347 1,456 1,546
- --------------------------------------------------------------------------------------
Total current 28,064 23,217 14,171
Deferred:
Federal (8,460) 6,226 (1,361)
State and local (445) (1) (120)
- --------------------------------------------------------------------------------------
Total deferred (8,905) 6,225 (1,481)
- --------------------------------------------------------------------------------------
Total tax provision $ 19,159 $ 29,442 $ 12,690
- --------------------------------------------------------------------------------------
</TABLE>
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, 1996
and 1995, are as follows:
<TABLE>
<CAPTION>
(In 000's) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Insurance operations deferred tax
liabilities:
Deferred acquisition costs $ 86,469 $ 98,190
Policy liabilities 22,177 22,205
Market discount on investments 11,869 10,477
Tax over book partnership
losses 1,249 2,909
Unrealized investment gains
recognized in equity 22,524 31,652
Non-insurance companies deferred
tax liabilities:
Book over tax basis in acquired
television station 19,973 21,836
Tax over book depreciation 7,024 6,697
Tax over book amortization 4,086 4,594
- ---------------------------------------------------------------------------
Total deferred tax liabilities 175,371 198,560
- ---------------------------------------------------------------------------
Insurance operations deferred tax
assets:
Taxable income from financial
reinsurance not included in
income per books -- 1,680
Employee benefit accruals 6,128 6,881
Other 597 4,093
Non-insurance companies deferred
tax assets:
Net operating loss carryover 358 1,918
Book over tax partnership losses 2,838 1,237
Other 2,311 668
- ---------------------------------------------------------------------------
Total deferred tax assets 12,232 16,477
- ---------------------------------------------------------------------------
Net deferred tax liability $ 163,139 $ 182,083
- ---------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, the Company had unrealized gains from securities
classified as available for sale and equity securities of $66,486,000 and
$97,586,000, respectively, for which a deferred tax liability has been
established.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
(In 000's) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Rate applied to pre-tax
income before the
cumulative effect of
accounting changes $ 19,775 $ 31,078 $ 13,604
Tax exempt interest and
dividends (1,166) (1,384) (1,765)
State and local income
taxes 1,233 948 928
Other (683) (1,200) (77)
- ----------------------------------------------------------------------------------------------
Provision for income
taxes $ 19,159 $ 29,442 $ 12,690
- ----------------------------------------------------------------------------------------------
</TABLE>
The Company has net operating loss carryforwards of $1,023,000 and $5,481,000
at December 31, 1996 and 1995, which will expire between the years 2006 and
2009. 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 $30,047,000, $21,199,000, and $21,911,000
in 1996, 1995, and 1994, 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
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.
62
<PAGE> 30
F
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations for each of the years ended December 31,
1996 and 1995, are as follows:
<TABLE>
<CAPTION>
Quarter Ended
- --------------------------------------------------------------------------------------------------------
1996 (In 000's except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Revenues $146,708 $152,352 $156,469 $163,568
- --------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 20,660 $ 24,465 $(16,231) $ 27,605
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 14,055 $ 16,300 $(10,820) $ 17,805
- --------------------------------------------------------------------------------------------------------
Earnings (loss) per common share $ 0.64 $ 0.75 $ (0.55) $ 0.82
- --------------------------------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------------------------------
</TABLE>
During the third quarter of 1996, and concurrent with a realignment of the
Company's management structure, the Company completed a detailed study of its
insurance product lines, including products currently being marketed as well as
those previously sold by the Company's subsidiaries (including recently
acquired companies). This study identified several specific products, marketing
programs, underwriting and service methods that were inconsistent with the
Company's current strategies and profit objectives. Based on this analysis, the
Company took a $26.9 million after-tax charge, which principally represented
the write-off of deferred acquisition costs where recovery was no longer
assured due to actual experience on these products being worse than originally
assumed. In addition to the product-related charges, the Company wrote-off
previously deferred costs associated with acquiring and modifying an
administrative system for the Company's pre-need business. With the realignment
previously mentioned, a decision was made to move to a new administrative
platform for pre-need. All of the charges represented non-cash items, and had
no material impact on the insurance companies' statutory financial condition.
13. STATUTORY RESULTS OF OPERATIONS
Statutory net income of the Insurance Group for each of the years ended
December 31, 1996, 1995, and 1994 was $42.8 million, $32.4 million, and $16.4
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.
