<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File Number 1-5846
THE LIBERTY CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0507055
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
Post Office Box 789, Wade Hampton Boulevard, Greenville, SC 29602
-----------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 864/609-8256
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date.
Number of shares Outstanding
Title of each class as of June 30, 2000
------------------- -------------------
Common Stock 19,513,613
Page 1 of 15 sequentially numbered pages.
The Exhibit Index is on Page 14.
<PAGE> 2
PART I, ITEM 1
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED AND CONDENSED BALANCE SHEETS
<TABLE>
(In 000's)
<CAPTION>
JUNE 30, December 31,
2000 1999
----------- ----------
ASSETS (Unaudited)
<S> <C> <C>
Investments:
Fixed Maturity Securities available for sale, at market, cost of $925,650
at 6/30/00 and $890,900 at 12/31/99 $ 901,917 $ 859,296
Equity Securities, at market, cost of $18,983 at 6/30/00 and $61,732 at 25,821 81,290
12/31/99
Mortgage Loans 235,319 230,497
Investment Real Estate 23,061 25,692
Loans to Policyholders 92,763 91,964
Other Long-Term Investments 20,788 20,680
Short-Term Investments 4,367 1,930
---------- ----------
Total Investments 1,304,036 1,311,349
Cash 2,035 13,065
Accrued Investment Income 14,305 13,592
Receivables 67,514 70,167
Receivable from Reinsurers 258,213 266,141
Deferred Acquisition Costs and Cost of Business Acquired 304,501 304,419
Buildings and Equipment 98,102 90,675
Intangibles Related to Television Operations 264,317 218,166
Goodwill Related to Insurance Acquisitions 21,422 21,904
Other Assets 46,287 43,446
---------- ----------
Total Assets $2,380,732 $2,352,924
========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities
Policy Liabilities $1,333,298 $1,337,008
Notes, Mortgages and Other Debt 274,300 235,300
Accrued Income Taxes 4,684 15,409
Deferred Income Taxes 108,968 107,304
Accounts Payable and Accrued Expenses 85,518 98,990
Other Liabilities 6,784 4,689
---------- ----------
Total Liabilities 1,813,552 1,798,700
---------- ----------
Shareholders' Equity
Common Stock 98,476 100,112
Series 1995-A Convertible Preferred Stock, $35.00 redemption value, shares
issued and outstanding - 417,350 shares at 6/30/00 and 429,485 at
12/31/99 14,761 15,031
Unearned Stock Compensation (8,420) (5,057)
Retained Earnings 467,695 445,329
Accumulated Other Comprehensive Income:
Unrealized Investment Losses (5,332) (1,191)
---------- ----------
Total Shareholders' Equity 567,180 554,224
---------- ----------
Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $2,380,732 $2,352,924
========== ==========
</TABLE>
See Notes to Consolidated and Condensed Financial Statements.
2
<PAGE> 3
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
(In 000's, except per share data) 2000 1999 2000 1999
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Insurance Premiums & Policy Charges $ 63,476 $ 63,314 $127,361 $127,367
Broadcasting Revenues 51,156 47,258 93,889 87,124
Net Investment Income 24,533 25,000 49,535 48,875
Service Contract Revenue 5,621 6,197 10,927 10,865
Other Income 811 2,789 3,214 3,273
Realized Investment Gains (Losses) 212 (650) 6,340 (8,994)
-------- -------- -------- --------
Total Revenues 145,809 143,908 291,266 268,510
-------- -------- -------- --------
EXPENSES
Policyholder Benefits 31,331 32,390 65,684 67,878
Insurance Commissions 18,377 18,938 37,760 37,497
General Insurance Expenses 16,367 19,260 32,984 37,270
Amortization of Deferred Acquisition Costs 9,631 10,687 18,408 21,064
Broadcasting Expenses 37,856 32,533 72,887 63,690
Interest Expense 4,432 3,570 8,390 7,497
Other Expenses 3,894 6,135 7,846 9,757
-------- -------- -------- --------
Total Expenses 121,888 123,513 243,959 244,653
-------- -------- -------- --------
Income Before Income Taxes 23,921 20,395 47,307 23,857
Income Tax Provision 8,531 7,328 16,520 8,270
-------- -------- -------- --------
NET INCOME $ 15,390 $ 13,067 $ 30,787 $ 15,587
======== ======== ======== ========
EARNINGS PER SHARE:
Basic earnings per common share $0.79 $0.68 $1.58 $0.79
Diluted earnings per common share $0.78 $0.66 $1.56 $0.78
Dividends Per Common Share $0.22 $0.22 $0.44 $0.44
</TABLE>
See Notes to Consolidated and Condensed Financial Statements.
