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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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
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
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange on Which
Title of Each Class Registered
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Common Stock, no par value per share New York Stock Exchange
Rights to Purchase Series A Participating Cumulative Preferred Stock New York Stock Exchange
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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 [ ]
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]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 15, 2000:
Common Stock, No Par Value $654,814,937.
The number of shares outstanding of each of Registrant's classes of common stock
as of March 15, 2000:
Common Stock, No Par Value 19,366,061
DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Liberty Corporation Annual Report to Shareholders for the
year ended December 31, 1999 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 2, 2000 are incorporated into Part III, Items 10, 11, 12,
and 13 by reference.
This report is comprised of pages 1 through 74. The exhibit index is on page
34.
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PART I
ITEM 1. BUSINESS
GENERAL
The Registrant, The Liberty Corporation ("Liberty" or "the Company") is a
holding company incorporated under the laws of the state of South Carolina with
broad powers to engage in business. Currently the Company's subsidiaries are
operating in the television broadcasting, life insurance, and life insurance
policy administration businesses. The Company's principal executive offices are
in Greenville, South Carolina.
The Company's broadcasting subsidiary, Cosmos Broadcasting Corporation,
("Cosmos") consists of twelve network-affiliated stations principally located in
the Southeast and Midwest, and a cable advertising company. The Company markets
insurance products through Liberty Life Insurance Company ("Liberty Life"),
which was founded in 1905. Additionally, through Liberty Insurance Services
Corporation ("LIS"), the Company is one of the nation's largest life insurance
third-party administrators.
Additional information concerning Liberty's subsidiaries and divisions is
included in "Management's Discussion and Analysis" in the Company's 1999 Annual
Report to Shareholders, which is incorporated herein by reference.
RECENT DEVELOPMENTS
In February 1999, the Company announced that it was considering a variety of
restructuring alternatives that would more actively support the business
objectives of its operating subsidiaries and enhance value for shareholders. The
Company is currently seeking a restructure alternative that best suits Liberty's
unique business mix. Recent deregulation both in the financial and broadcasting
industries have encouraged the Company to broaden its search for the optimal
solution.
On November 3, 1999 the Company announced that it had reached a definitive
agreement to acquire KCBD-TV, the NBC affiliate in Lubbock, Texas in a cash
transaction for $59.8 million. The Company completed this transaction in
February of 2000. The purchase was funded with borrowings from the Company's
credit facility.
During the third quarter of 1999 the Company settled an outstanding lawsuit
it had brought against a software development company in 1996. The gain from the
settlement of the lawsuit was partially offset by one-time costs related to the
implementation by Liberty Life's Agency division of its Agency 2000 initiative.
As part of this initiative the Company consolidated a number of field offices,
made strategic reductions in its sales management group, and began lowering
agent counts in certain markets. The net impact of the litigation settlement and
the one-time Agency costs on operating earnings was an after-tax $4.5 million
gain.
On May 25, 1999 ("the redemption date") the Company completed the
redemption of all of the outstanding shares of its 1994-A Series voting
cumulative preferred stock, and its 1994-B Series voting cumulative preferred
stock. Shares were to be redeemed at $35.00 per share and $37.50 per share for
the 1994-A and 1994-B preferred stock, respectively, plus accrued interest from
April 1, 1999 through the redemption date. Prior to the redemption date, all
shares of the 1994-A Series were converted into common stock, and all but 8,170
shares of the 1994-B Series were converted into common stock.
During 1998, the Company completed the acquisition of three television
stations. In July 1998, the Company completed the acquisition of WALB
television, a NBC affiliate, located in Albany, Georgia for a cash purchase
price of $78.6 million. In November 1998, the Company completed the acquisition
of KGBT television, a CBS affiliate, located in Harlingen, Texas for a cash
purchase price of $42.9 million. In December 1998, the Company completed the
acquisition of WWAY television, an ABC affiliate, located in Wilmington, North
Carolina for a cash purchase price of $35.4 million. Funds for the acquisitions
were obtained from the Company's credit facility.
On April 8, 1998, the Company completed the sale of Pierce National Life
Insurance Company ("Pierce") to Fortis, Inc. The Company received cash totaling
approximately $139 million at closing. On December 31, 1997, Fortis, Inc. had
purchased 2,660 newly issued shares of Pierce common stock for $37.2 million in
cash. Subsequent to this stock purchase,
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Fortis, Inc. maintained a twenty-one percent ownership interest in the common
stock of Pierce through the completion of the sale. LIS continues to administer
the Pierce block of business and also began to provide similar administrative
services to another subsidiary of Fortis, Inc. during 1998.
In March 1998, the Company completed a tender offer program to repurchased
2,400,000 shares of its common stock at $52 per share. In addition, the Company
repurchased 138,000 shares in the open market during 1998. The stock repurchases
were funded with borrowings from Company's credit facility.
In May 1997, Liberty completed the sale of its business rental properties
and the majority of its business park land developments to a partnership in
which the general partner is a publicly-traded real estate investment trust
("REIT"). Liberty received cash, a note receivable, and partnership units (which
are convertible into shares of the REIT) in exchange for the properties.
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TELEVISION BROADCASTING AND RELATED OPERATIONS
The following table shows data on the stations owned by us as of March 15, 2000:
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NETWORK PERCENTAGE
CONTRACT OF U.S.
MARKET NETWORK EXPIRATION STATION TELEVISION DATE DATE
MARKET STATION RANK(1) CHANNEL AFFILIATION (2) RANK(3) HOUSEHOLDS(4) FORMED ACQUIRED
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Louisville, KY WAVE-TV 48 3 NBC 2004 2 0.58% 1948 1981
Toledo, OH WTOL-TV 66 11 CBS 2003 1 0.41 1958 1965
Columbia, SC WIS-TV 86 10 NBC 2004 1 0.32 1953 1953
Evansville, IN WFIE-TV 96 14 NBC 2004 1 0.28 1953 1981
Harlingen, TX KGBT-TV 102 4 CBS 2003 3 0.25 1955 1998
Montgomery, AL WSFA-TV 113 12 NBC 2004 1 0.23 1959 1959
Lubbock, TX KCBD-TV 117 11 NBC 2006 1 0.15 1953 2000
Albany, GA WALB-TV 148 10 NBC 2002 1 0.14 1954 1998
Wilmington, NC WWAY-TV 152 3 ABC 2005 2 0.14 1964 1998
Biloxi, MS WLOX-TV 158 13 ABC 2004 1 0.12 1962 1995
Jonesboro, AK KAIT-TV 178 8 ABC 2004 1 0.08 1963 1986
Lake Charles, LA KPLC-TV 179 7 NBC 2004 1 0.08 1954 1986
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(1) Market rank is based on the relative size of the designated market areas
among the 211 generally recognized designated market areas in the U.S.,
based on Nielsen estimates for the 1998-99 season.
(2) Contracts may be subject to renewal provisions that effectively extend the
expiration date.
(3) Station rank in its market area based on Nielsen November 1999 ratings
(from sign-on to sign-off).
(4) Based on Nielsen estimates for the 1998-1999 season.
Cosmos is a broadcasting company that currently owns and operates twelve
network-affiliated television stations in the Southeast and Midwest, eleven of
which were ranked No. 1 or No. 2 in their markets by the May 1999 Nielsen
ratings from sign-on to sign-off. Seven of its stations are affiliated with NBC,
three with ABC, and two with CBS. The twelve stations cover approximately 2.78%
of U.S. households.
All of the Company's stations are located in geographically diverse and
growing markets. Eleven of the twelve stations are located in university
centers.
Many of the stations are also located in markets that are home to a mixture
of large manufacturing plants, state capitals, transportation hubs and United
States military bases.
o Harlingen-McAllen-Brownsville, in the Rio Grande Valley area of Texas,
is the second largest growing region in the state and is the focal
point of the NAFTA trade agreement.
o The Biloxi-Gulfport, Mississippi area includes a major gulfport
facility and is the third most visited gaming site after Las Vegas and
Atlantic City.
o Louisville, Kentucky is home to the largest GE appliance plant in the
world.
o Evansville, Indiana is the site of a new Toyota truck plant and new
A.K. plant.
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o Toledo, Ohio is developing into a mid-west transportation hub, which
includes the Great Lake port facility.
o Jonesboro, Arkansas is projected to be Arkansas' second largest city
by 2005.
o Lake Charles, Louisiana is one of two cities that has experienced the
fastest economic growth in Louisiana.
o Wilmington, North Carolina was ranked as the second fastest growing
metro area in the United States during 1997 and 1998.
o Columbia, South Carolina; Montgomery, Alabama; and Albany, Georgia are
all home to military bases, commands or training centers.
The twelve stations operate in designated market areas ranked 48 to 179.
None of the TV markets represented more than 15% of the revenues or 16% of
broadcast cash flow for the fiscal year ending December 31, 1999. The Company
believes that it generates one of the best broadcast cash flow per households
covered ratios of any broadcast group in the industry. It also believes that
nine of the twelve stations generate substantially greater broadcast cash flow
and earnings than the average station of comparable market size.
The Company also operates a cable advertising company, CableVantage Inc.
and a direct-mail coupon company, SuperCoups USA. Through CableVantage, it
represents seven independent cable operators that, in combination, reach over
$430,000 subscribers. Through SuperCoups USA the Company has acquired the
direct-mail franchise rights to a number of southeastern cities.
NETWORK AFFILIATIONS
Each of the stations is affiliated with a major network. The affiliation
contracts provide that the network will offer to the affiliated station a
variety of network programs, for which the station has the right of first
refusal against any other television station located in its community. The
network typically retains the rights to sell a substantial majority of the
advertising time during such broadcasts. For airing network programming the
network pays the stations according to terms in its network affiliation
contract. This is called network compensation. The major networks typically
provide programming for approximately 90 hours of the average 135 hours per week
broadcast by their affiliated stations.
The NBC affiliation contracts with each of the NBC affiliated stations have
been continuously in effect with each of those stations for over forty years.
The CBS and ABC affiliation contracts have each been continuously in effect for
over thirty years.
Each network has the right to terminate its affiliation agreement in the
event of a material breach of such agreement by a station and in certain other
circumstances. Although the Company does not expect that its network affiliation
agreements will be terminated and expects to continue to be able to renew its
network affiliation agreements, it cannot offer assurance that such agreements
will not be terminated or that renewals will be obtained on as favorable terms
or at all.
All of the twelve stations have long-term affiliation agreements, the
earliest of which is not due to expire until January 1, 2002. During 1999 the
Company renegotiated its CBS affiliation agreements, which were due to expire on
December 31, 1999.
SOURCES OF 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, 1999:
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1999 1998 1997
Local and regional advertising 58% 56% 62%
National spot advertising 32 28 29
Network compensation 7 7 8
Political advertising 3 9 1
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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 the amount paid by the network to its affiliated
stations for broadcasting network programs. Political advertising is generated
by national and local elections, which can vary greatly from both market to
market and year to year.
A television station's rates are primarily determined by the estimated
number of television homes it can provide for an advertiser's message. The
estimates of the total number of television homes in the market and of the
station's share of those homes is based on the 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. Because television stations rely on advertising revenues, they are
sensitive to cyclical changes in the national and local economy. The size of
advertisers' budgets, which are affected by broad economic trends, affect the
broadcast industry in general. The strength of the local economy in each
station's market also significantly impacts revenues. The advertising revenues
of the stations are generally highest in the second and fourth quarters of each
year, due in part to increases in consumer advertising in the spring and retail
advertising in the period leading up to and including the holiday season.
Additionally, advertising revenues in even-numbered years can benefit from
demand for advertising time in Olympic broadcasts and advertising placed by
candidates for political offices. A station's local market strength is the
primary factor that buyers use when placing political advertising. From time to
time, proposals have been advanced in Congress to require television broadcast
stations to provide some advertising time to political candidates at no charge,
which would potentially reduce advertising revenues from political candidates.
Cosmos also has ancillary operations in cable advertising sales, a video
production company, and a direct mail coupon company. Revenues from these
operations amount to $14.3 million, $10.4 million and $7.5 million for calendar
years 1999, 1998 and 1997, respectively. The cable advertising sales are
generated by CableVantage Inc., a marketing company designed to assist local
cable operators in the sale of commercial time available in cable network
programs. CableVantage was formed in 1994 to create business opportunities with
cable operators and build revenues from programs and services specifically
produced for cable.
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.
The stations compete for television viewers against other local network
affiliated and independent stations, as well as against cable and alternate
methods of television transmission. The primary basis of this competition is
program popularity. A majority of daily programming is supplied by the network
with which each station is affiliated. In time periods in which the network
provides programming, stations are primarily dependent upon the performance of
the network programs in attracting viewers. Stations compete in non-network time
periods based on the performance of its programming during such time periods,
using a combination of self-produced news, public affairs and other
entertainment programming, including syndicated programs, that the station
believes will be attractive to viewers. The Company believes that the stations
have strong competitive positions in their local markets, enabling them to
deliver a high percentage of the local television audience to advertisers. The
Company's commitment to local news programming is an important element in
maintaining its current market positions.
The competition includes 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. Other
sources of competition include home entertainment systems (including video
cassette recorder and playback systems, videodiscs and television game devices),
the Internet, multichannel multipoint distribution systems, wireless cable,
satellite master antenna television systems and some low power in-home satellite
services. Stations also face competition from high-powered direct broadcast
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satellite services, such as PrimeStar and DIRECTV, which transmit programming
directly to homes equipped with special receiving antennas. Stations compete
with these services both on the basis of service and product performance
(quality of reception and number of channels that may be offered) and price (the
relative cost to utilize these systems compared to broadcast television
viewing).
Further advances in technology and further consolidation in the broadcast
industry may increase competition for household audiences and advertisers. Video
compression techniques, now in use with direct broadcast satellites and in
development for cable and wireless cable, are expected to permit greater numbers
of channels to be carried within existing bandwidth. These technological
developments, which are applicable to all video delivery systems including
over-the-air broadcasting, have the potential to allow additional programming to
highly targeted audiences. The ability to reach narrowly defined audiences may
further fragment viewers and influence advertising spending. The television
broadcasting industry is continually faced with such technological change and
innovation. The Company is unable to predict the effect that technological
changes will have on the broadcast television industry in general, or more
specifically to its own operations. Consolidation in the broadcast television
industry introduces new, large competitors. Many of the current and potential
competitors have greater financial, marketing, programming and broadcasting
resources than us. The Company plans to meet the challenge of a consolidating
industry by continuing its growth strategy and pursuing new synergistic
opportunities.
MANDATED CONVERSION TO DIGITAL TECHNOLOGY
In accordance with FCC regulations, all station affiliates of ABC, CBS and
NBC in the top ten designated market areas were required to transmit a digital
signal by May 1, 1999. Affiliates of those networks in designated market areas
ranked eleven through thirty were required to transmit a digital signal by
November 1, 1999. All remaining commercial broadcasters will be required to
transmit a digital signal by May 1, 2002. The Company is not actively seeking to
be the first in its markets to offer digital television, but rather the Company
intends to benefit from the learning of early adapters and to take advantage of
lower equipment costs later in the process. It intends to choose the digital
technology format that best combines quality for consumers with feasible
business applications.
As it develops the digital technology, given its dominant presence in its
markets, the Company believes it will be attractively positioned as a potential
partner for new digital or data stream businesses that wish to develop in its
markets. The Company has thus far invested $1.0 million in preparation for the
transition to digital television, and estimates that an additional $25 to $35
million may be required over the next three years for towers, antenna systems,
transmitters, and transmitter buildings. This investment will establish basic
digital television pass through at our twelve stations, including simulcasting
existing analog programming. It is anticipated that an additional $10 million
above normal recurring capital expenditures will be spent over the next six
years to enable the existing twelve stations to convert their news gathering,
news production, and other programming equipment to full digital.
Federal Regulation of Broadcasting
The following is a brief discussion of certain provisions of the
Communications Act of 1934, as amended (the "Communications Act"), and of FCC
regulations and policies that affect the business operations of Cosmos.
Reference should be made to the Communications Act, FCC rules and the public
notices and rulings of the FCC, on which this discussion is based, for further
information concerning the nature and extent of FCC regulation of television
broadcasting stations.
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FCC REGULATION. The ownership, operation and sale of television stations,
are subject to the jurisdiction of the FCC by authority granted it under the
Communications Act. The FCC has the power to impose penalties, including fines
or license revocations, upon a licensee of a television station for violations
of the FCC's rules and regulations. Matters subject to FCC oversight include,
but are not limited to:
o the assignment of frequency bands of broadcast television;
o the approval of a television station's frequency, location and
operating power;
o the issuance, renewal, revocation or modification of a television
station's FCC license;
o the approval of changes in the ownership or control of a television
station's licensee;
o the regulation of equipment used by television stations; and
o the adoption and implementation of regulations and policies concerning
the ownership and operation of television stations.
LICENSE RENEWAL, ASSIGNMENTS AND TRANSFERS. Television broadcast licenses
are granted for a maximum term of eight years (five years prior to 1996) and are
subject to renewal upon application to the FCC. The FCC prohibits the assignment
of a license or the transfer of control of a broadcasting licensee without prior
FCC approval. In determining whether to grant or renew a broadcasting license,
the FCC considers a number of factors pertaining to the applicant, including
compliance with a variety of ownership limitations and compliance with character
and technical standards. During certain limited periods when a renewal
application is pending, petitions to deny a license renewal may be filed by
interested parties, including members of the public. Such petitions may raise
various issues before the FCC. The FCC is required to hold evidentiary,
trial-type hearings on renewal applications if a petition to deny renewal of
such license raises a "substantial and material question of fact" as to whether
the grant of the renewal application would be inconsistent with public interest,
convenience and necessity. The FCC must grant the renewal application if, after
notice and opportunity for a hearing, it finds that the incumbent has served the
public interest and has not committed any serious violation of FCC requirements.
If the incumbent fails to meet that standard, and if it does not show other
mitigating factors warranting a lesser sanction, the FCC has authority to deny
the renewal application and consider a competing application.
The renewal applications have always been granted without hearing for the
full term. To date the loosening of the ownership provisions, as well as the
other provisions included in the 1996 Act, have not had any significant direct
impact on the Company's operations.
MULTIPLE AND CROSS-OWNERSHIP RULES. On a national level, the FCC rules
generally prevent an entity or individual from having an attributable interest
in television stations with an aggregate audience reach in excess of 35% of all
U.S. households. On a local level, the "duopoly" rule prohibits or restricts
attributable interests in two or more television stations with overlapping
service areas and the "one-to-a-market" rule restricts such interests in
television and radio stations serving the same market. The FCC has recently
relaxed the "duopoly" rule to allow broadcasters to own, under certain
circumstances, more than one television station in the same local area. The FCC
has also initiated rulemaking looking towards relaxation of the 35% aggregate
audience reach rule. Additional cross-ownership restrictions generally prohibit
broadcast/daily newspaper or television/cable combinations in the same market.
The FCC generally applies its ownership limits only to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations holding broadcast licenses, the interest of
officers, directors and those who, directly or indirectly, have the right to
vote 5% or more of the corporation's voting stock (or 10% or more of such stock
in the case of insurance companies, mutual funds, bank trust departments and
certain other passive investors that are holding stock for investment purposes
only) are generally deemed to be attributable, as are positions as an officer or
director of a corporate parent of a broadcast licensee. The FCC is considering
proposals to amend the ownership attribution rules including the general
"attributable interest" threshold to 10% of the outstanding voting stock of a
broadcast licensee and increasing the threshold for passive institutional
investors to 20%.
The FCC recently relaxed its national television station multiple ownership
rules. Specifically, a single entity may hold "attributable interests" in an
unlimited number of U.S. television stations provided that those stations
operate in markets containing cumulatively no more than 35% of the television
homes in the U.S. For this purpose, only 50% of the television households in a
market are counted towards the 35% national restriction if the owned station is
a UHF station. An FCC rulemaking is under way to address how to measure audience
reach, including the "UHF discount," as part of the FCC's
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biennial review of the broadcast rules mandated by the Telecom Act. The
television homes that the stations reach is well below the 35% national limit.
Because of these multiple and cross-ownership rules, a purchaser of the
common stock who acquires an attributable interest in the Company may violate
the FCC's rules if that purchaser also has an attributable interest in other
television or radio stations, or in daily newspapers or cable systems, depending
on the number and location of those radio or television stations or daily
newspapers or cable systems. Such a purchaser also may be restricted in the
companies in which it may invest to the extent that those investments give rise
to an attributable interest. If an attributable stockholder of Cosmos violates
any of these ownership rules or if a proposed acquisition by Cosmos would cause
such a violation, Cosmos may be unable to obtain from the FCC one or more
authorizations needed to conduct its television station business and may be
unable to obtain FCC consents for certain future acquisitions.