In February 1994, the Company completed the acquisition of North American
and American Funeral, two pre-need companies which 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,
63
<PAGE> 31
Exhibit 13
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 $20,376,000 and $20,382,000 at December 31, 1996 and 1995,
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.
- - 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.
64
<PAGE> 32
EXHIBIT 13
- - 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>
1996 1995
- ----------------------------------------------------------------------------------------------------------------
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 $1,517,539 $1,517,539 $1,467,039 $1,467,039
Equity securities 75,591 75,591 82,508 82,508
Mortgage loans 230,910 230,166 213,223 215,774
Policy loans 98,816 94,451 98,369 94,196
Other long-term investments 22,470 22,470 27,535 27,535
Short-term investments and cash 37,024 37,024 43,741 43,741
Interest rate swap -- 505 -- --
LIABILITIES
Investment-type insurance contracts 76,573 72,437 69,287 65,057
Notes, mortgages and other debt 147,861 147,861 158,444 158,444
Long-term debt 100,000 100,000 100,000 100,000
Film contract obligations included in other liabilities 8,154 7,382 7,462 6,611
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 36 and,
with respect to the years 1994 through 1996, is incorporated by reference.
65
<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, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, 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.
/s/ Ernst & Young LLP
Greenville, South Carolina
February 10, 1997
66
<PAGE> 1
Exhibit 21
THE LIBERTY CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
DECEMBER 31, 1996
<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. 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. 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.
67
<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 10, 1997, included in the 1996 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
Broadcasting Corporation Profit Sharing Retirement Plan and Trust, in the
Registration Statement (Form S-8 No. 33-34815) pertaining to The Liberty
Corporation Profit Sharing Plan and Trust, in the Registration Statement (Form
S-8 No. 333-22591) pertaining to The Cosmos Broadcasting Corporation Retirement
and Savings Plan, and in the Registration Statement (Form S-8 No. 333-22285)
pertaining to The Liberty Corporation Retirement and Savings Plan of our report
dated February 10, 1997 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 5, 1997 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, 1996.
/s/ Ernst & Young LLP
Greenville, South Carolina
March 24, 1997
68
<PAGE> 1
EXHIBIT 24
SPECIAL POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that I, Eugene E. Stone, IV, 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 7th day
of March, 1997.
/s/ Eugene E. Stone, IV
----------------------------------
Eugene E. Stone, IV
Director, The Liberty Corporation
A South Carolina Corporation
69
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE LIBERTY CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 1,517,539
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 75,591
<MORTGAGE> 230,910
<REAL-ESTATE> 132,696
<TOTAL-INVEST> 2,078,272
<CASH> 36,774
<RECOVER-REINSURE> 277,578
<DEFERRED-ACQUISITION> 262,182
<TOTAL-ASSETS> 3,060,765
<POLICY-LOSSES> 1,853,173
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 31,450
<POLICY-HOLDER-FUNDS> 28,488
<NOTES-PAYABLE> 247,861
45,599
20,999
<COMMON> 163,443
<OTHER-SE> 396,419
<TOTAL-LIABILITY-AND-EQUITY> 3,060,765
321,371
<INVESTMENT-INCOME> 155,221
<INVESTMENT-GAINS> (2,582)
<OTHER-INCOME> 145,087
<BENEFITS> 218,751
<UNDERWRITING-AMORTIZATION> 73,967
<UNDERWRITING-OTHER> 140,273
<INCOME-PRETAX> 56,499
<INCOME-TAX> 19,159
<INCOME-CONTINUING> 37,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,340
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.68
<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 29602
FOR THE YEAR ENDED DECEMBER 31, 1996
----------
THE LIBERTY CORPORATION
AND ADOPTING RELATED EMPLOYERS'
401(K) THRIFT PLAN
THE LIBERTY CORPORATION
2000 WADE HAMPTON BOULEVARD
GREENVILLE, SOUTH CAROLINA 29602
-1-
70
<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 1996, 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 $2,193,000 in 1996, $2,127,000 in
1995, and $2,045,000 in 1994, were credited to the accounts of participating
employees.
ITEM 4. PARTICIPATING EMPLOYEES
There were 1,921 enrolled participants in the Plan as of December 31, 1996.
-2-
71
<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 are
employed by The Liberty Corporation or its subsidiaries and include
the following:
Artie L. Bedard
William C. Bischoff
Mary Anne Bunton
Joel Conrad
Susan Cyr
Faith E. Gibson
Harold W. Huffstetler, Jr.