3
<PAGE> 4
THE LIBERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
(In 000's) 2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 30,787 $ 15,587
Adjustments to reconcile net income to net cash provided
(used) in operating activities:
(Decrease) increase in policy liabilities (15,890) (11,415)
Increase (decrease) in accounts payable and accrued liabilities (12,395) (2,977)
(Increase) decrease in receivables 10,549 (5,688)
Amortization of policy acquisition costs 18,408 21,063
Policy acquisition costs deferred (20,258) (24,018)
Realized investment losses (gains) (6,340) 8,994
Gain on sale of operating assets (639) (405)
Depreciation and amortization 12,552 11,046
Amortization of bond premium and discount (1,871) (2,005)
Provision for deferred income taxes 4,179 (1,495)
All other operating activities, net (12,219) 3,287
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,863 11,974
INVESTMENT ACTIVITIES
Investment securities sold 276,653 41,458
Investment securities matured or redeemed by issuer 42,691 74,827
Cost of investment securities acquired - available for sale (300,539) (121,487)
Mortgage loans made (17,125) (17,124)
Mortgage loan repayments 10,539 11,073
Purchase of investment real estate, buildings and equipment (6,011) (7,779)
Sale of investment real estate, buildings and equipment 2,906 4,931
Purchase of television station (59,782) --
Purchase of short-term investments (29,652) (23,168)
Sales of short-term investments 27,215 22,434
All other investment activities, net (241) (714)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (53,346) (15,549)
FINANCING ACTIVITIES
Proceeds from borrowings 1,642,500 1,510,000
Principal payments on debt (1,603,500) (1,514,700)
Dividends paid (8,921) (9,109)
Stock issued for employee benefit and compensation programs 145 2,933
Redemption of preferred stock -- (306)
Repurchase of common stock (10,428) --
Return of policyholders' account balances (13,414) (13,511)
Receipts credited to policyholders' account balances 29,071 29,639
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 35,453 4,946
----------- -----------
(DECREASE) INCREASE IN CASH (11,030) 1,371
Cash at beginning of year 13,065 16,633
----------- -----------
CASH AT END OF PERIOD $ 2,035 $ 18,004
=========== ===========
</TABLE>
See Notes to Consolidated and Condensed Financial Statements.
4
<PAGE> 5
THE LIBERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated and condensed financial
statements of The Liberty Corporation and Subsidiaries have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
information included is not necessarily indicative of the annual
results that may be expected for the year ended December 31, 2000, but
it does reflect all adjustments (which are of a normal and recurring
nature) considered, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. For
further information, refer to the consolidated financial statements and
footnotes thereto included in The Liberty Corporation annual report on
Form 10-K for the year ended December 31, 1999.
2. PROPOSED SALE OF INSURANCE SUBSIDIARIES
On June 19, 2000, The Liberty Corporation ("Liberty") entered into a
Purchase Agreement (the "Purchase Agreement") with Royal Bank of Canada
("RBC"), a Canadian-chartered bank, pursuant to which RBC will acquire
from Liberty (the "Acquisition") all of the issued and outstanding
shares of capital stock of Liberty Life Insurance Company, Liberty
Insurance Services Corporation, The Liberty Marketing Services
Corporation, LC Insurance Ltd., and Liberty Capital Advisors, Inc.,
(the Company's insurance subsidiaries) for a total of $648.7 million,
consisting of a dividend from Liberty Life Insurance Company of up to
$70.0 million and the balance in cash from Royal Bank of Canada. In
connection with the Purchase Agreement, certain stockholders of
Liberty, representing in the aggregate approximately 19% of the
outstanding Liberty shares, executed voting agreements with RBC
pursuant to which such stockholders agreed to vote certain of their
Liberty shares in favor of the Acquisition. The consummation of the
Acquisition is subject to customary closing conditions, including
regulatory approvals and the approval of the stockholders of Liberty.
