-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W1f2s2U9+fk8ZV7cB3KBSqgltQ4PDJrgGdl4l+YTv9Qh5Lq2BlF7CHc4Zv6gsQA9 6G/rRGlF2G+4lu3c2lHtjw== 0000950144-01-004108.txt : 20010329 0000950144-01-004108.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950144-01-004108 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY CORP CENTRAL INDEX KEY: 0000059229 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 570507055 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05846 FILM NUMBER: 1582032 BUSINESS ADDRESS: STREET 1: 2000 WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29615 BUSINESS PHONE: 8646098256 MAIL ADDRESS: STREET 1: P O BOX 789 STREET 2: WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29602 10-K405 1 g67979e10-k405.txt THE LIBERTY CORPORATION 1 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, 2000 ----------------- 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 502, Wade Hampton Boulevard, Greenville, S. C. 29602 - -------------------------------------------------------------------------------- (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:
Name of Each Exchange on Which Title of Each Class Registered - ---------------------------------------------------------------------------- ---------------------------------- Common Stock, no par value per share New York Stock Exchange Rights to Purchase Series A Participating Cumulative Preferred Stock New York Stock Exchange
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, 2001: Common Stock, No Par Value $491,526,040 -------------------------- ------------ The number of shares outstanding of each of Registrant's classes of common stock as of March 15, 2001: Common Stock, No Par Value 19,734,662 -------------------------- ---------- DOCUMENTS INCORPORATED BY REFERENCE Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 2000 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 8, 2001 are incorporated into Part III, Items 10, 11, 12, and 13 by reference. This report is comprised of pages 1 through 42. The exhibit index is on page 17. 2 PART I ITEM 1. BUSINESS GENERAL The Registrant, The Liberty Corporation ("Liberty" or "the Company") is a holding company with operations primarily in the television broadcasting industry. The Company's television broadcasting subsidiary, Cosmos Broadcasting, consists of fifteen network-affiliated stations located in the Southeast and Midwest, a cable advertising company, a video production company and a professional broadcast equipment dealership. Eight of the Company's television stations are affiliated with NBC, five with ABC, and two with CBS. The Company's principal executive offices are in Greenville, South Carolina. Prior to September 29, 2000 the Company was also engaged in the insurance industry. On September 29, 2000 the Company's shareholders approved the sale of the Company's insurance operations to the Royal Bank of Canada for $648 million. The sale closed on November 1, 2000. Accordingly, these entities have been treated as discontinued operations in the accompanying financial statements. Additional information concerning Liberty's subsidiaries and divisions is included in "Management's Discussion and Analysis" in the Company's 2000 Annual Report to Shareholders, which is incorporated herein by reference. RECENT DEVELOPMENTS 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. This purchase was funded using proceeds from the Company's credit facility. On June 19, 2000, the Company entered into a purchase agreement with Royal Bank of Canada ("RBC"), a Canadian-chartered bank, pursuant to which RBC was to acquire from the Company all of the issued and outstanding shares of capital stock of the companies comprising its insurance operations, for a total of approximately $648 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. On September 29, 2000 the Company's shareholders approved the purchase agreement, and on November 1, 2000 the Company completed the sale to RBC. Accordingly, these entities have been treated as discontinued operations in the financial statements filed as Exhibit 13 of this report. On November 1, 2000, using proceeds from the sale of its insurance operations, the Company repaid its revolving credit facility in full. On December 1, 2000 the Company, completed its acquisition of Civic Communications. The agreed upon purchase price for all of the outstanding common stock of Civic Communications was $204 million. The Company used proceeds from the sale of its insurance operations to fund the transaction. Civic Communications owned and operated WLBT-TV, the NBC affiliate in Jackson, MS, KLTV-TV, the ABC affiliate in Tyler, TX, and KTRE-TV, the satellite affiliate of KLTV in Lufkin, TX. On August 25, 2000 the Company completed the redemption of all of the outstanding shares of its Series 1995-A Cumulative Convertible Preferred Stock. Shares were called for redemption at $35.00 per share plus accrued dividends for the period from July 1, 2000 through the Series 1995-A redemption date (September 5, 2000). Prior to the redemption date, all shares of the 1995-A Series were converted into common stock. 2 3 TELEVISION BROADCASTING AND RELATED OPERATIONS The following table shows data on the stations owned by us as of December 31, 2000:
- ---------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------- Louisville, KY WAVE-TV 48 3 NBC 2004 2 0.58% 1948 1981 Toledo, OH WTOL-TV 67 11 CBS 2003 1 0.41 1958 1965 Columbia, SC WIS-TV 86 10 NBC 2004 1 0.32 1953 1953 Jackson, MS WLBT-TV 89 3 NBC 2001 1 0.30 1953 2000 Evansville, IN WFIE-TV 98 14 NBC 2004 1 0.28 1953 1981 Harlingen, TX KGBT-TV 102 4 CBS 2003 3 0.25 1955 1998 Tyler, TX KLTV-TV 108 7 ABC 2002 1 0.24 1954 2000 Lufkin, TX (satellite of KLTV) KTRE-TV 108 9 ABC 2002 1 0.24 1955 2000 Montgomery, AL WSFA-TV 117 12 NBC 2004 1 0.23 1959 1959 Lubbock, TX KCBD-TV 146 11 NBC 2006 1 0.15 1953 2000 Albany, GA WALB-TV 149 10 NBC 2002 1 0.14 1954 1998 Wilmington, NC WWAY-TV 151 3 ABC 2005 2 0.14 1964 1998 Biloxi, MS WLOX-TV 158 13 ABC 2004 1 0.12 1962 1995 Lake Charles, LA KPLC-TV 173 7 NBC 2004 1 0.08 1954 1986 Jonesboro, AK KAIT-TV 178 8 ABC 2004 1 0.08 1963 1986
(1) Market rank is based on the relative size of the designated market areas among the 210 generally recognized designated market areas in the U.S., based on Nielsen estimates for the 1999-2000 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 2000 ratings (from sign-on to sign-off). (4) Based on Nielsen estimates for the 1999-2000 season. The Company currently owns and operates fifteen network-affiliated television stations in the Southeast and Midwest, fourteen of which were ranked No. 1 or No. 2 in their markets by the November 2000 Nielsen ratings from sign-on to sign-off. Eight of its stations are affiliated with NBC, five with ABC, and two with CBS. The fifteen stations cover approximately 3.30% of U.S. households. All of the Company's stations are located in geographically diverse and growing markets. Fourteen of the fifteen 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. The fifteen stations operate in designated market areas ranked 48 to 179. None of the TV markets represented more than 15% of the revenues or 14% of broadcast cash flow for the fiscal year ending December 31, 2000. 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 thirteen of the fifteen 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., through which it represents seventeen independent cable operators that, in combination, reach nearly one half million subscribers. 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 3 4 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. The Company is currently negotiating its network affiliation contracts. At this time it is not known what the exact outcome of these negotiations will be, however the Company does expect a reduction, to be implemented over a period of years, in the amount of network compensation that it is to receive from NBC. In 1998 the Company signed an agreement whereby the compensation that it was to receive for its two CBS stations was to be reduced over a four-year period. The Company is in the third year of this agreement. SOURCES OF TELEVISION OPERATING REVENUES. The following table shows the approximate percentage of Cosmos' gross television station revenues by source for the three years ended December 31, 2000: - ------------------------------------------------------------------------ 2000 1999 1998 Local and regional advertising 56% 57% 55% National spot advertising 29 31 28 Network compensation 5 7 7 Political advertising 8 3 8 Other 2 2 2 - ------------------------------------------------------------------------ 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 a 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, especially in local news ratings, 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. 4 5 The Company also has ancillary operations in cable advertising sales and video production. Revenues from these operations amount to $12.5 million, $10.0 million and $7.5 million for calendar years 2000, 1999 and 1998, 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 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. However, Congress has approved two six-month extensions if a station is able to show "cause", effectively postponing the deadline to May 1, 2003. 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. 5 6 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 two to three years for towers, antenna systems, transmitters, and transmitter buildings. This investment will establish basic digital television pass through at our fifteen stations, including simulcasting existing analog programming. It is anticipated that an additional $13 million above normal recurring capital expenditures will be spent over the next five years to enable the existing fifteen 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 the Company. 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. 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 6 7 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 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 the Company violates any of these ownership rules or if a proposed acquisition by the Company would cause such a violation, the Company 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 7 8 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. Cable operators are not currently required to carry both a station's analog and digital signal at the same time. However, it is anticipated that the Company will be able to negotiate the retransmission of both its analog and digital signals with the cable television systems in its markets. 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 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. 8 9 OTHER BUSINESS In addition to the operating subsidiaries, the Company has other minor organizations. These include the Company's administrative staff, 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 21-22 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on page 37 of this report and is incorporated in this Item 1 by reference. EMPLOYEES At December 31, 2000 the Company had approximately 1,500 employees. 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 61 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 HOWARD L. SCHROTT, Age 46 Chief Financial Officer of Liberty since January, 2001 Chief Financial Officer of Wink Communications Inc., a provider of complete end-to-end systems for low-cost electronic commerce on television, from May, 1999 to December, 2000 Chief Financial Officer of Emmis Communications Corporation, a diversified media company, from 1991, to May, 1999 JAMES M. KEELOR, Age 58 President of Cosmos since February, 1992 Vice President, Operations, of Cosmos from December, 1989 to February, 1992 MARTHA G. WILLIAMS, Age 58 Vice President, General Counsel & Secretary of Liberty since January, 1982 Secretary and Counsel of Cosmos since February, 1982 ITEM 2. PROPERTIES The main office of the Company is located at 2000 Wade Hampton Blvd, Greenville, SC. The Company is currently leasing this space from Liberty Life, its former subsidiary, through a lease agreement entered into at the time of the sale of the Company's insurance operations to the Royal Bank of Canada. The Company has entered into a lease agreement for similar office space in a commercial building in Greenville, SC. It is anticipated that the Company will move to this new office space during 2001. The Company 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, Wilmington, NC; Jackson MS; Tyler, TX; and Lufkin, TX. 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. 