Kenneth W. Jones
Kenneth N. Keller
Quentin Kennedy
Douglas W. Kroske
Susan W. Mink
Pamela A. Purvis
Samuel H. Schaeffer
G. Neil Smith
Sandra Carpenter Thompson
Evon A. Trotter
Stephen Watkins, Jr.
-3-
72
<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 are employed by The Liberty
Corporation and are stated as follows:
Mary Anne Bunton
Susan E. Cyr
(b) For the year ended December 31, 1996, expenses of administration of
the Plan of approximately $384,000, 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
$40,041 during the year ended December 31, 1996.
(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,
1996.
-4-
73
<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, 1996, 1995, and 1994, 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, 1996, were directed to brokers because of
research services provided.
<TABLE>
<CAPTION>
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
Page No.
--------
<S> <C>
(a) Financial Statements
Report of Independent Auditors 6
(The Consent of Independent Auditors is Exhibit 24 of
the Form 10-K of which this report is also an exhibit.)
Statements of Net Assets Available for Plan Benefits -
December 31, 1996 and 1995 7
Statements of Changes in Net Assets Available for Plan
Benefits - For the Years Ended December 31, 1996 and 1995 8
Notes to Financial Statements - December 31, 1996 9 - 13
Schedule of Assets Held for Investment - December 31, 1996 14 - 15
Schedule of Transactions or Series of Transactions in Excess
of 5% of the Current Value of Plan Assets - December 31, 1996 16
Schedule of Assets Held for Investment Purposes that were
Both Acquired and Disposed of within the Plan Year - December 31, 1996 17
(b) Exhibits
None
</TABLE>
-5-
74
<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, 1996 and 1995, 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 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan
at December 31, 1996 and 1995, and the changes in its net assets available for
plan benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed 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, 1996, transactions or series
of transactions in excess of 5% of the current value of plan assets for the
year ended December 31, 1996 and assets held for investment purposes that were
both acquired and disposed of within the plan year ended December 31, 1996 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 1974 and are not a required part of the basic financial
statements. The Fund Information in the statements of net assets available for
plan benefits and the statements of changes in net assets available for plan
benefits is presented for purposes of additional analysis rather than to
present the net assets available for plan benefits and changes in net assets
available for plan benefits of each fund. The supplemental schedules and Fund
Information have been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Ernst & Young LLP
March 5, 1997
-6-
75
<PAGE> 7
THE LIBERTY CORPORATION AND ADOPTING
RELATED EMPLOYER'S 401(K) THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
DECEMBER 31, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
FUND INFORMATION
----------------------------------------------------------
LIBERTY MONEY COMMON INTERMEDIATE
STOCK MARKET STOCK BOND
FUND FUND FUND FUND TOTAL
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CASH $80 $-- $-- $-- $80
INVESTMENTS:
AT FAIR VALUE (NOTE1)
