-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Tg0vVrB1gDSn89PfDJKFra52NeXObMdXJAGQJDpwun3dK9TKchFGOGu47Uqh8wL0 0EdtaCl4dHbsZn93OB0XSA== 0000950144-94-001481.txt : 19940822 0000950144-94-001481.hdr.sgml : 19940822 ACCESSION NUMBER: 0000950144-94-001481 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY CORP CENTRAL INDEX KEY: 0000059229 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 570507055 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05846 FILM NUMBER: 94543677 BUSINESS ADDRESS: STREET 1: P O BOX 789 STREET 2: WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032688283 MAIL ADDRESS: STREET 1: P.O. BOX 789 STREET 2: WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29602 10-Q 1 LIBERTY FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) [XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 --------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- --------------- Commission File Number 1-5846 -------- THE LIBERTY CORPORATION - - - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) South Carolina 57-0507055 - - - ---------------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Post Office Box 789, Wade Hampton Boulevard, Greenville, S. C. 29602 - - - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 268-8436 ---------------------------- NOT APPLICABLE - - - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date. Number of Shares Outstanding Title of each class as of June 30, 1994 - - - ------------------------- ---------------------------- Common Stock 19,796,207 Page 1 of 14 sequentially numbered pages. The Exhibit Index is on Page 12. 2 PART I, ITEM 1 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED BALANCE SHEETS (In thousands) (Unaudited)
June 30, December 31, ASSETS 1994 1993 ----------- ----------- Investments: Fixed Maturity Securities: Available for Sale, at market, cost of $859,458 at 6/30/94 $ 816,793 $ 0 Held to Maturity, at cost, market of $327,172 at 6/30/94 and $921,169 at 12/31/93 303,541 857,673 Nonredeemable Preferred Stocks, at market, cost of $46,473 at 6/30/94 and $44,359 at 12/31/93 48,314 48,123 Common Stocks, primarily at market, cost of $36,059 at 6/30/94 and $16,156 at 12/31/93 40,353 20,268 Mortgage Loans 194,921 165,784 Investment Properties 140,886 84,530 Loans to Policyholders 95,453 86,942 Other Long-Term Investments 90,537 82,826 Short-Term Investments 15,479 13,355 ----------- ----------- Total Investments 1,746,277 1,359,501 ----------- ----------- Cash 67,691 29,487 Accrued Investment Income 17,987 12,736 Receivables 43,895 46,648 Receivable from Reinsurers 251,409 245,210 Deferred Acquisition Costs 358,514 288,635 Buildings and Equipment 68,933 63,499 Intangibles Related to Television Operations 47,676 48,418 Goodwill Related to Insurance Acquisitions 35,751 27,683 Other Assets 63,798 65,216 ----------- ----------- 955,654 827,532 ----------- ----------- Total Assets $ 2,701,931 $ 2,187,033 =========== =========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Liabilities Policy Liabilities $ 1,723,827 $ 1,389,176 Notes, Mortgages and Other Debt 278,104 149,489 Accrued Income Taxes 8,353 12,054 Deferred Income Taxes 115,933 110,004 Accounts Payable and Accrued Expenses 70,122 61,932 Other Liabilities 28,143 30,533 ----------- ----------- Total Liabilities 2,224,482 1,753,188 ----------- ----------- Redeemable Preferred Stock 1994-A Series, $35.00 redemption value, 668,207 shares issued and outstanding 23,387 --- 1994-B Series, $37.50 redemption value, 598,656 shares issued and outstanding 22,450 --- Shareholders' Equity Common Stock 151,782 143,939 Unearned Stock Compensation (6,066) (4,475) Unrealized Investment Gains (Losses) (21,521) 5,177 Cumulative Foreign Currency Translation Adjustment (1,611) (1,529) Retained Earnings 309,028 290,733 ----------- ----------- Total Shareholders' Equity 431,612 433,845 ----------- ----------- Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $ 2,701,931 $ 2,187,033 =========== ===========