9 10 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 18 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 24 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on page 19 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 25-29 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on pages 20-23 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 page 29 of The Liberty Corporation Annual Report to Shareholders and is included in Exhibit 13 on page 23 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 7-23 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on pages 24-39 of this report and are incorporated in this Item 8 by reference. Quarterly Results of Operations are contained on page 19 of The Liberty Corporation Annual Report to Shareholders and is included in Exhibit 13 on page 35 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. 10 11 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 8, 2001 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 9 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 8, 2001 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 8, 2001 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 8, 2001 Annual Meeting of Shareholders and is incorporated in this Item 13 by reference. 11 12 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, 2000, filed as Exhibit 13 to this report and incorporated in Item 8 by reference: Consolidated Balance Sheets - December 31, 2000 and 1999 Consolidated Statements of Income - For the three years ended December 31, 2000 Consolidated Statements of Shareholders' Equity - For the three years ended December 31, 2000 Consolidated Statements of Cash Flows - For the three years ended December 31, 2000 Notes to Consolidated Financial Statements - December 31, 2000 Report of Independent Auditors The following consolidated financial statement schedules of The Liberty Corporation and Subsidiaries are included in Item 14(d): II - 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. (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, and the Registrant's Form 8-A, dated October 12, 2000 amending the Form of Rights Agreement to, among other things, extend the expiration date to August 7, 2010, also incorporated herein by reference. 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 February 1, 2000, filed as Exhibit 10.2 to the Registrant's Form 10-Q for the quarter ended March 31, 2000, and incorporated herein by reference. 12 13 11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation (incorporated herein by reference to Note 13 of the "Notes to Consolidated Financial Statements" on page 20 of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 2000) filed on page 36 of this report. 13. Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 2000: 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 Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Information: Consolidated Balance Sheets - December 31, 2000 and 1999 Consolidated Statements of Income - For the three years ended December 31, 2000 Consolidated Statements of Shareholders' Equity - For the three years ended December 31, 2000 Consolidated Statements of Cash Flows - For the three years ended December 31, 2000 Notes to Consolidated Financial Statements - December 31, 2000 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 1998, 1999 and 2000. (b). REPORTS ON FORM 8-K The Company filed a current report on Form 8-K dated November 1, 2000 with respect to the press release announcing it completing the sale of its wholly-owned insurance subsidiaries, Liberty Life Insurance Company, Liberty Insurance Services Corporation, The Liberty Marketing Corporation, LC Insurance Limited and Liberty Capital Advisors, Inc., to the Royal Bank of Canada. The Company filed a current report on Form 8-K dated November 7, 2000 with respect to the press release announcing its third quarter 2000 operating results. The Company filed a current report on Form 8-K dated November 7, 2000 with respect to The Liberty Corp. declaring a regular quarterly dividend of 22 cents per share on its common stock, payable on January 3, 2001 to shareholders of record on December 15, 2000. The Company filed a current report on Form 8-K dated November 14, 2000 with respect to the sale of its wholly-owned insurance subsidiaries to the Royal Bank of Canada, and the accompanying pro forma financial statements. The Company filed a current report on Form 8-K dated December 4, 2000 with respect to the press release announcing the completion of its acquisition of Civic Communications for $204 million. The Company filed a current report on Form 8-K dated December 15, 2000 with respect to the announcement of the appointment of Howard L. Schrott to the position of Chief Financial Officer. 13 14 The Company filed a current report on Form 8-K dated December 18, 2000 with respect to the completion of its acquisition of Civic Communications for $204 million. The following financial statements were filed in connection with that current report on Form 8-K: (1) Civic Communications Corporation II Consolidated Financial Statements For the Year Ended December 31, 1999 And Report of Independent Auditors. (2) Unaudited Condensed Consolidated Financial Statements of Civic Communications Corporation II for the Nine Months Ended September 30, 2000. (c). EXHIBITS FILED WITH THIS REPORT 11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation (incorporated herein by reference to Note 13 of the "Notes to Consolidated Financial Statements" on page 20 of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 2000) filed on page 36 of this report. 13. Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 2000: 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 Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Information: Consolidated Balance Sheets - December 31, 2000 and 1999 Consolidated Statements of Income - For the three years ended December 31, 2000 Consolidated Statements of Shareholders' Equity - For the three years ended December 31, 2000 Consolidated Statements of Cash Flows - For the three years ended December 31, 2000 Notes to Consolidated Financial Statements - December 31, 2000 Report of Independent Auditors 21. The Liberty Corporation and Subsidiaries, List of Subsidiaries 23. Consent of Independent Auditors 24. Power of Attorney for signature of Frank E. Melton, member of the Board of Directors, in Registrant's 10-K filed for the year ended December 31, 2000. (d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES FILED WITH THIS REPORT II- Valuation and Qualifying Accounts and Reserves - For the Three Years Ended December 31, 2000 14 15 Schedule II THE LIBERTY CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (In 000's)
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 - ---------------------------- ---------- ---------- ---------- ---------- ---------- Year Ended December 31, 2000 Accounts receivable - reserve for bad debts $1,319 $1,255 $ -- $ 356(a) $2,218 ------ ------ ------ --------- ------ Year Ended December 31, 1999 Accounts receivable - reserve for bad debts $1,163 $ 573 $ -- $ 417(a) $1,319 ------ ------ ------ --------- ------ Year Ended December 31, 1998 444(a) Accounts receivable - 2(b) reserve for bad debts $1,441 $ 837 $ 10 $ 679(c) $1,163 ------ ------ ------ --------- ------
Notes: (a) Uncollectible accounts written off, net of recoveries. (b) Reversal of reserves no longer required (c) Sale of subsidiary 15 16 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 26th day of March, 2001. 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 26th day of March, 2001. By: /s/ Howard L. Schrott *By: /s/ John H. Mullin III ---------------------- ---------------------- Howard L. Schrott John H. Mullin III Chief Financial Officer Director *By: /s/ Edward E. Crutchfield *By: /s/ Benjamin F. Payton ------------------------- ---------------------- Edward E. Crutchfield Benjamin F. Payton Director Director *By: /s/ John R. Farmer *By: /s/ J. Thurston Roach ------------------ --------------------- John R. Farmer J. Thurston Roach Director Director By: /s/ Hayne Hipp *By: /s/ Eugene E. Stone, IV -------------- ----------------------- Hayne Hipp Eugene E. Stone, IV Director Director *By: /s/ W. W. Johnson *By: /s/ William B. Timmerman ----------------- ------------------------ W. W. Johnson William B. Timmerman Director Director *By: /s/ William O. McCoy *By: /s/ Martha G. Williams -------------------- ---------------------- William O. McCoy *Martha G. Williams, as Director Special Attorney in Fact *By: /s/ Frank E. Melton ------------------- Frank E. Melton Director 16 17 Annual Report on Form 10-K The Liberty Corporation December 31, 2000 Index to Exhibits
PAGE EXHIBITS NUMBER 11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation (incorporated herein by reference to Note 13 of the "Notes to Consolidated Financial Statements" on page 20 of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 2000). 36 13. Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 2000: Market for the Registrant's Common Stock and Related Security Stockholder Matters 18 Selected Financial Data 19 Management's Discussion and Analysis of Financial Condition and Results of Operations 20-23 Quantitative and Qualitative Disclosures About Market Risk 23 Financial Statements and Supplementary Information: Consolidated Balance Sheets - December 31, 2000 and 1999 24 Consolidated Statements of Income - For the three years ended December 31, 2000 25 Consolidated Shareholders' Equity - For the three years ended December 31, 2000 26 Consolidated Statements of Cash Flows - For the three years ended December 31, 27 2000 Notes to Consolidated Financial Statements - December 31, 2000 28-38 Report of Independent Auditors 39 21. The Liberty Corporation and Subsidiaries, List of Significant Subsidiaries 40 23. Consent of Independent Auditors 41
17 EX-13 2 g67979ex13.txt PORTIONS OF THE 2000 ANNUAL REPORT 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, 2000, 1,044 shareholders of record in 41 states, the District of Columbia, and Canada held the 19,538,452 Common Stock shares outstanding. Quarterly high and low stock prices and dividends per share as reported by New York Stock Exchange Composite Price History were: - ------------------------------------------------------- Market Price Per Quarterly Share Dividend High Low Per Share - ------------------------------------------------------- 2000 - ------------------------------------------------------- Fourth Quarter $42.50 $31.69 $0.22 Third Quarter 42.88 34.19 0.22 Second Quarter 43.88 30.75 0.22 First Quarter 42.19 31.25 0.22 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 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. REGISTRAR AND TRANSFER AGENT American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10007 1-800-937-5449, extension 6820 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 502 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 8, 2001, at 10:30 a.m. at the offices of the Company, 2000 Wade Hampton Boulevard, Greenville, South Carolina. All shareholders are invited to attend. 18 2 SELECTED FINANCIAL DATA - ----------------------------------------------------- THE LIBERTY CORPORATION AND SUBSIDIARIES
(In 000's, except per share data) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ Net revenues * $173,672 $154,000 $137,626 $119,599 $118,599 Income from continuing operations $24,995 $18,630 $21,391 $19,125 $11,314 Income (loss) from discontinued operations $28,563 $25,939 $(3,630) $55,826 $26,026 Net income $53,558 $44,569 $17,761 $74,951 $37,340 Income from continuing operations per diluted $1.27 $0.91 $0.99 $0.85 $0.38 share Dividends Per Common Share $0.88 $0.88 $0.86 $0.785 $0.725 Assets $896,007 $858,302 $894,388 $1,003,671 $944,708 Notes, Mortgages and Other Debts - $234,000 $285,000 $191,914 $247,861 Redeemable Preferred Stock - - $20,967 $37,369 $45,599 Shareholders' Equity $580,993 $554,224 $529,507 $674,447 $580,861