SHORT -TERM INVESTMENTS(TOTAL COST OF $16,565
IN 1996 AND $10,032 IN 1995) 56 10,139 4,718 1,652 16,565
THE LIBERTY CORPORATION COMMON STOCK (TOTAL
COST OF $9,310 IN 1996 AND $9,049 IN 1995) 14,077 -- -- -- 14,077
OTHER COMMON STOCKS (TOTAL COST OF $24,395
IN 1996 AND $21,429 IN 1995) -- -- 33,392 -- 33,392
SECURITIES OF US GOVERNMENT AND AGENCIES
(TOTAL COST OF $2,340 IN 1996 AND $5,327 IN
1995) -- -- -- 2,314 2,314
CORPORATE BONDS (TOTAL COST OF $901 IN 1996 --
AND $258 IN 1995 -- -- -- 895 895
CORPORATE COLLATERALIZED MORTGAGE
OBLIGATIONS (TOTAL COST OF $694 IN 1996 AND
$193 IN 1995) -- -- -- 710 710
CORPORATE ASSET-BACKED SECURITIES (TOTAL COST
OF $1,706 IN 1996 AND $510 IN 1995) -- 1,476 -- 222 1,698
REAL ESTATE INVESTMENT TRUST (TOTAL COST OF
$228 IN 1996 AND 1995) -- -- 301 -- 301
DUE FROM BROKER FOR SECURITIES SOLD 150 -- 54 -- 204
PARTICIPANT LOANS RECEIVABLE 1,140 1,082 1,903 186 4,311
ACCRUED INVESTMENT INCOME 68 48 80 49 245
---------------------------------------------------------
TOTAL ASSETS 15,571 12,745 40,448 6,028 74,792
LIABILITIES
ACCRUED EXPENSES 23 24 47 12 106
DUE TO BROKER FOR SECURITIES PURCHASED -- -- -- -- --
---------------------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $15,548 $12,721 $40,401 $ 6,016 $74,686
=========================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
FUND INFORMATION
---------------------------------------------------------
LIBERTY MONEY COMMON INTERMEDIATE
STOCK MARKET STOCK BOND
FUND FUND FUND FUND TOTAL
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH $80 $-- $-- $-- $1
INVESTMENTS:
AT FAIR VALUE (NOTE1)
SHORT -TERM INVESTMENTS(TOTAL COST OF $16,565
IN 1996 AND $10,032 IN 1995) 9 8,405 605 1,013 10,032
THE LIBERTY CORPORATION COMMON STOCK (TOTAL
COST OF $9,310 IN 1996 AND $9,049 IN 1995) 12,320 -- -- -- 12,320
OTHER COMMON STOCKS (TOTAL COST OF $24,395
IN 1996 AND $21,429 IN 1995) -- -- 26,878 -- 26,878
SECURITIES OF US GOVERNMENT AND AGENCIES
(TOTAL COST OF $2,340 IN 1996 AND $5,327 IN
1995) -- 1,757 -- 3,521 5,278
CORPORATE BONDS (TOTAL COST OF $901 IN 1996
AND $258 IN 1995 -- -- -- 253 253
CORPORATE COLLATERALIZED MORTGAGE
OBLIGATIONS (TOTAL COST OF $694 IN 1996 AND
$193 IN 1995) -- -- -- 206 206
CORPORATE ASSET-BACKED SECURITIES (TOTAL COST
OF $1,706 IN 1996 AND $510 IN 1995) -- 505 -- -- 505
REAL ESTATE INVESTMENT TRUST (TOTAL COST OF
$228 IN 1996 AND 1995) -- -- 243 -- 243
DUE FROM BROKER FOR SECURITIES SOLD -- -- 61 5 66
PARTICIPANT LOANS RECEIVABLE 869 916 1,483 121 3,389
ACCRUED INVESTMENT INCOME 63 86 51 41 241
---------------------------------------------------------
TOTAL ASSETS 13,261 11,669 29,322 5,160 59,412
LIABILITIES
ACCRUED EXPENSES 17 18 34 8 77
DUE TO BROKER FOR SECURITIES PURCHASED -- -- -- -- --
---------------------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $13,244 $11,651 $29,288 $5,152 $59,335
=========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-7-
76
<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, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
1996
FUND INFORMATION
-------------------------------------------------------------
LIBERTY MONEY COMMON INTERMEDIATE
STOCK MARKET STOCK BOND
FUND FUND FUND FUND TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO :
INVESTMENT INCOME
NET REALIZED AND UNREALIZED APPRECIATION
(DEPRECIATION) IN FAIR VALUE OF INVESTMENTS $1,993 $(29) $7,141 $(42) $9,063
DIVIDENDS:
THE LIBERTY CORPORATION COMMON STOCK 265 -- -- -- 265