ALIEN OWNERSHIP. Under the Communications Act, broadcast licenses may not
be granted to or held by any corporation having more than one-fifth of its
capital stock owned of record or voted by non-U.S. citizens (including a
non-U.S. corporation), foreign governments or their representatives
(collectively, "Aliens") or having an Alien as an officer or director. The
Communications Act also prohibits a corporation, without an FCC public interest
finding, from holding a broadcast license if that corporation is controlled,
directly or indirectly, by another corporation, any officer of which is an
Alien, or more than one-fourth of the directors of which are Aliens, or more
than one-fourth of the capital stock of which is owned of record or voted by
Aliens, unless the FCC finds that such ownership would be in the public
interest. The FCC has issued interpretations of existing law under which these
restrictions in modified form apply to other forms of business organizations,
including general and limited partnerships. As a result of these provisions,
since the Company serves as a holding company for the various television station
licensee subsidiaries, it cannot have more than 25% of the capital stock owned
of record or voted by Aliens, cannot have an officer who is an Alien, and cannot
have more than one fourth of its Board of Directors consisting of Aliens
RESTRICTIONS ON BROADCAST ADVERTISING. The advertising of cigarettes on
broadcast stations has been banned for many years. The broadcast advertising of
smokeless tobacco products has more recently been banned by Congress. Certain
Congressional committees have examined legislative proposals to eliminate or
severely restrict the advertising of beer and wine. The Company cannot predict
whether any or all of the present proposals will be enacted into law and, if so,
what the final form of such law might be. The elimination of all beer and wine
advertising could have a material adverse effect on the stations' revenues and
operating profits as well as the revenues and operating profits of other
stations that carry beer and wine advertising. In recent years, some television
stations have begun airing hard liquor advertising. In the past, this group of
advertisers had a self-imposed ban on TV advertising. None of the stations have
aired this type of advertising. The Company cannot predict the effect, if any,
that the airing of these advertisements on competing stations will have on the
operating results.
The FCC has recently lifted its prohibition of broadcast advertising by
casinos in markets where the state does not have its own prohibition. The
Company has several stations in states where casino gambling is legal and no
such state prohibition exists.
CABLE "MUST-CARRY" OR "RETRANSMISSION CONSENT" RIGHTS. The 1992 Cable Act,
enacted in October 1992, requires television broadcasters to make an election to
exercise either certain "must-carry" or "retransmission consent" rights in
connection with their carriage by cable television systems in the station's
local market. If a broadcaster chooses to exercise its must-carry rights, it may
demand carriage on a specified channel on cable systems within its designated
market area. Must-carry rights are not absolute, and their exercise is dependent
on variables such as the number of activated channels on, and the location and
size of, the cable system, and the amount of duplicative programming on a
broadcast station. Under certain circumstances, a cable system may decline to
carry a given station. If a broadcaster chooses to exercise its retransmission
consent rights, it may prohibit cable systems from carrying its signal, or
permit carriage under a negotiated compensation arrangement. Generally, the
stations have negotiated retransmission consent agreements with cable television
systems in their markets, with terms generally ranging from three to ten years,
which provide for carriage of the station's signal.
ADVANCED TELEVISION TECHNOLOGY.
At present, U.S. television stations broadcast signals using the "NTSC" system,
an analog transmission system named for the National Television Systems
Committee, an industry group established in 1940 to develop the first U.S.
television technical broadcast standards. The FCC in late 1996 approved a new
digital television ("DTV") technical standard to be used by
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television broadcasters, television set manufacturers, the computer industry and
the motion picture industry. This DTV standard will allow the simultaneous
transmission of multiple streams of video programming and data on the bandwidth
presently used by a single normal analog channel.
The FCC presently plans for the DTV transition period to end by 2006. At
that time, broadcasters will be required to discontinue analog operations and to
return their present channels to the FCC. The FCC has already begun issuing
construction permits to build DTV stations. The FCC has recently issued
regulations with respect to DTV allocations and interference criteria which are
not yet final, and other aspects of the DTV regulatory framework have not yet
been established. The FCC is expected to apply to DTV certain of the rules
applicable to analogous services in other contexts, including certain rules that
require broadcasters to serve the public interest and may seek to impose
additional programming or other requirements on DTV service. The Telecom Act
requires the FCC to impose fees upon broadcasters if they choose to use the DTV
channel to provide paid subscription services to the public. The FCC recently
determined that broadcasters should pay a fee of 5% of gross revenues received
for such subscription services should the broadcaster provide subscription
services on their DTV channels. The FCC has also recently initiated a rulemaking
proceeding to determine whether and to what extent cable systems will be
required to carry broadcast DTV signals.
In some cases, conversion to DTV operations may reduce a station's
geographical coverage area. In addition, the FCC's current implementation plan
would maintain the secondary status of low-power stations in connection with its
allotment of DTV channels. The DTV channel allotment will result in displacement
of a substantial number of existing low-power stations, particularly in major
television markets. Accordingly, the low-power broadcast stations may be
materially adversely affected.
RECENT DEVELOPMENT, PROPOSED LEGISLATION AND REGULATION
Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and ownership
of the Company's broadcast properties. In addition to the changes and proposed
changes noted above, these matters include, for example, additional spectrum use
fees, political advertising rates, potential restrictions on the advertising of
certain products like hard liquor, beer and wine, and revised rules and policies
governing equal employment opportunity. Other matters that could affect its
broadcast properties include technological innovations and development generally
affecting competition in the mass communications industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, the Telecom Act, or of the regulations and
policies of the FCC under either act. Proposals for additional or revised
regulations and requirements are pending before and are being considered by
Congress and federal regulatory agencies from time to time. Management is unable
at this time to predict the outcome of any of the pending FCC rulemaking
proceedings referenced above, the outcome of any reconsideration or appellate
proceedings concerning any changes in FCC rules or policies noted above, the
possible outcome of any proposed or pending Congressional legislation, or the
impact of any of those changes on its broadcast operations.
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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. In 1999, the
largest percentages of its premium income were from South Carolina (23%), North
Carolina (17%), and Louisiana (8%). The Company believes that Liberty Life's
Agency division is the largest provider of home service business in the
Carolinas and its LibertyDirect division is the second largest provider of
optional mortgage insurance in the life insurance industry.
Life insurance and annuity premiums contributed 64% of Liberty Life's total
premiums in 1999, 67% in 1998, and 72% in 1997. Accident and health insurance
premiums contributed the remainder.
AGENCY DIVISION. The Agency Division is Liberty Life's largest division,
contributing 53% of Liberty Life's premiums in 1999. Agents supporting this
division operate out of 40 district offices selling primarily individual life
insurance, including universal life and interest-sensitive whole life products,
as well as health insurance. Historically much of the activity of the agents in
this division (which was formerly referred to as Home Service) has focused on
periodically visiting homes to sell policies and collect premiums, hence the
name Home Service. Liberty Life's strategy in recent years has been to move
Agency from a traditional home service life insurance model to one that is
focused on being a competitive provider of financial security to the moderate
income market. In November 1997, Liberty completed the rollout of a hand-held,
pen-based computer (the "PriorityPad") to its entire Agency sales force. Loaded
on the PriorityPad is Liberty's proprietary needs assessment methodology, the
Priority Profile. This technology, combined with the Priority Profile
methodology, allows the agent to go through an interactive sales presentation
with the prospective customer. The PriorityPad also provides access to policy
rates, and interacts with the home office policy database to update records
necessary for the agent to better manage his or her customer base. Ultimately,
this technology may be used for application entry or to automate other
administrative processes.
In the fall of 1998, Agency introduced a comprehensive set of processes
(known as "Agency of the Future") that focus on improving the ability of the
agents to serve the moderate income market, deliver better value to customers,
generate greater career opportunities for agents, and improve financial
performance. During 1999 the company continued the implementation of its "Agency
of the Future" reengineering efforts, now known as "Agency 2000". Throughout
this program Agency has continually sought to improve processes for serving its
customers and agents wile continuing to build a stronger, more competitive
market presence. As part of this initiative, a number of field sales offices
were consolidated, strategic reductions in the sales management group were made,
and agent counts in certain markets were lowered. It is anticipated that these
actions will result in a more productive and efficient field operation.
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 Agency business in the Southeast.
LIBERTYDIRECT. The LibertyDirect division contributed 46% of Liberty Life's
premiums in 1999. Historically this division has primarily sold decreasing term
life, accident and disability insurance designed to fund the outstanding balance
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 and has relationships with 12 of the top 15 mortgage servicing firms. The
Company supports the marketing of these products through direct mail and phone
solicitations. In addition to products related to the mortgage insurance, this
division focuses on the development of new insurance or non-insurance products
to market through direct response or point-of-sale marketing channels. Liberty
will continue to seek new opportunities and new products to market through this
division.
PIERCE NATIONAL. Until April, 1998 the Company provided life insurance sold
to pre-fund funerals through Pierce. As previously mentioned, the Company sold
Pierce in April, 1998. The decision to sell Pierce was based on an assessment
that Pierce would not be able to satisfactorily meet long term financial and
marketing goals.
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<PAGE> 12
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.
(In 000's) 1999 1998 1997
- ---------------------------------------------------------------------
Liberty Life
Agency $133,218 $133,796 $135,305
LibertyDirect 116,016 119,483 102,995
Other 3,167 7,405 6,978
- ---------------------------------------------------------------------
Total Liberty Life 252,401 260,684 245,278
Pierce National --- 24,247 105,414
- ---------------------------------------------------------------------
Total $252,401 $284,931 $350,692
- ---------------------------------------------------------------------
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,
traditional 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 written through the LibertyDirect division is usually
written without medical examination.
REINSURANCE. Liberty Life uses reinsurance as a risk management tool in the
normal course of business and, in isolated strategic transactions, to
effectively buy or sell blocks of in force business. The Company has ceded $3.2
billion (17%) of its $18.7 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, 1999, 1998, and 1997 Liberty had ceded
life insurance premiums of $28.3 million, $23.2 million, and $25.6 million,
respectively. Accident and health premiums ceded made up the remainder of ceded
premiums which were $9.9 million, $9.1 million, and $8.6 million for the years
ended December 31, 1999, 1998 and 1997, 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. 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 also has coverage for
catastrophic accidents. Liberty Life cedes, in the normal course of business,
portions of its risks to a number of other insurance companies.
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<PAGE> 13
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
total face value of amounts ceded to Life Re at December 31, 1999 was $2.1
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 Agency 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.
OPERATIONS. The administrative functions of underwriting and issuing new
policies, and the ongoing servicing and claims settlement of in force policies,
are provided by an affiliate, Liberty Insurance Services Corporation, at the
home office in Greenville, South Carolina. The Company's strategy is to allow
LIS to manage the administrative functions of its operations in order to take
advantage of the expertise that LIS has developed to provide administrative
services to the life insurance industry. LIS provides administrative support
services for Liberty's approximately 2.0 million policies representing $18.8
billion of life insurance in force. The Company intends to continue its focus on
reducing the unit costs of administrative services by increasing the volume of
business through internal growth in those businesses, potentially through
acquisitions of blocks of business similar in nature to its existing business,
and by investing in technology to further improve efficiency in its operations.
EMPLOYEES. At December 31, 1999 Liberty Life had approximately 870
employees. Approximately 630 of the employees are agents whose primary source of
compensation is commissions on products sold, with the majority of the agents
working for Liberty Life's Agency division.
INSURANCE COMPETITION AND RATINGS. Liberty Life competes with numerous
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 Liberty Life for sales of life
insurance products, and Liberty Life competes with banks, investment advisors,
mutual funds and other financial entities to attract investment funds generally.
Competition in the Agency 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 Agency business involves frequent contacts by
agents with their customers. While Liberty is de-emphasizing the home collection
of premiums, Liberty believes it is important for agents to continue to meet
with their customers regularly in order to adequately serve their insurance
needs.
The Company currently believes that it ranks second nationally in optional
mortgage insurance (provided through its LibertyDirect division) with an
estimated 24% market share. Approximately 32% of the market is believed to be
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). Liberty Life's current A.M. Best rating is "A" (Excellent).
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 rating be
downgraded, sales of their products and persistency of the existing 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.
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<PAGE> 14
INSURANCE REGULATION. Like other insurance companies, Liberty Life is
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 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
accounting principles generally accepted in the United States. 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 Liberty Life's surplus nor its 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 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 Liberty Life indicate that Liberty Life's capital significantly
exceeds the minimum capital requirements at December 31, 1999.
Another NAIC Model Act limits dividends that may be paid in any calendar
year without regulatory approval to the lesser of 10% of the insurer's statutory
surplus at the prior year-end, or 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 2000 by
Liberty Life without approval from the South Carolina Insurance Commissioner is
$24.6 million. Actual dividends and distributions paid by Liberty Life were
$22.0 million in both 1999 and 1998 and $21.0 million in 1997. 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
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<PAGE> 15
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.
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. The most recent examination of
Liberty Life, for the three years ended December 31, 1994 has been completed,
and the report issued did not indicate any significant areas of concern.
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 is 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.
15
<PAGE> 16
INSURANCE OPERATIONS - LIBERTY INSURANCE SERVICES CORPORATION
LIS provides a wide range of administrative support services, on a fee
basis, to unaffiliated life and health insurance companies as well as for the
Company's insurance subsidiaries. These services include underwriting, issuance
of policies, accounting, customer service and claims processing and
adjudication. The services are tailored to support the special features of
insurance products offered by the companies that desire these services. In
addition LIS offers consulting services related to acquisition integration and
planning. LIS believes that its offers services that will permit its customers
to reduce their home office support costs and focus resources on marketing their
insurance products.
In marketing to unaffiliated life and health insurance companies the
Company's strategy is to target three potential markets:
o Insurance companies acquired by financial investors that either do not
want to manage the back office administrative functions or lack
experience in providing the required support.
o Insurance companies that have closed blocks of business that are
expensive to administer or are not core to their businesses.
o Insurance companies that prefer to focus management resources on
marketing
At December 31, 1999, LIS had approximately 4.5 million policies under
management. Approximately 2.0 million of those policies are administered for
Liberty Life, with the remaining administered for five unaffiliated clients.
COMPETITION. Outsourcing, or third party administration of insurance
administrative support services, is a relatively new and emerging business. Most
of LIS's competition for business opportunities is from vendors whose primary
business is in insurance systems and software. LIS believes it can successfully
compete with these companies because of its focus on the core business process
of insurance administration and its experience and proven ability to provide a
full range of insurance administrative services.
EMPLOYEES. At December 31, 1999, LIS had approximately 630 employees.
Substantially all of the employees are located at LIS headquarters in
Greenville, South Carolina.
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<PAGE> 17
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 60
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 September, 1989 to December 31,
1997
ROBERT E. EVANS, Age 45
President of Liberty Life since March, 1999
Managing Director, Insurance Services of Fleet Financial Group from 1995 to
December 1998
Senior Vice President, Travelers Life and Annuity Business, Travelers
Insurance Co. from 1993 to 1995
Vice President, Travelers Insurance Co. from 1986 to 1993
JENNIE M. JOHNSON, Age 52
President of Liberty Insurance Services Corporation since May, 1997
President of Pierce National Life Insurance Company from August, 1995 to
April 1998
Vice President, Administration of Liberty from February, 1994 to August, 1995
Vice President, Planning of Liberty from February, 1986 to December, 1994
KENNETH W. JONES, Age 42
Corporate Controller of Liberty since May, 1997
Treasurer of Liberty Life since May, 1997
Assistant Controller of Liberty from September, 1994 to May, 1997
JAMES M. KEELOR, Age 57
President of Cosmos since February, 1992
Vice President, Operations, of Cosmos from December, 1989 to February, 1992
MARTHA G. WILLIAMS, Age 57
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
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 the
Notes to the Consolidated Financial Statements beginning on pages 24-27 of The
Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on
pages 68-71 of this report and is incorporated in this Item 1 by reference.
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<PAGE> 18
ITEM 2. PROPERTIES
MAIN OFFICES. The main office of the Company, Liberty Life, Liberty
Insurance Services Corporation, 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; Biloxi, MS; Albany, GA;
Harlingen; TX, Lubbock TX, and Wilmington, NC.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
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<PAGE> 19
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 35
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 30 of The
Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on
page 36 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 31-40 of The Liberty Corporation Annual Report
to Shareholders and is filed as Exhibit 13 on pages 40-48 of this report and is
incorporated in this Item 7 by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information related to quantitative and qualitative disclosures about
market risk is contained on pages 37-38 of The Liberty Corporation Annual Report
to Shareholders and is included in Exhibit 13 on pages 43-44 of this report and
is incorporated in this Item 7A by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
The Company's Consolidated Financial Statements and Report of Independent
Auditors are contained on pages 5-29 of The Liberty Corporation Annual Report to
Shareholders and is filed as Exhibit 13 on pages 47-73 of this report and are
incorporated in this Item 8 by reference. Quarterly Results of Operations are
contained on page 22 of The Liberty Corporation Annual Report to Shareholders
and is included in Exhibit 13 on page 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.
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<PAGE> 20
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 2, 2000 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 17 and is incorporated
in this Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning Executive Compensation and transactions is contained
in The Liberty Corporation Proxy Statement for the May 2, 2000 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
2, 2000 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 2, 2000 Annual
Meeting of Shareholders and is incorporated in this Item 13 by reference.
20
<PAGE> 21
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, 1999, filed as Exhibit 13 to this report and
incorporated in Item 8 by reference:
Consolidated Statements of Income - For the three years ended December
31, 1999
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Cash Flows - For the three years ended
December 31, 1999
Consolidated Statements of Shareholders' Equity - For the three years
ended December 31, 1999
Notes to Consolidated Financial Statements - December 31, 1999
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.
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<PAGE> 22
(a)(3). LIST OF EXHIBITS
3.1 Restated Articles of Incorporation, as amended through May 6, 1997
(filed with the Registrant's Quarterly Report on Form 10Q/A for the
period ended March 31, 1997 and incorporated herein by reference)
3.2 Bylaws, as amended through August 3, 1999, filed as Exhibit 3.2 to the
Registrant's Form 10-Q for the quarter ended June 30, 1999, and
incorporated herein by reference.
4.1 See Articles 4, 5, 7 and 9 of the Company's Restated Articles of
Incorporation (filed as Exhibit 3.1) and Articles I, II and VI of the
Company's Bylaws (filed as Exhibit 3.2).
4.2 See the Form of Rights Agreement dated as of August 7, 1990 between
The Liberty Corporation and The Bank of New York, as Rights Agent,
which includes as Exhibit B thereto the form of Right Certificate
(filed as Exhibits 1 and 2 to the Registrant's Form 8-A, dated August
10, 1990, and incorporated herein by reference) with respect to the
Rights to purchase Series A Participating Cumulative Preferred Stock.
4.3 See Credit Agreement dated May 1, 1998 (filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10Q for the quarter ended March
31, 1998 and incorporated herein by reference).
10.1 See Credit Agreement dated May 1, 1998 (filed as Exhibit 4.3).
10.2 The Liberty Corporation Performance Incentive Compensation Program, as
amended and restated on November 2, 1999, filed as Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference.
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per
Share Computation (incorporated herein by reference to Note 11 of the
"Notes to Consolidated Financial Statements" on pages 19-20 of The
Liberty Corporation Annual Report to Shareholders for the year ended
December 31, 1999) filed on page 63 of this report.
13. Portions of The Liberty Corporation Annual Report to Shareholders for
the year ended December 31, 1999:
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 Statements of Income - For the three years ended
December 31, 1999
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Cash Flows - For the three years ended
December 31, 1999
Consolidated Statements of Shareholders' Equity - For the three
years ended December 31, 1999
Notes to Consolidated Financial Statements - December 31, 1999
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 years ended
December 31, 1983, 1985, 1989, 1994, 1995, 1996, 1997 and 1998.
27. Financial Data Schedule (Electronic Filing Only)
(b). REPORTS ON FORM 8-K
22
<PAGE> 23
There were no reports on Form 8-K filed after September 30, 1999.
(c). EXHIBITS FILED WITH THIS REPORT
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per
Share Computation (incorporated herein by reference to Note 11 of the
"Notes to Consolidated Financial Statements" on pages 19-20 of The
Liberty Corporation Annual Report to Shareholders for the year ended
December 31, 1999) filed on page 62 of this report.