*See Note 4 regarding television station acquisitions made during 2000 and 1998. 19 3 MANAGEMENT'S DISCUSSION AND ANALYSIS THE LIBERTY CORPORATION AND SUBSIDIARIES The Liberty Corporation is a holding company with operations primarily in the television broadcasting industry. The Company's television broadcasting subsidiary, Cosmos Broadcasting, consists of fifteen network-affiliated stations located in the Southeast and Midwest, a cable advertising company, a video production company and a professional broadcast equipment dealership. Nine of the Company's television stations are affiliated with NBC, four with ABC, and two with CBS. Prior to September 29, 2000 the Company was also engaged in the insurance industry. On September 29, 2000 the Company's shareholders approved the sale of the Company's insurance operations to the Royal Bank of Canada for $648 million. The sale closed on November 1, 2000. Accordingly, these entities have been treated as discontinued operations in the accompanying financial statements (see Note 3 of the Consolidated Financial Statements). 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 services; 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 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. On June 19, 2000, the Company entered into a purchase agreement with Royal Bank of Canada ("RBC"), a Canadian-chartered bank, pursuant to which RBC was to acquire from the Company all of the issued and outstanding shares of capital stock of the companies comprising its insurance operations, for a total of approximately $648 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. On September 29, 2000 the Company's shareholders approved the purchase agreement, and on November 1, 2000 the Company completed the sale to RBC. Accordingly, these entities have been treated as discontinued operations in the accompanying financial statements (see Note 3 of the Consolidated Financial Statements). On November 1, 2000, using proceeds from the sale of its insurance operations, the Company repaid its revolving credit facility in full. On December 1, 2000, the Company completed its acquisition of Civic Communications. The agreed upon purchase price for all of the outstanding common stock of Civic Communications was $204 million. The Company used proceeds from the sale of its insurance operations to fund the transaction. Civic Communications owned and operated WLBT-TV, the NBC affiliate in Jackson, MS, KLTV-TV, the ABC affiliate in Tyler, TX, and KTRE-TV, the satellite affiliate of KLTV in Lufkin, TX. On August 25, 2000 the Company completed the redemption of all of the outstanding shares of its Series 1995-A Cumulative Convertible Preferred Stock. Shares were called for redemption at $35.00 per share plus accrued dividends for the period from July 1, 2000 through the Series 1995-A redemption date (September 5, 2000). Prior to the redemption date, all shares of the 1995-A Series were converted in to common stock. On May 25, 1999 ("the Series 1994-A an Series 1994-B 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. 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. SUMMARY OF CONSOLIDATED RESULTS THE YEAR 2000 COMPARED WITH 1999 - ---------------------------------------------------------------- (in 000's) 2000 1999 CHANGE ----------- ----------- ---------- National $53,756 $52,726 $1,030 Local & regional 104,693 94,848 9,845 Political 14,242 4,442 9,800 Network 10,742 12,042 (1,300) Other broadcasting 4,394 3,431 963 ----------- ----------- ---------- GROSS STATION 187,827 167,489 20,338 REVENUE Agency commissions (26,643) (23,445) (3,198) ----------- ----------- ---------- STATION REVENUES (NET OF COMMISSIONS) 161,184 144,044 17,140 Cable and other (net of commissions) 12,488 9,956 2,532 ----------- ----------- ---------- NET REVENUES $173,672 $154,000 19,672 =========== =========== ========== - ---------------------------------------------------------------- Net revenues were $173.7 million for the year ended December 31, 2000, an increase of $19.7 million over the $154.0 million reported for 1999. Net station revenues were $161.2 million, for 2000, an 20 4 MANAGEMENT'S DISCUSSION AND ANALYSIS THE LIBERTY CORPORATION AND SUBSIDIARIES increase of $17.1 million over the $144.0 million reported for 1999. The 2000 acquisition of KCBD in February, and WLBT, KLTV and KTRE in December, accounted for $10.9 million of this increase. Adjusting for the impact of the acquisitions, net station revenue increased $6.2 million. On a same station basis, an increase of $9.7 million in political revenues was partially offset by a $1.9 million decrease in national revenues and a $1.7 million decrease in network compensation. The decrease in network compensation is mainly attributable to an agreement the Company signed in 1998 whereby the compensation that it was to receive for its two CBS stations was to be reduced over a four-year period. The Company is in the third year of this agreement. Cable and other revenues were $12.5 million for the year ended December 31, 2000, an increase of $2.5 million over the $10.0 million reported for 1999. The Company's direct mail coupon business accounted for $1.3 million of this increase. Operating expenses (including the amortization of program rights) were $101.4 million for the year ended December 31, 2000, an increase of $15.2 million over the $86.2 million reported for 1999. Broadcasting operating expenses were $87.0 million for 2000, an increase of $8.4 million over the $78.6 million reported for 1999. Excluding the impact of the four stations acquired in 2000, broadcast operating expenses increased $3.0 million as compared with those of 1999. Cable operating expenses were $9.6 million for 2000, an increase of $2.2 million over the $7.4 million reported for 1999. The increase in cable advertising operating expenses is attributable to the growth at its existing locations, and its expansion to new locations. Operating expenses associated with the Company's other operations were approximately $4.8 million. Of this amount $4.4 million relates to the phase-out and wind up of the Company's direct mail coupon business. Depreciation and amortization was $21.1 million for the year ended December 31, 2000, an increase of $4.3 million over the $16.8 million reported for 1999. The increase in depreciation and amortization expense is attributable to the four station acquisitions completed during 2000. Corporate, general, and administrative expenses were $12.2 million for the year ended December 31, 2000, an increase of $4.0 million over the $8.2 million reported for 1999. The increase in corporate general and administrative expenses is due to higher levels of corporate charitable contributions and consulting fees, in 2000 as compared to 1999, and to the timing of the forfeiture of previously expensed but unearned performance related restricted stock grants in 1999. Net investment income reported for the year ended December 31, 2000 was $16.7 million, an increase of $14.2 million over the $2.5 million reported for 1999. The increase was due to realized gains from the Company's investment portfolio, and additional interest income earned on the residual insurance sale proceeds. Interest expense reported for the year ended December 31, 2000 was $14.4 million, a decrease of $0.7 million from the $15.1 million reported for 1999. The decrease in interest expense is due to higher average levels of debt during most of the year as a result of the KCBD acquisition in February of 2000, more than being fully offset by an absence of interest expense during November and December of 2000, as the Company's debt was repaid in full in November with the proceeds from the insurance operations sale. The effective tax rate was 39% and 38% for 2000 and 1999 respectively. The Year 1999 Compared with 1998 - ------------------------------------------------------------- (in 000's) 1999 1998 CHANGE -------- ---------- ---------- National $52,726 $41,993 $10,733 Local & regional 94,848 83,103 11,745 Political 4,442 12,661 (8,219) Network 12,042 11,059 983 Other station 3,431 2,653 778 -------- ---------- ---------- GROSS STATION 167,489 151,469 16,020 REVENUES Agency commissions (23,445) (21,366) (2,079) -------- ---------- ---------- STATION REVENUES 144,044 130,103 13,941 (NET OF COMMISSIONS) Cable and other 9,956 7,523 2,433 (net of commissions) -------- ---------- ---------- NET REVENUES $154,000 $137,626 $16,374 ======== ========== ========== - ------------------------------------------------------------- Net revenues were $154.0 million for the year ended December 31, 1999, an increase of $16.4 million over the $137.6 million reported for 1998. Station net revenues were $144.0 million, for 1999, an increase of $13.9 million over the $130.1 million reported for 1998. Excluding the net impact of the 1998 acquisitions, station revenues were down $2.7 million over the prior year period due to a significant decrease in political revenues, partially offset by increases in national and local and regional revenues. On a same station basis network compensation decreased $0.4 million in 1999 as compared to 1998. The decrease in network compensation is mainly attributable to an agreement the Company signed in 1998 whereby the compensation that it was to receive for its two CBS stations was to be reduced over a four-year period. During 1998 the Company was in the second year of this agreement. Cable and other revenues increased due to growth at its existing locations, and the expansion of the cable advertising operations to new locations. Operating expenses (including the amortization of program rights) were $86.2 million for the year ended December 31, 1999, an increase of $13.6 million over the $72.6 million reported for 1998. Broadcasting operating expenses were $78.6 million for 1999, and increase of $11.8 million over the $66.8 million report for 1998. Excluding the net impact of the 1998 acquisitions, 1999 broadcast operating expenses were level with those of 1998. Cable operating expenses were $7.4 million for 1999, an increase of $1.6 million over the $5.8 million reported for 1998. The increase in cable advertising operating expenses is attributable to the growth at its existing locations, and its expansion to new locations. Depreciation and amortization was $16.8 million for the year ended December 31, 1999, an increase of $5.7 million over the $11.1 million reported for 1998. The increase in depreciation and amortization expense is attributable to the three 1998 acquisitions. Corporate, general, and administrative expenses were $8.2 million for the year ended December 31, 1999, a decrease of $2.3 million over the $10.5 million reported for 1998. The decrease in corporate, general, and administrative expenses is due to higher levels of corporate charitable contributions and corporate legal fees, in 1998 as compare to 1999, and the forfeiture of previously expensed but unearned performance related restricted stock grants in 1999. Net investment income reported for the year ended December 31, 1999 was $2.5 million, a decrease of $1.6 over the $4.1 million reported for 1998. The decrease was due to lower levels of income from the Company's real estate portfolio, and lower levels of interest income, offset by an increase in realized gains. Interest expense reported for the year ended December 31, 1999 was $15.1 million, an increase of $2.5 million over the $12.6 million reported for 1998. Interest expense increased due to higher debt levels in 1999 as a result of the three station acquisitions made during 1998. The effective tax rate was 38% and 39% for 1999 and 1998 respectively. 21 5 MANAGEMENT'S DISCUSSION AND ANALYSIS THE LIBERTY CORPORATION AND SUBSIDIARIES BROADCAST CASH FLOW INFORMATION - ------------------------------------------------------------- (In 000s) 2000 1999 1998 OPERATING INCOME 38,921 42,785 43,479 One time charges (1) 3,198 -- -- ------------------------------- Adjusted operating income 42,119 42,785 43,479 Add: Depreciation and amortization 21,097 16,770 11,099 Non-cash compensation 1,211 256 1,034 ------------------------------- OPERATING CASH FLOW 64,427 59,811 55,612 Corporate cash expenses 11,028 7,946 9,424 ------------------------------- BROADCAST CASH FLOW 75,455 67,757 65,036 - ------------------------------------------------------------- (1) Adjustment to exclude the net impact in 2000 related to the phase-out and winding up of the Company's direct mail coupon operations Additional measures of broadcasting performance are based on cash flow. Broadcast cash flow information is included 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. Broadcast cash flow for 2000 was $75.5 million, an increase of $7.7 million as compared to the $67.8 million reported for 1999. The four stations acquired during 2000 accounted for $5.5 million of this increase. Same station broadcast cash flow increased $2.2 million year-over-year. Broadcast cash flow for 1998 was $65.0 million. 