OTHER COMMON STOCKS -- 1 528 -- 529
INTEREST ON SECURITIES 5 641 165 345 1,156
INTEREST ON PARTICIPANT LOANS 73 42 150 20 285
MISCELLANEOUS -- -- 1 -- 1
-------------------------------------------------------------
TOTAL INVESTMENT INCOME 2,336 655 7,985 323 11,299
OTHER INCOME 1 15 11 5 32
CONTRIBUTIONS
EMPLOYER 436 363 1,143 251 2,193
PARTICIPANTS 800 599 2,253 473 4,125
-------------------------------------------------------------
TOTAL CONTRIBUTIONS 1,236 962 3,396 724 6,318
TRANSFERS FROM OTHER QUALIFIED PLANS 54 1,118 861 375 2,408
-------------------------------------------------------------
TOTAL ADDITIONS 3,627 2,750 12,253 1,427 20,057
DEDUCTIONS FROM NET ASSETS
ATTRIBUTED TO:
BENEFITS PAID TO PARTICIPANTS (801) (1,412) (1,679) (430) (4,322)
ADMINISTRATION EXPENSES (32) (46) (289) (17) (384)
-------------------------------------------------------------
TOTAL DEDUCTIONS (833) (1,458) (1,968) (447) (4,706)
INTERFUND TRANSFERS (NET) (490) (222) 828 (116) --
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS 2,304 1,070 11,113 864 15,351
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT BEGINNING OF YEAR 13,244 11,651 29,288 5,152 59,335
-------------------------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT END OF YEAR $15,548 $12,721 $40,401 $6,016 $74,686
=============================================================
</TABLE>
<TABLE>
<CAPTION>
1995
FUND INFORMATION
-------------------------------------------------------------
LIBERTY MONEY COMMON INTERMEDIATE
STOCK MARKET STOCK BOND
FUND FUND FUND FUND TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS ATTRIBUTED TO :
INVESTMENT INCOME
NET REALIZED AND UNREALIZED APPRECIATION
(DEPRECIATION) IN FAIR VALUE OF INVESTMENTS $3,028 $54 $7,047 $254 $10,383
DIVIDENDS:
THE LIBERTY CORPORATION COMMON STOCK 244 -- -- -- 244
OTHER COMMON STOCKS -- -- 372 -- 372
INTEREST ON SECURITIES 2 634 94 280 1,010
INTEREST ON PARTICIPANT LOANS 62 40 109 18 229
MISCELLANEOUS -- -- -- 2 2
-------------------------------------------------------------
TOTAL INVESTMENT INCOME 3,336 728 7,622 554 12,240
OTHER INCOME
CONTRIBUTIONS
EMPLOYER 460 443 970 254 2,127
PARTICIPANTS 851 725 1,844 481 3,901
-------------------------------------------------------------
TOTAL CONTRIBUTIONS 1,311 1,168 2,814 735 6,028
TRANSFERS FROM OTHER QUALIFIED PLANS 3 39 16 6 64
-------------------------------------------------------------
TOTAL ADDITIONS 4,650 1,935 10,452 1,295 18,332
DEDUCTIONS FROM NET ASSETS
ATTRIBUTED TO:
BENEFITS PAID TO PARTICIPANTS (1,020) (1,626) (1,911) (440) (4,997)
ADMINISTRATION EXPENSES (23) (32) (218) (12) (285)
-------------------------------------------------------------
TOTAL DEDUCTIONS (1,043) (1,658) (2,129) (452) (5,282)
INTERFUND TRANSFERS (NET) (249) 373 122 (246) --
INCREASE (DECREASE) IN NET ASSETS
AVAILABLE FOR PLAN BENEFITS 3,358 650 8,445 597 13,050
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT BEGINNING OF YEAR 9,886 11,001 20,843 4,555 46,285
-------------------------------------------------------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT END OF YEAR $13,244 $11,651 $29,288 $ 5,152 $59,335
=============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-8-
77
<PAGE> 9
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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). Reclassifications have been made in the
1995 statements to conform to the 1996 presentation.