13. Portions of The Liberty Corporation Annual Report to Shareholders for
the year ended December 31, 1999:
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 Statements of Income - For the three years ended
December 31, 1999
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Cash Flows - For the three years ended
December 31, 1999
Consolidated Statements of Shareholders' Equity - For the three
years ended December 31, 1999
Notes to Consolidated Financial Statements - December 31, 1999
Report of Independent Auditors
21. The Liberty Corporation and Subsidiaries, List of Subsidiaries
23. Consent of Independent Auditors
27. Financial Data Schedule (Electronic Filing Only)
23
<PAGE> 24
(d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES FILED WITH THIS REPORT
I- Summary of Investments - December 31, 1999
II- Condensed Financial Statements of The Liberty Corporation
(Parent Company) December 31, 1999 and 1998
III- Supplementary Insurance Information - For the Three Years
Ended December 31, 1999
IV- Reinsurance - For the Three Years Ended December 31, 1999
V- Valuation and Qualifying Accounts and Reserves - For the
Three Years Ended December 31, 1999
24
<PAGE> 25
Schedule I
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
DECEMBER 31, 1999
(In 000's)
<TABLE>
<CAPTION>
Amount at
Which Shown
on Balance
Type of Investment Cost Value Sheet
- --------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C> <C>
Fixed maturity securities, available for sale Bonds:
United States Government and government agencies and
authorities $92,665 $93,598 $93,598
States, municipalities, and political subdivisions --- --- ---
Foreign governments --- --- ---
Foreign corporate and other 33,694 32,334 32,334
Public utilities 87,484 88,927 88,927
Convertibles and bonds with warrants attached --- --- ---
All other corporate bonds 643,613 610,944 610,944
Redeemable preferred stocks 33,443 33,493 33,493
------------------ ------------------ ------------------
Total 890,899 859,296 859,296
================== ================== ==================
Equity securities, available for sale Common stocks:
Public utilities --- ---
Banks, trusts and insurance companies $6,644 $9,011 $9,011
Foreign other 626 719 719
Industrial, miscellaneous, and all other 47,938 64,542 64,542
Nonredeemable preferred stocks 6,524 7,018 7,018
------------------ ------------------ ------------------
Total $61,732 $81,290 $81,290
================== ================== ==================
Mortgage loans on real estate 230,497 230,497
Investment real estate 25,692 25,692
Policy loans 91,964 91,964
Other long-term investments 20,680 20,680
Short-term investments 1,930 1,930
------------------ ------------------
Total investments $1,323,394 $1,311,349
================== ==================
</TABLE>
25
<PAGE> 26
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 and 1998
(In $000's, except share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ --------- ---------
<S> <C> <C>
Cash $ 5,816 $ 4,062
Fixed maturity securities 639 3,386
Equity securities 3,638 13,408
Loans, notes and other receivables 6,903 9,202
Investment properties, at cost less
accumulated depreciation of
$2,602 in 1999 and $1,495 in 1998 25,690 19,218
Other long-term investments 7,116 7,037
Buildings and equipment, at cost less
accumulated depreciation of
$17,572 in 1999 and $15,813 in 1998 14,683 16,150
Investment in affiliated companies* 511,345 524,223
Intercompany debt and advances* 211,730 236,816
Income taxes recoverable 16,875 9,719
Deferred income tax benefits (liabilities) (1,605) (3,020)
Other assets 2,917 7,053
--------- ---------
Total Assets $ 805,747 $ 847,254
========= =========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes, mortgages and other debt $ 234,000 $ 283,000
Accounts payable and accrued expenses 15,952 12,334
Other liabilities 719 595
--------- ---------
Total Liabilities 250,671 295,929
Redeemable Preferred Stock:
1994-A Series, $35.00 redemption value, -0-
and 198,259 shares issued and outstanding
in 1999 and 1998, respectively -- 6,939
1994-B Series, $37.50 redemption value, -0-
and 374,509 shares issued and outstanding
in 1999 and 1998, respectively -- 14,028
--------- ---------
Total Redeemable Preferred Stock -- 20,967
Shareholders' Equity:
Common stock
Authorized - 50,000,000 shares, no par value
Issued and outstanding - 19,507,551 in 1999
and 18,684,172 in 1998 100,111 70,565
Convertible Preferred Stock, 1995-A Series, 429,485
and 599,985 shares issued and outstanding in 1999
and 1998, respectively 15,032 20,999
Unearned stock compensation (5,056) (7,596)
Accumulated other comprehensive income (1,191) 26,749
Retained earnings 446,180 419,641
--------- ---------
Total Shareholders' Equity 555,076 530,358
--------- ---------
Total Liabilities, Redeemable Preferred Stock
and Shareholders' Equity $ 805,747 $ 847,254
========= =========
</TABLE>
*Eliminated in consolidation.
See notes to condensed financial statements.
26
<PAGE> 27
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(In $000's)
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- ---------
<S> <C> <C> <C>
REVENUES
Dividends from subsidiaries* $22,000 $ 22,000 $ 74,814
Interest-unaffiliated 1,072 1,816 561
Intercompany interest* 19,180 11,679 8,157
Realized investment gains (losses) 143 (373) 5,504
Other 25,161 13,620 18,318
------- -------- ---------
Total Revenues 67,556 48,742 107,354
EXPENSES
Salaries and wages 5,346 7,035 17,507
Interest-unaffiliated 14,904 12,403 13,021
Intercompany interest* 1,696 1,753 2,193
Taxes and licenses 824 1,163 2,069
Depreciation and amortization 1,609 2,949 7,373
Loss from sale of subsidiary -- 13,811 --
Other 12,902 12,993 6,298
------- -------- ---------
Total Expenses 37,281 52,107 48,461
------- -------- ---------
Income (loss) before income taxes 30,275 (3,365) 58,893
Income tax expense (benefit) 2,445 1,132 (5,746)
------- -------- ---------
Income (loss) before earnings of subsidiaries 27,830 (4,497) 64,639
Earnings of subsidiaries
net of dividends paid to parent* 16,739 22,741 7,385
------- -------- ---------
NET INCOME $44,569 $ 18,244*** $ 72,024**
======= ======== =========
</TABLE>
* Eliminated in consolidation.
** Differs from consolidated net income by $2,927 in 1997 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 $483 in 1998 due to gains
deferred on a consolidated basis until completion of the earnings
process.
See notes to condensed financial statements.
27
<PAGE> 28
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(In $000's)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 44,569 $ 18,244 $ 72,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,609 2,949 7,373
Provision for deferred income taxes (2,263) 94 1,556
Earnings from subsidiary operations, net of
dividends paid to parent (16,739) (22,741) (7,385)
Non-cash dividends paid to parent -- -- (39,370)
Gain on disposal of assets (944) (1,826) (2,011)
Realized investment (gains) losses (143) 373 (5,504)
Loss on sale of subsidiary -- 13,811 --
Change in operating assets and liabilities:
Decrease (increase) in intercompany debt and
advances* 25,086 14,299 2,748
(Increase) decrease in accounts and notes 2,299 1,170 (2,482)
receivable
(Decrease) increase in accounts payable and
accrued expenses 3,618 (1,496) (2,996)
Decrease (increase) in other assets 4,136 855 1,065
Increase (decrease) in other liabilities, and
accrued income taxes (7,032) (3,369) 4,847
Other 2,002 (966) 53
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 56,198 21,397 29,918
INVESTING ACTIVITIES
Investment securities sold, matured, or redeemed 17,891 44,866 349
Cost of investment securities acquired (1,435) (1,275) --
Purchase of investment properties (13,533) (3,545) (7,563)
Sale of investment properties 6,417 9,112 49,601
Net cash received on sale of subsidiary 133,060 --
Net cash paid on purchase of broadcasting business (156,942) --
Other 6,175 923
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 9,340 31,451 43,310
FINANCING ACTIVITIES
Proceeds from borrowings 2,625,000 3,265,000 2,505,000
Principal payments on debt (2,674,000) (3,171,214) (2,559,007)
Dividends paid (18,030) (18,447) (19,540)
Repurchase of common stock -- (131,114) --
Redemption of preferred stock (306) -- --
Stock issued for employee benefit and performance
incentive compensation programs 3,552 1,974 3,884
----------- ----------- -----------
NET CASH (USED IN) FINANCING ACTIVITIES (63,784) (53,801) (69,663)
INCREASE (DECREASE) IN CASH 1,754 (953) 3,565
Cash at beginning of year 4,062 5,015 1,450
----------- ----------- -----------
CASH AT END OF YEAR $ 5,816 $ 4,062 $ 5,015
=========== =========== ===========
</TABLE>
*Eliminated in consolidation
See notes to condensed financial statements.
28
<PAGE> 29
Schedule II
THE LIBERTY CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. NOTES, MORTGAGES AND OTHER DEBT
The general debt obligations at December 31, 1999 are as follows:
(In 000's) Interest Rate Amount
---------- --------------------------
Notes due to banks, maturing in 2003 6.4% $234,000
In May 1998, the Parent Company refinanced its credit facility into a $300
million revolving credit facility maturing in April, 2003. The Parent Company
may request up to an additional $150 million under the new facility subject to
approval by the bank group. Borrowings under the facility were used to refinance
indebtedness, as well as to provide funds to meet working capital requirements.
See Note 5 of The Liberty Corporation and Subsidiaries Consolidated Financial
Statements which provides additional information as to this agreement.
2. DIVIDENDS TO PARENT COMPANY
During 1999, the Parent Company received dividends from its subsidiaries of
approximately $22 million.
3. RETAINED EARNINGS
As of December 31, 1999 and 1998, retained earnings of $446,180,000 and
$419,641,000 respectively, in The Liberty Corporation (Parent Company)
financial statements differs from The Liberty Corporation and Subsidiaries
consolidated financial statements. The difference of $851,000 at December
31, 1999 and 1998 relates to the elimination of gains on intercompany
transactions on a consolidated basis.
29
<PAGE> 30
Schedule III
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(In 000's)
<TABLE>
<CAPTION>
Future Policy
Deferred Benefits, Other Policy
Policy Losses, Claims Claims &
Acquisition Cost of Business and Loss Unearned Benefits
Segment Costs Acquired Expenses Premiums Payable
------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1999
Agency $ 229,861 $ 31,037 $ 875,981 $ 2,212 $ 20,027
LibertyDirect 27,890 1,795 24,825 903 23,246
Corporate & Other 12,365 1,471 374,311 -- 15,502
---------- ---------- ---------- ---------- ----------
Total $ 270,116 $ 34,303 $1,275,117 $ 3,115 $ 58,775
========== ========== ========== ========== ==========
December 31, 1998
Agency $ 213,473 $ 34,433 $ 863,138 $ 1,960 $ 18,741
LibertyDirect 22,034 2,368 32,994 561 19,711
Corporate & Other 9,593 2,465 381,277 -- 16,150
---------- ---------- ---------- ---------- ----------
Total $ 245,100 $ 39,266 $1,277,408 $ 2,521 $ 54,602
========== ========== ========== ========== ==========
December 31, 1997
Agency $ 206,502 $ 37,388 $ 849,676 $ 1,868 $ 19,374
LibertyDirect 17,958 3,168 31,187 678 21,547
Pre-need 34,494 22,687 620,861 1,518 6,248
Corporate & Other 12,997 2,647 384,998 -- 17,976
---------- ---------- ---------- ---------- ----------
Total $ 271,951 $ 65,890 $1,886,722 $ 4,064 $ 65,145
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Benefits Accident &
Net Claims, Losses Other Health
Premium Investment & Settlement Amortization Operating Premiums
Segment Revenue Income Benefits Expense Expenses Written
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1999
Agency $133,218 $ 71,179 $ 98,868 $ 31,467 $ 58,371 $ 12,805
LibertyDirect 116,016 1,864 22,848 10,472 75,274 77,692
Corporate & Other 3,167 25,401 10,025 1,169 13,991 58
-------- -------- -------- -------- -------- --------
Total $252,401 $ 98,444 $131,741 $ 43,108 $147,636 $ 90,555
======== ======== ======== ======== ======== ========
1998
Agency $133,796 $ 72,935 $ 95,856 $ 31,160 $ 58,811 $ 13,248
LibertyDirect 119,483 1,323 23,053 7,366 75,129 80,174
Pre-need 24,247 14,774 23,914 3,126 5,861 88
Corporate & Other 7,405 28,755 11,838 9,366 32,105 62
-------- -------- -------- -------- -------- --------
Total $284,931 $117,787 $154,661 $ 51,018 $171,906 $ 93,572
======== ======== ======== ======== ======== ========
1997
Agency $135,305 $ 69,572 $ 95,548 $ 27,872 $ 43,360 $ 13,679
LibertyDirect 102,995 1,989 23,112 5,681 62,339 64,525
Pre-need 105,414 56,078 97,860 10,513 26,079 338
Corporate & Other 6,978 29,202 11,407 1,498 27,721 172
-------- -------- -------- -------- -------- --------
Total $350,692 $156,841 $227,927 $ 45,564 $159,499 $ 78,714
======== ======== ======== ======== ======== ========
</TABLE>
30
<PAGE> 31
Schedule IV
THE LIBERTY CORPORATION AND SUBSIDIARIES -- REINSURANCE
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
(In 000's) Amount % of
Assumed From Amount
Gross Ceded to Other Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
- ----------------------------------------------
Life Insurance in Force
Agency $9,709,063 $244,445 $9,464,618 --
LibertyDirect 5,308,867 33,999 $13,934 5,288,802 0.3%
Corporate & Other 3,740,747 2,943,768 796,979 --
---------------- ---------------- --------------- ----------------
Total life insurance in force $18,758,677 $3,222,212 $13,934 $15,550,399 0.1%
================ ================ =============== ================
Insurance premiums and policy charges:
Life, annuity and other considerations
Agency $120,368 $1,388 $118,980 --
LibertyDirect 36,484 (190) $324 36,998 0.9%
Corporate & Other 33,233 27,109 6,124 --
---------------- ---------------- --------------- ----------------
Total life, annuity and other considerations 190,084 28,306 324 162,102 0.2%
Accident and health
Agency 12,830 11 12,819 --
LibertyDirect 87,433 9,910 88 77,611 0.1%
Corporate & Other (131) (131) --
---------------- ---------------- --------------- ----------------
Total accident and health 100,132 9,921 88 90,299 0.1%
---------------- ---------------- --------------- ----------------
Total Insurance Premiums and Policy Charges $290,216 $38,227 $412 $252,401 0.2%
================ ================ =============== ================
Year ended December 31, 1998
- ----------------------------------------------
Life Insurance in Force
Agency $9,744,011 $239,508 $9,504,503 --
LibertyDirect 5,148,397 2,090 $15,100 5,161,407 0.3%
Corporate & Other 3,973,020 3,120,946 852,074 --
---------------- ---------------- --------------- ----------------
Total life insurance in force $18,865,428 $3,362,544 $15,100 $15,517,984 0.1%
================ ================ =============== ================
Insurance premiums and policy charges:
Life, annuity and other considerations
Agency $122,101 $1,736 $164 $120,528 0.1%
LibertyDirect 38,744 (456) 39,200 --
Pre-need 24,183 27 24,156 --
Corporate & Other 29,492 21,907 7,585 --
---------------- ---------------- --------------- ----------------
Total life, annuity and other considerations 214,519 23,214 164 191,469 0.1%
Accident and health
Agency 13,279 11 13,268 --
LibertyDirect 89,323 9,109 69 80,283 0.1%
Pre-need 86 5 91 5.0%
Corporate & Other (180) (180) --
---------------- ---------------- --------------- ----------------
Total accident and health 102,508 9,120 74 93,462 0.1%
---------------- ---------------- --------------- ----------------
Total Insurance Premiums and Policy Charges $317,027 $32,334 $238 $284,931 0.1%
================ ================ =============== ================
Year ended December 31, 1997
- ----------------------------------------------
Life Insurance in Force
Agency $9,708,545 $252,926 $9,455,619 --
LibertyDirect 5,200,591 3,859 $17,172 5,213,904 0.3%
Pre-need 1,550,497 19,930 19 1,530,586 --
Corporate & Other 4,328,103 3,422,197 905,906
---------------- ---------------- --------------- ----------------
Total life insurance in force $20,787,736 $3,698,912 $17,191 $17,106,015 0.1%
================ ================ =============== ================
Insurance premiums and policy charges:
Life, annuity and other considerations
Agency $123,346 $1,725 $121,621 --
LibertyDirect 38,418 14 $315 38,719 0.8%
Pre-need 105,783 745 105,038 --
Corporate & Other 30,085 23,091 6,994 --
---------------- ---------------- --------------- ----------------
Total life, annuity and other considerations 297,632 25,575 315 272,372 0.1%
Accident and health
Agency 13,684 2 2 13,684
LibertyDirect 72,369 8,613 520 64,276 0.8%
Pre-need 341 1 36 376 10.0%
Corporate & Other (16) (16) --
---------------- ---------------- --------------- ----------------
Total accident and health 86,378 8,616 558 78,320 0.7%
---------------- ---------------- --------------- ----------------
Total Insurance Premiums and Policy Charges $384,010 $34,191 $873 $350,692 0.3%
================ ================ =============== ================
</TABLE>
31
<PAGE> 32
Schedule V
THE LIBERTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(In 000's)
<TABLE>
<CAPTION>
Additions
----------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Deducted From Asset Accounts of Period Expenses Accounts Deductions of Period
- ---------------------------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Accounts receivable -
reserve for bad debts $ 1,163 $ 573 $ -- $ 417(a) $ 1,319
------------ ------------ ------------ ------------- -------------
Year Ended December 31, 1998
679(c)
Accounts receivable - 2(b)
reserve for bad debts $ 1,441 $ 837 $ 10 $ 444(a) $ 1,163
------------ ------------ ------------ ------------- --------------
Year Ended December 31, 1997
Accounts receivable - 227(b)
reserve for bad debts $ 2,310 $ 429 $ -- $ 1,071(a) $ 1,441
------------ ------------ ------------ ------------- --------------
</TABLE>
Notes:
(a) Uncollectible accounts written off, net of recoveries.
(b) Reversal of reserves no longer required
(c) Sale of subsidiary
32
<PAGE> 33
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 21st day of
March, 2000.
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 21st day of March, 2000.
By: /s/ Kenneth W. Jones *By: /s/ John H. Mullin III
---------------------------- --------------------------
Kenneth W. Jones John H. Mullin III
Corporate Controller Director
*By: /s/ Rufus C. Barkley, Jr. *By: /s/ Benjamin F. Payton
---------------------------- --------------------------
Rufus C. Barkley, Jr. Benjamin F. Payton
Director Director
*By: /s/ Edward E. Crutchfield *By: /s/ J. Thurston Roach
---------------------------- --------------------------
Edward E. Crutchfield J. Thurston Roach
Director Director
*By: /s/ John R. Farmer *By: /s/ Eugene E. Stone, IV
---------------------------- --------------------------
John R. Farmer Eugene E. Stone, IV
Director Director
By: /s/ Hayne Hipp *By: /s/ William B. Timmerman
---------------------------- --------------------------
Hayne Hipp William B. Timmerman
Director Director
*By: /s/ W. W. Johnson *By: /s/ Martha G. Williams
---------------------------- --------------------------
W. W. Johnson *Martha G. Williams, as
Director Special Attorney in Fact
*By: /s/ William O. McCoy
----------------------------
William O. McCoy
Director
33
<PAGE> 34
Annual Report on Form 10-K
The Liberty Corporation
December 31, 1998
Index to Exhibits
<TABLE>
<CAPTION>
PAGE
EXHIBITS NUMBER
<S> <C> <C>
11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per
Share Computation (incorporated herein by reference to Note 11 of
the "Notes to Consolidated Financial Statements" on pages 19-20
of The Liberty Corporation Annual Report to Shareholders for the
year ended December 31, 1999). 62
13. Portions of The Liberty Corporation Annual Report to Shareholders for
the year ended December 31, 1999:
Market for the Registrant's Common Stock and Related Security
Stockholder Matters 35
Selected Financial Data 36
Management's Discussion and Analysis of Financial Condition and
Results of Operations 40-46
Quantitative and Qualitative Disclosures About Market Risk 43-44
Financial Statements and Supplementary Information:
Consolidated Statements of Income - For the three years ended
December 31, 1999 47
Consolidated Balance Sheets - December 31, 1999 and 1998 48-49
Consolidated Statements of Cash Flows - For the three years ended
December 31, 1999 50
Consolidated Shareholders' Equity - For the three years ended
December 31, 1999 51
Notes to Consolidated Financial Statements - December 31, 1999 52-71
Report of Independent Auditors 72
21. The Liberty Corporation and Subsidiaries, List of Significant
Subsidiaries 73
23. Consent of Independent Auditors 74
27. Financial Data Schedule
</TABLE>
34
<PAGE> 1
CORPORATE INFORMATION
THE LIBERTY CORPORATION AND SUBSIDIARIES
STOCK DATA
The Liberty Corporation's Common Stock is listed on the New York Stock Exchange
under the symbol LC. As of December 31, 1999, 1,124 shareholders of record in 40
states, the District of Columbia, Canada and Australia held the 19,507,551
Common Stock shares outstanding. Quarterly high and low stock prices and
dividends per share as reported by Bloomberg were:
- -------------------------------------------------------
Quarterly
Market Price Per Dividend
Share Per Share
High Low
- -------------------------------------------------------
1999
- -------------------------------------------------------
Fourth Quarter $48.81 $40.50 $0.22
Third Quarter 54.19 45.13 0.22
Second Quarter 54.50 50.38 0.22
First Quarter 53.63 47.38 0.22
1998
- -------------------------------------------------------
Fourth Quarter $49.38 $36.25 $0.22
Third Quarter 52.31 38.31 0.22
Second Quarter 52.50 47.88 0.22
First Quarter 52.94 44.88 0.20
1997
- -------------------------------------------------------
Fourth Quarter $47.31 $42.56 $0.20
Third Quarter 45.75 40.25 0.20
Second Quarter 42.00 38.38 0.20
First Quarter 43.38 37.38 0.185
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 9
of the Consolidated Financial Statements.