See Notes to Consolidated and Condensed Financial Statements. 2 3 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 1994 1993 1994 1993 -------- -------- -------- -------- REVENUES Insurance Premiums & Policy Charges $ 81,218 $ 64,363 $148,013 $123,912 Broadcasting Revenues 25,681 23,196 46,928 42,856 Net Investment Income 34,177 28,473 62,678 55,049 Service Contract Revenues 1,441 2,054 2,961 4,624 Realized Investment Gains 607 2,892 2,165 10,091 -------- -------- -------- -------- Total Revenues 143,124 120,978 262,745 236,532 -------- -------- -------- -------- EXPENSES Policyholder Benefits 58,246 42,738 105,988 80,572 Commissions 12,511 11,066 23,668 22,126 General Insurance Expenses 15,811 15,815 29,189 31,234 Amortization of Deferred Acquisition Costs 10,889 9,470 21,247 18,648 Broadcasting Expenses 17,502 16,256 33,681 31,741 Interest Expense 2,867 2,810 4,560 5,657 Other Expenses 2,955 2,363 5,934 4,911 -------- -------- -------- -------- Total Expenses 120,781 100,518 224,267 194,889 -------- -------- -------- -------- Income Before Income Taxes & Cumulative Effect of Accounting Changes 22,343 20,460 38,478 41,643 Provision for Income Taxes 7,743 7,179 13,305 14,348 -------- -------- -------- -------- Income Before Cumulative Effect of Accounting Changes 14,600 13,281 25,173 27,295 Cumulative Effect of Accounting Changes --- --- --- (11,940) -------- -------- -------- -------- NET INCOME $ 14,600 $ 13,281 $ 25,173 $ 15,355 ======== ======== ======== ======== EARNINGS PER SHARE: (Exhibit 11) $ .70 $ .68 $ 1.24 $ .79 ======== ======== ======== ======== Dividends Per Common Share $ .155 $ .14 $ .31 $ .28 ======== ======== ======== ======== Data on Provision for Income Taxes: Taxes Currently Payable - Federal $ 5,170 $ 5,739 $ 8,506 $ 11,536 - State 416 275 620 436 Taxes Deferred Primarily Due to GAAP Adjustments on Insurance Subsidiary - - Federal 2,157 1,165 4,179 2,376 - State --- --- --- --- -------- -------- -------- -------- $ 7,743 $ 7,179 $ 13,305 $ 14,348 ======== ======== ======== ========
Note: The provision for income taxes (current and deferred) is calculated on current period operations based on the annual tax rate. See Notes to Consolidated and Condensed Financial Statements. 3 4 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, --------------------------- 1994 1993 ---------- ---------- OPERATING ACTIVITIES Net income $ 25,173 $ 15,355 Adjustments to reconcile net income to net cash provided (used) in operating activities: Increase in policy liabilities 24,296 24,881 Increase (decrease) in accounts payable and accrued liabilities 996 (723) (Increase) decrease in receivables (468) 683 Amortization of policy acquisition costs 21,247 18,648 Policy acquisition costs deferred (30,607) (30,236) Realized investment (gains) losses (2,165) (10,091) Depreciation and amortization 6,815 6,889 Amortization of bond premium and discount (2,308) (2,227) Provision for deferred income taxes 4,179 2,376 All other operating activities, net (13,025) 11,723 ---------- ---------- NET CASH PROVIDED IN OPERATING ACTIVITIES 34,133 37,278 ---------- ---------- INVESTING ACTIVITIES Investment securities sold - available for sale 108,224 26,256 Investment securities matured or redeemed by issuer- available for sale 36,359 ---- Investment securities matured or redeemed by issuer- held to maturity 45,158 82,103 Cost of investment securities acquired - available for sale (218,384) (27,261) Cost of investment securities acquired - held to maturity ---- (168,964) Mortgage loans made (15,395) (8,181) Mortgage loan repayments 11,979 10,233 Purchase of investment properties, buildings and equipment (66,987) (10,168) Sale of investment properties, buildings and equipment 9,371 14,936 Purchases of short-term investments (366,730) (73,709) Sales of short-term investments 371,662 94,658 Net cash paid on purchases of insurance companies (53,686) ---- All other investment activities, net 1,627 (3,370) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (136,802) (63,467) ---------- ---------- FINANCING ACTIVITIES Proceeds from borrowings 1,140,218 960,650 Principal payments on debt (1,016,298) (954,249) Dividends paid (6,878) (5,395) Stock issued for employee benefit and compensation programs 2,141 3,759 Common stock offering ---- 8,543 Return of policyholders' account balances (14,112) (12,962) Receipts credited to policyholders' account balances 35,802 32,045 ---------- ---------- NET CASH PROVIDED IN FINANCING ACTIVITIES 140,873 32,391 ---------- ---------- INCREASE IN CASH 38,204 6,202 Cash at beginning of year 29,487 32,180 ---------- ---------- CASH AT END OF PERIOD $ 67,691 $ 38,382 ========== ==========