3. TELEVISION STATION ACQUISITION
On June 19, 2000, Liberty also announced it had signed a letter of
intent to acquire the outstanding stock of Jackson, Mississippi based
Civic Communications, under which Liberty will pay Civic's shareholders
$204 million in cash. Civic Communications is an owner-operator of
three network affiliated television stations in the central United
States. The Company intends to use the proceeds from the sale of its
insurance operations to fund the purchase of Civic Communications.
However, the transaction is not contingent upon the sale of the
insurance operations.
On February 29, 2000 the Company completed the acquisition of KCBD, the
NBC affiliate in Lubbock, TX in a cash transaction for $59.8 million.
The transaction was accounted for as a purchase, and accordingly, its
results of operations are included in the accompanying consolidated
financial statements since the date of acquisition. This purchase was
funded using proceeds from the Company's credit facility.
4. REDEMPTION OF 1995-A SERIES PREFERRED STOCK
On August 1, 2000 the Company's board of directors called for the
redemption of the Company's Series 1995-A Voting 5% Cumulative
Convertible Preferred Stock (the "1995-A preferred stock"). The
redemption date is September 5, 2000. Holders of shares that are
redeemed will receive $35.00 per share, plus accrued and unpaid
dividends of $.32 per share for the period from July 1, 2000 through
the redemption date. Alternatively, at any time up to 5:00 p.m. Eastern
time on August 29, 2000, holders of the 1995-A preferred stock may
convert their shares into Liberty common stock (and attached Rights) on
a share-for-share basis.
5
<PAGE> 6
5. REDEMPTION OF 1994-A and 1994-B SERIES 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.
5. COMPREHENSIVE INCOME
The components of comprehensive income, net of related income taxes,
for the three-month and six-month periods ended June 30, 2000 and 1999,
respectively, are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------
2000 1999 2000 1999
--------------------------------------
(In 000's)
Net Income $15,390 $13,067 $30,787 $ 15,587
Unrealized losses on
securities (3,474) (8,190) (4,141) (15,752)
--------------------------------------
Comprehensive income (loss) $11,916 $ 4,877 $26,646 $ (165)
======================================
6. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
(In 000's except per share data) Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
NUMERATOR - EARNINGS:
Net Income $15,390 $13,067 $30,787 $15,587
Preferred Dividends (180) (255) (365) (789)
------------------------------------------------------------
Numerator for basic earnings
per share 15,210 12,812 30,422 14,798
Effect of Dilutive Securities:
Redeemable Preferred Stock -- -- -- 272
Convertible Preferred Stock 180 255 365 517
------------------------------------------------------------
Numerator for diluted earnings
per share $15,390 $13,067 $30,787 $15,587
============================================================
DENOMINATOR - AVERAGE SHARES
OUTSTANDING:
Denominator for basic earnings
per share - weighted average
shares 19,186 18,806 19,198 18,684
Effect of Dilutive Securities:
Stock Options 48 184 93 178
Redeemable Preferred Stock -- 309 -- 421
Convertible Preferred Stock 417 591 420 595
------------------------------------------------------------
Denominator for diluted
earnings per share 19,651 19,890 19,711 19,878
============================================================
Basic Earnings Per Share $0.79 $0.68 $1.58 $0.79
Diluted Earnings Per Share $0.78 $0.66 $1.56 $0.78
</TABLE>
6
<PAGE> 7
7. SEGMENT REPORTING
The Company operates primarily in the television broadcasting and life
insurance industries. The Company currently has five reportable segments.
All segments except television broadcasting are included in Insurance
Operations. 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 is
evaluated based on income before income taxes excluding realized gains and
losses and unusual, non-operating items. See the Company's 1999 form 10K
for additional information on the types of operations for each of the
Company's segments.