REGISTRAR AND TRANSFER AGENT
American Stock Transfer & Trust Company
40 wall Street
New York, NY 10005
1-800-937-5449, extension 6829
Written shareholder correspondence and requests for transfer should be sent to:
American Stock Transfer & Trust Company
Attn: Shareholder Relations
6201 15th Avenue, floor 3L
Brooklyn, NY 11219
For a free copy of the 10-K or other information contact:
The Liberty Corporation Shareholder Relations
Box 789
Greenville, SC 29602
Telephone (864) 609-8256
LIBERTY ON THE WEB
For the latest news releases and corporate and business unit information, you
can access Liberty on the web at www.libertycorp.com
ANNUAL MEETING
The Liberty Corporation will hold its annual meeting on Tuesday, May 2, 2000, at
10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South Carolina.
All Shareholders are invited to attend.
35
<PAGE> 2
SELECTED FINANCIAL DATA
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In 000's, except per share data) 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues * $556,040 $584,264 $660,256 $619,097 $605,681 $540,361
Income Before Income Taxes $66,823 $49,101 $111,577 $56,499 $88,795 $38,868
Net Income $44,569 $17,761 $74,951 $37,340 $59,353 $26,178
Earnings Per Diluted Share $2.24 $0.80 $3.34 $1.66 $2.72 $1.26
Change in Net Unrealized Investment Gains and
Losses $(27,940) $(34,766) $21,789 $(18,260) $111,095 $(58,286)
Dividends Per Common Share $0.88 $0.86 $0.785 $0.725 $0.665 $0.62
Depreciation and Amortization $20,660 $19,672 $20,870 $22,387 $19,034 $16,019
Expenditures for Property and Equipment $6,891 $11,630 $10,006 $10,554 $13,288 $9,616
Assets $2,352,924 $2,410,683 $3,184,758 $3,060,765 $3,034,296 $2,667,264
Notes, Mortgages and Other Debts $235,300 $285,000 $191,914 $247,861 $258,444 $231,647
Redeemable Preferred Stock - $20,967 $37,369 $45,599 $45,667 $45,816
Consolidated Shareholders' Equity $554,224 $529,507 $674,447 $580,861 $575,762 $395,589
</TABLE>
*See Notes 6 and 16 regarding 1998 dispositions and acquisitions
36
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
The Liberty Corporation ("Liberty", "the Company" or "the parent company")
is a holding company with operations in insurance and broadcasting. The Company
markets its insurance products through its insurance subsidiary, Liberty Life
Insurance Company ("Liberty Life"). Additionally, Liberty is one of the nation's
largest life insurance third-party administrators, providing administrative
services for approximately 4.5 million policies through Liberty Insurance
Services Corporation ("LIS"). The Company's broadcasting subsidiary, Cosmos
Broadcasting, ("Cosmos") consists of eleven network affiliated stations in the
Southeast and Midwest and a cable advertising company. Six of the stations are
affiliated with NBC, three with ABC, and two with CBS. On November 3, 1999 the
Company announced that it had reached a definitive agreement to acquire KCBD-TV,
the NBC affiliate in Lubbock, Texas. The Company completed this transaction in
February 2000.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information contained herein or
in any other written or oral statements made by, or on behalf of the Company,
are or may be viewed as forward looking. The words "expect", "believe",
"anticipate" or similar expressions identify forward-looking statements.
Although the Company has used appropriate care in developing any such
forward-looking information, forward-looking information involves risks and
uncertainties that could significantly impact actual results. These risks and
uncertainties include, but are not limited to, the following: changes in
national and local markets for television advertising; changes in general
economic conditions, including the performance of financial markets and interest
rates; competitive, regulatory, or tax changes that affect the cost of or demand
for the Company's products; and adverse litigation results. The Company
undertakes no obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future developments, or
otherwise.
SIGNIFICANT EVENTS AND TRANSACTIONS
In February 1999, the Company announced that it was considering a variety of
restructuring alternatives that would more actively support the business
objectives of its operating subsidiaries and enhance value for shareholders. The
Company is currently seeking a restructure alternative that best suits Liberty's
unique business mix. Recent deregulation both in the financial and broadcasting
industries have encouraged the Company to broaden its search for the optimal
solution.
During the third quarter of 1999 the Company settled an outstanding lawsuit
that it had brought against a software developer in 1996. The gain from the
settlement of the lawsuit was partially offset by one-time costs related to the
implementation by Liberty Life's Agency division of its Agency 2000 initiative.
As part of this initiative the Company consolidated a number of field offices,
made strategic reductions in its sales management group, and began lowering
agent counts in certain markets. The net impact of the litigation settlement and
the one-time Agency costs on operating earnings was an after-tax $4.5 million
gain.
On May 25, 1999 ("the redemption date") the Company completed the redemption
of all of the outstanding shares of its 1994-A Series voting cumulative
preferred stock, and its 1994-B Series voting cumulative preferred stock. Shares
were to be redeemed at $35.00 per share and $37.50 per share for the 1994-A and
1994-B preferred stock, respectively, plus accrued interest from April 1, 1999
through the redemption date. Prior to the redemption date, all shares of the
1994-A Series were converted into common stock, and all but 8,170 shares of the
1994-B Series were converted into common stock.
During 1998, the Company completed the acquisition of three television
stations. In July 1998, the Company completed the acquisition of WALB
television, a NBC affiliate, located in Albany, Georgia for $78.6 million. In
November 1998, the Company completed the acquisition of KGBT television, a CBS
affiliate, located in Harlingen, Texas for $42.9 million. In December 1998, the
Company completed the acquisition of WWAY television, an ABC affiliate, located
in Wilmington, North Carolina for $35.4 million. The purchase of these stations
was funded using proceeds from the Company's credit facility.
On April 8, 1998, the Company completed the sale of Pierce National Life
Insurance Company ("Pierce") to Fortis, Inc. The Company received cash totaling
approximately $139 million at closing. The Company recognized a loss on the sale
of Pierce of $18.9 million in the first quarter of 1998. On December 31, 1997,
Fortis, Inc. had purchased 2,660 newly issued shares of Pierce common stock for
$37.2 million in cash. Subsequent to this stock purchase, Fortis, Inc.
maintained a twenty-one percent ownership interest in the common stock of Pierce
through the completion of the sale. LIS continues to administer the Pierce block
of business and also began to provide similar administrative services to another
subsidiary of Fortis, Inc. during 1998.
In March 1998, the Company completed a tender offer program whereby it
repurchased 2,400,000 shares of its common stock at $52 per share. In addition,
the Company repurchased 138,000 shares in the open market during 1998. The stock
repurchases were funded with borrowings from the Company's credit facility.
In May 1997, Liberty completed the sale of its business rental property and
the majority of its business park development projects to a partnership in which
the general partner is a publicly-traded real estate investment trust ("REIT").
Liberty received cash, a note receivable, and partnership units (which are
convertible into shares of the REIT) in exchange for the properties. The
properties sold were held by both Liberty Life and the parent company, and had a
book value of approximately $71.2 million at the sale date. The total
consideration received on the sale of the real estate was approximately $79.8
million including the note receivable and the partnership units of the REIT. The
cash proceeds of approximately $35 million from the sale were used to repay
debt.
37
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
SUMMARY OF CONSOLIDATED
Results of Operations
(In 000s) 1999 1998 1997
- ----------------------------------------------------------------
Revenues $556,040 $584,264 $660,256
- ----------------------------------------------------------------
Pre-tax operating earnings 80,729 82,346 105,351
Income taxes on operating 27,931 29,026 34,442
earnings
- ----------------------------------------------------------------
Operating earnings - after $52,798 $53,320 $70,909
tax
Net realized investment (8,229) 861 4,042
gains (losses)
Loss of sale of subsidiary -- (18,919) --
Special charges -- (17,501) --
- ----------------------------------------------------------------
Net income $44,569 $17,761 $74,951
- ----------------------------------------------------------------
THE YEAR 1999 COMPARED WITH THE YEAR 1998
For 1999, consolidated revenues were $556.0 million, a 5% decrease from
those reported in 1998. Adjusting to exclude the results of Pierce National Life
Insurance Company, which was sold in April 1998, and the non-recurring income
from a 1999 litigation settlement, revenues were level with those of the prior
year.
Operating earnings for 1999 of $52.8 million compared with $53.3 million
reported for 1998. Adjusting to exclude the results of Pierce National Life
Insurance Company, and the non-recurring income from the 1999 litigation
settlement and one-time charges related to the Agency 2000 implementation,
operating earnings increased $1.1 million compared with those of the prior year.
This increase in operating earnings was due to an increase of approximately $5.7
million of earnings in the insurance operations, offset by an anticipated $6.2
million reduction in operating earnings from the broadcasting operations. The
reduction in earnings from the broadcasting operations was anticipated due to
the cyclical nature of that business and the extraordinarily strong political
revenues reported in 1998, combined with the impact of the 1998 acquisitions, as
discussed in further detail below.
Net income for 1999 was $44.6 million, an increase of $26.8 million over
the $17.8 million reported in 1998. Net income for the current year included a
non-recurring net gain of $4.5 million and realized investment losses of $8.2
million. Net income for 1998 included realized investment gains of $0.9 million,
an $18.9 million loss on the sale of Pierce National and special charges of
$17.5 million.
THE YEAR 1998 COMPARED WITH THE YEAR 1997
Consolidated 1998 revenues were $584.3 million, a 12% decrease from 1997.
Excluding Pierce's results from both periods, revenues increased 9% for the
year. The increase was attributable to broadcasting revenues, which were up
$21.6 million, or 16%, over the prior year. Also contributing to the increase
were premiums from the LibertyDirect segment of Liberty Life, which increased
16% over the prior year.
Operating earnings for 1998 of $53.3 million declined 25% compared with
1997. Combination of having only one quarter of Pierce earnings in 1998,
financing costs associated with the share repurchases and higher corporate
litigation related expenses reduced operating earnings.
Net income for the year was $17.8 million, and included special charges of
$17.5 million, the $18.9 million loss on the sale of Pierce, and realized
investment gains of $0.9 million. Significant components of the $17.5 million
special charge include amounts related to developing and implementing an
Activity Value Analysis process to redistribute resources into areas of the
Company that are growing and reduce costs where necessary; expensing of
previously capitalized costs of projects that are no longer expected to be
implemented and projects where primary additional functionality was limited to
compliance with year 2000; additional deferred acquisition cost amortization on
universal life products from changes in interest rate assumptions; and a
provision for additional taxes related to certain universal life products.
BUSINESS SEGMENTS
The Company operates primarily in the television broadcasting and life
insurance industries. The Company has six reportable segments which are defined
based on the products and services provided. Television broadcasting is one
segment. The five reportable segments comprising the Insurance Operations are
Agency, LibertyDirect, Insurance administration, Pre-need, and Corporate and
Other. In the life insurance industry the Company currently markets products
through Liberty Life and provides insurance administrative services through LIS.
Prior to the sale of Pierce in April 1998, the Company also marketed pre-need
life insurance through Pierce. Additional segment information is included in
Note 18 to the Consolidated Financial Statements.
38
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
Broadcasting Results of Operations
(In 000s) 1999 1998 1997
- ----------------------------------------------------------------
Gross broadcasting revenues $178,144 $159,461 $137,898
Agency commissions 24,660 22,383 19,005
- ----------------------------------------------------------------
Net broadcasting revenues 153,484 137,078 118,893
Operating expenses 107,361 87,655 76,679
- ----------------------------------------------------------------
Income before interest and
taxes 46,123 49,423 42,214
- ----------------------------------------------------------------
Interest expense 19,262 12,533 8,348
- ----------------------------------------------------------------
Income before income taxes 26,861 36,890 33,866
- ----------------------------------------------------------------
Income taxes 10,319 14,157 12,140
- ----------------------------------------------------------------
Net income $16,542 $22,733 $21,726
- ----------------------------------------------------------------
As noted earlier, Cosmos completed three acquisitions in 1998. The
acquisitions are included in the broadcasting results from the date acquired and
impact the comparability of operating results with prior years.
THE YEAR 1999 COMPARED WITH 1998
Gross broadcasting revenues increased $18.7 million (12%) in 1999 compared
with 1998. Adjusting to exclude the net impact of the 1998 acquisitions, gross
broadcasting revenues were level with those of the prior year, in spite of a
$8.2 million decrease in political revenues. As discussed in further detail
below, Cosmos had extraordinarily strong political revenues in 1998, while
1999's political revenues fit the more traditional profile of an off-year in the
election cycle. The 1999 decrease in political revenues was offset by
same-station increases in national revenue and additional revenue from the cable
advertising operations.
Total 1999 operating expenses increased $19.7 million in comparison to 1998
amounts. Broadcasting operating expenses, which represent 90% of total operating
expenses, increased $18.6 million. On a same station basis broadcasting
operating expenses increased $0.8 million.
Interest expense increased $6.7 million as a direct result of the 1998
station acquisitions. Cosmos does not have its own credit facility. All of
Cosmos interest expense and related debt is paid, or payable, to the parent
company. The interest rate charged is intended to approximate the rate Cosmos
would pay if it had a separate credit facility. For 1999 and 1998 the interest
rate was 8%.
The effective tax rate for both 1999 and 1998 was 38.4%.
Net income for 1999 was $16.5 million versus $22.7 million reported in 1998.
The reduction in earnings was due primarily to additional non-cash amortization
expense generated from applying purchase accounting principles to television
station acquisitions, and by additional financing costs associated with the 1998
station acquisitions.
THE YEAR 1998 COMPARED WITH 1997
Gross broadcasting revenues increased $21.6 million (16%) in 1998 compared
with 1997. Excluding the impact of the 1998 acquisitions, gross broadcasting
revenues increased $13.8 million, or 10%. The remainder of the comparison of
1998 with 1997 will focus on same station results and exclude the impact of the
1998 acquisitions.
Higher political revenues in 1998 provided the majority of the revenue
increase, with political revenues increasing $10.3 million over 1997 levels.
While 1998 was not a major national election year, there were contested
political races and issues in several of Cosmos' markets. Cosmos capitalized on
the overall strength of its stations in the local markets to capture a
significant portion of the political dollars spent in its markets. Local
revenues were up 3% and national revenues down 2% compared with 1997. The volume
of political spending had a negative impact on local revenue growth as the
political advertising displaced other advertisers during portions of the year.
National revenues were soft in most Cosmos for all of 1998.
On a same station basis broadcasting expenses increased $6.5 million (8%) in
1998 compared with 1997. The expense increase was high due to expenditures for
operations and projects designed to build future revenue. Also, as more fully
explained in the review of insurance segment results, Cosmos absorbed $1.5
million in higher expenses related to amounts that were previously borne by the
Corporate and Other segment.
Interest expense increased $4.2 million in 1998 directly related to the
financing of the 1998 acquisitions.
The effective income tax rate for 1998 was 38.4% compared with 35.8% in
1997. Both rates were lower than the combined federal and state statutory rate
of 39.5%. In 1998 a tax benefit was obtained from implementation of tax planning
strategies. In 1997 a tax benefit was recorded related to the settlement of
outstanding tax issues.
CASH FLOW INFORMATION
Additional measures of broadcasting performance are based on cash flow. Cash
flow information is included for the broadcasting segment because such data is
commonly used as a performance measure for broadcasting companies by investors
for, among other items, measuring a company's debt, and debt service, capacity.
39
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
This cash flow information is not, and should not be used as, an alternative
or substitute for the net income or cash flows included in the Company's
Consolidated Financial Statements, and is not a measure of financial performance
under generally accepted accounting principles.
(In 000s) 1999 1998 1997
- ----------------------------------------------------------------
Cash Flow and Related Information
Broadcast cash flow (1) $63,956 $62,031 $51,884
- ----------------------------------------------------------------
Station cash flow (2) 67,479 65,406 55,031
- ----------------------------------------------------------------
Broadcast cash flow margin 41.7% 45.3% 43.6%
(3)
- ----------------------------------------------------------------
Capital expenditures $5,402 $7,277 $5,752
- ----------------------------------------------------------------
(1) Broadcast cash flow is defined as earnings before depreciation and
amortization, interest expense, non-operating income and expenses, and
income taxes.
(2) Station cash flow is broadcast cash flow plus cash headquarters expenses.
(3) Broadcast cash flow divided by net broadcasting revenue
Broadcast cash flow for 1999 was $64.0 million as compared to the $62.0
million reported for 1998. Although dilutive to earnings, the 1998 station
acquisitions had a positive impact on broadcast cash flow generating an
additional $4.6 million in 1999. The cable advertising operations added
approximately $0.8 million in additional cash flow as compared to 1998. As was
anticipated, due to 1999 being an off-year in the election cycle, same station
cash flow decreased $4.0 million in 1999.
The 1998 acquisitions added $3.6 million to both broadcast and station cash
flow in 1998. Excluding the impact of the acquisitions, broadcast cash flow
increased 13% in 1998 compared with 1997. The cash flow amounts were impacted by
the same items as previously discussed for revenues and expenses.
Intangible assets related to television operations of $218.2 million at
December 31, 1999 and $217.3 million at December 31, 1998, arose in the
acquisition of certain television stations and are comprised primarily of
Federal Communication Commission licenses. Intangible assets related to
television operations are principally amortized over a 40 year period and
represent approximately 9% of total assets at both December 31, 1999 and 1998,
and 39% and 41% of shareholders equity at December 31, 1999 and December 31,
1998 respectively. Management considers each stations current and projected cash
flow, along with the current market conditions for the sale of television
stations in assessing the recoverability of these intangibles. Based on these
factors, management concluded that there is no persuasive evidence that a
material portion of these intangibles will dissipate over a period shorter than
the assigned amortizable life.
Insurance Results of Operations
(in 000's) 1999 1998 1997
- ---------------------------------------------------------------
Operating revenues (1)
Insurance premiums and
policy charges $252,401 $284,931 $350,692
Net investment income 98,444 117,787 156,841
Service contract revenues 22,905 18,217 7,121
Other 18,084 2,026 1,478
- ---------------------------------------------------------------
Total operating revenues $391,834 $422,961 $516,132
- ---------------------------------------------------------------
Operating earnings before
income taxes $53,868 $45,456 $71,485
- ---------------------------------------------------------------
- ---------------------------------------------------------------
PRO FORMA INFORMATION
Pro forma revenues (2) $379,136 $383,940 $354,640
Pro forma operating
earnings before income
taxes (3) $46,847 $39,336 $40,471
- ---------------------------------------------------------------
(1) Excluding realized investment gains and losses and intersegment revenues
(2) Excluding Pierce operating revenues
(3) Pro forma adjusting for the combined impact of the sale of Pierce and the
financing cost associated with the share repurchase as if both transactions
had occurred at the beginning of each period presented.
