-----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, JGzfQ5gxCUEj2I91Sl97CVYkVmO7eUhnRHH2ziv6cOhpZk2CD2khTAGugGIUhq75 AUlFyM7S/FJyZb40YbiRsg== 0000950144-96-001454.txt : 19960402 0000950144-96-001454.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950144-96-001454 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: PHLX 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: 1934 Act SEC FILE NUMBER: 001-05846 FILM NUMBER: 96542558 BUSINESS ADDRESS: STREET 1: P O BOX 789 STREET 2: WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032688283 MAIL ADDRESS: STREET 1: P O BOX 789 STREET 2: WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29602 10-K405 1 LIBERTY CORPORATION FORM 10-K ANNUAL REPORT 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, 1995 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ----------------- Commission File Number 1-5846 ---------- THE LIBERTY CORPORATION - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) South Carolina 57-0507055 - -------------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Post Office Box 789, Wade Hampton Boulevard, Greenville, S. C. 29602 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (864) 609-8436 ------------------- Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange Title of Each Class on Which 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, 1996: Common Stock, No Par Value $663,003,165 -------------------------- ------------ The number of shares outstanding of each of Registrant's classes of common stock as of March 15, 1996: Common Stock, No Par Value 20,091,005 -------------------------- ------------ DOCUMENTS INCORPORATED BY REFERENCE Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 1995 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 7, 1996 are incorporated into Part III, Items 10, 11, 12, and 13 by reference. This report is comprised of pages 1 through 80. The exhibit index is on page 27. 2 PART I ITEM 1. BUSINESS GENERAL The Registrant, The Liberty Corporation ("Liberty" or "the Company") is a holding company engaged through its subsidiaries primarily in the life insurance and television broadcasting businesses. The Company's primary insurance subsidiaries are Liberty Life Insurance Company ("Liberty Life") and Pierce National Life Insurance Company ("Pierce National"). During 1995, the insurance operations owned by North American National Corporation ("North American") an insurance holding company acquired by Liberty in 1994, were merged into Pierce National. The insurance subsidiaries of North American consisted of Pan Western Life Insurance Company ("Pan Western"), Brookings International Life Insurance Company ("Brookings"), and Howard Life Insurance Company ("Howard"). In November 1995, American Funeral Assurance Company ("American Funeral"), acquired in 1994, was merged into Pierce National. Together, the insurance subsidiaries offer a diverse portfolio of individual life and health insurance products. In addition to Liberty Life and Pierce National, Liberty Insurance Services Corporation ("Liberty Insurance Services") provides home office support services for unaffiliated life and health insurance companies, as well as for some of the Company's insurance operations. Other subsidiaries of the Company provide investment advisory services to the Company's insurance subsidiaries and unaffiliated insurance companies, and property development and management services to the Company. The Company's television broadcasting subsidiary, Cosmos Broadcasting Corporation ("Cosmos"), currently owns and operates eight network affiliated television stations, with the most recent acquisition, WLOX-TV in Biloxi, Mississippi, being acquired in February 1995. STRATEGY; RECENT DEVELOPMENTS The Company's principal strategy is to grow internally and through selective acquisitions, while maintaining its emphasis on cost controls. The Company's operations are generally focused in niche markets where Liberty believes it has the products and expertise to serve the market better than its competitors. Liberty will continue to seek opportunities to acquire insurance companies and blocks of business that complement or fit with the Company's existing marketing divisions and product lines. The Company's acquisition strategy has focused on both home service and pre-need businesses. Home service business represents the Company's primary core business, whereas the pre-need business is a relatively new line of business for the Company. The Company largely entered the pre-need business with the acquisition of Pierce National in July 1992. The 1994 pre-need acquisitions significantly strengthened the Company's market position in the pre-need market, which provides life insurance products to pre-fund funeral services. The Company believes that the pre-need business has favorable demographics which can provide attractive future premium and earnings growth. During 1995, the Company completed the consolidation of all of the recently acquired pre-need companies into Pierce National. In conjunction with the consolidation, the Company introduced what it believes to be the most comprehensive pre-need product portfolio in the industry. The product portfolio is marketed under the brand name FamilySide. Management's philosophy regarding broadcasting acquisitions is to make selective acquisitions in local markets where it can be among the dominant television stations. The following page summarizes the Company's acquisitions since 1992. 2 3