See Notes to Consolidated and Condensed Financial Statements. 4 5 THE LIBERTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS June 30, 1994 (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated and condensed financial statements of The Liberty Corporation and Subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information included is not necessarily indicative of the annual results that may be expected for the year ended December 31, 1994, but it does reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The financial statements include the accounts of the Company and all of its subsidiaries after elimination of all significant intercompany balances and transactions. 2. FINANCIAL ACCOUNTING STANDARDS STATEMENT NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES As a result of adopting FAS 115 on January 1, 1994, the opening balance of shareholders' equity was increased by $11.4 million related to unrealized gains, net of adjustments to deferred acquisition costs and deferred taxes, on the fixed income securities classified as available-for-sale previously carried at amortized cost or cost. There was no effect on net income as a result of the adoption of FAS 115. During the six month period following adoption, net unrealized losses of $38.1 million were reported, of which $36.8 million resulted directly from the implementation of FAS 115. This resulted in an unrealized loss balance of $21.5 million at June 30, 1994. This significant decrease reflects the impact of rising interest rates as well as the addition of the new 1994 acquisitions which provided approximately $8.6 million of net unrealized losses. On a consolidated basis, the Company initially classified approximately 66% of its bond portfolio as available-for-sale and 34% as held-to-maturity; and classified 100% of its redeemable preferred stocks as available for sale. In accordance with FAS 115, the Company did not restate prior period financial statements to reflect this change in accounting principle. For additional information on FAS 115, see the Company's 1994 First Quarter Form 10-Q. 3. REDEEMABLE PREFERRED STOCK On February 24, 1994, the Company issued 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a total redemption value of $22,449,600 or $37.50 per share in connection with the acquisition of American Funeral Assurance Company. Additionally, on April 1, 1994, the Company issued 668,207 shares of Series 1994-A Voting Cumulative Preferred Stock having a total redemption value of $23,387,245 or $35.00 per share in connection with the acquisition of State National Capital Corporation. The consolidated and condensed balance sheet at June 30, 1994 includes the issuance of both series under the caption "Redeemable Preferred Stock." For additional information see the Company's 1994 First Quarter Form 10-Q. 4. ACQUISITIONS (In 000's, except for per share data) North American National Corporation, American Funeral Assurance Company and State National Capital Corporation were acquired by the Company on February 23, February 24, and April 1, respectively. The following unaudited combined results of operations for the six months ended June 30, 1994 and 1993 give effect to these acquisitions as though they had occurred at the beginning of each period. 5 6 None of these acquisitions were individually material for financial reporting purposes and accordingly the following pro forma financial data reflects the effect of these acquisitions in the aggregate. Pro forma results are not necessarily indicative of the results that actually would have occurred had the Company owned these acquisitions during these periods or which will be obtained in the future.