Total 1999 operating revenues of $391.8 million decreased $31.2 million as
compared to the $423.0 million reported in 1998. On a proforma basis, adjusting
for Pierce's 1998 revenue contribution and the revenue associated with the 1999
litigation settlement, operating revenue decreased $4.8 million. Decreases of
$3.8 million in Agency operating revenue, $3.5 million in Liberty Direct, and
$2.2 million in the Corporate and Other segment, were partially offset by a $4.6
million increase in revenue at Liberty Insurance Services.
Total 1999 operating earnings were $53.9 million, a 19% increase over the
$45.5 million reported for 1998. Adjusting 1998 for the sale of Pierce and the
impact of the 1998 share repurchase, and adjusting 1999 for the $7.0 million
pre-tax gain related to the litigation settlement and one-time charges
associated with the Agency 2000 implementation, proforma operating earnings
increased $7.5 million. Agency and Liberty Direct operating earnings decreased
$6.7 million and $6.5 million respectively, while Liberty Insurance Services
reported a $4.5 million increase and the Corporate and Other segment reported an
$16.2 million increase in operating earnings.
40
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
INSURANCE SEGMENT RESULTS
1999 1998 1997
- --------------------------------------------------------------
SEGMENT OPERATING REVENUES
(excluding intersegment revenues)
Agency $204,397 $208,199 $206,355
LibertyDirect 117,880 121,364 104,984
Liberty Insurance Services 22,905 18,217 7,121
Pierce National -- 39,021 161,492
Corporate and Other 46,652 36,160 36,180
- --------------------------------------------------------------
OPERATING REVENUES $391,834 $422,961 $516,132
PRE TAX OPERATING EARNINGS
Agency $15,691 $22,372 $39,575
LibertyDirect 9,286 15,816 13,852
Liberty Insurance Services 3,231 (1,304) 325
Pierce National -- 6,120 27,040
Corporate and Other 25,660 2,452 (9,307)
- --------------------------------------------------------------
Pre tax earnings from
operations $53,868 $45,456 $71,485
- --------------------------------------------------------------
THE YEAR 1999 COMPARED WITH 1998
Agency operating earnings were $15.7 million in 1999, a decrease of $6.7
million from the $22.4 million reported in 1998. This decrease resulted from a
decrease in investment income of $3.2 million, coupled with an increase in
benefits and reserve expenses as a result of unfavorable mortality costs. The
increase in benefits and reserve expenses was partially offset by a $1.6 million
(11%) decrease in net commission expense. As part of Liberty Life's Agency 2000
initiative the Company made strategic reductions in its sales management group
by eliminating or reducing certain levels of management, and closed certain of
its less profitable offices, thus reducing commissions. Commissions paid on a
cash basis in 1999 were $31.4 million versus $36.3 million in 1998, a decrease
of approximately $4.9 million.
LibertyDirect operating earnings were $9.3 million in 1999, a decrease of
$6.5 million from the $15.8 million reported in 1998. Revenues decreased $4.3
million as a result of lower net sales of the accidental death mortgage
protection products, offset by a $0.8 million increase in revenues associated
with non-insurance products. Expenses, other than deferred policy acquisition
cost amortization, generally remained flat compared to 1998. Deferred policy
acquisition cost amortization increased $3.1 million to $10.5 million from the
$7.4 million reported in 1998. Certain of the Company's non-insurance products
have higher amortization in the first year than the insurance products, and thus
increased amortization expense in the current year.
Liberty Insurance Services reported pretax operating earnings of $3.2
million for 1999 as compared to a pretax loss of $1.3 million for 1998. Revenues
from outside clients increased $4.7 million to $22.9 million in 1999 from the
$18.2 million reported for 1998. This increase was due to the addition of new
clients during 1999, along with revenues from additional services to existing
clients. As a direct result of the increase in the volume of services rendered,
operating expenses in 1999, as compared to those of 1998, increased $4.5
million. Liberty Insurance Services operations include intersegment profits of
approximately $1.6 million from servicing Liberty Life business in 1999.
Increases in the Corporate and Other segment are due to an increase in net
interest income due from Cosmos, coupled with decreases in all expense
categories. Additionally, in the third quarter the Company incurred certain
charges associated with the acceleration of its Agency 2000 initiative, and
settled outstanding litigation with a software developer. The net impact of the
litigation settlement and the charges related to Agency 2000 was a pre-tax $7.0
million gain.
THE YEAR 1998 COMPARED WITH 1997
With the sale of Pierce and the substantially reduced investment in real
estate, the parent company operations primarily support Liberty Life and LIS
and, to a lesser extent Cosmos. As a result significantly more of the parent
company costs were charged or allocated to the segments in 1998 versus 1997. The
segment most significantly impacted by the change in expense charges and
allocations was Agency, the largest segment in terms of revenues and assets. A
significant portion (estimated to be approximately $7.0 million) of the decline
in Agency pre-tax operating earnings is related to the change in expense
reporting. Agency also had higher direct expenses primarily related to
technology costs from equipping its field force with the PriorityPad sales tool.
In addition to higher general expenses Agency also had approximately $3.3
million in higher deferred policy acquisition cost amortization expense. The
higher deferred acquisition cost amortization relates primarily to changes in
the systems and methodology used to amortize deferred acquisition
41
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
costs for Agency's interest sensitive products. The system and methodology
changes increased the amortization expense over what had been recognized in
prior years using the previous system and estimates. Offsetting a portion of the
higher general expenses and deferred acquisition amortization expense was higher
investment income. Investment income in Agency increased $3.4 million compared
with 1997 levels as Agency benefited from the decision in 1997 to sell its
commercial real estate portfolio and redeploy the proceeds into investments that
have higher current yields. Strong premium growth and good mortality results
enabled LibertyDirect to increase earnings by $1.9 million in 1998, overcoming
an estimated $3.5 million increase in allocated expenses. LibertyDirect's
primary source of premiums is from products sold to pay mortgage balances on the
death or disability of the insured. Lapses in this line are influenced by, among
other factors, the level of mortgage loan refinancing activity.
Liberty Insurance Services reported an operating loss of $1.3 million before
income taxes in 1998. This compares with income before income taxes of $0.3
million in 1997. Higher expenses associated with the start up of the Fortis
contract was the primary cause for the fluctuation in pretax earnings. The
contract was not expected to contribute to earnings in 1998 but is expected to
be profitable in future periods. LIS operations include intersegment profits of
approximately $0.6 million from servicing Liberty Life business in 1998 and no
significant intersegment profits in 1997.
The improvement in the Corporate and Other segment in 1998 compared with
1997 came predominantly from the shift in expenses to the other segments and
lower net interest costs.
Investments
As of December 31, 1999, Liberty's consolidated investment portfolio was
carried at $1.3 billion compared with $1.4 billion at the end of 1998.
Approximately 66% of consolidated invested assets were in fixed maturity
securities (bonds and redeemable preferred stocks), 18% was in mortgage loans,
7% in policy loans, with the balance consisting of equity securities (6%), real
estate (2%), and other long-term investments (1%).
The overall average credit rating of fixed maturity securities as of December
31, 1999 was A. Less than investment grade securities comprised 4.5% of the
fixed maturity portfolio at December 31, 1999, compared with 4.9% at December
31, 1998.
- --------------------------------------------------------------------------------
Bond Portfolio Quality Rating Chart
AAA 26.3%
AA 15.2%
A 22.5%
BBB 31.5%
Below BBB 4.5%
- --------------------------------------------------------------------------------
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, 1999 and 1998, all
securities have been classified as available for sale and are carried at fair
value.
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 in Accumulated other comprehensive
income. 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. Following 1998, when interest rates declined
moderately, interest rates increased during 1999. As a result, there was a
decrease in shareholders' equity of $27.9 million during 1999 resulting from a
decline in the fair value of securities. In 1998, there was a decrease in
shareholders' equity of $34.8 million resulting from a decline in the fair value
of the portfolio. There could be significant fluctuations in shareholders'
equity as a result of carrying securities at market value if interest rates
change significantly.
- --------------------------------------------------------------------------------
Fixed Maturity Securities
Ratio of Fair Value to Amortized Cost Chart
1999 96.5%
1998 104.3%
1997 105.4%
1996 103.6%
1995 106.1%
1994 95.7%
- --------------------------------------------------------------------------------
Although Liberty's entire fixed maturity and equity security portfolios have
been classified as available for sale, Liberty pursues a value-oriented, as
opposed to a trading-oriented, investment philosophy in the management of its
securities portfolios. Accordingly, turnover in the portfolios has historically
been relatively low and has related primarily to restructuring portfolios
acquired through acquisitions or to manage Liberty's tax position. In an
environment where yields have approached historic lows, Liberty's focus remains
on
42
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
prudently managing credit, interest rate and liquidity risk, the primary
investment risks within a fixed income portfolio.
In January 2000 the Company embarked on a program to reallocate certain of
its investment holdings. As part of this reallocation, the Company intends to
sell approximately 80% of its equity portfolio and certain of its lower yielding
bonds. The gain on the sale of the equity securities will be partially offset by
a loss on the sale of the bonds, thus reducing the Company's income tax
exposure, and freeing up a significant amount of capital that is then to be
reinvested in higher yielding bonds. The ultimate impact of this reallocation of
assets is expected to increase investment income due to the higher yields on the
new fixed income investments, while reducing the Company's exposure to market
volatility. The Company intends to complete this program by March 31, 2000.
Approximately 29% of Liberty's $859 million fixed maturity portfolio at
December 31, 1999 was composed of commercial and residential mortgage-backed
securities. This compares with approximately 27% at year-end 1998. Certain
residential 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 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 9% of the book value of
Liberty's mortgage-backed securities at December 31, 1999, and 12% at year-end
1998, are more sensitive to prepayment or extension risk. Planned amortization
class ("PAC") instruments accounted for 60% of the book value of the
mortgage-backed securities at December 31, 1999 and 67% at December 31, 1998.
The "PAC" 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. The remaining
31% of the mortgage-backed securities at December 31, 1999 are commercial
mortgage-backed assets. This compares to 21% at December 31, 1998. Loans backing
commercial mortgage-backed securities typically have hard lock out provisions
and/or prepayment penalties. Consequently, there is little prepayment risk in
this asset class.
Mortgage loans of $230.5 million comprised 18% of the consolidated investment
portfolio at December 31, 1999. This compares to mortgage loans of $215.5
million, or 16%, of the consolidated investment portfolio at December 31, 1998.
Substantially all of these mortgage loans are commercial mortgages with a
loan-to-value ratio not exceeding 75% when made. Approximately 52% of these
loans at December 31, 1999 are in North and South Carolina; and 89% are in the
states of North Carolina, South Carolina, Tennessee, Georgia and Virginia.
Mortgage loan delinquencies, defined as payments 60 or more days past due, have
historically been low and were 1.04% at the end of 1999 compared to the latest
available industry rate of 0.39%.
As discussed above, Liberty's consolidated investment portfolio including
fixed maturity securities available for sale, mortgage loans and other financial
instruments such as policy loans and debt swap agreements (see Note 5 to the
Consolidated Financial Statements) are subject to market risks including the
risk of changes in interest rates at varying maturities. Additionally, the
Company's equity securities available for sale portfolio is subject to market
risk including equity pricing risk.
As typical in the industry, certain life insurance products of the Company
contain minimum rate guarantees regarding interest credited (see Note 4 to the
Consolidated Financial Statements). The Company employs various methodologies to
manage its exposures to interest rate risks. The asset/liability matching
process focuses primarily on the management of interest rate risk of the
Company's insurance operations. Liberty monitors the duration of insurance
liabilities compared to the duration of assets backing the various insurance
lines of business to evaluate the timing of cash flows becoming available from
the assets to fund the expected benefits of the insurance liabilities. The
Company's goal with such an analysis is to balance the risk and profitability
for each insurance line of business and for the Company as a whole.
The Company considers the timing of cash flows arising from market risk
sensitive instruments and insurance products under varying interest rate
scenarios as well as the correlated impact on reported earnings under those
scenarios. The following table of various hypothetical interest rate scenarios
illustrates the estimated impact to Liberty's earnings for the next year, based
on the assumptions contained in the Company's model, if such scenarios
materialized:
Estimated Incremental
Increase or Decrease in
CHANGE IN INTEREST RATE Earnings (in 000s)
- --------------------------------------------------------------
Increase 1 percent $ 807
Decrease 1 percent (1,162)
43
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
These estimates were derived by modeling estimated cash flows of the
Company's available for sale fixed maturity securities, mortgage loans, policy
loans and interest rate swaps. Changes in interest rates illustrated above
assume parallel shifts in the yield curve graded pro-rata over four quarters.
Incremental income (loss) is net of taxes at 35%. Estimated cash flows produced
in the model assume reinvestments representative of Liberty's current strategy
and calls/prepayments which would result when the issuers or borrowers can
benefit financially based upon the difference between prepayment penalties and
new money rates under each scenario.
The estimated incremental increase or decrease in earnings from the indicated
changes in interest rates relates only to the earnings provided directly from
fixed maturity securities, mortgage loans, policy loans and debt. In addition,
any fluctuation in interest rates would change the Company's earnings because of
the impact of the changes on other components of the Company's operations that
are directly and indirectly influenced by the change in interest rates, or
because of the impact of the underlying economic conditions that caused interest
rates to change have on the demand for the Company's products and services.
Liberty's portfolio of equity securities is exposed to price risk. The
Company held equity securities with a market value of $81.3 million at December
31, 1999, including $12.3 million in Liberty Properties Trust, a non-affiliated
real estate investment trust. The majority of stocks within the portfolio are
considered to be small or mid-capitalization stocks and most closely correlate
with the performance of the S&P MidCap 400 Index or the S&P 600 SmallCap Index.
The Company also had a significant portion of its portfolio invested in
technology related stocks which would most closely correlate with the
performance of the NASDAQ Composite. As mentioned earlier, in January 2000 the
Company embarked on a program to reallocate certain of its investment holdings.
As part of this reallocation, the Company intends to sell approximately 80% of
its equity portfolio. The Company intends to liquidate all of its equity
holdings with the exception of the Liberty Property Trust shares, and
approximately $2.0 million of technology related common stocks. As a result, the
Company's remaining common stocks during the year 2000 should more closely
correlate to the performance of the Morgan Stanley REIT Index. If the market
value of the Morgan Stanley REIT Index, and specifically that of Liberty
Property Trust, declined 10% from December 31, 1999 values, the market value of
the Company's common stock portfolio could be expected to decrease by
approximately $1.2 million.
Additional disclosures concerning the fair values in relation to the carrying
values of Liberty's financial instruments are included in Note 17 to the
Consolidated Financial Statements.
As of December 31, 1999 and 1998, investment real estate totaled $25.7
million and $34.8 million, representing 2% of consolidated investment portfolio
at both periods. The portfolio consists primarily of residential land and lots
in various stages of development and completion. Liberty does not currently plan
to make any future investments in new investment real estate but will continue
to manage the existing portfolio to maximize the value to the Company.
Substantially all of the remaining investment real estate is located in South
Carolina.
During the year ended December 31, 1999 the Company incurred realized
investment losses of approximately $13.9 million as compared to gains of $1.8
million for 1998. The most significant portion of the 1999 loss related to the
credit rating deterioration of the companies underlying three separate issues.
Liberty has experienced pre-tax impairments on investment assets of $8.5
million, $0.6 million and $7.2 million for the years ended December 31, 1999,
1998, and 1997, respectively. The high level of impairments in 1999 was due to
approximately $4.0 million of write-downs associated with corporate bonds with a
high probability of default. The high level of impairments in 1997 was due to
approximately $6.6 million of write-downs associated with the remaining
residential properties which are being carried at the lower of cost or fair
market value less costs to sell, and 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.
LIQUIDITY AND CAPITAL RESOURCES
In May 1998, Liberty entered into a $300 million credit facility maturing in
April, 2003, replacing the previous $275 million facility that was scheduled to
mature in 1999. The Company may request up to an additional $150 million under
the current facility, subject to the approval of the participating lenders. The
credit agreement contains various restrictive and financial covenants typical of
a credit facility of this size and nature. These restrictions primarily pertain
to limitations on the quality and types of investments and prescribed ratios of
consolidated debt to consolidated total capital and fixed charges coverage.
Liberty funded the 1998 purchases of three television stations, with a total
purchase of approximately $156.9 million, from borrowings under the credit
facility. In February of 2000 the Company used an additional $59.8 million to
acquire KCBD, the NBC affiliate in Lubbock Texas.
- --------------------------------------------------------------------------------
Debt to Capital Ratio Chart
Excluding Unrealized Investment Gains and Losses
1999 29.8%
1998 35.2%
1997 22.8%
1996 29.7%
1995 31.4%
1994 31.9%
- --------------------------------------------------------------------------------
44
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
Liberty has entered into interest rate swaps 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.
On May 25, 1999 ("the redemption date") the Company completed the redemption
of all of the outstanding shares of its 1994-A Series voting cumulative
preferred stock, and its 1994-B Series voting cumulative preferred stock. Shares
were called for redemption at $35.00 per share and $37.50 per share for the
1994-A and 1994-B preferred stock, respectively, plus accrued interest from
April 1, 1999 through the redemption date. Prior to the redemption date, all
shares of the 1994-A Series were converted into common stock, and all but 8,170
shares of the 1994-B Series were converted into common stock.
In 1995, Liberty 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. As of December 31, 1999 there were
429,485 shares outstanding.
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 Liberty Life indicate that Liberty
Life's capital significantly exceeds the minimum capital requirements at
December 31, 1999.
The parent company's short-term cash needs consist primarily of (1) working
capital requirements, (2) interest on corporate debt, and (3) dividends to
shareholders. The parent company's primary long-term cash need is the repayment
of corporate debt. The parent company depends primarily on dividends and debt
service payments paid to it by its subsidiaries to meet its short-term and
long-term cash needs. Historically, Liberty's primary businesses have provided
sufficient liquidity to fund their own operations as well as the operations of
the parent company. Liberty receives funds from Liberty Life 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. See Note 9 to the Consolidated Financial Statements.
On a consolidated basis, Liberty's net cash flow from operating activities
was $52.3 million for 1999 compared with $24.8 million for 1998 and $61.8
million for 1997.
Liberty's net cash used in investing activities was $23.2 million in 1999
compared with $44.8 million in 1998 and net cash provided of $2.8 million in
1997. The decrease in net cash used in investing activities in 1999 was due to
the absence of the net cash used in the purchase of television stations that was
partially offset by a portion of the cash generated from the sale of Pierce. The
primary sources of net cash provided by investing activities in 1997 was the
sale of the commercial real estate as described previously, and the sale of
Pierce National stock to Fortis, Inc.
Cash flow used in financing activities for 1999 was $32.7 million versus
$25.1 million in 1998. Cash flow related to financing activities fluctuates
primarily based on the level of borrowings or debt repayment. During 1998 funds
were borrowed to finance the television station acquisitions. Also during 1998,
the Company repurchased 2,538,000 shares of its common stock for $131.1 million.
Of the amount repurchased $125.5 million was repurchased through a tender offer
with the balance purchased in the open market.
At December 31, 1999 outstanding debt totaled $235.3 million and the debt to
capital ratio was 30%. The Company believes that its current level of cash and
expected future cash flows from operations are sufficient to meet the needs of
its business and to satisfy its debt service. If suitable opportunities arise
for additional acquisitions, Liberty believes it can arrange for additional
credit or use Common Stock or Preferred Stock as payment for 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, the total debt to capital ratio is
limited to 35%. Because the KCBD acquisition in February of 2000 raised the
Company's debt to capital ratio to near 35%, the current credit facility would
have to be modified or re-negotiated to permit a significant amount of
additional debt.
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
45
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ----------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
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.
Other Company commitments are shown in Note 8 to the Consolidated Financial
Statements. Further discussion of investments and valuation is contained in
Notes 1, 2 and 17 to the Consolidated Financial Statements.
YEAR 2000
The Year 2000 issue was the result of computer programs written to use two
digits rather than four to define the applicable year. Any computer programs or
hardware that had date sensitive software or embedded chips might recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations including
among other things, a temporary inability to process transactions, send premium
billings, pay personnel properly, or engage in normal business activities.
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In preparation for the Year 2000 conversion the
Company reviewed all significant systems and operations for potential Year 2000
issues. The Company modified or replaced portions of its software and certain
hardware to mitigate the likelihood of problems related to the transition. To
date, the Company has not experienced any disruptions in its operations as a
result of Year 2000 issues. The Company will continue to monitor its systems and
operations for the remainder of the year for problems or issues related to the
Year 2000.