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. As the calculation of broadcast cash flow is before corporate expenses, interest expense, and income taxes, it is not necessarily indicative of the funds that are available for management's discretionary use. Intangible assets of $501.7 million at December 31, 2000 and $214.1 million at December 31, 1999, arose in the acquisition of television stations and are comprised primarily of Federal Communication Commission licenses. Intangible assets are principally amortized over a 40-year period and represent approximately 56% of total assets at December 31, 2000 and 25% of total assets at December 31, 1999. Intangible assets represented 86% and 39% of shareholders equity at December 31, 2000 and December 31, 1999 respectively. Management considers each station's 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. INVESTMENTS During the year ended December 31, 2000 the Company had net investment income of $16.7 million. The majority of this was realized investment gains of approximately $12.9 million resulting from the sale of most of its equity portfolio during the first quarter of 2000. The Company had acquired most of its equity portfolio as distribution from its venture capital funds. Other long-term investments, included in the caption "investments and other assets" on the balance sheet, include private equity investments, venture capital funds and investments in low income housing tax credits. The Company has determined that it is not practicable to estimate the fair values of these investments because of a lack of primary and secondary market prices and the inability to estimate fair values without incurring excessive costs. Further discussion of investments and valuation is contained in Notes 6 and 13 to the Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES The Company's short-term cash needs consist primarily of working capital requirements, and dividends to shareholders. Historically, Liberty's operations have provided sufficient liquidity for the operations of the Company. At December 31, 2000, the Company had an income tax liability of approximately $132 million related to the sale of its insurance operations, which it will remit during the first quarter of 2001. The Company intends to use a portion of the $149 million of cash that was on its balance sheet at December 31, 2000 to fund this payment. The Company's primary long-term cash needs are the possible need for capital should the Company identify an appropriate acquisition opportunity, and the expenditures associated with implementing high definition television broadcast operations. While exact costs are not presently known, the additional capital expenditures required over the next several years to comply with the FCC high definition television implementation deadline are expected to be material. On a consolidated basis, Liberty's net cash provided by operating activities was $28.8 million for 2000 compared with $53.7 million for 1999 and $26.0 million for 1998. Excluding the impact of the Company's discontinued insurance operations, net cash provided by operations was $43.3 million in 2000 compared with $37.4 million, and $26.6 million for 1999, and 1998 respectively. Liberty's net cash provided by investing activities was $359.3 million in 2000 compared with net cash used in investing activities of $25.8 million in 1999 and $46.6 million in 1998. The increase in net cash provided by investing activities in 2000 was due to the $567.6 million of net cash received from the sale of the Company's insurance operations during 2000, partially offset by the $274.5 million of cash used to acquire KCBD and the Civic Communications television stations. Cash flow used in financing activities for 2000 was $251.0 million versus $32.7 million and $24.6 million in 1999 and 1998 respectively. Cash flow related to financing activities fluctuates primarily based on the level of borrowings or debt repayments. During 2000 and 1998 funds were borrowed to finance television station acquisitions. During 2000 the Company repurchased 683,500 shares of its common stock for approximately $24.6 million. 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, 138,000 shares, purchased in the open market. On February 6, 2001 the board of directors of the Company extended to February 28, 2002, the Company's authorization to purchase from time to time up to 4 million shares of stock in the open market or directly negotiated transactions. Liberty funded the 1998 purchases of three television stations, with a total purchase price of approximately $157.0 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. On November 1, 2000 the Company repaid the facility in full with a portion of the proceeds from the sale of its insurance operations. 22 6 MANAGEMENT'S DISCUSSION AND ANALYSIS THE LIBERTY CORPORATION AND SUBSIDIARIES On August 25, 2000 the Company completed the redemption of all of the outstanding shares of its Series 1995-A Cumulative Convertible Preferred Stock. Shares were called for redemption at $35.00 per share plus accrued dividends for the period from July 1, 2000 through the Series 1995-A redemption date (September 5, 2000). Prior to the redemption date, all shares of the 1995-A Series were converted in to common 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. The Company is currently in negotiations with NBC to renegotiate its network affiliation contracts. At this time it is not known what the exact outcome of these negotiations will be, however the Company does expect a reduction, to be implemented over a period of years, in the amount of network compensation that it is to receive from NBC. At December 31, 2000 the Company had no outstanding debt, as compared to $234.0 million at December 31, 1999. On February 27, 2001, the Company signed a commitment letter related to a $100 million unsecured 364-day revolving credit facility with a bank. The Company anticipates closing the revolving credit facility by the end of March 2001. At the end of the term of the facility any outstanding principal and interest will come due, unless the bank, in its sole discretion, otherwise extends the facility. The Company believes that its current level of cash, expected future cash flows from operations, and the new credit facility are sufficient to meet the needs of its business. If suitable opportunities arise for additional acquisitions, Liberty believes it can arrange for additional debt financing 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. Historically, Liberty's only use of derivative financial instruments was to minimize the exposure on its variable rate debt. Other Company commitments are shown in Note 17 to the Consolidated Financial Statements. Further discussion of investments and valuation is contained in Notes 2 and 14 to the Consolidated Financial Statements. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Liberty's portfolio of equity securities is exposed to price risk. The Company held equity securities with a market value of $1.6 million and $3.6 million at December 31, 2000 and 1999 respectively. The majority of stocks within the portfolio are considered to be invested in technology related stocks, which would most closely correlate with the performance of the NASDAQ Composite. If the market value of the NASDAQ Composite, declined 10% from December 31, 2000 values, the market value of the Company's common stock portfolio could be expected to decrease by approximately $0.1 million. As of December 31, 2000 and 1999, real estate related investments totaled $14.9 million and $25.7 million. The investments consist primarily of residential land and lots in various stages of development and completion, and receivables related to prior land sales. Liberty does not plan to make any future investments in 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. Additional disclosures concerning the fair values in relation to the carrying values of Liberty's financial instruments are included in Notes 6 and 14 to the Consolidated Financial Statements. 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 (which date was subsequently amended to January 1, 2001). 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 has historically been limited to fixing the cost of borrowings on a portion of the outstanding debt. The Company will adopt the standard as of January 1, 2001. The Company does not believe the effect of Statement 133 will be material to the earnings and financial position of the Company. 23 7 CONSOLIDATED BALANCE SHEETS THE LIBERTY CORPORATION AND SUBSIDIARIES (In $000's)
AS OF DECEMBER 31, 2000 1999 ----------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 149,003 $ 6,373 Receivables (net of allowance for doubtful accounts of $2,218 and $1,319 in 2000 and 1999, respectively) 40,561 31,624 Program rights 5,561 3,415 Prepaid and other current assets 46,194 9,388 Deferred income taxes 15,109 2,333 Net assets of discontinued operations -- 479,645 ------------------- ----------------- Total current assets 256,428 532,778 Property, plant, and equipment Land 5,494 4,973 Buildings and improvements 33,152 32,362 Furniture and equipment 149,784 118,932 Less: Accumulated depreciation (99,389) (89,575) ------------------- ----------------- 89,041 66,692 Intangibles (net of accumulated amortization) 501,693 214,116 Investments and other assets 48,845 44,716 ------------------- ----------------- Total assets $ 896,007 $ 858,302 =================== ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 68,517 $ 17,293 Program contract obligations 5,578 3,092 Accrued income taxes 138,297 -- Revolving credit facility -- 234,000 ------------------- ----------------- Total current liabilities 212,392 254,385 Deferred income taxes 92,797 27,849 Other liabilities 9,825 21,844 ------------------- ----------------- Total liabilities 315,014 304,078 ------------------- ----------------- Shareholders' equity Common stock (authorized - 50,000,000 shares, no par value, shares issued and outstanding - 19,538,452 shares in 2000, 19,507,551 shares 99,033 100,112 in 1999) Series 1995-A convertible preferred stock, $35.00 redemption value, shares issued and outstanding -0- shares at 12/31/00 and 429,485 -- 15,031 shares at 12/31/99 Unearned stock compensation -- (5,057) Retained earnings 481,270 445,329 Accumulated other comprehensive income (loss) 690 (1,191) ------------------- ----------------- Total shareholders' equity 580,993 554,224 ------------------- ----------------- Total liabilities and shareholders' equity $ 896,007 $ 858,302 =================== =================
See Notes to Consolidated Financial Statements. 24 8 CONSOLIDATED STATEMENTS OF INCOME THE LIBERTY CORPORATION AND SUBSIDIARIES (In $000's, except per share data)
For the Years Ended December 31, 2000 1999 1998 ------------ ------------ ----------- REVENUES Station revenues (net of commissions) $ 161,184 $ 144,044 $ 130,103 Cable advertising (net of commissions) and other revenues 12,488 9,956 7,523 ------------ ------------ ----------- NET REVENUES 173,672 154,000 137,626 EXPENSES Operating expenses 95,564 80,390 67,322 Amortization of program rights 5,852 5,855 5,268 Depreciation and amortization of intangibles 21,097 16,770 11,099 Corporate, general, and administrative expenses 12,238 8,200 10,458 ------------ ------------ ----------- TOTAL OPERATING EXPENSES 134,751 111,215 94,147 OPERATING INCOME 38,921 42,785 43,479 Net investment income 16,696 2,477 4,149 Interest expense 14,366 15,133 12,598 ------------ ------------ ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 41,251 30,129 35,030 Provision for income taxes 16,256 11,499 13,639 ------------ ------------ ----------- INCOME FROM CONTINUING OPERATIONS 24,995 18,630 21,391 DISCONTINUED OPERATIONS Income (loss) from operations of discontinued operations, net of income taxes 26,061 25,939 (3,630) Gain on sale of discontinued operations, net of $131,670 of income taxes 2,502 -- -- ------------ ------------ ----------- INCOME (LOSS) FROM DISCONTINUED OPERATIONS 28,563 25,939 (3,630) NET INCOME $ 53,558 $ 44,569 $ 17,761 ============ ============ =========== EARNINGS PER SHARE: Basic earnings per common share from continuing operations $1.27 $0.92 $1.00 Basic earnings per common share from discontinued operations 1.47 1.37 (0.20) ------------ ------------ ----------- Basic earnings per common share $2.74 $2.29 $0.80 ============ ============ =========== Diluted earnings per common share from continuing operations $1.27 $0.91 $0.99 Diluted earnings per common share from discontinued operations 1.45 1.34 (0.19) ------------ ------------ ----------- Diluted earnings per common share $2.72 $2.25 $0.80 ============ ============ ===========
See Notes to Consolidated Financial Statements. 25 9 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THE LIBERTY CORPORATION AND SUBSIDIARIES (Amounts in 000's except per share data)