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, 1996, there were 1,921 active participants in the Plan of
whom 939, 803, 642 and 1,606 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-
78
<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-
79
<PAGE> 11
3. INVESTMENTS
During 1996 and 1995, the Plan's investments (including investments
bought, sold, and held during the year) appreciated (depreciated) in
value by $9,063,000 and $10,383,000, respectively, as follows:
<TABLE>
<CAPTION>
NET APPRECIATION
(DEPRECIATION) IN MARKET
FAIR VALUE DURING VALUE AT
YEAR END OF YEAR
----------------------------------------
($000'S)
YEAR ENDED DECEMBER 31, 1996
---------------------------
<S> <C> <C>
Short-term investments $-- $16,565
The Liberty Corporation
common stock 1,993 14,077
Other common stock 7,083 33,392
U.S. Government and
agency securities (47) 2,314
Corporate bonds (2) 895
Collateralized mortgage obligations 4 710
Corporate Asset-Backed Securities (27) 1,698
Real Estate Investment Trust 59 301
======= =======
$ 9,063 $69,952
======= =======
YEAR ENDED DECEMBER 31, 1995
- ----------------------------- ---------
Short-term investments $--- $10,032
The Liberty Corporation
common stock 3,028 12,320
Other common stock 7,032 26,878
U.S. Government and
agency securities 306 5,278
Corporate Bonds (5) 253
Collateralized mortgage obligations 12 206
Corporate Asset-Backed Securities (5) 505
Real Estate Investment Trust 15 243
--------- ---------
$10,383 $55,715
========= =========
</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,
1996 1995
-------------------------
($000'S)
<S> <C> <C>
Wachovia Short-Term Investment Fund $ 16,565 $ 10,032
The Liberty Corporation Common Stock 14,077 12,320
(358,652 shares and 365,042 shares
in 1996 and 1995, 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 dated August 11, 1994 from the Internal Revenue
Service stating that the Plan is qualified under Section 401(a) of the
Internal Revenue Code, and the related trust 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-
80
<PAGE> 12
5. SOURCES OF CONTRIBUTIONS
The sources of contributions for the two years ended December 31, 1996,
consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------------
($000'S)
Employer:
<S> <C> <C>
The Liberty Corporation $301 $125
Liberty Life Insurance Company 987 1,113
Cosmos Broadcasting Corporation 670 497
Special Services Corporation 7 5
Liberty Capital Advisors, Inc. 19 13
Liberty Properties Group, Inc. 37 37
Pierce National Life Insurance Co. 49 80
Liberty Investment Group, Inc. 17 19
Liberty Insurance Services Corporation 106 238
---------------
Total Employer Contributions 2,193 2,127
---------------
Employee:
The Liberty Corporation 614 263
Liberty Life Insurance Company 1,804 2,017
Cosmos Broadcasting Corporation 1,275 901
Special Services Corporation 9 8
Liberty Capital Advisors, Inc. 46 38
Liberty Properties Group, Inc. 71 73
Pierce National Life Insurance Co. 99 151
Liberty Investment Group, Inc. 32 36
Liberty Insurance Services Corporation 175 414
---------------
Total Employee Contributions 4,125 3,901
---------------
Total Contributions $6,318 $6,028
===============
</TABLE>
Forfeitures of non-vested balances in employer accounts of $107,000 in
1996 and $112,000 in 1995 were used to reduce employer contributions.
Additionally, amounts contributed by the employer during 1996 and 1995
included non-cash contributions of the Company's common stock which
had a market value, at date of contribution, of $141,000 and
$1,561,000, respectively. All other employer contributions were made
in cash.
-12-
81
<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 1996 and 1995, the Plan purchased and sold securities of
parties-in-interest as summarized below:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------
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 33,460 $1,108 88,696 $ 2,535
Sales 38,918 823 78,484 1,910
Short-term investments of Plan Trustee
(Wachovia Bank & Trust Co., N.A.):
Purchases 37,989 37,989 26,313 26,313
Sales 31,457 31,457 22,410 22,410
</TABLE>
The Plan also received dividends of $265,000 in 1996 and $244,000 in
1995 from The Liberty Corporation and interest of $657,000 in 1996 and
$499,000 in 1995 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, 1996 and 1995, amounts payable to withdrawn
participants totaled $1,391,000 and $807,000, respectively. These
amounts were disbursed in the first quarter of the following year.
9. SUBSEQUENT EVENT
On February 25, 1997, The Liberty Corporation announced that,
effective April 1, 1997, it would merge the net assets of the Plan
with The Liberty Corporation Profit Sharing Plan (for all participants
other than those related to Cosmos Broadcasting Corporation) and the
Cosmos Broadcasting Corporation Profit Sharing Retirement Plan (for
all applicable Cosmos participants). The merged plans will provide
expanded investment selections and will retain the voluntary
contribution, matching contribution, and profit sharing features of
the predecessor plans. The Liberty Corporation will submit the revised
plans to the Internal Revenue Service to obtain a determination letter
that the plans, as amended and restated, are qualified under section
401 of the Internal Revenue Code.