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This standard was originally required to be adopted in
years beginning after June 15, 1999. Recently the Financial Accounting Standards
Board delayed the required adoption date effectively to January 1, 2001. The
Company has not determined when it will adopt this standard. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will be either offset against the
change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company's use of
derivatives is limited to fixing the cost of borrowings on a portion of the
outstanding debt. The Company has not yet determined what the effect of
Statement 133 will be on the earnings and financial position of the Company, but
it is not expected to be material.
46
<PAGE> 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 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Insurance premiums and policy charges $252,401 $284,931 $350,692
Broadcasting revenues 178,144 159,461 137,898
Net investment income 98,444 117,787 156,841
Service contract revenues 22,905 18,217 7,121
Other income 18,052 2,026 1,478
Realized investment (losses) gains (13,906) 1,842 6,226
- -------------------------------------------------------------------------------------------------
Total revenues 556,040 584,264 660,256
- -------------------------------------------------------------------------------------------------
EXPENSES
Policyholder benefits 131,741 154,661 227,927
Insurance commissions 74,693 79,659 78,939
General insurance expenses 70,264 87,988 67,270
Amortization of deferred acquisition
costs and cost of business acquired 43,108 51,018 45,564
Broadcasting expenses 131,299 109,161 95,588
Interest expense 15,085 14,208 13,209
Loss on sale of subsidiary --- 13,811 ---
Other expenses 23,027 24,657 20,182
- -------------------------------------------------------------------------------------------------
Total expenses 489,217 535,163 548,679
- -------------------------------------------------------------------------------------------------
Income before income taxes 66,823 49,101 111,577
Provision for income taxes 22,254 31,340 36,626
- -------------------------------------------------------------------------------------------------
Net income $44,569 $17,761 $74,951
- -------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
- -------------------------------------------------------------------------------------------------
Basic earnings per common share $ 2.29 $ 0.80 $ 3.50
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 2.24 $ 0.80 $ 3.34
- -------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
47
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
At December 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities
Available for sale, at market, cost of $890,900 in 1999 and $896,944 in 1998 $859,296 $935,178
Equity securities, primarily at market, cost of $61,732 in 1999, and $54,354 in 1998 81,290 63,658
Mortgage loans 230,497 215,549
Investment real estate 25,692 34,788
Policy loans 91,964 90,653
Other long-term investments 20,680 21,256
Short-term investments 1,930 250
- ----------------------------------------------------------------------------------------------------------------------
Total Investments 1,311,349 1,361,332
- ----------------------------------------------------------------------------------------------------------------------
Cash 13,065 16,633
Accrued investment income 13,592 13,508
Receivables net of bad debt reserves, $1,319 in 1999, and $1,163 in 1998 70,167 69,536
Receivable from reinsurers 266,141 275,602
Deferred acquisition costs 270,116 245,100
Cost of business acquired 34,303 39,266
Buildings and equipment, at cost, less accumulated depreciation $139,869 in 1999, and
$127,502 in 1998 90,675 97,043
Intangibles related to television operations, at cost, net of accumulated amortization
$35,870 in 1999, and $37,465 in 1998 218,166 217,322
Goodwill related to insurance acquisitions, at cost, net of accumulated amortization
$10,097 in 1999, $9,133 in 1998 21,904 22,868
Other assets 43,446 52,473
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $2,352,924 $2,410,683
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 15
<TABLE>
<CAPTION>
(In 000's)
At December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $1,278,233 $1,279,929
Claims and benefits payable 33,806 30,247
Policyholder funds 24,969 24,355
- --------------------------------------------------------------------------------------------------------------------
1,337,008 1,334,531
Notes and mortgages payable 235,300 285,000
Accrued income taxes 15,409 7,348
Deferred income taxes 107,304 122,650
Accounts payable and accrued expenses 98,990 106,523
Other liabilities 4,689 4,157
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,798,700 1,860,209
- --------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock:
1994-A Series, $35.00 redemption value, -0- and 198,259 shares issued and
outstanding in 1999 and 1998, respectively --- 6,939
1994-B Series, $37.50 redemption value, -0- and 374,059 shares issued and
outstanding in 1999 and 1998, respectively --- 14,028
- --------------------------------------------------------------------------------------------------------------------
Total Redeemable Preferred Stock --- 20,967
- --------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock
Authorized - 50,000,000 shares, no par value
Issued and outstanding - 19,507,551 shares in 1999, 18,684,172 shares in 1998 100,112 70,565
Convertible preferred stock 1995-A Series, 429,485 and 599,985 shares issued and
outstanding in 1999 and 1998 respectively 15,031 20,999
Preferred stock
Authorized - 10,000,000 shares
Issued and outstanding - 429,485 shares in 1999, and 1,172,303 shares in 1998
Unearned stock compensation (5,057) (7,596)
Retained earnings 445,329 418,790
Accumulated other comprehensive (loss) income (1,191) 26,749
- --------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 554,224 529,507
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $2,352,924 $2,410,683
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
49
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's)
<TABLE>
<CAPTION>
For the Years Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $44,569 $17,761 $74,951
Adjustments to reconcile net income to net cash provided by
operating activities:
(Decrease) increase in policy liabilities (33,513) (13,320) 7,390
(Decrease) increase in accounts payable and accrued expenses (5,250) 7,717 2,571
Decrease (increase) in receivables 6,205 (1,146) (6,600)
Amortization of deferred acquisition costs and cost of
business acquired 43,108 51,018 45,564
Policy acquisition costs deferred (46,560) (52,337) (55,312)
Realized investment losses (gains) 13,906 (1,842) (6,226)
Gain on sale of operating assets (944) (1,826) (2,011)
Loss on sale of subsidiary --- 13,811 ---
Depreciation and amortization 20,660 19,672 20,870
Amortization of bond premium and discount (3,547) (6,858) (7,575)
Provision for deferred income taxes (5,211) (4,312) 1,613
All other operating activities, net 18,842 (3,584) (13,394)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 52,265 24,754 61,841
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment securities sold 120,596 78,583 128,513
Investment securities matured or redeemed by issuer 111,767 171,166 100,031
Cost of investment securities acquired (240,976) (274,631) (288,053)
Mortgage loans made (39,233) (57,192) (50,067)
Mortgage loan repayments 24,289 57,079 35,535
Purchases of investment properties, buildings and equipment (22,078) (16,274) (21,552)
Sale of investment properties, buildings and equipment 24,017 20,933 63,164
Purchases of short-term investments (37,361) (8,255) (42,423)
Sales of short-term investments 35,680 8,255 42,423
Cash received on issuance of Pierce National Life common stock --- --- 37,160
Net cash received on sale of subsidiary --- 133,060 ---
Net cash paid on purchase of television stations --- (156,942) ---
All other investment activities, net 134 (602) (1,940)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (23,165) (44,820) 2,791
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 2,625,000 3,265,000 2,505,000
Principal payments on debt (2,674,700) (3,171,914) (2,560,947)
Dividends paid (18,030) (18,447) (19,540)
Stock issued for employee benefit and compensation programs 3,552 1,974 3,884
Redemption of preferred stock (306) --- ---
Repurchase of common stock --- (131,114) ---
Return of policyholders' account balances (27,374) (31,606) (38,949)
Receipts credited to policyholders' account balances 59,190 61,020 70,932
- --------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (32,668) (25,087) (39,620)
- --------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH (3,568) (45,153) 25,012
Cash at beginning of year 16,633 61,786 36,774
- --------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $13,065 $16,633 $61,786
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
50
<PAGE> 17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THE LIBERTY CORPORATION AND SUBSIDIARIES
(Amounts in 000's except per share data)
<TABLE>
<CAPTION>
UNEARNED ACCUMULATED
COMMON CONVERTIBLE STOCK OTHER
SHARES COMMON PREFERRED COMPEN- COMPREHENSIVE RETAINED
OUTSTANDING STOCK STOCK SATION INCOME (LOSS) EARNINGS TOTAL(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 20,215 $163,443 $20,999 $(7,168) $39,522 $364,065 $580,861
Net income 74,951 74,951
Net unrealized investment gains 21,789 21,789
Foreign currency translation
adjustment 539 539
Dividends - Common Stock -
$0.785 per share (15,957) (15,957)
Dividends - Redeemable Preferred
Stock - $2.10 per share (2,535) (2,535)
Dividends - Convertible Preferred
Stock - $1.75 per share (1,048) (1,048)
Stock issued for employee benefit
and performance incentive
compensation programs 268 11,320 (3,704) 7,616
Stock issued for conversion of
redeemable preferred stock 230 8,231 8,231
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 20,713 $182,994 $20,999 $(10,872) $61,850 $419,476 $674,447
- ---------------------------------------------------------------------------------------------------------------------------
Net income 17,761 17,761
Net unrealized investment losses (34,766) (34,766)
Foreign currency translation
adjustment (335) (335)
Dividends - Common Stock - $0.86
per share (15,846) (15,846)
Dividends - Redeemable Preferred
Stock - $2.10 per share (1,551) (1,551)
Dividends - Convertible Preferred
Stock - $1.75 per share (1,050) (1,050)
Stock issued for employee benefit
and performance incentive
compensation programs 51 3,897 3,276 7,173
Stock issued for conversion of
redeemable preferred stock 458 14,788 14,788
Stock repurchased as part of
tender or on open market (2,538) (131,114) (131,114)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 18,684 $70,565 $20,999 $(7,596) $26,749 $418,790 $529,507
- ---------------------------------------------------------------------------------------------------------------------------
Net income 44,569 44,569
Net unrealized investment losses (27,940) (27,940)
Dividends - Common Stock - $0.88
per share (16,835) (16,835)
Dividends - Redeemable Preferred
Stock - $2.10 per share (269) (269)
Dividends - Convertible Preferred
Stock - $1.75 per share (926) (926)
Stock issued for employee benefit
and performance incentive
compensation programs 87 2,858 2,539 5,397
Stock issued for conversion of
redeemable preferred stock 566 20,721 20,721
Stock issued for conversion of
convertible preferred stock 171 5,968 (5,968)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 19,508 $100,112 $15,031 $(5,057) $(1,191) $445,329 $554,224
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Comprehensive income, which includes the aggregate of net income, net
unrealized investment gains (losses) and foreign currency translation
adjustment, was $97,279, $(17,340), and $16,629 for 1997, 1998 and 1999
respectively.
See notes to consolidated financial statements.
51
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
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, and Liberty Insurance Services Corporation (collectively
referred to as the insurance operations) and Cosmos Broadcasting Corporation.
Pierce National Life Insurance Company (doing business as FamilySide) was sold
April 8, 1998 (see Note 6).
ORGANIZATION - The Company's operations include the sale and/or service of
life insurance products in the United States and television broadcasting
operations in the United States. The insurance operations are licensed to do
business in 49 states plus the District of Columbia. 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
eleven network affiliated television stations throughout the southeastern and
midwestern states. Information on the Company's operations by segment is
included in Note 18 of this report.
USE OF ESTIMATES AND ASSUMPTIONS - Financial statements prepared in
accordance with accounting principles generally accepted in the United States
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
provide for benefits and expenses 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.
BROADCASTING REVENUES - Broadcasting revenues are generated primarily from
the sale of television advertising time, and recognized in the period during
which the time spots are aired.
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 (or as of the date
of acquisition for acquired blocks of business) 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.
52
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
CASH - Cash includes all cash and highly liquid investments that mature
within three months of the date of acquisition.
INVESTMENTS - Investments are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". 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 currently has no
securities classified as held to maturity or trading.
Investments are reported on the following basis:
o Fixed maturities classified as available-for-sale (bonds and redeemable
preferred stocks) 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
in accumulated other comprehensive income. 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.
o 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.
o Mortgage loans on real estate are carried at amortized cost, less an allowance
for credit losses and provisions for impaired value, where appropriate. 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.
o Investment real estate is carried at cost less accumulated depreciation and
provisions for impaired value when held for investment purposes. Depreciation
over the estimated useful lives of the properties is determined principally
using the straight-line method. When held for sale, investments in real estate
are carried at the lower of cost or fair market value less costs to sell. At
December 31, 1999 substantially all of the Company's investment in real estate
was held for sale.
o Policy loans are carried at cost.
o 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.
o 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 in
accumulated other comprehensive income.
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". 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 and
are comprised primarily of Federal Communication Commission licenses. 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. Carrying amounts are regularly reviewed by management for indications of
impairment and are adjusted accordingly when appropriate.
GOODWILL arose in the acquisition of insurance companies and is being
amortized over lives ranging from twenty to forty years.
INTEREST RATE CAPS AND SWAPS are used to limit the impact of changing
interest rates on the Company's debt, which is all floating rate (see Note 5).
The net interest effect of the swap transaction is reported as an adjustment to
interest expense as incurred. Interest rate caps may occasionally be used to
protect a portion of the remaining debt against significant increases in
interest rates. Premiums paid for the interest rate caps are 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.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, "Reporting Comprehensive
Income" was adopted by the Company January 1, 1998. This statement requires
companies to report and display comprehensive income and its components as part
of the general financial statements. The most significant items which affect the
Company's comprehensive income are the change in unrealized security gains and
losses and the change in
53
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
the foreign currency translation adjustment, both items of which have
historically been reported only as a component of shareholders' equity.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") was adopted by
the Company in 1998. This statement establishes standards for the way that
public companies report information about operating segments in annual financial
statements and requires that companies report selected information about
operating segments in interim financial reports. The financial information to be
reported includes segment profit or loss, certain revenue and expense items, and
segment assets and reconciliations to corresponding amounts in the general
purpose financial statements. It also establishes requirements for related
disclosures about products and services, geographic areas, and major customers
(see Note 18).
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued by the Financial
Accounting Standards Board in June, 1998. This standard was originally required
to be adopted in years beginning after June 15, 1999. Recently the Financial
Accounting Standards Board delayed the required adoption date effectively to
January 1, 2001. The Company has not determined when it will adopt this
standard. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will be
either offset against the change in fair value of the hedged assets, liabilities
or firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company's use of derivatives is limited to fixing the cost of borrowings on
a portion of the outstanding debt. The Company has not yet determined what the
effect of Statement 133 will be on the earnings and financial position of the
Company, but it is not expected to be material.
RECLASSIFICATIONS have been made in the 1998 and 1997 Consolidated Financial
Statements to conform to the 1999 presentation.
2. INVESTMENTS
Amortized cost and estimated fair values of investments in available for sale
securities at December 31, 1999 and 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
1999 (In 000s) Cost Gains Losses Value
- -----------------------------------------------------------------
AVAILABLE FOR SALE:
Fixed maturity securities
US government
obligations $4,196 $52 $70 $4,178
Foreign
Corporate and 33,693 176 1,536 32,333
Other
Corporate
securities 595,646 6,583 30,484 571,745
Mortgage-backed
securities 257,365 2,496 8,821 251,040
- -----------------------------------------------------------------
Total 890,900 9,307 40,911 859,296
Equity securities 61,732 22,499 2,941 81,290
- -----------------------------------------------------------------
Total $952,632 $31,806 $43,852 $940,586
- -----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
1998 (In 000s) Cost Gains Losses Value
- -----------------------------------------------------------------
AVAILABLE FOR SALE:
Fixed maturity securities
US government
obligations $4,561 $340 --- $4,901
Foreign
Corporate and 38,851 1,433 1,820 38,464
Other
Corporate
securities 609,619 35,873 6,399 639,093
Mortgage-backed
securities 243,913 9,301 494 252,720
- -----------------------------------------------------------------
Total 896,944 46,947 8,713 935,178
Equity securities 54,354 13,481 4,177 63,658
- -----------------------------------------------------------------
Total $951,298 $60,428 $12,890 $998,836
- -----------------------------------------------------------------
54
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
Realized gains (losses) and the change in unrealized gains (losses) on the
Company's fixed maturities and equity securities are summarized as follows:
Total Gains
Fixed Equity (Losses) on
(In 000s) Maturities Securities Investments
- ---------------------------------------------------------------
1999
Realized investment
gains (losses) $(12,515) $447 $(12,068)
Change in unrealized
investment gains
(losses) (69,838) 10,253 (59,585)
- ---------------------------------------------------------------
Combined $(82,353) $10,700 $(71,653)
- ---------------------------------------------------------------
1998
Realized investment
gains (losses) $131 $1,947 $2,078
Change in unrealized
investment gains
(losses) (10,629) (8,026) (18,655)
- ---------------------------------------------------------------
Combined $(10,498) $(6,079) $(16,577)
- ---------------------------------------------------------------
1997
Realized investment
gains (losses) $ (150) $ 8,755 $ 8,605
Change in unrealized
investment gains
(losses) 33,975 4,416 38,391
- ---------------------------------------------------------------
Combined $ 33,825 $ 13,171 $ 46,996
- ---------------------------------------------------------------
The schedule below details consolidated investment income and related
investment expenses for the years ended December 31.
(In 000s) 1999 1998 1997
- ---------------------------------------------------------------
Interest on
Bonds $68,185 $84,971 $123,932
Mortgage loans 18,482 19,804 21,191
Policy loans 4,768 4,601 4,981
Short-term investments 522 933 708
Dividends on
Preferred stocks 3,024 3,490 4,543
Common stocks 782 512 574
Investment property 1,277 771 4,121
rentals
Net gain on investment
real estate held for
development 1,491 3,123 3,838
Other investment income 4,578 5,096 5,227
- ---------------------------------------------------------------
Total investment income 103,109 123,301 169,115
Investment expenses 4,665 5,514 12,274
- ---------------------------------------------------------------
Net investment income $98,444 $117,787 $156,841
- ---------------------------------------------------------------
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.
(In 000s) 1999 1998 1997
- ---------------------------------------------------------------
Proceeds from sales $91,161 $52,548 $83,978
Gross realized gains 468 947 315
Gross realized losses (9,408) (2,051) (1,489)
The following investment assets were non-income producing for the twelve months
ended December 31, 1999:
Balance Sheet
(In 000s) Amount
- ---------------------------------------------------------------
Investment real estate $ 4,745
Other long-term investments 19,248
Mortgage loans 1,983
- ---------------------------------------------------------------
Total $25,976
- ---------------------------------------------------------------
For the year ended December 31, 1999, the Company incurred realized losses of
$5,517,000 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, 1999, are as follows:
Cumulative Provision
(In 000s) for Impairments
- ---------------------------------------------------------------
Mortgage loans $1,150
Investment real estate 10,081
Other long-term investments 1,415
Fixed Maturities 3,963
- ---------------------------------------------------------------
Total $16,609
- ---------------------------------------------------------------
The amortized cost and estimated fair value of fixed maturities at December
31, 1999, 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.
Amortized Fair
(In 000s) Cost Value
- ---------------------------------------------------------------
Due in one year or less $ 27,836 $ 28,395
Due after one year through five years 96,392 97,497
Due after five years through ten years 210,309 202,737
Due after ten years 298,998 279,627
- ---------------------------------------------------------------
633,535 608,256
Mortgage-backed securities primarily
maturing in five to twenty-five years 257,365 251,040
- ---------------------------------------------------------------
Total $890,900 $859,296
- ---------------------------------------------------------------
3. REINSURANCE AGREEMENTS
The Company uses reinsurance as a risk management tool in the normal course
of business and in isolated, strategic
55
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
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, 1999, $3.2 billion (17%) of the Company's total
$18.7 billion gross insurance in force was ceded to other companies. In the
accompanying financial statements, insurance premiums and policy charges,
policy-holder 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, 1999, Liberty Life's interest in
the assets held in escrow consisted of investments with an amortized cost of
$71.9 million and a fair value of $68.1 million. Comparable book and fair value
at December 31, 1998 was $66.2 million and $69.5 million, respectively. These
investments had an average rating of A1/A+. The total face value of insurance
ceded to Life Re at December 31, 1999, was $2.1 billion and the Company has
recorded a receivable related to this transaction from Life Re of $239.5 million
as of December 31, 1999. Currently, Life Re has an A.M. Best rating of A+.
During 1999 and 1998, Liberty Life had ceded premiums and policy charges of
$14.8 million and $16.3 million, respectively, under the agreement.
Effective September 30, 1991, Liberty Life entered into an agreement to
coinsure 50% of its then existing Agency 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, 1999,
the amortized cost and fair value of the invested assets held in escrow was
$240.2 million and $235.8 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. Insurance
in excess of the retention limits is either automatically ceded under
reinsurance agreements or is reinsured on an individually agreed upon basis with
other insurance companies.