UNEARNED ACCUMULATED COMMON CONVERTIBLE STOCK OTHER SHARES COMMON PREFERRED COMPEN- COMPREHENSIVE RETAINED OUTSTANDING STOCK STOCK SATION INCOME (LOSS) EARNINGS TOTAL(1) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1998 20,713 $182,994 $20,999 $(10,872) $61,850 $419,476 $674,447 Net income 17,761 17,761 Net unrealized investment losses, net of (34,766) (34,766) taxes Foreign currency translation adjustment, net of taxes (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, net of (27,940) (27,940) taxes 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 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 53,558 53,558 Net unrealized investment gains, net of 1,881 1,881 taxes Dividends - Common Stock - $0.88 per share (17,252) (17,252) Dividends - Convertible Preferred Stock - $1.75 per share (365) (365) Stock issued for employee benefit and performance incentive compensation programs 285 8,509 5,057 13,566 Stock issued for conversion of convertible preferred stock 429 15,031 (15,031) -- Stock repurchased (684) (24,619) (24,619) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 19,538 $99,033 -- -- $690 $481,270 $580,993 - -----------------------------------------------------------------------------------------------------------------------------------
(1) Comprehensive income (loss), which includes the aggregate of net income, net unrealized investment gains (losses) and foreign currency translation adjustment, was $55,439, $16,629, and $(17,340), for 2000, 1999 and 1998 respectively. See notes to consolidated financial statements. 26 10 CONSOLIDATED STATEMENTS OF CASH FLOWS THE LIBERTY CORPORATION AND SUBSIDIARIES (In 000's)
FOR THE YEARS ENDED DECEMBER 31, 2000 1999 1998 -------------- ------------- ------------- OPERATING ACTIVITIES Income from continuing operations $ 24,995 $ 18,630 $ 21,391 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Gain on sale of operating assets 456 (983) (1,845) Realized investment (gains) losses (9,981) (143) 373 Depreciation 13,807 12,605 7,713 Amortization of intangibles 7,290 4,165 3,386 Amortization of program rights 5,852 5,855 5,268 Cash paid for program rights (6,362) (6,012) (5,212) Provision for deferred income taxes 737 (2,122) 1,207 Changes in operating assets and liabilities, net of effects of acquisitions: Receivables (2,321) (2,987) (1,547) Other assets 9,429 (3,436) 840 Accounts payable and accrued expenses 5,825 2,179 926 Accrued income taxes 6,690 5,920 2,545 Other liabilities (12,607) 1,259 (5,534) All other operating activities, net (515) 2,443 (2,920) Net cash (used in) provided by operating activities of discontinued (14,516) 16,329 (569) operations - ------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 28,779 53,702 26,022 - ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES Purchase of property and equipment (9,691) (9,184) (8,014) Proceeds from sale of property and equipment 84 -- 505 Net cash paid for purchase of television stations (231,312) -- (157,033) Funding of trust for unremitted television station purchase price (43,168) -- -- Investment securities sold 13,957 15,169 44,602 Investment securities matured -- 2,722 264 Investment securities acquired (2,440) (263) (1,217) Purchase of investment properties (1,874) (13,422) (3,214) Proceeds from sale of investment properties 12,947 6,417 8,638 Proceeds from sale of subsidiary (net of cash sold) 567,568 -- 138,792 Net cash provided by (used in) investing activities of discontinued 53,216 (27,214) (69,873) operations - ------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 359,287 (25,775) (46,550) - ------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from borrowings 2,628,500 2,625,000 3,265,000 Principal payments on debt (2,862,500) (2,674,000) (3,171,214) Dividends paid (17,617) (18,030) (18,447) Stock issued for employee benefit and compensation programs 1,269 3,552 2,436 Redemption of preferred stock -- (306) -- Repurchase of common stock (24,619) -- (131,114) Net cash provided by financing activities of discontinued operations 24,012 31,116 28,714 - ------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES (250,955) (32,668) (24,625) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH 137,111 (4,741) (45,153) Cash at beginning of year 11,892 16,633 61,786 - ------------------------------------------------------------------------------------------------------------------------------- CASH AT END OF PERIOD $149,003 $11,892 $16,633 - -------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 27 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE LIBERTY CORPORATION AND SUBSIDIARIES 1. NATURE OF OPERATIONS The Liberty Corporation, (the "Company"), through its operating subsidiary, Cosmos Broadcasting, owns fifteen network-affiliated television stations, principally located in the Southeast and Midwest. In addition, Cosmos owns CableVantage Inc., a cable advertising sales subsidiary; Take Ten productions, a video production facility; and Broadcast Merchandising Company, a professional broadcast equipment dealership. The Company completed the sale of its insurance operations on November 1, 2000, as more fully discussed in Note 3. The insurance operations have been accounted for as discontinued operations, and accordingly prior period financial statements and notes have been restated to conform to this presentation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements of The Liberty Corporation and Subsidiaries include the accounts of the Company after elimination of all significant intercompany balances and transactions. 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. CASH AND CASH EQUIVALENTS The Company includes with cash and cash equivalents all highly liquid investments which mature within three months of the date of acquisition. The Company routinely enters into repurchase agreements with banks whereby the Company makes overnight purchases of government securities using its available cash balance. The following day, the bank is required to repurchase the investments from the Company. Overnight investments of $3,394,000 and $6,373,000 were included in cash and cash equivalents at December 31, 2000 and 1999, respectively. PROGRAM RIGHTS Program rights result from license agreements under which the Company has acquired rights to broadcast certain television program material, and are stated at cost less amortization. The cost of rights acquired is recorded as an asset and a liability when the program material has been accepted and made available for broadcast. Amortization is determined using both straight-line and accelerated methods over the terms of the license agreements. Carrying amounts are regularly reviewed by management for indications of impairment and are adjusted when appropriate to estimated amounts recoverable from future broadcasts of the applicable program material. PROGRAM CONTRACT OBLIGATIONS Program contract obligations represent the gross amounts to be paid to program suppliers over the life of the contracts. Program rights acquired through the assumption of program contract obligations were approximately $5,925,000 and $4,703,000 for 2000, and 1999, respectively. Commitments for license agreements that were executed but were not reported in the accompanying balance sheets because they were not available for broadcasting were $13,505,000 and $10,686,000 for 2000, and 1999, respectively. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation over the estimated useful lives of the properties is determined principally using the straight-line method with lives ranging from 3 to 30 years. STATION REVENUES Station revenues are generated primarily from the sale of television advertising time, and are recognized in the period during which the time spots are aired. Station revenues are presented net of agency commissions of $26,643,000, $23,445,000, and $21,366,000 in 2000, 1999, and 1998, respectively. CABLE ADVERTISING REVENUES Cable advertising revenues are generated primarily from assisting local cable operators with the sale of commercial time available in cable network programs. Revenues are recognized in the period during which the time spots sold by the Company are aired by the local cable operator. Cable advertising revenues are presented net of commissions of $1,496,000, $1,215,000, and $1,133,000 in 2000, 1999, and 1998, respectively. CONCENTRATION OF CREDIT RISK A significant portion of the Company's accounts receivable are due from local and national advertising agencies. Such amounts are generally unsecured. 28 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE LIBERTY CORPORATION AND SUBSIDIARIES BARTER TRANSACTIONS Revenue from barter transactions is recognized when advertisements are broadcast. Barter revenue is recognized based on the fair value of merchandise or services received by the Company. Revenue from barter transactions was $2,785,000, $2,365,000, and $1,993,000 for the years 2000, 1999 and 1998 respectively. Merchandise or services received are charged to cost and expense when received or used. Expense related to barter transactions was $2,665,000, $2,277,000, and $1,985,000 for the years 2000, 1999 and 1998 respectively. UNREALIZED INVESTMENT GAINS AND LOSSES Unrealized investment gains and losses on investments carried at fair value, net of deferred taxes, are recorded directly in shareholders' equity in accumulated other comprehensive income. REALIZED INVESTMENT GAINS AND LOSSES Realized investment gains and losses are recognized using the specific identification method to determine the cost of investments sold. 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 specific assets at the time the Company judges the assets to have been impaired and this impairment can be estimated. INCOME TAXES 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. 133 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. The Financial Accounting Standards Board delayed the required adoption date effectively to January 1, 2001. The Statement requires 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 has historically been limited to fixing the cost of borrowings on a portion of its outstanding debt. At December 31, 2000, the Company had no derivative financial instruments. The Company does not believe the effect of Statement 133 will be material to the earnings or financial position of the Company in the future. The Company will adopt Statement 133 as of January 1, 2001. RECLASSIFICATIONS Reclassifications have been made in the 1999 and 1998 Consolidated Financial Statements to conform to the 2000 presentation. 3. DISCONTINUED OPERATIONS On June 19, 2000, the Company entered into a Purchase Agreement (the "Purchase Agreement") with Royal Bank of Canada ("RBC"), a Canadian-chartered bank, pursuant to which RBC was to 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 Limited and Liberty Capital Advisors, Inc., for a total of approximately $648 million, consisting of a dividend from Liberty Life Insurance Company of up to $70 million and the balance in cash from Royal Bank of Canada. On September 29, 2000 the shareholders of the Company approved the purchase agreement described above. Accordingly, these entities have been treated as discontinued operations in the accompanying financial statements. The transaction closed on November 1, 2000 with Liberty receiving $567.6 million in net cash proceeds and approximately $16 million in non-cash assets (mainly investments in venture capital funds and low income housing tax credits). Operating results in 2000 include operations through September 29, 2000, the date the shareholders approved the transaction. Results from that date through the date of sale are included in the gain on the sale of discontinued operations. 