The following tables summarize financial information by segment for the
three and six-month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
For the three Liberty LIS Cosmos -
months ended Liberty Life Insurance Adjust- Total Television
June 30, 2000 Life Liberty Admin- Corporate ments Insurance Broad- Elimin- Total
(in thousands) Agency Direct istration & Other (1) Operations casting ations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outside revenues $51,284 $30,551 $5,621 $6,985 $ 212 $94,653 $51,156 $145,809
Intersegment
revenues -- -- 8,484 5,667 -- 14,151 -- $(14,151) --
Segment profit
(loss) before
income taxes 8,494 1,534 1,655 4,709 212 16,604 7,317 23,921
Income tax
expense (benefit) 640 4,952 5,592 2,939 8,531
------ ------------------ --------
Segment net income $1,015 $11,012 $ 4,378 $ 15,390
====== ================== ========
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
For the three Liberty LIS Cosmos -
months ended Liberty Life Insurance Adjust- Total Television
June 30, 1999 Life Liberty Admin- Corporate ments Insurance Broad- Elimin- Total
(in thousands) Agency Direct istration & Other (1) Operations casting ations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outside revenues $50,670 $29,700 $6,197 $10,733 $(650) $96,650 $47,258 $143,908
Intersegment
revenues -- -- 9,402 4,839 -- 14,241 -- $(14,241) --
Segment profit
(loss) before
income taxes 4,072 2,539 532 4,305 (650) 10,798 9,597 20,395
Income tax
expense (benefit) 171 3,332 3,503 3,825 7,328
------ ------------------ --------
Segment net income $ 361 $ 7,295 $ 5,772 $ 13,067
====== ================== ========
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The adjustments column reflects unallocated realized investment gains and
losses, income taxes, and unusual, non-operating items.
7
<PAGE> 8
7. SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
For the six Liberty LIS Cosmos -
months ended Liberty Life Insurance Adjust- Total Television
June 30, 2000 Life Liberty Admin- Corporate ments Insurance Broad- Elimin- Total
(in thousands) Agency Direct istration & Other (1) Operations casting ations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outside revenues $101,866 $61,630 $10,929 $16,522 $ 6,430 $197,377 $93,889 $291,266
Intersegment
revenues -- -- 17,545 10,563 -- -- -- $(28,108) --
Segment profit
(loss) before
income taxes 12,300 3,967 3,269 11,582 6,430 37,548 9,759 47,307
Income tax
expense (benefit) 1,262 11,218 12,480 4,040 16,520
------- ------------------ --------
Segment net income $ 2,007 $ 25,068 $ 5,719 $ 30,787
======= ================== ========
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
For the six Liberty LIS Cosmos -
months ended Liberty Life Insurance Adjust- Total Television
June 30, 1999 Life Liberty Admin- Corporate ments Insurance Broad- Elimin- Total
(in thousands) Agency Direct istration & Other (1) Operations casting ations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outside revenues $102,117 $59,411 $10,865 $17,987 $(8,994) $181,386 $87,124 $268,510
Intersegment
revenues -- -- 19,014 10,139 29,153 -- $(29,153) --
Segment profit
(loss) before
income taxes 7,379 4,660 (581) 8,096 (8,994) 10,560 13,297 23,857
Income tax
expense (benefit) (214) 3,474 3,260 5,010 8,270
------- ------------------ --------
Segment net income $ (367) $ 7,300 $ 8,287 $ 15,587
======= ================== ========
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The adjustments column reflects unallocated realized investment gains and
losses, income taxes, and unusual, non-operating items
8. COMMITMENTS AND CONTINGENCIES
At June 30, 2000, the Company had made commitments as shown below:
(In 000's)
Investment real estate $ 1,755
Mortgage loans and fixed maturity securities 9,445
Other 2,049
---------
$13,249
=========
9. RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements to make the prior year amounts comparable to those
of the current year. Such reclassifications had no effect on previously
reported net income, total assets, or shareholders' equity.
8
<PAGE> 9
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Unaudited)
The Liberty Corporation is a holding company with operations in insurance and
broadcasting. Liberty ("the Company") markets its insurance products through
Liberty Life Insurance Company. Additionally, Liberty is one of the nation's
largest life insurance third-party administrators, providing administrative
services for approximately 3.7 million policies through Liberty Insurance
Services Corporation. The Company's broadcasting subsidiary, Cosmos
Broadcasting, consists of twelve network-affiliated stations in the Southeast
and Midwest. Seven stations are affiliated with NBC, three with ABC, and two
with CBS.
SIGNIFICANT TRANSACTIONS AFFECTING COMPARABILITY BETWEEN PERIODS
PROPOSED SALE OF INSURANCE SUBSIDIARIES
On June 19, 2000, The Liberty Corporation ("Liberty") entered into a Purchase
Agreement (the "Purchase Agreement") with Royal Bank of Canada ("RBC"), a
Canadian-chartered bank, pursuant to which RBC will acquire from Liberty (the
"Acquisition") all of the issued and outstanding shares of capital stock of
Liberty Life Insurance Company, Liberty Insurance Services Corporation, The
Liberty Marketing Services Corporation, LC Insurance Ltd., and Liberty Capital
Advisors, Inc., (the Company's insurance subsidiaries) for a total of $648.7
million, consisting of a dividend from Liberty Life Insurance Company of up to
$70.0 million and the balance in cash from Royal Bank of Canada. In connection
with the Purchase Agreement, certain stockholders of Liberty, representing in
the aggregate approximately 19% of the outstanding Liberty shares, executed
voting agreements with RBC pursuant to which such stockholders agreed to vote
certain of their Liberty shares in favor of the Acquisition. The consummation of
the Acquisition is subject to customary closing conditions, including regulatory
approvals and the approval of the stockholders of Liberty.