Six Months Ended June 30, --------------------------- 1994 1993 -------- -------- Revenues $281,209 $295,169 ======== ======== Net Income Before Cumulative Effect of Accounting Changes $ 26,019 $ 29,111 ======== ======== Net Income $ 26,019 $ 17,171 ======== ======== Earnings Per Share: Net Income Before Cumulative Effect of Accounting Changes $ 1.24 $ 1.41 ======== ======== Net Income $ 1.24 $ 0.81 ======== ========
5. COMMITMENTS AND CONTINGENCIES At June 30, 1994, the Company had made commitments as shown below:
(In 000's) Buildings and equipment $10,262 Mortgage loans and bonds 20,826 Other --- ------- $31,088 =======
The Company is contingently liable for reinsurance ceded ($4.9 billion at June 30, 1994) should any reinsurer be unable to meet the obligations assumed. The Company is also contingently liable for $.6 million of debt incurred by Cosmos on an industrial development bond. 6. SUPPLEMENTAL INFORMATION ON INSURANCE OPERATIONS
Three Months Ended Six Months Ended June 30, June 30, ------------------- ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- (In millions) Increase in net insurance in force* $ 153 $ 16 $ 924 $ 240 ====== ======= ======= ======= Net insurance in force $16,358 $15,811 ======= =======
* Six months ended June 30, 1994 includes $1.3 billion related to the acquisitions of North American, American Funeral, and State National. 6 7 PART I, ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Unaudited) Operations Consolidated second quarter net income of $14.6 million increased 10% or $1.3 million from 1993's second quarter (see table below). The increase in net income was due to: (1) a $1.9 million increase in income before taxes; and (2) a $.6 million increase in income taxes. The increase in income before taxes was a function of increased earnings of $.7 million from the Insurance Group, increased earnings of $1.3 million from Broadcasting Operations coupled with an increased loss of $0.1 million in the Parent Company. Year-to-date net income before the cumulative effect of accounting changes was down $2.1 million from last year due to the decline in income before taxes. The decline was primarily due to lower earnings from the Insurance Group.
Second Quarter Year-to-Date -------------------------- -------------------------- 1994 1993 1994 1993 -------- -------- -------- -------- (000's) (000's) Income Before Income Taxes and the Cumulative Effect of Accounting Changes 22,343 20,460 38,478 41,643 Income Taxes 7,743 7,179 13,305 14,348 -------- -------- -------- -------- Income Before the Cumulative Effect of Accounting Changes $ 14,600 $ 13,281 $ 25,173 $ 27,295 Cumulative Effect of Accounting Changes --- --- --- (11,940) -------- -------- -------- -------- Net Income $ 14,600 $ 13,281 $ 25,173 $ 15,355 ======== ======== ======== ========
The 4% increase in the Insurance Group's second quarter income before taxes was primarily a function of a pretax earnings contribution from the 1994 acquisitions of $2.6 million, offset to a large degree by a continuation of high claims in the mortgage protection business and lower realized investment gains. The pre-need business provided a pretax earnings increase of $2.3 million -- approximately $1.7 million came from the acquisitions of North American National Corporation and American Funeral Assurance Company which closed in late February and the remainder from Pierce National. State National Corporation, a home service company acquired on April 1, 1994, provided a pretax earnings contribution of $.9 million. Additionally, the Insurance Group's earnings benefitted from improving lapse experience in the home service business. The decline in the Insurance Group's year-to-date pretax earnings reflects primarily lower realized investment gains of $6.3 million combined with negative claims experience in mortgage protection as well as in all of the key insurance lines in the first quarter. The 24% increase in pretax earnings from broadcasting operations was largely due to a substantial increase in political revenues coupled with strong national revenue growth. Year-to-date earnings, up 28%, reflect stronger local revenues and lower expense in the first quarter. 