Annual Premiums INSURANCE ACQUISITIONS Date Acquired - ----------------------------------------------------------------------------------------------------- Acquisition of Pierce National Life Insurance Company, a July 1992 $31 million (1) California based provider of pre-need life insurance (includes $6 million of single pay premiums) Acquisition of Magnolia Financial Corporation and its October 1992 $15 million (1) subsidiary, Magnolia Life Insurance Company, a Louisiana based provider of primarily home service life insurance Acquisition of assets and block of insurance business April 1993 $7 million (2) from Estate Assurance Company, a Louisiana (includes $6 based provider of pre-need life insurance million of single pay premiums) Acquisition of North American National Corporation and its February 1994 $24 million (3) subsidiaries, an Ohio based holding company with insurance (includes $5 subsidiaries based in Ohio, Colorado and South Dakota that million of single provide primarily pre-need and other ordinary life pay premiums) insurance and accident and health insurance Acquisition of American Funeral Assurance Company, a February 1994 $59 million (3) Mississippi based provider of primarily pre-need life (includes $44 insurance million of single pay premiums) Acquisition of State National Capital Corporation and its April 1994 $10 million (3) subsidiaries, a Louisiana based provider of primarily home service life insurance
(1) Represents amount of annualized premiums acquired at the time of acquisition. (2) Represents amount of annual premiums reported by the selling company in its 1992 annual financial statements filed under applicable statutory requirements. (3) Represents amount of annual premiums reported by the selling company in its 1993 annual financial statements filed under applicable statutory requirements. BROADCASTING ACQUISITION On February 28, 1995, the Company completed the acquisition of WLOX-TV in Biloxi, Mississippi, bringing to eight the total number of television stations in Cosmos. The purchase price of $40.1 million was funded with a combination of redeemable preferred stock, cash and a note payable. WLOX is an ABC affiliate that carries strong local news and is the top station in its market. 3 4 INSURANCE OPERATIONS LIBERTY LIFE. Liberty Life is a stock life insurance company engaged in the business of writing a broad range of individual life insurance policies and accident and health insurance policies. Liberty Life is ranked 131st, based on ordinary life insurance in force among approximately 1,200 United States life insurance companies, according to data provided by A.M. Best Company. While Liberty Life is licensed in forty-nine states, and the District of Columbia, its focus has been the Southeast. For 1995, the largest percentages of its premium income were from South Carolina (28%), North Carolina (21%), Louisiana (7%) and Georgia (4%). The Company believes that Liberty Life is the largest provider of home service business in the Carolinas. Life insurance and annuity premiums contributed 84% of Liberty Life's total premiums in 1995, 83% in 1994 and 79% in 1993. Accident and health insurance premiums contributed the remainder. In 1994, the Company decided to cease sales of its products through its general agency distribution system due to the absence of critical volume. Premiums and policy charges from the general agency division represented approximately 2% of the Company's total premiums and policy charges when the decision to cease sales in this division was made. Liberty Life continues to market its insurance products through its Home Service and Mortgage Protection divisions. At December 31, 1995, Liberty Life had approximately 500 employees in its home office in Greenville. HOME SERVICE DIVISION. The Home Service Division is Liberty Life's largest division, contributing 69% of Liberty Life's premiums in 1995. Home Service agents of Liberty Life sell primarily individual life, including universal life and interest-sensitive whole life products, as well as health insurance. As of December 1995, the Company had approximately 1,300 agents, managers and support staff in this division operating out of 50 district offices. These agents periodically visit the insureds' homes and businesses to collect premiums. Although the Company has broadened this division's area of concentration beyond the Carolinas, principally through strategic acquisitions, the Company has maintained a regional focus for its home service business on the Southeast. MORTGAGE PROTECTION DIVISION. The Mortgage Protection Division contributed 26% of Liberty Life's premiums in 1995. The Mortgage Protection Division sells decreasing term life insurance designed to extinguish the unpaid portion of a residential mortgage upon the death of the insured. This division also sells accidental death, disability income and credit life insurance. A staff of full-time representatives and independent brokers offer these products through more than 1,000 financial institutions located throughout the United