-13-
82
<PAGE> 14
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1996
(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 $ 16,565 $16,565 $16,565
COMMON STOCKS
The Liberty Corporation 358,652 9,310 14,077
OTHER COMMON STOCKS
Boeing Co. 336 18 36
McDonnell Douglas Corp. 12,000 232 788
Chrysler Corp. 33,000 766 1,089
Ford Motor Co. 10,000 311 323
General Motors Corp. 16,000 750 892
Bank of Boston Corp. 12,500 659 803
BankAmerica Corp. 2,500 202 249
Chase Manhattan Corp. 4,300 298 384
Citicorp 14,000 550 1,442
Wells Fargo & Company 3,000 671 809
Pepsico, Inc. 4,200 128 123
Du Pont De Nemours & Co E I 9,500 646 894
IMC Global 24,000 922 939
Union Carbide 17,000 734 695
Cisco Systems Inc. 5,900 234 375
Compaq Computer Corp. 18,200 939 1,354
International Business Machines Corp 6,000 559 909
Silicon Graphics 8,800 201 224
Microsoft Corp 4,600 139 380
Colgate Palmolive Co. 8,500 567 784
Allied Signal Inc. 5,400 336 362
Amgen Inc. 6,500 378 353
SmithKline Beecham P L C 14,000 701 952
Rockwell International 8,000 267 487
Ucar International Inc. 20,000 562 752
Intel Corp. 4,000 279 524
Circus Circus Enterprises, Inc. 5,000 165 172
Time Warner Inc. 14,000 512 525
Countrywide CR Inds Inc. 30,000 684 859
Merrill Lynch & Co Inc. 12,000 438 978
Paine Webber Group Inc. 10,300 197 290
Travelers Group Inc. 11,000 252 499
Tupperware Corporation 17,000 650 912
Exel Limited 20,000 741 757
MBIA Inc. 8,500 464 861
Baxter International Inc. 15,000 492 615
Columbia/HCA Healthcare Corp. 25,500 554 1,039
Value Health Inc. 7,900 278 154
Homestake Mining Co. 16,500 236 235
Newmont Mining Co. 7,500 359 336
First USA Inc. 24,000 410 831
Atlantic Richfield Co. 4,400 495 583
Chevron Corp. 4,200 266 273
Texaco Inc. 4,400 342 432
Cabot Corporation 30,000 793 754
Kimberly Clark Corporation 11,700 642 1,114
Illinois Cent Corp. 24,000 713 768
Officemax Inc. 18,600 244 200
Rite-Aid Corp. 20,000 400 795
Airtouch Communications Inc. 32,000 828 808
Bell Atlantic Corp, 4,500 276 291
Nokia Corp. 3,900 139 225
Worldcom Inc. GA 5,600 135 146
Phillip Morris Cos. Inc. 7,000 449 791
UST Inc. 7,000 192 227
-----------------
TOTAL OTHER COMMON STOCK 24,395 33,392
</TABLE>
-14-
83
<PAGE> 15
THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN
ASSETS HELD FOR INVESTMENT (CONTINUED)
DECEMBER 31, 1996
(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
Federal Home Loan Banks Cons DB 6.65% Due 2/25/1997 250,000 259 251
Federal National Mortgage Assn. Deb 6.10% Due 2/10/2000 500,000 516 498
Federal Home Loan Mortgage Corp. 7.00% Due 5/15/2020 98,028 94 98
Federal Home Loan Mortgage Corp. 7.00% Due 4/15/2002 400,000 416 404
Federal Home Loan Mortgage Corp. 6.00% Due 11/15/2006 350,000 334 345
Federal National Mortgage Assn. 7.00% Due 8/25/2005 127,000 121 129
Federal National Mortgage Assn. 6.25% Due 9/25/2007 300,000 296 294
Federal National Mortgage Assn. 6.00% Due 4/25/2001 300,000 304 295
-------------------
TOTAL SECURITIES OF UNITED STATES GOVERNMENT & AGENCIES 2,340 2,314
CORPORATE BONDS
Mississippi Home Corp. 8.81% due 9/15/2011 250,000 258 252
Ford Motor Company 5.75% Due 1/25/2001 150,000 150 145
General Motors Acceptance Corp. 5.625% Due 2/1/1999 200,000 196 198
Merrill Lynch 6.52% Due 2/15/2001 300,000 297 300
-------------------
TOTAL CORPORATE BONDS 901 895
COLLATERALIZED MORTGAGE OBLIGATIONS
Green Tree Financial Corp. 7.85% Due 8/15/2025 500,000 501 507
Prudential Home Mtg. Secs Co. 7.75% Due 10/25/2024 200,000 193 203
-------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 694 710
CORPORATE ASSET-BACKED SECURITIES