7 8 The increase in the parent company's before-tax loss was a result of higher general expenses which offset lower interest expense and strong real estate land and lot sales. The year-to-date before-tax loss in the parent company also reflects that last year include significant realized investment gains, primarily on the sale of shopping centers. The 18% increase in consolidated revenues for the quarter was largely due to the 1994 insurance acquisitions. Without the acquisitions, consolidated revenues were down 3%, primarily a function of the sale of the medicare business in late 1993, a decline in mortgage protection premiums and lower realized investment gains. The 26% growth in second quarter insurance premiums was largely due to additional premiums of $18.6 million from the Pre-need Group with the new acquisitions -- American Funeral and North American -- contributing an increase of $17.8 million and Pierce National contributing an incremental $.8 million. The home service acquisition -- State National -- provided additional premiums of $2.3 million. In Liberty Life premiums were down $4.1 million primarily due to: (1) the sale of its medicare supplement business in December of 1993, resulting in $3.1 million of lower premiums, and (2) lower premiums of $2.2 million in the mortgage protection line, reflecting a decline in its in force block due to high lapses. Year-to-date premiums were up 19% reflecting the impact of $27 million of additional premiums from the acquisitions. Excluding the acquisitions, premiums were down 2% due to the sale of medicare and lower mortgage protection premiums. The 20% increase in net investment income for the quarter was also due to the acquisitions. Without the acquisitions, net investment income was flat with last year due to reinvestment at lower market yields coupled with minimal asset growth in the Liberty Life investment portfolio. Year-to-date net investment income was up 14%, but flat compared to last year excluding the acquisitions. Revenues from service contracts, generated by Liberty Insurance Services which provides administrative services to other insurance companies for a fee, were down from last year for both the quarter and year-to-date due the loss of one of its key clients. Realized investment gains were down significantly from last year for both the quarter and year-to-date. Contributing factors to a significantly greater amount of investment gains last year include: (1) a high level of repayments on bonds and preferred stock due to early calls and redemptions, (2) planned sales of shopping centers in the parent company's real estate operation, and (3) gains taken on common stocks due to market prospects and timing. Broadcasting revenues for the quarter, up 11%, benefitted primarily from a $1.1 million increase in political revenues as well as continued strong national revenue growth of 8% in addition to first time cable revenues of $.6 million. Local revenues, however, were up only 1% largely reflecting the trade-off in advertising time for political advertising. The cable operation currently generates revenues from two sources: (1) third party sales of advertising time on cable by Cosmos sales representatives; and (2) advertising insertion, which allows Cosmos stations' advertisements to be inserted into other markets for advertising on cable. Year-to-date revenues, up 10%, reflect the impact of weaker second quarter local revenues. The 36% increase in policy benefits was primarily due to the new acquisitions; excluding the new acquisitions, policy benefits were down 1%. In terms of percent of premiums, the ratio of policy benefits was significantly greater than last year's second quarter at 69.2% versus 66.4% due primarily to a negative claims deviation in the mortgage protection business. Year-to-date policy benefits increased 32% reflecting the impact of acquisitions as well as negative claims experience. 8 9 Commissions for the Insurance Group increased 13% for the second quarter; without the new acquisitions, commissions were down 9% reflecting a lower premium base as well as improvement in home service commissions due to changes in agent subsidies. Year-to-date commissions were up 7%, but were down 8% excluding the acquisitions. General expenses for the Insurance Group were flat compared to last year's second quarter due largely to lower expenses in Liberty Life reflecting cost reduction efforts. The two new pre-need acquisitions added approximately $2.4 million to general expenses and the new home service acquisition added $.5 million. Year-to-date general insurance expenses were down 7% despite $3.3 million of additional general expenses attributed to the acquisitions; without the acquisitions, general expenses were down 17%. The 15% increase in amortization of deferred acquisition costs was also a function of