States. The Company supports the marketing of these products through direct mail and phone solicitations. PIERCE NATIONAL. Pierce National provides life insurance products which pre-fund funeral services, referred to as pre-need policies. Pierce National, a stock life insurance company acquired in July 1992, is domiciled in California, but its principal executive and administrative offices are in Greenville, South Carolina. Pre-need policies consist primarily of ordinary life insurance policies for which the premiums are paid in a single payment at the outset or primarily over a three, five or ten-year period. In April 1993, Pierce National acquired through coinsurance all of the ordinary life insurance, representing pre-need life insurance, of Estate Assurance Company, effective as of January 1, 1993. In 1994, Liberty acquired North American National Corporation, an insurance holding company, and American Funeral. As previously mentioned, the insurance subsidiaries of North American and American Funeral were merged into Pierce National during 1995. Pierce National is currently licensed in forty-one states, the District of Columbia, and ten Canadian provinces. The current plan is to seek licensure in the majority of the remaining states and the province of Quebec. The largest percentages of premium income for 1995 came from Canada (14%), Mississippi (10%) and California (8%). 4 5 At December 31, 1995, the Pierce National employed approximately 30 people in its home office in Greenville who perform marketing, administrative and clerical duties. Policy administration for Pierce National is carried out by Liberty Insurance Services who employs approximately 85 people in this area. PREMIUM BREAKDOWN. The following table sets forth the insurance premiums and policy charges for Liberty Life's marketing and distribution divisions and Pierce National for the years ended December 31.
(In 000's) 1995 1994 1993 - ------------------------------------------------------ Liberty Life Home Service $138,714 $136,187 $137,919 Mortgage Protection 53,105 49,985 54,058 General Agency Marketing 5,966 6,143 5,906 Other 3,235 1,384 1,670 - ------------------------------------------------------ 201,020 193,699 199,553 Pierce National 130,350 122,090 51,369 - ------------------------------------------------------ Total $331,370 $315,789 $250,922 - ------------------------------------------------------
UNDERWRITING PRACTICES. Liberty Life's underwriting practices for ordinary life insurance require medical examinations for applicants over age 60 or for policies in excess of certain prescribed face amounts. In accordance with the general practice in the life insurance industry, Liberty Life writes life insurance on substandard risks at increased premium rates. Generally, home service life insurance for non-universal life products is written for amounts under $5,000 and typically no medical examination is required. Mortgage protection life insurance is usually written without medical examination. Substantially all pre-need policies are written for amounts under $5,000, and no medical examination is required unless the applicant requests a preferred rate. REINSURANCE. The Company's insurance subsidiaries use reinsurance in two distinct ways: first, as a risk management tool in the normal course of business and second, in isolated strategic transactions to effectively buy or sell blocks of in force business. The Company has ceded $4.6 billion (21%) of its $21.4 billion insurance in force to other companies; however, the Company's insurance subsidiaries remain liable with respect to reinsurance ceded should any reinsurer be unable to meet the obligations it has or will assume. For the years ended December 31, 1995, 1994 and 1993, Liberty had ceded life insurance premiums of $27.8 million, $26.4 million, and $26.1 million, respectively. Accident and health premiums ceded made up the remainder of ceded premiums which were $6.9 million, $3.7 million, and $3.5 million for the years ended December 31, 1995, 1994 and 1993, respectively. RISK MANAGEMENT REINSURANCE TRANSACTIONS. Liberty Life reinsures with other insurance companies portions of the life insurance it writes in order to limit its exposure on large or substandard risks. The maximum amount of life insurance that Liberty Life will retain on any life is $300,000, plus an additional $50,000 in the event of accidental death. This maximum is reduced for higher ages and for special classes of risks. The maximum amount of life insurance Pierce National will retain on any life is $50,000. Insurance in excess of the retention limit is either automatically ceded under reinsurance agreements or is reinsured on an individually agreed basis with other insurance companies. Liberty Life has ceded a significant portion of its risks on accidental death and disability coverage to other insurance companies. Liberty Life and Pierce National also have coverage for catastrophic accidents. At December 31, 1995, Liberty Life and Pierce National had ceded, in the normal course of business, portions of their risks to a number of other insurance companies. STRATEGIC REINSURANCE TRANSACTIONS. In 1991, 80% or $3.2 billion face amount of Liberty Life's General Agency Marketing Division net insurance in force