Chase Manhattan Grantor Trust 5.20% Due 4/15/2002 706,400 706 699
Signet Master TR 5.25% Due 4/15/2000 1,000,000 1,000 999
-------------------
TOTAL CORPORATE ASSET-BACKED SECURITIES 1,706 1,698
REAL ESTATE INVESTMENT TRUST
Liberty Properties Trust 11,700 228 301
-------------------
TOTAL INVESTMENTS $56,139 $69,952
======= =======
</TABLE>
-15-
84
<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, 1996
(IN $000'S, EXCEPT NUMBER OF SHARES DATA)
<TABLE>
<CAPTION>
CATEGORY (III) - SERIES OF TRANSACTIONS IN EXCESS OF 5 PERCENT OF PLAN ASSETS
- -----------------------------------------------------------------------------
PURCHASE SALES EXPENSES
PARTY INVOLVED DESCRIPTION OF ASSETS PRICE PRICE INCURRED
- --------------------------- ----------------------------------------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$37,989 principal amount, various interest rates $37,989 -- --
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$31,457 principal amount, various interest rates -- $31,457 --
<CAPTION>
CURRENT
VALUE ON REALIZED
TRANSACTION GAIN
PARTY INVOLVED DESCRIPTION OF ASSETS COST DATE (LOSS)
- --------------------------- ----------------------------------------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$37,989 principal amount, various interest rates $37,989 $37,989 --
Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund -
$31,457 principal amount, various interest rates $31,457 $31,457 --
</TABLE>
THERE WERE NO CATEGORY (I), (II), OR (IV) REPORTABLE TRANSACTIONS DURING 1996.
-16-
85
<PAGE> 17
THE LIBERTY CORPORATION AND ADOPTING
RELATED EMPLOYERS' 401(K) THRIFT PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
THAT WERE BOTH ACQUIRED AND DISPOSED OF
WITHIN PLAN YEAR ENDED DECEMBER 31, 1996
(IN $000'S, EXCEPT NUMBER OF SHARES DATA)
<TABLE>
<CAPTION>
IDENTITY OF ISSUE, BORROWER, LESSOR, OR PRINCIPAL AMOUNT OF BONDS & NOTES PURCHASE SALES
SIMILAR PARTY Number of Shares Price Proceeds
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sears Cr. Account Tr. Maturity Date: 9/15/96 $1,014 $1,000
Rate of Interest: 7.75%
Maturity value: $1,000
Signet Credit Card Master Tr. Maturity Date: 12/15/00 997 1,000
Rate of Interest: 4.85%
Maturity value: $1,000
Bay Networks, Inc. 7,600 Shares 210 203
Cirrus Logic Inc. 8,000 147 166
Ericcson LM Tel Co. 11,500 264 296
LSI Logic Corp. 10,200 330 218
Lilly Eli & Co. 2,600 169 153
Netcon On line Communications 2,600 75 60
Quantum Corporation 7,600 81 58
Sun Co. Inc. 5,800 171 132
Sun Microsystems Inc. 8,800 453 551
Tosco Corporation 3,400 160 171
Aetna Inc. 12,000 825 752
American Portable Telecom Inc. ,400 94 54
Cabletron Sys Inc. 2,800 188 190
DSC Communications Corp. 3,500 87 101
Motorola Inc. 7,000 423 403
Nokia Corp. 9,000 316 375
Pacific America Money CTR Inc. 10,000 100 122
Allied Signal Inc. 500 31 34
American Express Co. 3,300 148 175
BankAmerica Corp. 1,800 145 179
Gateway 2000 Inc. 2,500 123 132
Hercules Inc. 1,800 92 85
National Processing Inc. 10,000 165 190
NationsBank Corp. 3,500 301 325
Oracle Corporation 5,000 181 181
Qualcomm Inc. 4,900 203 218
U.S. Robotics Holding Corp. 2,400 131 159
America Online Inc. Del 5,700 171 144
Gap Inc. 4,000 115 119
Shiva Corp. 2,500 115 115
3 Com 3,800 282 290
Intel Corp. 2,000 167 126
Merck & Co. Inc. 6,800 445 412
Chase Manhatten Corp. New 1,000 69 84
Dell Computer Corp. 1,600 67 76
Cisco Sys. Inc. 4,100 143 249
Silicon Graphics Inc. 4,000 91 105
Ascend Communications Inc. 3,600 192 224
Aetna Life & Casualty Company 10,000 709 709
Allegiance Corporation 3,000 40 54
Stratacom Inc. 5,000 172 172
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