the new acquisitions; excluding these acquisitions, amortization of deferred acquisition costs decreased 3% due to an overall improvement in home service lapses despite continued high lapses in the mortgage protection business. Year-to-date amortization of deferred acquisition costs was up 14%; without the acquisitions, amortization of deferred acquisition costs was up 3% reflecting an improving trend in home service lapses in the second quarter compared to the first quarter. Broadcasting expenses were up 8% for the quarter due to the additional expenses associated with its start-up venture with cable operators. Without the cable operation expenses, expenses were up 5% for the quarter. Year-to-date broadcasting expenses were up 6%. The increase for both the quarter and year-to-date in other expenses, which are associated with the parent company, largely reflects higher headquarters building expense. Investments As of June 30, 1994, approximately 61% of the Company's $1.7 billion consolidated invested assets were in bonds with an overall average credit rating of AA. Less than 5% of the bond portfolio was rated below investment grade. Approximately 53% of the Company's $1.1 billion bond portfolio at June 30, 1994 was comprised of mortgage-backed securities compared to 60% at December 31, 1993. Certain mortgage-backed securities are subject to significant prepayment risk due to the fact that in periods of declining interest rates mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of the lower current rates. As a result, holders of mortgage-backed securities may receive large prepayments on their investments which cannot be reinvested at interest rates comparable to the rates on the prepaid mortgages. Mortgage-backed pass-through securities and "sequential" CMO's, which comprised 22% of the book value of the Company's mortgage-backed securities at June 30, 1994 and at December 31, 1993, are sensitive to this prepayment risk. The remaining 78% of the Company's mortgage-backed investment portfolio of June 30, 1994 consisted of planned amortization class ("PAC") instruments compared to approximately the same percentage at December 31, 1993. These investments are designed to amortize in a more predictable manner by shifting the primary risk of prepayment of the underlying collateral to investors in other tranches of the CMO. Mortgage loans of $194.9 million comprised 11% of the consolidated investment portfolio at June 30, 1994. They are commercial mortgages with a loan to value ratio not exceeding 75% when made. Approximately 47% of these loans are concentrated in North and South Carolina; and 88% are in the states of North Carolina, South Carolina, Virginia, Tennessee, Florida, Georgia and Louisiana. 9 10 Mortgage loan delinquencies, defined as payments 60 or more days past due, have historically been low and were 2.10% at the end of the second quarter compared to 1.59% at the end of 1993 and to the latest industry rate of 4.54%. Due to the overall low delinquency rate, the Company has not deemed it necessary to establish a general loss reserve on the portfolio, but establishes impairments on specific assets at the time that losses are probable and can be reasonably estimated. Investment real estate at June 30, 1994 of $140.9 million comprised 8% of the consolidated investment portfolio compared to 6% at December 31, 1993. Four key property types made up approximately 90% of the Company's real estate investment assets: residential land development (34%), business parks (20%), business property rentals (23%) and shopping centers (13%). Of the Company's investment real estate, 76% is located in South Carolina and Florida; and 95% is located in South Carolina, Florida, Georgia, and North Carolina. Financial Position As a result of the first quarter acquisitions of North American and American Funeral and the second quarter acquisition of State National, the Company experienced significant changes in its June 30, 1994 balance sheet compared to its December 31, 1993 balance sheet. These acquisitions combined added $413.3 million to total assets, of which $318.3 million were in investments, and total liabilities of $320.7 million, of which $293.1 million were related to policy liabilities. As a result of adopting FAS 115, "Accounting for Certain Investments in Debt and Equity Securities" on January 1, 1994, a significant portion of fixed maturity securities were classified as available-for-sale and accordingly carried on the balance sheet at fair value. Prior