was coinsured with Life Reassurance Corporation ("Life Re"). The original agreement with Life Re provided for the coinsurance of 50% of this division's insurance in force issued after 1991. Effective July 1, 1995, the amount coinsured on policies written after December 31, 1991, was increased to 80%. The 5 6 total face value of amounts ceded to Life Re at December 31, 1995 was $2.9 billion. Under terms of the agreement, assets supporting the business ceded are required to be held in escrow. In order to facilitate the 1991 acquisition through reinsurance of a block of business from Kentucky Central Life Insurance Company, Liberty Life coinsured 50% of its home service traditional life insurance business with Lincoln National Life Reinsurance Company. The Lincoln National reinsurance has been accounted for under generally accepted accounting principles as financial reinsurance. The reinsurance contract contains an escrow agreement that requires assets equal to the reserves reinsured, as determined under statutory accounting principles, be held in escrow for the benefit of this block of business. The Company uses assumption reinsurance to effectively acquire blocks of in force business by acting as the "reinsurer" for other insurance companies. For instance, the Company acquired the Kentucky Central and Estate Assurance blocks in this manner. OPERATIONS. The administrative functions of underwriting and issuing new policies, and the ongoing servicing and claims settlement of in force policies, are centralized at the home office in Greenville, South Carolina. In acquiring additional blocks of insurance business, the Company's strategy is to integrate the administrative functions into its existing operations, either directly or through Liberty Insurance Services, as soon as practical after the effective date of the acquisition. The Company believes that this centralization permits economies of scale and promotes greater cost efficiencies. The Company's insurance operation services approximately 3.0 million policies representing $21.4 billion of life insurance in force, of which $4.6 billion of insurance in force has been ceded to other companies. Approximately 200,000 policies representing $3.0 billion of life insurance in force were issued during 1995. The Company intends to continue its focus on reducing the unit costs of administrative services by increasing the volume of business through acquisitions of blocks of business similar in nature to its existing business, by internal growth in those businesses, and by investing in up-to-date technology to further improve efficiency in its operations. LIBERTY INSURANCE SERVICES. Liberty Insurance Services provides a wide range of home office support services to unaffiliated life and health insurance companies on a fee basis, as well as to the Company's insurance subsidiaries. These services include underwriting, preparation of policies, accounting, customer service and claims processing and adjudication and can be tailored to support the special features of insurance products offered by other companies that desire these services. The Company's strategy is to target (i) insurance companies that have closed blocks of business that are expensive to administer, (ii) insurance companies that have start-up or new product lines requiring new support levels, (iii) small to midsize insurance companies that cannot justify large investments in home office technology, and (iv) insurance companies acquired by financial investors lacking experience in providing home office support. Liberty Insurance Services believes that its economies of scale will permit its customers to reduce their home office support costs and focus resources on marketing their insurance products. Beginning in 1996, the operations of Liberty Insurance Services are expected to be combined in a joint venture with Continuum Administrative Services Company, the third party administrative arm of The Continuum Company. The joint venture, operating under the name of ALLIANCE-ONE Services, LP, will be the largest third party administrator of life insurance business in the United States. Liberty will have a 40% ownership interest in the joint venture. INSURANCE COMPETITION AND RATINGS The Company's insurance subsidiaries compete with numerous United States and Canadian insurance companies, some of which have greater financial resources, broader product lines and larger staffs. In addition, banks and savings and loan associations in some jurisdictions compete with the Company's insurance subsidiaries for sales of life insurance products, and the insurance subsidiaries compete with banks, investment advisors, mutual funds and other financial entities to attract investment funds generally. Competition in the home service business is largely regional or local, highly dependent on the quality of the local management, and is less price competitive than other insurance markets. The home service business involves frequent contacts by agents with their customers. Liberty emphasizes to its agents the importance of taking advantage of these contacts to establish personal relationships which the Company believes add stability to its home service business. 