29 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE LIBERTY CORPORATION AND SUBSIDIARIES The assets and liabilities of the discontinued operations were as follows: - --------------------------------------------------------------- (in 000's) December 31, 1999 - --------------------------------------------------------------- Assets: Investments: Fixed maturity securities available for $859,296 sale Equity securities, primarily at market 77,652 Mortgage loans 230,497 Policy loans 91,964 Other long-term investments 13,564 Short-term investments 1,930 - --------------------------------------------------------------- Total investments 1,274,903 - --------------------------------------------------------------- Cash 5,519 Accrued investment income 13,592 Receivables net of bad debt reserves 31,045 Receivable from reinsurers 266,141 Deferred acquisition costs 304,419 Buildings and equipment, at cost, less accumulated depreciation 27,881 Goodwill related to insurance acquisitions, at cost, net of 21,904 accumulated amortization Other assets 39,559 - --------------------------------------------------------------- Total assets $1,984,963 - --------------------------------------------------------------- - --------------------------------------------------------------- Liabilities: Policy liabilities: Future policy benefits $1,278,233 Claims and benefits payable 33,806 Policyholder funds 24,969 - --------------------------------------------------------------- 1,337,008 Accrued income taxes 19,054 Deferred income taxes 81,513 Accounts payable and accrued expenses 65,682 Other liabilities 2,061 - --------------------------------------------------------------- Total liabilities 1,505,318 - --------------------------------------------------------------- - --------------------------------------------------------------- Net assets of discontinued operations $479,645 - --------------------------------------------------------------- Summarized disclosure of the Company's discontinued operations is as follows: - --------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------- (in 000's) 2000 1999 1998 -------- ---------- ---------- Revenues $278,796 $ 361,184 $ 421,424 Expenses 241,884 324,490 407,353 -------- ---------- ---------- Income from discontinued operations before taxes 36,912 36,694 14,071 Income taxes 10,851 10,755 17,701 -------- ---------- ---------- Income (loss) from discontinued operations $ 26,061 $ 25,939 $ (3,630) - --------------------------------------------------------------- 4. TELEVISION STATION ACQUISITIONS 2000 ACQUISITIONS 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. This purchase was funded using proceeds from the Company's credit facility. On December 1, 2000 the Company completed its acquisition of Civic Communications. The agreed upon purchase price for all of the outstanding common stock of Civic Communications was $204 million. The Company used proceeds from the sale of its insurance operations, which was completed November 1, 2000, to fund the transaction. Civic Communications owned and operated WLBT-TV, the NBC affiliate in Jackson, MS, KLTV-TV, the ABC affiliate in Tyler, TX, and KTRE-TV, the satellite affiliate of KLTV in Lufkin, TX. The operating results of the acquired businesses are included in the consolidated statements of income from their respective dates of acquisition. Both of the acquisitions were accounted for by the purchase method of accounting and, accordingly, the purchase price of the acquired businesses was allocated to underlying assets and liabilities based on fair values. For the Civic Communications acquisition such allocation has been based on preliminary estimates which will be revised upon receipt of the final appraisal of the television station's assets. The purchase price, liabilities assumed, and expenses associated with the acquisitions exceeded the fair value of the assets purchased by approximately $294.9 million and was assigned to intangible assets and goodwill, to be amortized over 40 years. A summary of the purchase price allocation for the 2000 acquisitions follows: - -------------------------------------------------------- (In 000's) Receivables $ 6,616 Program rights 4,238 Other assets 17,402 Property, plant and equipment 27,006 FCC licenses, network affiliation agreements, and 232,399 other assets Goodwill 62,468 --------- Total assets acquired 350,129 Accounts payable 2,231 Program contract obligations 4,274 Other liabilities 446 Deferred tax liability 68,698 --------- Less liabilities assumed 75,649 ---------- Total cost of acquisitions $274,480 ========== - -------------------------------------------------------- The Company agreed to pay a portion of the purchase price to the Civic Communications stockholders at a future date, expected to be within fiscal year 2001. Other current assets at December 31, 2000 include $43.2 million of this unpaid purchase price. A corresponding liability is included in accounts payable and accrued liabilities. 30 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE LIBERTY CORPORATION AND SUBSIDIARIES The following table sets forth the unaudited pro forma results of operations as if the acquisitions had been consummated at the beginning of 2000 and at the beginning of 1999: - --------------------------------------------------------- (in 000's except per share data) 2000 1999 - --------------------------------------------------------- Net revenues $204,588 $191,723 Net income $36,684 $32,575 Earnings per basic share $1.87 $1.66 Earnings per diluted share $1.86 $1.64 - --------------------------------------------------------- The pro forma data give effect in the aggregate to the acquisition of KCBD-TV, which occurred on February 29, 2000, to the sale of Liberty's insurance operations to the Royal Bank of Canada, which closed on November 1, 2000, and to the acquisition of Civic Communications which occurred on December 1, 2000 as if each had occurred at the beginning of each period presented. The pro forma amounts include actual operating results prior to each respective acquisition and adjustments to intangible amortization, depreciation, interest expense and income taxes. These pro forma amounts do not purport to be indicative of results that would have occurred had the transactions been in effect for the periods presented or that may be obtained in the future. 1998 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. Advances from the Company's revolving credit facility were used to finance the entire purchase price of the 1998 acquisitions. All of the acquisitions were accounted for by the purchase method of accounting and, accordingly, the purchase price of the acquired businesses was allocated to underlying assets and liabilities based on fair values. The purchase price and expenses associated with the acquisition exceeded the fair value of the assets purchased by $133.9 million and was assigned to FCC licenses and network affiliations to be amortized over 40 years. A summary of the purchase price allocation follows (in thousands): - --------------------------------------------------------- (in 000's) - --------------------------------------------------------- Receivables $3,204 Program rights 709 Property, plant, and equipment 26,586 FCC licenses, network affiliation agreements, and other assets 133,892 ----------- Total assets acquired 164,391 Less liabilities assumed 7,358 - --------------------------------------------------------- Total cost of acquisitions $157,033 - --------------------------------------------------------- 5. INTANGIBLE ASSETS Intangibles include Federal Communication Commission ("FCC") licenses and network affiliations and goodwill, and are amortized on a straight-line basis principally over forty years. Carrying amounts are regularly reviewed by management for indications of impairment and are adjusted accordingly when appropriate. The major classifications of intangible assets are as follows: - ------------------------------------------------------------- (in 000's) December 31 ---------------------- 2000 1999 ---------------------- FCC licenses and network $482,348 $249,949 affiliations Goodwill 62,468 -- Goodwill (prior to 1970) 4,071 4,071 ---------------------- 548,887 254,020 Less accumulated amortization (47,194) (39,904) ---------------------- $501,693 $214,116 - ------------------------------------------------------------- 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 (the effective date of Opinion No. 17 "Intangible Assets" of the Accounting Principles Board). 6. INVESTMENTS AND OTHER ASSETS The major classifications of investments and other assets are as follows: - ------------------------------------------------------------- (in 000's) December 31 -------------------- 2000 1999 -------------------- Marketable equity securities $1,569 $3,638 Private equity investments 6,026 -- Real estate related investments 14,897 25,677 Investments in venture capital funds 11,323 4,785 Investments in low income housing tax 8,177 2,331 credits Other 6,853 8,285 -------------------- Total other assets $48,845 $44,716 - ------------------------------------------------------------- Investments in marketable equity securities 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 Marketable equity securities are all considered available for sale and are carried at fair value. The fair values for marketable equity securities are based on quoted market prices. o Private equity investments, all of which represent an ownership level of less than 20%, are carried at cost, which includes provisions for impaired value when appropriate. 31 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE LIBERTY CORPORATION AND SUBSIDIARIES o Real estate related investments consist primarily of residential land and lots in various stages of development and completion, and receivables related to prior land sales. The Company's real estate properties were held for sale at December 31, 2000 and 1999, and accordingly are carried at the lower of cost or fair market value less costs to sell. o Investments in venture capital funds are generally carried at cost, which includes provisions for impaired value where appropriate. o Investments in low income housing tax credits are accounted for using the cost method, in accordance with Emerging Issues Task Force 94-1 Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects. Under the cost method, any excess of the carrying amount of the investment over its estimated residual value is amortized over the remaining period during which the Company is to receive tax credits. 7. REVOLVING CREDIT FACILITY In November of 2000 the Company sold its insurance operations for approximately $648 million (See Note 3). The Company used approximately $258 million of its net cash proceeds from this sale to repay its credit facility in full. The debt obligations at December 31, are as follows: - ----------------------------------------------------- (In 000s) 2000 1999 - ----------------------------------------------------- Borrowings under revolving credit facility $ - $234,000 - ----------------------------------------------------- Interest paid, net of amounts capitalized, amounted to approximately $15,005,000, $16,076,000, and, $12,654,000 in 2000, 1999, and 1998, respectively. Interest capitalized amounted to $-0-, $239,000, and $583,000 in 2000, 1999, and 1998, respectively. On February 27, 2001, the Company signed a commitment letter related to a $100 million unsecured 364-day revolving credit facility with a bank. The Company anticipates closing the revolving credit facility by the end of March 2001. At the end of the term of the facility any outstanding principal and interest will come due, unless the bank, in its sole discretion, otherwise extends the facility. 8. SHAREHOLDERS' EQUITY On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting Cumulative Convertible Preferred Stock having a total redemption value of $20,999,475 or $35.00 per share in connection with the acquisition of WLOX-TV. Each share of preferred stock was convertible at the option of the holder into one share of common stock. The Company had 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. On August 25, 2000 the Company completed the redemption of all of the outstanding shares of its Series 1995-A Cumulative Convertible Preferred Stock. Shares were called for redemption at $35.00 per share plus accrued dividends for the period from July 1, 2000 through the redemption date (September 5, 2000). Prior to the redemption date, all shares of the 1995-A Series were converted into common stock. 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, 2010. 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, 2000, there were 140,000 shares of preferred stock that were reserved for issuance in connection with the Shareholder Rights Plan. The company repurchased through negotiated transactions and in the open market 684,000 common shares during 2000. 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. 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 15) as of December 31 are as follows: - ----------------------------------------------------------- (In 000s) 2000 1999 - ----------------------------------------------------------- Carrying value of securities $1,569 $940,586 Amortized cost of securities (507) 952,632 --------- ---------- Net unrealized appreciation 1,062 (12,046) Adjustment to deferred acquisition -- 10,213 costs Deferred income taxes (372) 642 - ----------------------------------------------------------- Total $690 $ (1,191) - ----------------------------------------------------------- 9. EMPLOYEE BENEFITS The Company has a postretirement plan that provides medical and life insurance benefits for qualified retired employees. The postretirement medical plan is generally contributory with retiree contributions adjusted annually to limit employer contributions to predetermined amounts. The postretirement life plan provides free insurance coverage for retirees and is insured with an unaffiliated company. 