The effect of reinsurance on premiums and policy charges and benefits was as
follows for the years ending December 31:
(In 000s) 1999 1998 1997
- ------------------------------------------------------------------
Direct premiums and
policy charges $290,216 $317,027 $384,010
Reinsurance assumed 412 238 873
Reinsurance ceded (38,227) (32,334) (34,191)
- ------------------------------------------------------------------
Net premiums and policy
charges $252,401 $284,931 $350,692
- ------------------------------------------------------------------
Gross benefits $160,317 $180,611 $257,685
Reinsurance recoveries (28,576) (25,950) (29,758)
- ------------------------------------------------------------------
Net benefits $131,741 $154,661 $227,927
- ------------------------------------------------------------------
4. DEFERRED ACQUISITION COSTS, COST OF BUSINESS ACQUIRED AND FUTURE POLICY
BENEFITS
A summary of the changes in deferred acquisition costs is as follows:
(In 000s) 1999 1998 1997
- --------------------------------------------------------------
Beginning balance $245,100 $271,951 $258,518
Deferred during the year 46,560 52,337 55,312
Amortized during the year (38,144) (46,363) (37,069)
Adjustment related to
unrealized investment
(gains) losses 16,600 2,357 (4,508)
Insurance in force ceded/
sold --- (35,248) ---
Foreign currency
translation --- 66 (302)
- --------------------------------------------------------------
Ending balance $270,116 $245,100 $271,951
- --------------------------------------------------------------
The insurance in force ceded/sold is in connection with the sale of Pierce
National Life Insurance Company in 1998. Also in 1998, the Company recognized an
additional $6.4 million of amortization for the unlocking of the interest spread
assumptions on interest-sensitive products.
A summary of the changes in costs of business acquired through acquisitions
is as follows:
(In 000s) 1999 1998 1997
- ----------------------------------------------------------------
Beginning balance $39,266 $65,890 $74,428
Interest accrued 2,771 3,366 5,070
Related to insurance in
force ceded/ sold --- (21,975) ---
Foreign currency
adjustment --- 6 (43)
56
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
Amortized during the year (7,734) (8,021) (13,565)
- ----------------------------------------------------------------
Ending balance $34,303 $39,266 $65,890
- ----------------------------------------------------------------
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
7.87% 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. There were no charges for this in 1999,
1998, or 1997.
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:
(In 000s) Amortization
- --------------------------------------------------------------
2000 $5,940
2001 5,188
2002 4,606
2003 4,336
2004 4,046
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 5.8% and 5.9% for 1999 and 1998, respectively, for Liberty Life
Insurance Company, and 6.7% for 1997 which includes Pierce National Life
Insurance Company in addition to Liberty Life Insurance Company. 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 4.75% to 6.25% in 1999, 4.0% to 6.25% in
1998, and 4.0% to 6.45% in 1997.
Participating business accounts for approximately 1% of the Company's life
insurance in force and premium income. The dividend to be paid is determined
annually by the Board of Directors.
5. DEBT
The debt obligations at December 31 are as follows:
Interest
(In 000s) Rate 1999 1998
- -------------------------------------------------------------
Borrowings under
revolving credit
agreement 6.4% $234,000 $283,000
Other --- 1,300 2,000
- -------------------------------------------------------------
Total $235,300 $285,000
- -------------------------------------------------------------
Maturities of the debt obligations at December 31, 1998, are as follows:
Maturities (In 000s) Amount
- --------------------------------------------------------------
2000 $ 650
2001 650
2002 ---
2003 234,000
2004 ---
Thereafter ---
- --------------------------------------------------------------
Total $235,300
- --------------------------------------------------------------
In May 1998, the Company refinanced its credit facility into a $300 million
revolving credit facility maturing in April, 2003. The Company may request up to
an additional $150 million under the new facility subject to approval by the
bank group.
The Company's borrowings against the revolving credit facility were
$234,000,000 at December 31, 1999. During 1999, the maximum amount outstanding
on the revolving facility amounted to approximately $284,000,000 with an average
balance outstanding of approximately $265,000,000 and an average weighted
interest rate of 5.7%.
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. A facility fee is charged on the facility based on
the $300,000,000 total commitment. The facility fee and the interest rate margin
for the revolving credit facility are all based upon the ratio of consolidated
debt to cash flow, as defined in the credit agreement.
The credit agreement contains various restrictive and financial covenants
typical of a credit facility of this size and nature. These restrictions
primarily pertain to limitations on the quality and types of investments and
defined ratios of consolidated debt to consolidated total capital and fixed
charges coverage. As of December 31, 1999, the Company was in compliance with
all covenants under its debt agreement.
The Company has entered into interest rate swap agreements as a means of
managing interest rate exposure on its floating rate
57
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
debt. The agreements are contracts to exchange fixed and floating interest rate
payments periodically over the life of the agreements, without the exchange of
the underlying notional amounts. The Company pays the counterparty a fixed rate
and the counterparty pays the Company interest at a floating rate based on three
month LIBOR. The interest differential to be paid or received on the swaps is
accrued and included in interest expense for financial reporting purposes. The
agreements are with major financial institutions 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. Information about the interest rate swaps
follows:
Average Notional
Fixed Amount
Expiration Date Rate Paid (in 000's)
by Company
----------------------------------------------------------
September, 2003 cancelable in 4.91% $100,000
September, 2001
The swap cancellation options may only be exercised by the counterparties.
Interest paid, net of amounts capitalized, amounted to approximately
$16,076,000, $12,654,000, and $13,576,000 in 1999, 1998, and 1997, respectively.
Interest capitalized amounted to $239,000, $583,000, and $1,071,000 in 1999,
1998, and 1997, respectively.
6. DISPOSITIONS
On April 8, 1998, the Company completed the sale of Pierce National Life
Insurance Company ("Pierce") to Fortis, Inc. The Company received cash totaling
approximately $139 million at closing. The Company recognized an after-tax loss
of the sale of Pierce of $18.9 million in the first quarter of 1998.
On December 31, 1997, Fortis had purchased 2,660 newly issued shares of
Pierce common stock for $37,160,000 in cash. Subsequent to this stock purchase,
Fortis, Inc. maintained a twenty-one percent ownership interest in the common
stock of Pierce through the completion of the sale.
7. 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 had preference in
liquidation, and each share was 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 was classified outside of permanent equity as Redeemable Preferred Stock.
On May 25, 1999 ("the redemption date") the Company completed the redemption
of all of the outstanding shares of its 1994-A Series voting cumulative
preferred stock, and its 1994-B Series voting cumulative preferred stock. Shares
were called for redemption at $35.00 per share and $37.50 per share for the
1994-A and 1994-B preferred stock, respectively, plus accrued interest from
April 1, 1999 through the redemption date. Prior to the redemption date, all
shares of the 1994-A Series were converted into common stock, and all but 8,170
shares of the 1994-B Series were converted into common stock.
8. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are 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 2009,
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. Annual rental expense amounted to approximately
$8,940,000, $7,306,000, and $6,873,000 in 1999, 1998, and 1997, respectively.
58
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
Future commitments under operating leases are shown below:
Data
Processing
Branch and
(in 000's) Offices Telephone Other Total
Equipment
- ----------------------------------------------------------------
Year
2000 $1,146 $4,412 $868 $6,426
2001 879 1,696 624 3,199
2002 678 122 591 1,391
2003 450 --- 419 869
2004 245 --- --- 245
Thereafter 582 --- --- 582
- ----------------------------------------------------------------
Total $3,980 $6,230 $2,502 $12,712
- ----------------------------------------------------------------
At December 31, 1999, the Company had commitments for additional investments
and other items totaling $31,076,000.
On November 3, 1999 the Company announced that it had reached a definite
agreement to acquire KCBD-TV, the NBC affiliate in Lubbock, Texas in a cash
transaction for $59.8 million. The Company completed this transaction in
February, 2000.
9. 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 has become an Acquiring Person or after the
commencement of 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, 1999, there were
429,485 shares of preferred stock outstanding (see Note 7 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 of Liberty Life, as determined under generally accepted
accounting principles, was $472,143,000 and $503,328,000 at December 31, 1999
and 1998, respectively. The comparable amounts as determined under statutory
accounting practices were $140,152,000 and $146,273,000 at December 31, 1999 and
1998, respectively. The amount that retained earnings exceeds statutory
unassigned surplus ($334,638,000) 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 unrealized appreciation on fixed maturity securities
available for sale and equity securities in the balance sheet caption
accumulated other comprehensive income (see Note 19) as of December 31 are as
follows:
(In 000s) 1999 1998
- ---------------------------------------------------------------
Carrying value of securities $940,586 $998,836
Amortized cost of securities 952,632 951,298
- ---------------------------------------------------------------
Net unrealized appreciation (12,046) 47,538
Adjustment to deferred
acquisition costs 10,213 (6,387)
Deferred income taxes 642 (14,402)
- ---------------------------------------------------------------
Total $(1,191) $26,749
- ---------------------------------------------------------------
In March 1998, the Company completed a stock tender offer under which the
Company repurchased 2,400,000 shares of its common stock at $52.00 per share. In
addition, the company repurchased in the open market 138,000 shares during 1998.
59
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
10. 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; (e) awards of
unrestricted shares of the Company's common stock; (f) phantom stock units; (g)
or any combination of the foregoing to outside directors, officers and key
employees. Only common stock, not to exceed 4,300,000 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 is limited to a maximum
of 400,000 stock options during a single calendar year and a maximum of 100,000
shares of other stock-based awards during a single calendar year. As of December
31, 1999, 89 outside directors, officers and employees were participants in the
Program.
Restricted shares awarded to participants under the Program generally vest
either in equal annual installments or as a lump sum, generally over a five-year
period commencing on the date the shares are awarded. Vesting of restricted
shares may be contingent on the achievement of certain performance goals as
established by the Compensation Committee at the time of the grant. 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 no less than 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 no more than ten years after the grant. Of the non-qualified options
outstanding, 358,842 were exercisable at December 31, 1999; 355,783 were
exercisable at December 31, 1998; and 349,609 were exercisable at December 31,
1997. The options expire on various dates beginning May 15, 2001, and ending
November 4, 2009. There were no incentive stock options outstanding at December
31, 1999, December 31, 1998 or December 31, 1997. Incentive stock options
totaling 25,500 were outstanding and exercisable at December 31, 1996.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("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 $1,816,000, $2,297,000, and $2,330,000, for the
years ended December 31, 1999, 1998, and 1997, 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 weighted average grant-date estimated fair value of granted
during 1999, 1998, and 1997 using a Black-Scholes option pricing model, and the
weighted average assumptions used to determine the estimated fair value are as
follows:
1999 1998 1997
----------------------------------------------------------------
Estimated fair value $13.00 $10.92 $10.65
Underlying assumptions used to
determine estimated fair value:
Risk free interest rate 5.5% 5.1% 6.3%
Dividend yield 1.8% 2.0% 2.0%
Expected stock price volatility 0.18 0.17 0.16
Weighted average expected life 7 YEARS 7 years 7 years
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.
60
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
For purposes of pro forma disclosures the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information is as follows:
In $000s, except per share 1999 1998 1997
amounts
-----------------------------------------------------------------
Net Income:
As Reported $44,569 $17,761 $74,951
Pro forma 43,618 17,063 75,554
Basic Earnings per Share:
As Reported $2.29 $0.80 $3.50
Pro forma 2.24 0.76 3.48
Diluted Earnings per Share:
As Reported $2.24 $0.80 $3.34
Pro forma 2.19 0.76 3.32
Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect was not fully reflected until 1999
The following schedule summarizes activity in the Program during the three
years ending December 31, 1999.
<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 at 12/31/96 291,255 25,500 18.50 596,245 $26.52
Awarded 209,340 40.63 340,600 40.63
Vested (66,399) 28.18
Exercised (25,500) 18.50 (78,900) 25.03
Forfeited (90,223) 27.39 (15,135) 30.24
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at 12/31/97 343,973 -- -- 842,810 $32.29
Awarded 60,825 51.00 247,940 45.65
Vested (37,180) 31.09
Exercised (105,061) 23.76
Forfeited (73,291) 39.59 (55,399) 36.24
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at 12/31/98 294,327 -- -- 930,290 $36.58
AWARDED 86,305 51.88 86,890 49.79
VESTED (41,242) 29.57
EXERCISED (148,222) 26.50
FORFEITED (173,136) 43.54 (28,600) 40.26
- ---------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT 12/31/99 166,254 840,358 39.60
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISABLE EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.25-$26.00 111,300 3.6 years $25.03 109,300 $25.02
$26.01-$51.88 729,058 7.8 years 41.82 249,542 38.41
- -------------------------------------------------------------------------------------------------------------------
Total or weighted
average 840,358 7.2 years $39.60 358,842 $34.33
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, there were 1,082,225 shares of the Company's stock
reserved for future grants under the Program.
61
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
11. EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 replaces Accounting Principles
Board Opinion No. 15, "Earnings Per Share" ("APB 15") and requires disclosure of
basic earnings per share and diluted earnings per share. Basic earnings per
share excludes all potentially dilutive securities from the calculation and is
calculated by dividing net income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The diluted earnings per share computation is computed
similarly to the fully diluted earnings per share calculation under APB 15. The
following tables reconcile the numerators and denominators for the basic and
diluted earnings per share calculations for the years ended December 31, 1999,
1998 and 1997:
For the year ended 1999
----------------------------------
($000s except per share Shares Per
amounts) Income (Denom- Share
(Numerator) inator) Amount
----------------------------------
Net income $44,569
Less: Preferred stock
dividends (1,195)
-----------
BASIC EPS
Income available to common
shareholders 43,374 18,960 $2.29
=========
Effect of Dilutive
Securities:
Stock options --- 150
Restricted stock --- 32
Redeemable preferred stock 269 210
Convertible preferred stock 926 544
------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $44,569 19,896 $2.24
==================================
For the year ended 1998
----------------------------------
($000s except per share Shares Per
amounts) Income (Denom- Share
(Numerator) inator) Amount
----------------------------------
Net income $17,761
Less: Preferred stock
dividends (2,601)
-----------
BASIC EPS
Income available to common
shareholders 15,160 18,806 $0.80
=========
Effect of Dilutive
Securities:
Stock options --- 149
Restricted stock --- 33
Redeemable preferred stock --- ---
Convertible preferred stock --- ---
------------------------
DILUTED EPS
Income available to common
shareholders plus assumed
conversions $15,160 18,988 $0.80
==================================
For the year ended 1997
----------------------------------
($000s except per share Shares Per
amounts) Income (Denom- Share
(Numerator) inator) Amount
----------------------------------
Net income $74,951
Less: Preferred stock
dividends (3,583)
----------------------------------
BASIC EPS
Income available to common
shareholders 71,368 20,406 $3.50
=========
Effect of Dilutive
Securities:
Stock Options --- 220
Redeemable preferred stock 2,535 1,208
Convertible preferred stock 1,048 600
------------------------
DILUTED EPS
Income available to common
shareholders plus
assumed conversions $74,951 22,434 $3.34
==================================
62
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
12. EMPLOYEE BENEFITS
The Company has several postretirement plans that provide medical and life
insurance benefits for qualified retired employees. The post-retirement 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 $1,358,000, $1,422,000, and
$1,378,000 for the years ended December 31, 1999, 1998, and 1997, respectively,
and included the following components:
- --------------------------------------------------------------
(In $000s) 1999 1998 1997
- --------------------------------------------------------------
Medical Life Medical Life Medical Life
- --------------------------------------------------------------
Service cost $156 $-- $143 $-- $ 143 $ --
Interest cost 954 248 981 298 936 299
- --------------------------------------------------------------
Net periodic
postretirement
benefit cost $1,110 $248 $1,124 $298 $1,079 $299
- --------------------------------------------------------------
The following schedule reconciles the accumulated postretirement benefit
obligation included in the balance sheets as of December 31, 1999, 1998, and
1997 (in 000's):
1999 1998 1997
- -------------------------------------------------------------
Medical and Life Benefits
Benefit obligation at
beginning of year $18,376 $18,379 $18,543
Service cost 156 143 143
Interest cost 1,202 1,279 1,235
Plan participants'
contributions 749 644 557
Benefits paid (2,475) (1,954) (1,993)
Plan expenses (118) (115) (106)
- -------------------------------------------------------------
Benefit obligation at end
of year $17,890 $18,376 $18,379
- -------------------------------------------------------------
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:
1999 1998
- ------------------------------------------------------------
(In $000s) Medical Life Medical Life
- ------------------------------------------------------------
Retirees $13,421 $3,621 $13,573 $3,673
Fully eligible active
plan participants 792 --- 518 ---
Other active plan
participants 714 --- 279 ---
- ------------------------------------------------------------
Accumulated
postretirement
benefit obligation 14,927 3,621 14,370 3,673
Unrecognized net gain
(loss) (946) 288 20 313
- ------------------------------------------------------------
Accrued
postretirement $13,981 $3,909 $14,390 $3,986
benefit obligation
- ------------------------------------------------------------
The weighted-average discount rate is 7.5% and 7.0% for 1999 and 1998,
respectively. At December 31, 1999, a 7% annual rate of increase in the per
capita cost of covered medical benefits is assumed for 2000. The rate is to
decrease by 1% per year to 5.5% in 2002 and remain at that level thereafter. At
December 31, 1998, the weighted-average annual assumed rate of increase in the
per capita cost of covered medical benefits was 8% for 1999, and was assumed to
decrease to 7% in 2000, then decrease 1% per year to 5.5% in 2002 and
thereafter.
Assumed health care cost trends rates have a significant effect on the
amounts reported for the medical plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects (in 000's):
1% 1%
Increase Decrease
- ---------------------------------------------------------------
Effect on total of service and
interest rate components $98 $(70)
Effect on post retirement benefit
obligation 1,174 (814)
The Company has a retirement and savings plan for substantially all of its
employees. The plan has features of both a profit sharing plan and a voluntary
Thrift Plan qualified under Section 401(k) of the Internal Revenue Code. The
profit sharing component of the Plan allows for contributions to be made to the
Plan at the discretion of the Board of Directors. Contributions for this
component of the Plan were $4,581,000, $5,187,000, and $4,853,000 in 1999, 1998,
and 1997, respectively. The 401(k) component of the Plan allows employees to
contribute to the Plan and the Company will make a matching contribution of up
to 3% of the employees' 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 component of the Plan
were $2,602,000, $2,509,000, and $2,379,000 in 1999, 1998, and 1997,
respectively.
63
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
13. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
(In 000s) 1999 1998 1997
- --------------------------------------------------------------
Current:
Federal $24,316 $34,372 $34,595
State and local 3,149 1,280 418
- --------------------------------------------------------------
Total current 27,465 35,652 35,013
Deferred:
Federal (3,819) (3,981) 1,923
State and local (1,392) (331) (310)
- --------------------------------------------------------------
Total deferred (5,211) (4,312) 1,613
- --------------------------------------------------------------
Total tax provision $22,254 $31,340 $36,626
- --------------------------------------------------------------
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, 1999 and 1998 are as follows:
(In 000s) 1999 1998
- -------------------------------------------------------------
Insurance operations deferred tax
liabilities:
Deferred acquisition costs $68,722 $66,682
Policy liabilities 7,472 6,912
Market discount on investments 8,127 9,891
Tax over book partnership losses 1,312 1,325
Unrealized investment (losses)
gains recognized in equity (642) 14,402
Deferred and uncollected premiums 970 1,631
Software development costs 3,969 3,604
Non-insurance companies deferred
tax liabilities:
Book over tax basis in acquired
television station 19,466 12,665
Book over tax basis in investment
property transferred to 2,002 3,629
partnership
Tax over book depreciation 4,593 4,071
Tax over book amortization 2,636 3,057
Other 259 2,302
- -------------------------------------------------------------
Total deferred tax liabilities 118,886 130,171
- -------------------------------------------------------------
Insurance operations deferred tax assets:
Employee benefit accruals 5,752 6,000
Non-insurance companies deferred
tax assets:
Net operating loss carryover 2,695 358
Book over tax partnership losses 3,135 1,163
- -------------------------------------------------------------
Total deferred tax assets 11,582 7,521
- -------------------------------------------------------------
Net deferred tax liability $107,304 $122,650
- -------------------------------------------------------------
At December 31, 1999 and 1998, the Company had unrealized (losses)/gains from
securities classified as available for sale and equity securities of
$(12,046,000) and $47,538,000, respectively, for which a deferred tax (asset)
liability has been established.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
(In 000s) 1999 1998 1997
- --------------------------------------------------------------
Federal income tax rate 35% 35% 35%
Rate applied to pre-tax
income $23,388 $17,185 $39,052
Tax exempt interest and
dividends (587) (562) (1,036)
Sale of subsidiary --- 9,942 ---
State and local income
taxes 1,185 790 248
Other (1,732) 3,985 (1,638)
- --------------------------------------------------------------
Provision for income taxes $22,254 $31,340 $36,626
- --------------------------------------------------------------
As of December 31, 1999 the Company has operating loss carryforwards of
approximately $9,300,000. These were acquired by the Company through the
purchase of WWAY-TV in December, 1998. They will be utilized against future
non-life insurance earnings, but are limited to $1,600,000 per year. Income
taxes paid were approximately $18,376,000, $29,709,000, and $35,644,000 in 1999,
1998, and 1997, 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 $53,147,000 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, unless it exceeds certain limitations under
the Internal Revenue Code, or unless the income tax deferral status of the
account is modified by future tax legislation. 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
$18,601,000.