to the adoption of FAS 115, the fixed income securities were carried at either amortized cost or cost and therefore no unrealized gain or loss was reflected on the balance sheet. The 1993 balance sheet has not been restated for this change in accounting principle as prescribed by FAS 115. At June 30, 1994, fixed income securities reported as available-for-sale had a gross unrealized loss of $42.7 million. Held-to-maturity securities, however, had an unrealized gain of $23.6 million which was not reflected in the balance sheet since these securities continue to be carried at cost. Although the initial adoption of FAS 115 resulted in an unrealized gain of $11.4 million on January 1, 1994, the decline in market value since that time resulted in a decrease in shareholders' equity of $36.8 million for the period ended June 30, 1994. Thus, the net impact of FAS 115 on shareholders' equity has been a decline of $25.4 million. Capital, Financing and Liquidity The Company's net cash flow from operating activities was $34.1 million for the first six months of 1994 compared to $37.3 million for the same period of 1993. The Company's net cash used in investing activities was $136.8 million, and cash flow provided from financing activities was $140.9 million. As a result of its activities, the Company generated a $38.2 million increase in cash compared to $6.2 million in the same period in 1993. The net cash used in investing activities was primarily related to net cash paid on the purchase of North American, American Funeral, State National, and certain real estate assets of SCANA Development Corporation. The net cash provided from financing activities was primarily from proceeds from borrowings net of principal payments on debt. The proceeds from borrowings were used to partially finance acquisitions and to repay an intercompany note. 10 11 At June 30, 1994, borrowings against the Company's revolving credit facility and lines of credit amounted to $266.5 million, an increase from $145.5 million outstanding at December 31, 1993. The increase was primarily a function of borrowings related to the insurance acquisitions -- North American of $51.9 million, American Funeral of $5.6 million and State National of $.9 million -- as well as the SCANA real estate acquisition of $42.8 million and the repayment of an intercompany note to Liberty Life. Liberty plans for Liberty Life to repay $22.9 million of the SCANA real estate assets owned by Liberty Life, currently carried as an intercompany note. The Company financed the $51.9 million purchase price of North American, which closed on February 23, 1994, entirely with proceeds borrowed under its revolving credit facility. Of the $28.1 million American Funeral purchase price, approximately $22.5 million was financed with a new class of redeemable, convertible preferred stock (1994-B Series) issued at the time of closing on February 24, 1994; and the remaining $5.6 million was financed from the Company's credit facility. The 1994-B Series preferred stock has a stated value of $37.50 per share and will pay an annual dividend of 5.6%. On April 1, 1994, the Company closed its acquisition of State National for $27.5 million which was financed through a combination of cash of $.9 million, Liberty Common Stock of 113,611 shares valued at $3.2 million and a new class of redeemable, convertible preferred stock (1994-A Series) valued at $23.4 million. The stated value of the 1994-A Series preferred stock is $35.00 per share with an annual dividend of 6%. Both the 1994-A Series and 1994-B Series preferred stock will be convertible into shares of the Company's common stock on a share for share basis. Both the 1994-A and 1994-B Series of preferred stock may be redeemed at the option of either the holder of the stock or by the Company beginning five years and one month after the effective dates of the acquisitions. The 1994-A Series and 1994-B Series preferred stock was only issued to State National and American Funeral shareholders, respectively, in connection with the acquisitions of each company and no additional shares of these Series were made available to the public. On May 5, 1994, the Company closed the residential portion of the acquisition of certain real estate assets of SCANA Development Corporation for approximately $13 million. On May 27, 1994, the Company closed the remaining $29.8 million of the total $42.8 million cash purchase price, consisting of rental properties, industrial parks and undeveloped land. Financing of the