32 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE LIBERTY CORPORATION AND SUBSIDIARIES Net periodic postretirement benefit cost included the following components: - ------------------------------------------------------------ (In $000s) 2000 1999 1998 - ------------------------------------------------------------ Service cost $31 $25 $ 17 Interest cost 149 113 113 - ------------------------------------------------------------ Net periodic postretirement benefit $180 $138 $130 cost - ------------------------------------------------------------ The following schedule reconciles the accumulated postretirement benefit obligation included in the balance sheets as of December 31, 2000 and 1999: - ------------------------------------------------------------ (in 000's) 2000 1999 - ------------------------------------------------------------ Benefit obligation at beginning of $2,075 $2,151 year Service cost 31 25 Interest cost 149 113 Plan participants' contributions 112 73 Benefits paid (419) (271) Actuarial loss 489 -- Plan expenses -- (16) - ------------------------------------------------------------ Benefit obligation at end of year $2,437 $2,075 - ------------------------------------------------------------ The following schedule reconciles the status of the Company's plan with the unfunded postretirement benefit obligation included in its balance sheets at December 31: - ------------------------------------------------------------ (In $000s) 2000 1999 - ------------------------------------------------------------ Funded status $2,437 $1,890 Unrecognized prior service cost (26) -- Unrecognized net gain (loss) (651) 547 - ------------------------------------------------------------ Accrued postretirement benefit $1,760 $2,437 obligation - ------------------------------------------------------------ The weighted-average discount rate is 7.75% and 7.5% for 2000 and 1999, respectively. At December 31, 2000, a 6% annual rate of increase in the per capita cost of covered medical benefits is assumed for 2001. The rate is to decrease to 5.5% in 2002 and remains at that level thereafter. 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 to 5.5% in 2002 and remains at that level 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: - ------------------------------------------------------------ 1% 1% Increase Decrease - ------------------------------------------------------------ Effect on total of service and interest rate components $16 $(11) Effect on post retirement benefit obligation 171 (120) - ------------------------------------------------------------ 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 $2,271,000, $1,926,000, and $1,760,000 in 2000, 1999, and 1998, 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 the Company's Board of Directors. The Company's contributions for this component of the Plan were $1,088,000, $1,042,000 and $853,000 in 2000, 1999, and 1998, respectively. 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 provided, however, that non-employee directors are not eligible to receive incentive stock options. 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, 2000, 37 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 least 100% of the market price on the date of grant, are vested over such period of time, which generally 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. As required by the Program, the sale of the Company's insurance operations on November 1, 2000, resulted in the vesting of all of the then outstanding stock options. Of the non-qualified options outstanding, 987,485 were exercisable at December 31, 2000; 358,842 were exercisable at December 31, 1999; and 355,783 were exercisable at December 31, 1998. The options expire on various dates beginning May 15, 2001, and ending December 1, 2010. 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 33 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE LIBERTY CORPORATION AND SUBSIDIARIES restricted shares. Expense is recognized over the vesting period of the restricted shares. Expense in the aggregate for both the continuing and discontinued operations totaled $1,816,000, and $2,297,000 for the years ended December 31, 1999, and 1998, respectively. Commensurate with the sale of the Company's insurance operations on November 1, 2000, all of the then outstanding restricted stock vested. The expense related to this required vesting was included in the gain on the sale of discontinued operations. Prior to the sale of the insurance operations, the Company had expensed approximately $2,438,000 in 2000. 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 grants during 2000, 1999, and 1998 using a Black-Scholes option pricing model, and the weighted average assumptions used to determine the estimated fair value are as follows: - -------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------- Estimated fair value $8.98 $13.00 $10.92 Underlying assumptions used to determine estimated fair value: Risk free interest rate 6.6% 5.5% 5.1% Dividend yield 2.8% 1.8% 2.0% Expected stock price volatility 0.23 0.18 0.17 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 that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's pro forma information is as follows: - ---------------------------------------------------- In $000s, except per 2000 1999 1998 share amounts - ---------------------------------------------------- Net Income: As Reported $53,558 $44,569 $17,761 Pro forma 50,897 43,618 17,063 Basic Earnings per Share: As Reported $2.74 $2.29 $0.80 Pro forma 2.60 2.24 0.76 Diluted Earnings per Share: As Reported $2.72 $2.25 $0.80 Pro forma 2.58 2.19 0.76 - ---------------------------------------------------- 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, 2000:
- ------------------------------------------------------------------------------------------------------- Restricted Shares Non-Qualified Stock Options - ------------------------------------------------------------------------------------------------------- Number Market Price Number Average of Shares at Date Given of Options Exercise Price - ------------------------------------------------------------------------------------------------------- Outstanding at December 31, 1997 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 December 31, 1998 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 December 31, 1999 166,254 840,358 39.60 AWARDED 285,560 $31.39 261,460 $32.12 VESTED (436,564) 35.36 EXERCISED (38,565) 30.37 FORFEITED (15,250) 51.88 (57,328) 41.97 - ------------------------------------------------------------------------------------------------------- OUTSTANDING AT DECEMBER 31, 2000 -- 1,005,925 $37.86 - -------------------------------------------------------------------------------------------------------
During 2000, in connection with the sale of the Company's insurance operations, 129,875 unrestricted shares having a grant date fair value of $30.88 per share were granted to executives of the insurance operations and are included in the awarded and vested amounts disclosed above. 34 18 The following table summarizes information concerning currently outstanding and exercisable stock options:
- ------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICE EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE - ------------------------------------------------------------------------------------------------------- $20.00 - $29.99 139,300 1.61 $26.10 139,300 $26.10 $30.00 - $39.99 309,753 4.04 32.44 291,313 32.10 $40.00 - $51.88 556,872 2.91 43.82 556,872 43.82 - ------------------------------------------------------------------------------------------------------- Total or weighted average 1,005,925 3.08 $37.86 987,485 $37.87 - -------------------------------------------------------------------------------------------------------
At December 31, 2000, there were 1,313,931 shares of the Company's stock reserved for future grants under the Program. 11. PROVISION FOR INCOME TAXES The provision (benefit) for income taxes consists of the following: - ---------------------------------------------------- (in 000's) 2000 1999 1998 ------------------------------- Continuing operations Current: Federal $14,082 $12,259 $11,189 State and local 1,437 1,362 1,243 ------------------------------- Total current 15,519 13,621 12,432 Deferred: Federal 672 (1,910) 1,086 State and local 65 (212) 121 ------------------------------- Total deferred 737 (2,122) 1,207 ------------------------------- Total tax provision $16,256 $11,499 $13,639 =============================== Discontinued $142,521 $10,755 $17,701 operations - ---------------------------------------------------- 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, 2000 and 1999 are as follows: - ---------------------------------------------------------- (in 000's) 2000 1999 ----------------- Deferred tax liabilities: Book over tax basis in acquired $68,887 $21,387 television stations Tax over book depreciation 7,072 4,868 Tax over book amortization 7,412 5,608 ----------------- Total deferred tax liabilities 83,371 31,863 Deferred tax assets: Net operating loss carryover 2,115 2,695 Book over tax partnership losses 958 1,072 Employee benefits 2,476 2,532 Other, net 134 48 ----------------- Total deferred tax assets 5,683 6,347 ----------------- Net deferred tax liability $77,688 $25,516 - ---------------------------------------------------------- The following table reconciles income tax computed at the U.S. federal statutory tax rates to income tax expense: - ---------------------------------------------------------- (in 000's) 2000 1999 1998 ------------------------------ Federal income tax rate 35% 35% 35% Rate applied to pre-tax $14,438 $10,545 $12,261 income State taxes, net of federal 879 642 747 tax benefit Tax credits (750) (413) (289) Non-deductible compensation 761 -- -- Other 928 725 920 ------------------------------ Provision for income taxes $16,256 $11,499 $13,639 - ---------------------------------------------------------- As of December 31, 2000 the Company has operating loss carryforwards of approximately $6,000,000 that expire in 2015. These were acquired by the Company through the purchase of WWAY-TV in December, 1998. They will be utilized against future earnings, but are limited to $1,600,000 per year. Income taxes paid were approximately $22,800,000, $18,376,000, and $29,709,000 in 2000, 1999, and 1998, respectively. 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly results of operations for each of the years ended December 31, 2000 and 1999 are as follows: - -------------------------------------------------------------- (In 000's, except per share data) QUARTER ENDED 2000 ------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ------------------------------------- Net revenues $36,959 $44,025 $43,292 $49,396 Operating income $ 6,224 $11,737 $10,468 $10,492 Income from continuing operations $ 7,887 $4,412 $ 3,993 $8,703 Income from discontinued $ 7,510 $10,978 $ 7,573 $2,502 operations Net income $15,397 $15,390 $11,566 $11,205 Basic earnings per share $ 0.79 $ 0.79 $ 0.60 $ 0.57 Diluted earnings per share $ 0.78 $ 0.78 $ 0.58 $ 0.57 - -------------------------------------------------------------- - --------------------------------------------------------------- (In 000's, except per share data) Quarter Ended 1999 -------------------------------------- March 31 June 30 Sept. 30 Dec. 31 -------------------------------------- Net revenues $34,519 $40,847 $37,490 $41,144 Operating income $ 7,412 $13,828 $9,115 $12,430 Income from continuing operations $ 2,737 $ 6,381 $3,134 $6,378 Income from discontinued operations $ (217) $ 6,686 $14,075 $5,395 Net income $ 2,520 $13,067 $17,209 $11,773 Basic earnings per share $ 0.11 $ 0.69 $ 0.88 $ 0.60 Diluted earnings per share $ 0.11 $ 0.66 $ 0.86 $ 0.59 - --------------------------------------------------------------- 35 19 13. EARNINGS PER SHARE The following tables reconcile the numerators and denominators for the basic and diluted earnings from continuing operations per share calculations for the years ended December 31, 2000, 1999 and 1998: - ---------------------------------------------------------------- For the year ended 2000 ------------------------------- ($000's, except per share Shares Per amounts) Income (Denom- Share (Numerator) inator) Amount -------------------------------- Income from continuing $24,995 operations Less: Preferred stock dividends (365) ------------ BASIC EPS FROM CONTINUING OPERATIONS Income from continuing operations available to common shareholders 24,630 19,379 $1.27 ======== Effect of Dilutive Securities: Stock options --- 75 Convertible preferred stock 365 267 ---------------------- DILUTED EPS FROM CONTINUING OPERATIONS Income from continuing operations available to common shareholders plus assumed conversions $24,995 19,721 $1.27 ======== - ---------------------------------------------------------------- - ---------------------------------------------------------------- For