64
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations for each of the years ended December 31, 1999
and 1998, are as follows:
<TABLE>
<CAPTION>
Quarter Ended
- ----------------------------------------------------------------------------------------------------------------
1999 (In 000s except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $124,399 $141,752 $153,224 $136,665
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $3,462 $20,395 $26,798 $16,168
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $2,520 $13,067 $17,209 $11,773
- ----------------------------------------------------------------------------------------------------------------
Basic Earnings (loss) per common share $0.11 $0.68 $0.88 $0.60
- ----------------------------------------------------------------------------------------------------------------
Diluted Earnings (loss) per common share $0.11 $0.66 $0.86 $0.59
- ----------------------------------------------------------------------------------------------------------------
Quarter Ended
- ----------------------------------------------------------------------------------------------------------------
1998 (In 000s except per share amounts) March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------------------------------------------------------
Revenues $168,522 $138,639 $135,966 $141,137
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $11,353 $25,344 $16,939 $(4,535)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $(2,423) $16,268 $10,907 $(6,991)
- ----------------------------------------------------------------------------------------------------------------
Basic Earnings (loss) per common share $(0.15) $0.85 $0.56 $(0.42)
- ----------------------------------------------------------------------------------------------------------------
Diluted Earnings (loss) per common share $(0.15) $0.82 $0.55 $(0.42)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1999, Liberty settled an outstanding lawsuit that it
had brought against a software developer and implemented certain portions of
Liberty Life's "Agency 2000" (formerly known as "Agency of the Future") cost
reduction initiatives. The net impact of the litigation settlement and the
one-time Agency costs on income was an after-tax gain of $4.5 million.
In 1998, there was an after-tax loss of $18.9 million on the sale of Pierce
National Life Insurance Company booked in the first quarter. Included in this
after-tax amount was a pre-tax loss of $13.8 million and a tax provision of $5.1
million. Liberty's tax basis in Pierce National was less than the net
consideration received resulting in a taxable gain on the transaction and an
additional tax liability to the company. The sale of Pierce has also resulted in
lower revenues for the second, third, and fourth quarters.
Liberty undertook an analysis beginning in the third quarter of 1998 to
better redistribute resources into areas of the company that are growing and to
reduce costs where necessary. In addition, Liberty embarked on a re-engineering
of its Agency sales group in 1998. In the fourth quarter it launched "Agency of
the Future", a program designed to increase sales, lower lapses and slow agent
turnover.
Costs associated with the analysis and beginning implementation of the
resource reallocation were part of an after-tax accounting charge of $17.5
million taken during the fourth quarter of 1998. Other significant items
included in this charge were: expensing of previously capitalized cost of
projects that were no longer expected to be implemented and projects where
primary additional functionality was limited to compliance with year 2000;
additional deferred acquisition cost amortization on universal life products
from changes in interest rate assumptions; and a provision for additional taxes
related to certain universal life products.
15. STATUTORY RESULTS OF OPERATIONS
Statutory net income of the Insurance Group for each of the years ended
December 31, 1999, 1998, and 1997 was $17.8 million, $30.4 million, and $53.0
million, respectively.
16. ACQUISITIONS
During 1998, the Company completed the acquisition of three television
stations. In July, 1998, the Company completed the acquisition of WALB
television, a NBC affiliate, located in Albany, Georgia for $78.6 million. In
November 1998, the Company completed the acquisition of KGBT television, a CBS
affiliate, located in Harlingen, Texas for $42.9 million. In December 1998, the
Company completed the acquisition of WWAY television, an ABC affiliate, located
in Wilmington, North Carolina for $35.4 million. All of these acquisitions were
accounted for as purchases, and the results of operations included in the
accompanying consolidated financial statements since the date of acquisition.
The purchase of these stations was funded using proceeds from the Company's
credit facility.
65
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
17. 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.
o Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
o 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.
o 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.
o Other long-term investments: Other long-term investments consist
primarily of venture capital investments. 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 $19,248,000 and
$21,510,000 at December 31, 1999 and 1998, respectively.
o 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.
o 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.
o Other liabilities: Fair values on film contract obligations related to
the Company's broadcasting operations are estimated to approximate their
carrying value as a result of their short term nature.
o 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>
1999 1998
- ------------------------------------------------------------------------------------------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
(in 000s) AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturity securities available for sale $859,296 $859,296 $935,178 $935,178
Equity securities 81,290 81,290 63,658 63,658
Mortgage loans 230,497 221,409 215,549 216,665
Policy loans 91,964 91,209 90,653 88,380
Other long-term investments 20,680 20,680 21,256 21,256
Short-term investments and cash 14,995 14,995 16,883 16,883
Interest rate swap --- 2,796 --- 2,736
LIABILITIES
Investment-type insurance contracts 11,842 10,743 15,336 13,744
Notes, mortgages and other debt 235,300 235,300 285,000 285,000
</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.
66
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
18. SEGMENT INFORMATION
The Company operates primarily in the television broadcasting and life
insurance industries. In the life insurance industry the Company currently
markets products through Liberty Life Insurance Company and provides insurance
administrative services through Liberty Insurance Services Corporation ("LIS").
Prior to the sale of Pierce in April 1998, the Company also marketed pre-need
life insurance through Pierce. The Company has six reportable segments which are
defined based on the products and services provided.
The five reportable segments comprising the Insurance Operations are Agency,
LibertyDirect, Pre-need, Insurance Administration and Corporate and Other.
Television broadcasting is the sixth segment. Within insurance operations
Liberty Life's Agency division markets various life insurance products to
individuals including individual life, health and interest sensitive whole life
products. The LibertyDirect division of Liberty Life primarily markets term
life, accident and disability insurance designed to pay a residential mortgage
balance upon the death or disability of the insured. Subsequent to the sale of
Pierce, the Company is no longer active in the pre-need segment; however,
separate disclosure is included due to the significance of the segment in 1997.
The operations of LIS comprise the insurance administration segment. LIS
provides back office insurance administration services including underwriting,
policy issuance, accounting, customer service and claims processing to internal
and external insurance clients.
The Corporate and Other segment includes activities of the parent company
and minor subsidiaries, the operations of Liberty Life not part of either Agency
or LibertyDirect, and earnings on surplus of Liberty Life not allocated to the
reportable segments. Surplus is allocated to Agency and LibertyDirect based on a
formula intended to approximate the amount of capital necessary to support the
business in those segments.
The television broadcasting segment is comprised of the operations of Cosmos
Broadcasting ("Cosmos"). As of December 31, 1999 Cosmos owned and operated
eleven television stations, primarily in the southeast and midwest. Each of the
stations is affiliated with a major network, with six NBC affiliates, three ABC
affiliates, and two CBS affiliates.
The Company evaluates segment performance based on several factors. For
segments that are comprised of a separate company (LIS and Cosmos) the primary
factor is net income excluding unusual, non-operating items. For those segments
that are not separate companies performance in evaluated based on income before
income taxes excluding realized gains and losses and unusual, non-operating
items. The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intersegment
service revenues reported by the insurance administration segment are based upon
agreements between LIS and the affiliate purchasing the services. For the years
ended December 31, 1999 and 1998, income before income taxes for LIS included
approximately $1,645,000, and $640,000, respectively, earned from services
provided to affiliates. There were no significant intersegment profits in 1997.
Foreign assets are not material and for 1999 and 1998 substantially all of
the Company's revenue was derived from the United States. Pierce had Canadian
operations, and for 1997 revenues from Canada amount to less than 5% of
consolidated revenues.
The following tables summarize financial information by segment for the
periods ended December 31, 1999, 1998 and 1997, respectively. The adjustments
column reflects unallocated realized investment gains and losses, unallocated
income taxes, and unusual non-operating items.
67
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Liberty Pierce LIS Cosmos -
As of and for the year Liberty Life Pierce Insurance Total Television
ended December 31, Life Liberty National - Admin- Corporate Adjust- Insurance Broad- Elimin- Total
1999 Agency Direct Pre-need istration & Other ments Operations casting ations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Premiums and policy
fees $ 133,218 $116,016 $ 3,167 $ 252,401 $ 252,401
Net investment income 71,179 1,864 25,433 98,476 $(32) 98,444
Servicing fees $22,905 22,905 22,905
Broadcasting revenues $178,144 178,144
Other income 18,052 18,052 18,052
Intersegment revenues:
Servicing fees 38,688 38,688 (38,688)
Interest income 19,180 19,180 (19,180)
Realized investment
gains (losses) $(13,906) (13,906) (13,906)
------------------------------------------------------------------------------------------------------------
Total revenues 204,397 117,880 61,593 65,832 (13,906) 435,796 178,144 (57,900) 556,040
Policy benefits 98,868 22,848 10,025 131,741 131,741
Insurance commissions 12,833 61,654 206 74,693 74,693
Operating expenses 45,538 13,620 58,346 13,785 131,289 132,021 (38,720) 224,590
Amortization 31,467 10,472 1,169 43,108 43,108
expense(1)
Interest expense 16 14,987 15,003 19,262 (19,180) 15,085
------------------------------------------------------------------------------------------------------------
Total expenses 188,706 108,594 58,362 40,172 395,834 151,283 (57,900) 489,217
Income (loss) before
income taxes 15,691 9,286 3,231 25,660 (13,906) 39,962 26,861 66,823
Income tax expense
(benefit) 1,262 10,673 11,935 10,319 22,254
=================== ===================== ==========
Net income (loss) $1,969 $ 28,027 $16,542 $ 44,569
=================== ===================== ==========
Segment assets $1,418,891 $ 77,349 $ -0- $11,408 $522,017 $2,029,665 $323,259 $2,352,924
Expenditures for
property and
equipment (2) $1,110 $379 $1,489 $5,402 $6,891
</TABLE>
(1) For insurance segments amortization expense includes goodwill amortization,
amortization of deferred policy acquisition costs and cost of business
acquired, and depreciation of buildings and equipment. For the broadcasting
segment amortization expense includes the amortization of intangibles
related to television operations and depreciation of buildings and
equipment.
(2) Fixed assets are not allocated to segments that are not separate companies.
68
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Liberty Pierce LIS Cosmos -
As of and for the year Liberty Life Pierce Insurance Total Television
ended December 31, Life Liberty National - Admin- Corporate Adjust- Insurance Broad- Elimin- Total
1998 Agency Direct Pre-need istration & Other ments(3) Operations casting ations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Premiums and policy
fees $ 133,796 $119,483 $24,247 $ 7,405 $ 284,931 $ 284,931
Net investment
income 72,935 1,323 14,774 28,755 117,787 117,787
Other income 1,468 558 2,026 2,026
Servicing fees $18,217 18,217 18,217
Broadcasting
revenues $159,461 159,461
Intersegment
revenues:
Servicing fees 34,257 34,257 ($34,257)
Interest income 12,533 12,533 (12,533)
Realized investment
gains (losses) $1,842 1,842 1,842
--------------------------------------------------------------------------------------------------------------
Total revenues 208,199 121,364 39,021 52,474 48,693 1,842 471,593 159,461 (46,790) 584,264
Policy benefits 95,856 23,053 23,914 12,228 (390) 154,661 154,661
Insurance
commissions 14,391 62,462 2,249 557 79,659 79,659
Operating expenses 44,420 12,667 3,612 53,778 16,717 14,831 146,025 99,029 (34,257) 210,797
Amortization
expense(1) 31,160 7,366 3,126 2,531 6,835 51,018 11,009 62,027
Interest expense 14,208 14,208 12,533 (12,533) 14,208
Loss on sale of 13,811 13,811 13,811
subsidiary
--------------------------------------------------------------------------------------------------------------
Total expenses 185,827 105,548 32,901 53,778 46,241 35,087 459,382 122,571 (46,790) 535,163
Income (loss)
before income 22,372 15,816 6,120 (1,304) 2,452 (33,245) 12,211 36,890 49,101
taxes
Income tax expense
(benefit) 2,209 (509) 15,483 17,183 14,157 31,340
================= ===================== ==========
Net income (loss) $ 3,911 ($795) ($4,972) $22,733 $17,761
================= ===================== ==========
Segment assets $1,430,597 $ 88,140 $0 $4,640 $561,882 $2,085,259 $325,424 $2,410,683
Expenditures for
property and
equipment (2) $0 $1,717 $3,457 $5,174 $6,456 $11,630
</TABLE>
(1) For insurance segments amortization expense includes goodwill amortization,
amortization of deferred policy acquisition costs and cost of business
acquired, and depreciation of buildings and equipment. For the broadcasting
segment amortization expense includes the amortization of intangibles
related to television operations and depreciation of buildings and
equipment.
(2) Fixed assets are not allocated to segments that are not separate companies.
(3) Special charges of $17.5 million after tax were recognized in 1998 and are
included in the adjustments column along with unallocated realized gains and
losses.
69
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Liberty Pierce LIS Cosmos -
As of and for the year Liberty Life Pierce Insurance Total Television
ended December 31, Life Liberty National - Admin- Corporate Adjust- Insurance Broad- Elimin- Total
1997 Agency Direct Pre-need istration & Other ments Operations casting ations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Premiums and policy
fees $ 135,305 $102,995 $105,414 $ 6,978 $ 350,692 $ 350,692
Net investment
income 69,572 1,989 56,078 29,202 156,841 156,841
Other income 1,478 1,478 1,478
Servicing fees $7,121 7,121 7,121
Broadcasting
revenues $137,898 137,898
Intersegment
revenues:
Servicing fees
Interest income 8,348 8,348 ($8,348)
Realized investment
gains (losses) $6,226 6,226 6,226
----------- ---------- ---------- --------- ---------- -------- ----------- ---------- --------- -----------
Total revenues 206,355 104,984 161,492 7,121 44,528 6,226 530,706 137,898 (8,348) 660,256
Policy benefits 95,548 23,112 97,860 11,407 227,927 227,927
Insurance
commissions 14,696 53,668 9,907 668 78,939 78,939
Operating expenses 28,664 8,671 16,172 6,796 27,053 87,356 85,801 173,157
Amortization
expense(1) 27,872 5,681 10,513 1,498 45,564 9,883 55,447
Interest expense 13,209 13,209 8,348 (8,348) 13,209
----------- ---------- ---------- --------- ---------- -------- ----------- ---------- --------- -----------
Total expenses 166,780 91,132 134,452 6,796 53,835 452,995 104,032 (8,348) 548,679
Income (loss)
before income 39,575 13,852 27,040 325 (9,307) 6,226 77,711 33,866 111,577
taxes
Income tax expense 9,064 116 15,306 24,486 12,140 36,626
=================== ==================== =========
Net income $ 17,976 $209 $ 53,225 $21,726 $74,951
=================== ==================== =========
Segment assets $1,427,860 $ 61,313 $881,117 $5,868 $640,652 $3,016,810 $167,948 $3,184,758
Expenditures for
property and $--
equipment(2) $574 $3,680 $4,254 $5,752 $10,006
</TABLE>
(1) For insurance segments amortization expense includes goodwill amortization,
amortization of deferred policy acquisition costs and cost of business
acquired, and depreciation of buildings and equipment. For the broadcasting
segment amortization expense includes the amortization of intangibles
related to television operations and depreciation of buildings and
equipment.
(2) Fixed assets are not allocated to segments that are not separate companies.
70
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
THE LIBERTY CORPORATION AND SUBSIDIARIES
19. COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130 (SFAS 130), "Reporting Comprehensive Income," which required the Company to
reclassify, for financial reporting purposes only, certain amounts shown below
which were previously included as separate components in Shareholders' Equity,
and are now included in Accumulated other comprehensive income (loss) on the
Consolidated Balance Sheets. After making these balance sheet reclassifications,
the following amounts were included in accumulated other comprehensive income
(loss) at December 31, 1999 and December 31, 1998 (in 000's):
1999 1998
- -------------------------------------------------------------
Accumulated Other Comprehensive Income (loss)
Unrealized (losses) gains on
available for sale fixed
maturity and equity securities $ (1,191) $26,749
The components of other comprehensive income (loss) and the related tax effects,
for the years 1999, 1998, and 1997 are as follows (in 000's):
Income
Amount Tax Amount
Before (Expense) Net of
1999 Taxes Benefit Taxes
- -------------------------------------------------------------
Unrealized losses on
available for sale
securities $ (312) $ 110 $ (202)
Less:
reclassification
adjustment for
losses realized in (1,521) 532 (989)
net income
- -------------------------------------------------------------
Net unrealized losses $ (1,833) $ 642 $ (1,191)
- -------------------------------------------------------------
Total comprehensive
income (loss) $ (1,833) $ 642 $ (1,191)
- -------------------------------------------------------------
Income
Amount Tax Amount
Before (Expense) Net of
1998 Taxes Benefit Taxes
- -------------------------------------------------------------
Unrealized gains on
available for sale
securities $45,179 $(15,812) $29,367
Less:
reclassification
adjustment for gains
realized in net (4,028) 1,410 (2,618)
income
- -------------------------------------------------------------
Net unrealized gains $41,151 $(14,402) $26,749
- -------------------------------------------------------------
Total comprehensive
income $41,151 $(14,402) $26,749
- -------------------------------------------------------------
Income
Amount Tax Amount
Before (Expense) Net of
1997 Taxes Benefit Taxes
- -------------------------------------------------------------
Unrealized gains on
available for sale
securities $101,617 $(36,537) $65,080
Less:
reclassification
adjustment for gains
realized in net (5,484) 1,919 (3,565)
income
- -------------------------------------------------------------
Net unrealized gains $96,133 $(34,618) $61,515
Foreign currency
translation 515 (180) 335
- -------------------------------------------------------------
Total comprehensive
income $96,648 $(34,798) $61,850
- -------------------------------------------------------------
71
<PAGE> 38
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, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Greenville, South Carolina
February 1, 2000
72
<PAGE> 1
Exhibit 21
THE LIBERTY CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
DECEMBER 31, 1999
<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. 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. Cosmos Broadcasting Corporation S. C. 100
C. CableVantage Inc. S. C. 100
C. Broadcast Merchandising Corporation. S. C. 100
C. SuperCoups USA, 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 Capital Advisors, Inc. S. C. 100
D. Liberty Properties Group, Inc. 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
</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.
73
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Liberty Corporation of our report dated February 1, 2000, included in the
1999 Annual Report to Shareholders of The Liberty Corporation.
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 the Registration Statement
(Form S-8 No. 333-22591) pertaining to The Cosmos Broadcasting Corporation
Retirement and Savings Plan, in the Registration Statement (Form S-8 No.
333-22285) pertaining to The Liberty Corporation Retirement and Savings Plan,
and in the Registration Statement (Form S-8 No. 333-30151) pertaining to The
Performance Incentive Compensation Program of our report dated February 1, 2000
with respect to the consolidated financial statements and schedules of The
Liberty Corporation incorporated by reference in the annual report on Form 10-K
for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Greenville, South Carolina
March 17, 2000
74
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 859,296
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 81,290
<MORTGAGE> 230,497
<REAL-ESTATE> 25,692
<TOTAL-INVEST> 1,311,349
<CASH> 13,065
<RECOVER-REINSURE> 266,141
<DEFERRED-ACQUISITION> 270,116
<TOTAL-ASSETS> 2,352,924
<POLICY-LOSSES> 1,278,233
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 33,806
<POLICY-HOLDER-FUNDS> 24,969
<NOTES-PAYABLE> 235,300
0
15,031
<COMMON> 100,112
<OTHER-SE> 439,081
<TOTAL-LIABILITY-AND-EQUITY> 0
2,352,924
<INVESTMENT-INCOME> 98,441
<INVESTMENT-GAINS> (13,906)
<OTHER-INCOME> 201,049
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 131,741
<INCOME-PRETAX> 66,823
<INCOME-TAX> 22,254
<INCOME-CONTINUING> 44,569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,569
<EPS-BASIC> 2.29
<EPS-DILUTED> 2.24
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