TELEVISION STATION ACQUISITIONS
On June 19, 2000, Liberty also announced it had signed a letter of intent to
acquire the outstanding stock of Jackson, Mississippi based Civic
Communications, under which Liberty will pay Civic's shareholders $204 million
in cash. Civic Communications is an owner-operator of three network affiliated
television stations in the central United States. The Company intends to use the
proceeds from the sale of its insurance operations to fund the purchase of Civic
Communications. However, the transaction is not contingent upon the sale of the
insurance operations.
On February 29, 2000 the Company completed the acquisition of KCBD, the NBC
affiliate in Lubbock, TX in a cash transaction for $59.8 million. The
transaction was accounted for as a purchase, and accordingly, its results of
operations are included in the accompanying consolidated financial statements
since the date of acquisition. This purchase was funded using proceeds from the
Company's credit facility.
REDEMPTION OF 1995-A SERIES PREFERRED STOCK
On August 1, 2000 the Company's board of directors called for the redemption of
the Company's Series 1995-A Voting 5% Cumulative Convertible Preferred Stock
(the "1995-A preferred stock"). The redemption date is September 5, 2000.
Holders of shares that are redeemed will receive $35.00 per share, plus accrued
and unpaid dividends of $.32 per share for the period from July 1, 2000 through
the redemption date. Alternatively, at any time up to 5:00 p.m. Eastern time on
August 29, 2000, holders of the 1995-A preferred stock may convert their shares
into Liberty common stock (and attached Rights) on a share-for-share basis.
REDEMPTION OF 1994-A AND 1994-B SERIES 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 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.
9
<PAGE> 10
RESULTS OF OPERATIONS
CONSOLIDATED
--------------------------------------------------------------------------------
THE LIBERTY CORPORATION CONSOLIDATED RESULTS
Second Quarter Year-to-date
-------------- ------------
2000 1999 2000 1999
-------- -------- -------- --------
Broadcasting revenues $ 51,156 $ 47,258 $ 93,889 $ 87,124
Insurance revenues 94,441 97,300 191,037 190,380
-------- -------- -------- --------
Total revenues (excluding realized
gains and losses) $145,597 $144,558 $284,926 $277,504
======== ======== ======== ========
Broadcasting operating earnings $ 4,378 $ 5,772 $ 5,720 $ 8,287
Insurance operating earnings 10,847 7,676 20,281 13,062
-------- -------- -------- --------
Total operating earnings 15,225 13,448 26,001 21,349
Net realized investment gains (losses) 165 (381) 4,786 (5,762)
-------- -------- -------- --------
Net income $ 15,390 $ 13,067 $ 30,787 $ 15,587
======== ======== ======== ========
--------------------------------------------------------------------------------
Liberty reported consolidated second quarter net income of $15.4 million
compared with net income of $13.1 million for the second quarter of 1999 (see
table above). Operating earnings (which exclude net realized investment gains
and losses) were $15.2 million, an increase of approximately 13% compared with
the $13.4 million reported in the comparable prior-year quarter. Net income
reflects after-tax realized investment gains of $0.2 million in the second
quarter of 2000 compared with losses of $0.4 million in the second quarter of
1999.
Year-to-date net income of $30.8 million was 98% higher than the net income of
$15.6 million reported for the comparable 1999 period (see table above).
Year-to-date operating earnings (which exclude net realized investment gains and
losses) were $26.0 million, an increase of approximately 22% compared with the
$21.3 million reported in the comparable prior-year period. Net income reflects
after-tax realized investment gains of $4.8 million in the first half of 2000
compared with losses of $5.8 million in 1999.
Second quarter 2000 consolidated revenues (excluding realized gains and losses)
increased $1.0 million compared with the second quarter of 1999. For the
quarter, insurance revenues decreased $2.9 as compared with those of the
prior-year quarter, while broadcasting revenues increased $3.9 million (8%).