acquisition was initially completed through the Company's credit facility. However, the Company plans to use internal funds to repay a substantial portion of the purchase price prior to year-end. Other Company commitments are shown in Note 5 contained in the accompanying financial statements. Additional detail as to commitments and financing is contained in the Notes to the Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders. Further discussion of investments and valuation is contained in Notes 1 and 2 to the Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders. Accounting Developments Accounting developments are summarized in the Notes of the accompanying Financial Statements and are discussed in detail in the Management Discussion and Analysis in the Company's 1993 Annual Report to Shareholders and the Form 10-Q for the first quarter ended March 31, 1994. 11 12 PART II, ITEM 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of shareholders of the registrant was held on May 3, 1994. (b) The following five individuals were elected as directors to serve for three-year terms: Lawrence M. Gressette, Jr., Francis M. Hipp, W. Hayne Hipp, Buck Mickel, and J. Thurston Roach. Listed below are directors who continued their term of office after the meeting: Robert S. Small, John A. Warren, Edward E. Crutchfield, Jr., James F. Kane, James G. Lindley, William O. McCoy, John H. Mullin, III, Rufus C. Barkley, W. W. Johnson, William S. Lee, and Benjamin F. Payton. (c) Matters voted upon at the annual meeting are as follows:
WITHHELD/ BROKER FOR AGAINST ABSENTIONS NONVOTES TO ELECT AS DIRECTORS: LAWRENCE M. GRESSETTE, JR. 15,940,454 --- 63,514 --- FRANCIS M. HIPP 15,955,042 --- 48,926 --- W. HAYNE HIPP 15,955,042 --- 48,926 --- BUCK MICKEL 15,954,942 --- 49,026 --- J. THURSTON ROACH 15,943,830 --- 60,138 --- TO ELECT AS INDEPENDENT AUDITORS: ERNST & YOUNG 15,943,549 22,112 79,500 ---
(d) There were no settlements between the registrant and any other participants. PART II, ITEM 6. Exhibit and Reports on Form 8-K (a) A list of the exhibits filed with this report is included in the Index to Exhibits filed herewith. (b) The filing of Form 8-K was not required during the second quarter of 1994. INDEX TO EXHIBITS EXHIBIT 11 Consolidated Earnings Per Share Computation 12 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE LIBERTY CORPORATION Date: August 12, 1994 - - - ----------------------- (Registrant) /s/ H. Ray Eanes - - - ----------------------- H. Ray Eanes Senior Vice President & Chief Financial Officer /s/ William S. Kleckley - - - ------------------------ William S. Kleckley Vice President & Controller 13 EX-11 2 CONSOLIDATED EARNINGS 1 Exhibit 11 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED EARNINGS PER SHARE COMPUTATION (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 -------------------------- --------------------------- 1994 1993 1994 1993 ----------- ----------- ----------- ----------- PRIMARY SHARES - - - -------------- Common Shares Outstanding - End of Period 19,796,207 19,358,336 19,796,207 19,358,336 =========== =========== =========== =========== Weighted Average Common Shares 19,734,355 19,270,008 19,628,092 19,227,404 Common Stock Options Outstanding During Period (Weighted Average) 93,967 188,721 90,819 187,179 ----------- ----------- ----------- ----------- Total Primary Shares 19,828,322 19,458,729 19,718,911 19,414,583 =========== =========== =========== =========== Fully Diluted Shares - - - -------------------- Weighted Average Common Shares 19,734,355 19,270,008 19,628,092 19,227,404 Common Stock Options Outstanding During 103,755 176,913 95,797 190,761 Period (Weighted Average) Weighted Average Redeemable Preferred Shares* 1,266,863 --- 753,163 --- ----------- ----------- ---------- ---------- Total Fully Diluted Shares 21,104,973 19,446,921 20,477,052 19,418,165 =========== =========== ========== ========== NET INCOME - - - ---------- Earnings $14,600,000 $13,281,000 $25,173,000 $15,355,000 =========== =========== =========== =========== Primary Earnings per Common Share $ .70 $ .68 $ 1.24 $ .79 (Earnings/Total Primary Shares) =========== =========== =========== =========== Fully Diluted Earnings per Common $ .69 $ .68 $ 1.23 $ .79 Share (Earnings/Total Fully Diluted =========== =========== =========== =========== Shares)
*The preferred stock 1994-A and 1994-B series is not considered a common stock equivalent for purposes of the primary earnings per share computation. 14 -----END PRIVACY-ENHANCED MESSAGE-----