6 7 The Company believes that competition in the pre-need market is national and, therefore, has expanded the market of its pre-need business. The Company intends to capitalize on its affinity marketing expertise gained in the mortgage protection insurance business by targeting national chains of funeral homes and by supplementing this effort with direct marketing and telemarketing campaigns. The Company currently believes that it ranks third nationally in mortgage protection insurance with an estimated 13% market share. Slightly over 85% of the mortgage protection market share is believed to be held by four companies and 40% of the market is held by the market leader. Various independent companies issue ratings assessing the ability of insurance companies to meet their policyholder and other contractual obligations, as well as assessing the overall financial performance and strength of companies. The most widely used ratings are those prepared and published by A.M. Best Company, Inc. Ratings by A.M. Best range from "A++" (Superior) to "F" (In Liquidation). In the Best's Rating Monitor published March, 11, 1996, Liberty Life was rated "A" (Excellent) and Pierce National was rated "B++" (Very Good). Liberty Life also has a current claims-paying rating of "AA" (Very High) by Duff & Phelps Credit Rating Co. The rating agencies base their ratings on information provided by the insurer and their own analysis, studies and assumptions. The ratings apply only to the specific company rated and do not extend to The Liberty Corporation as a whole, nor are the ratings a recommendation to buy, sell or hold securities. The agencies can change or withdraw their published ratings at any time the agency deems circumstances warrant a change. Should Liberty Life's or Pierce National's rating be downgraded, sales of their products and persistency of the existing in-force business could be adversely affected. Insurance company ratings are generally considered to be more important in the annuity and general agency markets, neither of which are major markets for Liberty Life or Pierce National. INSURANCE REGULATION. Like other insurance companies, the Company's insurance subsidiaries are subject to regulation and supervision by the state or other insurance department of each jurisdiction in which they are licensed to do business. These supervisory agencies have broad administrative powers relating to the granting and revocation of licenses to transact business, the licensing of agents, the approval of policy forms, reserve requirements and the form and content of required statutory basis financial statements. As to its investments, each of the Company's insurance subsidiaries must meet the standards and tests established by the National Association of Insurance Commissioners (the "NAIC") and, in particular, the investment laws and regulations of the states in which each subsidiary is domiciled. All states and jurisdictions (including the Canadian provinces where Pierce National is also licensed) have their own statutes and regulations, which vary in certain respects. However, the NAIC Model Act and regulations have tended to make the various states' regulation more uniform. The insurance companies are also subject to laws in most states that require solvent life insurance companies to pay guaranty fund assessments to protect the interests of policyholders of insolvent life insurance companies. The NAIC and state regulatory authorities require the Asset Valuation Reserve or "AVR" and the Interest Maintenance Reserve or "IMR" to be established as a liability on a life insurer's statutory financial statements, but do not affect financial statements of the Company prepared in accordance with generally accepted accounting principles. AVR establishes a statutory reserve for mortgage loans, equity real estate and joint ventures, as well as for fixed maturities and common and preferred stock. AVR generally captures all realized and unrealized gains and losses on such assets, other than those resulting from changes in interest rates. IMR captures the net gains or losses that are realized upon the sale of fixed income securities (bonds, preferred stocks, mortgage-backed securities and mortgage loans) and that result from changes in the overall level of interest rates, and amortizes these net realized gains or losses into income over the remaining life of each investment sold, thus limiting the ability of an insurer to enhance statutory surplus by taking gains on fixed income securities. The IMR and AVR requirements have not had a material impact on the Company's insurance subsidiaries' surplus nor Liberty Life's ability to pay dividends to the parent company. In recent years the NAIC has approved and recommended to the states for adoption and implementation several regulatory initiatives designed to decrease the risk of insolvency of insurance companies in general. These initiatives include the implementation of a risk-based capital formula for determining adequate levels of capital and surplus and further restrictions on an insurance company's payment of dividends to its shareholders. To date, South Carolina has not adopted the NAIC risk-based capital model act; however, it does require prior notice to the South Carolina Commissioner of Insurance of dividend distributions to shareholders, and permits the Commissioner to disapprove or limit the dividend within 30 days of notice if the dividend or distribution is deemed an unreasonable strain on surplus. 