Year-to-date insurance revenues were consistent with the prior year period,
while broadcasting revenues increased $6.8 million (8%).
BROADCASTING
--------------------------------------------------------------------------------
(In 000s) BROADCASTING OPERATIONS RESULTS
Second Quarter Year-to-date
-------------- ------------
2000 1999 2000 1999
------- ------- ------- -------
Gross broadcasting revenues $51,156 $47,259 $93,888 $87,124
Agency commissions 7,233 6,670 13,090 12,052
------- ------- ------- -------
Net broadcasting revenues 43,923 40,589 80,798 75,072
Operating expenses 26,050 21,926 50,931 43,779
Depreciation and amortization 4,910 4,167 9,546 8,223
Income before interest and taxes 12,963 14,496 20,321 23,070
Interest expense 5,646 4,898 10,562 9,769
------- ------- ------- -------
Income before income taxes 7,317 9,598 9,759 13,301
Income taxes 2,939 3,825 4,040 5,010
------- ------- ------- -------
Net income $4,378 $5,773 $5,719 $8,291
======= ====== ====== ======
--------------------------------------------------------------------------------
The broadcasting operations reported operating earnings for the second quarter
of 2000 of $4.4 million, down $1.4 million from the $5.8 million reported in the
prior-year second quarter. While net revenues increased $3.3 million for the
quarter, expenses increased $4.9 million. The increase in operating expense is
attributable to the KCBD acquisition in March of 2000 and the expansion of the
Company's cable advertising and direct mail coupon businesses, along with
increased personnel costs. The increase in depreciation and amortization expense
is attributable to the KCBD acquisition. Year-to-date operating earnings were
$2.6 million lower than the previous year six-month period for the same reasons
affecting the quarterly comparisons.
10
<PAGE> 11
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(In 000s) CASH FLOW AND RELATED INFORMATION
Second Quarter Year-to-date
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2000 1999 2000 1999
------- ------- ------- -------
Broadcast cash flow (1) $18,273 $18,680 $30,622 $31,148
Station cash flow (2) $19,058 $19,377 $32,327 $33,143
Broadcast cash flow margin (3) 42% 46% 38% 42%
Station cash flow margin (4) 43% 48% 40% 44%
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(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
(4) Station cash flow divided by net broadcasting revenue
Broadcast cash flow and broadcast cash flow margin were $18.3 million and 42%
respectively for the quarter, compared with $18.7 million and 46% from the
prior-year second quarter. Station cash flow and station cash flow margin were
$19.1 million and 43% respectively for the three months ended June 30, 2000 as
compared to $19.4 million and 48% for the prior-year quarter. The Company has
included broadcast cash flow and station cash flow data because management
believes that such data are commonly used as measures of performance among
companies in the broadcast industry. The Company also believes that these
measures are frequently used by investors, analysts, valuation firms, and
lenders as some of the important determinants of underlying asset value.
Broadcast cash flow and station cash flow should not be considered in isolation,
or as alternatives to operating income (as determined in accordance with
generally accepted accounting principles) as an indicator of the entity's
operating performance, or to cash flow from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity. These measures are believed to be, but may not be, comparable to
similarly titled measures used by other companies.
INSURANCE
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INSURANCE OPERATIONS RESULTS
Second Quarter Year-to-date
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2000 1999 2000 1999
------- ------- ------- -------
Liberty Life revenues $88,624 $88,088 $177,907 $176,972
Liberty Insurance Services revenues 5,621 6,197 10,927 10,865
Corporate and other revenues 196 3,015 2,203 2,543
------- ------- -------- --------
Total insurance operations revenues
(excluding realized gains
and losses) $94,441 $97,300 $191,037 $190,380
======= ======= ======== ========
Liberty Life operating earnings $ 9,828 $ 5,921 $ 16,718 $ 11,029
Liberty Insurance Services
operating earnings 1,015 1,523 2,007 1,895
Corporate and other operating
earnings 4 232 1,556 138
------- ------- -------- --------
Total insurance operations
operating earnings (excluding
realized gains and losses) $10,847 $ 7,676 $ 20,281 $ 13,062
======= ======= ======== ========
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Liberty Life operating earnings for the second quarter of 2000 increased $3.9
million compared with the second quarter of 1999 on a slight increase in
revenues and decreased expenses. The decrease in expenses was comprised mainly
of decreases in commissions, general insurance expenses, deferred acquisition
cost amortization, and taxes. The decrease in deferred acquisition cost
amortization is attributable to improved persistency, principally in the Agency
division. Year-to-date 2000 operating earnings for Liberty Life were up $5.7
million due to the same factors effecting the quarterly comparisons.