the year ended 1999 -------------------------------- ($000's, except per share Shares Per amounts) Income (Denom- Share (Numerator) inator) Amount -------------------------------- Income from continuing $18,630 operations Less: Preferred stock dividends (1,195) ------------- Basic EPS from continuing operations Income from continuing operations available to common shareholders 17,435 18,992 $0.92 ========= Effect of Dilutive Securities: Stock options --- 150 Redeemable preferred stock 269 210 ---------------------- Diluted EPS from continuing operations Income from continuing operations available to common shareholders plus assumed conversions $17,704 19,352 $0.91 ========= - ---------------------------------------------------------------- - ---------------------------------------------------------------- For the year ended 1998 --------------------------------- ($000's, except per share Shares Per amounts) Income (Denom- Share (Numerator) inator) Amount -------------------------------- Net income $21,391 Less: Preferred stock (2,601) dividends ----------- Basic EPS from continuing operations Income from continuing operations available to common shareholders 18,790 18,839 $1.00 ========== Effect of Dilutive Securities: Stock Options --- 149 ---------------------- Diluted EPS from continuing operations Income from continuing operations available to common shareholders plus assumed conversions $18,790 18,988 $0.99 ========== - ---------------------------------------------------------------- The diluted income from continuing operations per common share calculation excludes the effect of potentially dilutive shares when the inclusion of those shares in the calculation would have an anti-dilutive effect. For the years ended December 31, 1999 and 1998, respectively, the Company had 544,000 and 1,351,000 weighted average shares of preferred securities which were not included in the diluted income from continuing operations per common share calculation as their effect was anti-dilutive. 14. 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 cash equivalents: The carrying amounts reported in the balance sheet for these instruments approximate their fair values. o Receivables and accounts payable: The carrying amounts reported in the balance sheet for these instruments approximates their fair value due to the short maturity of these items. o Program contract obligations: Fair values on program contract obligations is estimated to approximate their carrying value as a result of their short term nature. o Marketable equity securities: The fair values for the available-for-sale marketable equity securities are based on quoted market prices. o Investments in private equity securities, venture capital funds and low income housing tax credits: The Company determined that it was not practicable to estimate the fair values of its private equity, venture capital and low income housing tax credit investments because of a lack of primary and secondary market prices and the inability to estimate fair values without incurring excessive costs. 15. COMPREHENSIVE INCOME The components of other comprehensive income (loss) and the related tax effects, for the years 2000, 1999, and 1998 are as follows (in 000's): - --------------------------------------------------------------- (in 000's) Income Amount Tax Amount Before (Expense) Net of 2000 Taxes Benefit Taxes - --------------------------------------------------------------- Unrealized gain on available for sale securities $323 $(113) $210 Less: reclassification adjustment for losses 739 (259) 480 realized in net income - --------------------------------------------------------------- Net unrealized income $1,062 $372 $690 - --------------------------------------------------------------- Total comprehensive income $1,062 $372 $690 - --------------------------------------------------------------- - --------------------------------------------------------------- (in 000's) Income Amount Tax Amount Before (Expense) Net of 1999 Taxes Benefit Taxes - --------------------------------------------------------------- Unrealized losses on available for sale$ securities $(312) $ 110 $(202) Less: reclassification adjustment for losses realized in net income (1,521) 532 (989) - --------------------------------------------------------------- Net unrealized losses $(1,833) $ 642 $(1,191) - --------------------------------------------------------------- Total comprehensive income (loss) $(1,833) $ 642 $(1,191) - --------------------------------------------------------------- 36 20 - ----------------------------------------------------------------- (in 000's) 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 income (4,028) 1,410 (2,618) - ----------------------------------------------------------------- Net unrealized gains $41,151 $(14,402) $26,749 - ----------------------------------------------------------------- Total comprehensive income $41,151 $(14,402) $26,749 - ----------------------------------------------------------------- 16. SEGMENT INFORMATION The Company operates primarily in the television broadcasting and cable advertising businesses. The Company currently owns and operates fifteen television stations, located principally in the Southeast and Midwest. Each of the stations is affiliated with a major network, with eight NBC affiliates, five ABC affiliates, and two CBS affiliates. The Company evaluates segment performance based on operating income , excluding unusual or non-operating items. The following tables summarize financial information by segment for the periods ended December 31, 2000, 1999 and 1998, respectively: - -------------------------------------------------------------- AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2000 (In 000's) CORPORATE BROADCASTING CABLE & OTHER TOTAL Revenues (net of $161,184 $10,748 $1,740 $173,672 commissions) Expenses: Operating 87,038 9,578 17,038 113,654 Depreciation and amortization 19,033 592 1,472 21,097 ------------------------------------------- Total operating 106,071 10,170 18,510 134,751 expenses Operating income 55,113 578 (16,770) 38,921 Net investment 16,696 16,696 income Interest expense 14,366 14,366 ---------- Income from continuing operations before income taxes $41,251 ========== Segment assets $633,103 $4,418 $258,486 $896,007 Expenditures for property and equipment $9,032 $611 $48 $9,691 - ------------------------------------------------------------- - --------------------------------------------------------------- AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 (In 000's) CORPORATE BROADCASTING CABLE & OTHER TOTAL Revenues (net of $144,044 $9,728 $ 228 $154,000 commissions) Expenses: Operating 78,605 7,368 8,472 94,445 Depreciation and 14,965 426 1,379 16,770 amortization --------------------------------------------- Total operating 93,570 7,794 9,851 111,215 expenses Operating income 50,474 1,934 (9,623) 42,785 Net investment 2,477 2,477 income Interest expense 15,133 15,133 ---------- Income from continuing operations before income taxes $30,129 ========== Segment assets $295,208 $4,996 $78,453 $378,657 Expenditures for property and $8,670 $514 $ - $9,184 equipment - -------------------------------------------------------------- - ----------------------------------------------------------------- AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 (In 000's) CORPORATE BROADCASTING CABLE & OTHER TOTAL ------------------------------------------ Revenues (net of $130,103 $7,523 $ - $137,626 commissions) Expenses: Operating 66,810 5,780 10,458 83,048 Depreciation and amortization 9,394 348 1,357 11,099 -------------------------------------------- Total operating 76,204 6,128 11,815 94,147 expenses Operating income 53,899 1,395 (11,815) 43,479 Net investment 4,149 4,149 income Interest expense 12,598 12,598 ---------- Income from continuing operations before income taxes $35,030 ========== Segment assets $300,701 $4,262 $79,892 $384,855 Expenditures for property and $7,145 $869 $ - $8,014 equipment - ----------------------------------------------------------------- 37 21 17. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. It is the opinion of management and legal counsel that these actions will not have a material effect on the financial position or results of operations of the Company. The Company has lease agreements for broadcast, data processing, and telephone equipment, along with rent for certain office space. 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 $1,238,000, $991,000 and $817,000 in 2000, 1999, and 1998 respectively. Future commitments under operating leases are shown below: - -------------------------------------------------- Year (in 000's) 2001 $869 2002 667 2003 575 2004 150 2005 30 Thereafter 6 ----------------- Total $2,297 - -------------------------------------------------- The Company has also entered into commitments for various television programming rights for which the license periods have not yet commenced. See the caption "Program Contract Obligation" included in Note 2 for further details. The Company also has committed to make certain investments in its venture capital funds, when called by the fund's manager. The Company anticipates capital calls of approximately $942,000 during 2001 and $488,000 in 2002. The Company has not committed to any future investments after 2002. 38 22 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, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Greenville, South Carolina February 6, 2001, except for the last paragraph of Note 7, as to which the date is February 27, 2001. 39 EX-21 3 g67979ex21.txt SUBSIDIARIES 1 Exhibit 21 THE LIBERTY CORPORATION AND SUBSIDIARIES LIST OF SUBSIDIARIES DECEMBER 31, 2000
Percentage of Voting Stock Jurisdiction of Incorporation Owned by Immediate Parent ------------------------------ ----------------------------- The Liberty Corporation South Carolina Cosmos Broadcasting Corporation South Carolina 100 CableVantage Inc. South Carolina 100 Broadcast Merchandising Corporation. South Carolina 100 SuperCoups USA, Inc. South Carolina 100 Civic Communications Corp. Delaware 100 TV-3, Inc. Mississippi 100 Civic License Holding Company, Inc. Delaware 100 Exchange Place Corporation North Carolina 100 Greensboro Holdings, Inc. South Carolina 100 State National Title Guaranty Company Louisiana 100 State National Mortgage Corporation Louisiana 100 Special Services Corporation South Carolina 100 Hampton Insurance Agency, Inc. South Carolina 100 Bent Tree Corporation Georgia 100 TLC Business Ventures, Inc. South Carolina 100 Liberty Properties Group, Inc. South Carolina 100 LIBCO of Florida, Inc. Florida 100 LPC of S. C., Inc. South Carolina 100 Johnson/Liberty LLC South Carolina 22 Commerce Center of Greenville, Inc. South Carolina 100
40 EX-23 4 g67979ex23.txt CONSENT OF INDEPENDENT AUDITORS 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 6, 2001, except for the last paragraph of Note 7, as to which the date is February 27, 2001, included in the 2000 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). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule 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, and in the Registration Statement (Form S-8 No. 333-30151) pertaining to The Performance Incentive Compensation Program of our report dated February 6, 2001, except for the last paragraph of Note 7, as to which the date is February 27, 2001, with respect to the consolidated financial statements and schedule of The Liberty Corporation incorporated by reference in the annual report on Form 10-K for the year ended December 31, 2000. /s/ Ernst & Young LLP Greenville, South Carolina March 26, 2001 41 EX-24 5 g67979ex24.txt POWER OF ATTORNEY 1 Exhibit 24 SPECIAL POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that I, Frank E. Melton, Director of The Liberty Corporation, do hereby appoint Martha G. Williams and Sophia G. Vergas, or either of them, Special Attorney for me and in my name and on my behalf to sign the Annual Report on Form 10-K and any amendments thereto for The Liberty Corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, for each fiscal year ended December 31, and generally to do and to perform all things necessary to be done in the premises as fully and effectually in all respects as I could do if personally present. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 7th day of March, 2001. Frank E. Melton /s/ ---------------------------------------- Director, The Liberty Corporation A South Carolina Corporation Myra T. Pepper /s/ (SEAL) - -------------------------------------------------------------- Notary Public for State of Mississippi At Large My Commission Expires: December 22, 2003 42 -----END PRIVACY-ENHANCED MESSAGE-----