7 8 The NAIC risk-based capital model act or similar initiatives may be adopted by South Carolina or the various states in which Liberty Life and the Company's other insurance subsidiaries are licensed, but the ultimate content and timing of any statutes and regulations adopted by the states cannot be determined at this time. Under the NAIC's risk-based capital requirements ("RBC"), insurance companies must calculate and report information under a risk-based capital formula in their annual statutory financial statement. This information is intended to permit insurance regulators to identify and require remedial action for inadequately capitalized insurance companies, but is not designed to rank adequately capitalized companies. The NAIC requirements provide for four levels of potential involvement by state regulators for inadequately capitalized insurance companies, ranging from a requirement for the insurance company to submit a plan to improve its capital, to regulatory control of the insurance company. The RBC ratios for the Company's insurance subsidiaries significantly exceed the minimum capital requirements at December 31, 1995. Another NAIC Model Act limits dividends that may be paid in any calendar year without regulatory approval to the lesser of (i) 10% of the insurer's statutory surplus at the prior year-end, or (ii) the statutory net gain from operations of the insurer (excluding realized capital gains and losses) for the prior calendar year. The current South Carolina statutes applicable to Liberty Life do not conform to the NAIC Model Act (South Carolina limits dividends to the greater of 10% of statutory surplus or gain from operations). Under current South Carolina law, without prior approval from the South Carolina Commissioner of Insurance, dividend payments from Liberty Life to the Company are limited to the greater of the prior year's statutory gain from operations or 10% of the prior year's statutory surplus. The maximum allowable dividend that can be paid in 1996 without approval from the South Carolina Insurance Commissioner is $24.8 million. Actual dividends and distributions paid by Liberty Life were $20.0 million in 1995, $20.3 million in 1994, and $22.0 million in 1993. Under regulations effective July 1, 1995, the South Carolina Insurance Department must be notified of all dividends and distributions to shareholders within five days following the declaration, and at least ten days prior to the payment of the dividend or distribution, and will have the authority to limit the amount of any dividends or distributions. Extraordinary dividends, defined as distributions that, together with all other distributions within a 12 month period, exceed the greater of the net gain from operations or 10% of statutory surplus, cannot be made without the approval of the South Carolina Insurance Department, unless the department has not disapproved the payment within 30 days following the notice of the declaration. The current California statutes applicable to Pierce National limit dividend payments to the Company to the greater of 10% of statutory surplus or the prior year's net gain from operations (excluding realized capital gains and losses). The maximum allowable dividend that Pierce National can pay during 1996 will be $5.1 million; however, the Company does not currently plan to seek dividends from Pierce National during 1996. During 1995, Pierce National paid $2.6 million in dividends to Liberty. In accordance with the rules and practices of the NAIC and in accordance with state law, every insurance company is generally examined once every three years by examiners from its state of domicile and from several of the other states where it is licensed to do business. Examinations of Liberty Life and Pierce National for the periods ended December 31, 1994 have been completed and the reports issued did not indicate any significant areas of concern. The Office of the Superintendent of Financial Institutions -- Canada, and the Canadian provinces regulate and supervise the Canadian operations of Pierce National in the same manner as the NAIC and the states. Separate financial statements are required to meet the Canadian regulatory requirements and a separate examination is conducted by the Canadian regulatory agencies. The Company's insurance subsidiaries are also subject to regulation as an insurance holding company system under statutes which have been enacted in their states of domicile and other states in which they are licensed to do business. Pursuant to these statutes, Liberty Life and Pierce National are required to file an annual registration statement with the Office of the Commissioner of Insurance and to report all material changes or transactions. In addition, these statutes restrict the ability of any person to acquire control (generally presumed at 10% or more) of the outstanding voting securities of the Company without prior regulatory approval. 8 9 BROADCASTING OPERATIONS Cosmos currently owns and operates the following television stations, seven of which were ranked No. 1 in their market by the November 1995 Nielsen ratings.