Liberty Insurance Services operating earnings declined $0.5 million as compared
to the second quarter. Year-to-date operating earnings for Liberty Insurance
Services were $2.0 million, compared to operating earnings of $1.9 million for
the first six months of 1999.
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INVESTMENTS
As of June 30, 2000, Liberty's consolidated investment portfolio was carried at
$1.3 billion. Approximately 67% of consolidated invested assets were in fixed
maturity securities (bonds and redeemable preferred stocks), 18% were in
mortgage loans, 7% in policy loans, with the balance consisting of equity
securities (2%), real estate (2%), and other term investments (4%).
The overall average investment rating of fixed maturity securities as of June
30, 2000 was A+. Less than investment grade securities comprised 5.1% of the
fixed maturity portfolio at June 30, 2000, compared with 4.5% at December 31,
1999.
In accordance with the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", the Company reported in its balance
sheet an unrealized loss of $5.3 million on fixed maturity securities available
for sale and equity securities at June 30, 2000. This compares with an
unrealized loss of $1.2 million at December 31, 1999. Due to the requirements of
SFAS No. 115, shareholders' equity will be subject to future volatility from the
effects of interest rate fluctuations on the fair value of fixed maturity
securities.
CAPITAL, FINANCING AND LIQUIDITY
At June 30, 2000 the Company's borrowings and notes payable amounted to $274.3
million, an increase of $39 million from the $235.3 million outstanding at
December 31, 1999.
Other Company commitments are shown in Note 5 contained in the accompanying
financial statements. Additional detail as to commitments and financing is
contained in the Notes to the Consolidated Financial Statements in the Company's
annual report on Form 10K for the year ended December 31, 1999.
Further discussion of investments and valuation is contained in Notes 1 and 2 to
the Consolidated Financial Statements in the Company's annual report on Form 10K
for the year ended December 31, 1999.
CASH FLOWS
The Company's net cash flow from operating activities was $6.9 million for the
first six months of 2000 compared to $12.0 million for the same period of 1999.
The Company's net cash used in investing activities was $53.3 million for the
six month period ended June 30, 2000, compared to $15.5 million for the same
period of 1999. Of the $53.3 million of net cash used in investing activities,
$59.8 million relates to the Company's purchase of KCBD-TV in March of 2000. Net
cash provided by financing activities for the six months ended June 30, 2000 was
$35.5 million compared to $4.9 million for the first six months of 1999.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs written to use two digits
rather than four to define the applicable year. Any computer programs or
hardware that have date sensitive software or embedded chips may 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.
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.
ACCOUNTING DEVELOPMENTS
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 is required to be adopted in years
beginning after June 15, 1999. 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
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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.
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. 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 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.
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PART II, ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) A list of the exhibits filed with this report is included in the Index
to Exhibits filed herewith.
(b) The Company filed a current report on Form 8-K dated June 30, 2000 with
respect to the announcement on June 19, 2000 that the Company had
entered into a purchase agreement with Royal Bank of Canada ("RBC"), a
Canadian-chartered bank, pursuant to which RBC will acquire from the
Company all of the issued and outstanding shares of capital stock of
Liberty Life Insurance Company, Liberty Insurance Services
Corporation, The Liberty Marketing Corporation, LC Insurance Ltd., and
Liberty Capital Advisors, Inc., for a total of $648.7 million,
consisting of a dividend from Liberty Life Insurance Company of up to
$70.0 million and the balance in cash from Royal Bank of Canada.
INDEX TO EXHIBITS
EXHIBIT 11 Consolidated Earnings Per Share Computation (included in Note
6 of Notes to Consolidated and Condensed Financial Statements)
EXHIBIT 27 Financial Data Schedule (Electronic Filing Only)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE LIBERTY CORPORATION Date: August 3, 2000
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(Registrant)
/s/ Kenneth W. Jones
--------------------
Kenneth W. Jones
Corporate Controller
/s/ Martha G. Williams
----------------------
Martha G. Williams
Vice President, General Counsel and Secretary
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