Station Primary Market Affiliation VHF/UHF - ------- -------------- ----------- ------- WAVE-TV Louisville, Kentucky NBC VHF WIS-TV Columbia, South Carolina NBC VHF WSFA-TV Montgomery, Alabama NBC VHF KPLC-TV Lake Charles, Louisiana NBC VHF WTOL-TV Toledo, Ohio CBS VHF KAIT-TV Jonesboro, Arkansas ABC VHF WFIE-TV Evansville, Indiana NBC UHF WLOX-TV Biloxi, Mississippi ABC VHF
Cosmos has approximately 800 full-time employees and 110 part-time employees, including its cable sales operations in Columbia, SC, Florence, SC, Sumter, SC and Frankfort, KY. NETWORK AFFILIATES. Each Cosmos station is affiliated with one of the major networks - NBC, ABC, CBS. The affiliation contracts provide that the network will offer to the affiliated station a variety of network programs, both sponsored and unsponsored, for which the station has the right of first refusal against any other television station located in its community. The station has the right to reject or accept the programs offered by the network and also has the right to broadcast programs either produced by the station or acquired from other sources. The major networks provide their affiliated stations with programming and sell the programs, or commercial time during the programs, to national advertisers. Each affiliate is compensated by its network for carrying the network's programs. That compensation is based on the local market rating strength of the affiliate and the audience it helps bring to the network programs. The major networks typically provide programming for approximately 90 hours of the approximately 135 hours per week broadcast by their affiliated stations. The NBC affiliation contracts with each of Cosmos' NBC affiliated stations have been continuously in effect for over thirty-nine years. Cosmos' CBS and ABC affiliation contracts have each been continuously in effect for approximately thirty years. SOURCES OF COSMOS' TELEVISION OPERATING REVENUES. The following table shows the approximate percentage of Cosmos' gross television operating revenues by source excluding other income for the three years ended December 31, 1995:
Year ended December 31 1995 1994 1993 - ------------------------------------------------ Local and Regional Advertising 60% 57% 60% National Spot Advertising 28 30 32 Network Compensation 9 7 7 Political Advertising 3 6 1
Local and regional advertising is sold by each station's own sales representatives to local and other non-national advertisers or agencies. Generally these contracts are short-term, although occasionally longer-term packages will be sold. National spot advertising (generally a series of spot announcements between programs or within the station's own programs) is sold by the station or its sales representatives directly to agencies representing national advertisers. Most of these national sales contracts are also short-term, often covering spot campaigns running for thirteen weeks or less. Network compensation is paid by the network to its affiliated stations for broadcasting network programs that include advertising sold by the network to agencies representing national advertisers. Political advertising is generated by national and local elections, which is by definition very cyclical. 9 10 A television station's rates are primarily determined by the estimated number of television homes it can provide for an advertiser's message. The estimates of the total number of television homes in the market and of the station's share of those homes is based on the AC Nielsen industry-wide television rating service. The demographic make-up of the viewing audience is equally important to advertisers. A station's rate card for national and local advertisers takes into account, in addition to audience delivered, such variables as the length of the commercial announcements and the quantity purchased. The payments by a network to an affiliated station are largely determined by the total homes delivered, the relative preference of the station among the viewers in the market area and other factors related to management and ownership. TELEVISION BROADCASTING COMPETITION. The television broadcasting industry competes with other leisure time activities for the time of viewers and with all other advertising media for advertising dollars. Within its coverage area a television station competes with other stations and with other advertising media serving the same area. The outcome of the competition among stations for advertising dollars in a market depends principally on share of audience, advertising rates and the effectiveness of the sales effort. Cosmos believes that each of its stations has a strong competitive position in its local market, enabling it to deliver a high percentage of the local television audience to local advertisers. Cosmos' commitment to local news programming, combined with syndicated programming, are important elements in maintaining Cosmos' current market positions. Another source of competition is cable television, which brings additional television programming, including pay cable (HBO, Showtime, Movie Channel, etc.), into subscribers' homes in a television station's service area. Cable television competes for the station's viewing audience and, on a more modest scale, its advertising. Federal law now requires that cable operators negotiate with television operators for the right to carry a station's signal (programs) on cable systems. Cosmos recently used this "retransmission consent" negotiation to forge long-term partnerships with cable operators with the purpose of developing secondary revenue streams from programs and services specifically produced for cable. In 1994 Cosmos formed CableVantage Inc., a marketing company designed to assist local cable operators in the sale of commercial time available in cable network programs. Subscription Television, an over-the-air pay television service, and Multipoint Distribution Service, a microwave-distributed pay television service, also compete for television audiences. In addition, licenses are now being granted for Multichannel Multipoint Distribution Service. None of these services has yet significantly fractionalized the audiences of commercial television stations. Two other television broadcast services are providing consumers with additional technical delivery/programming opportunities. Low power television, sometimes referred to as "neighborhood TV," is authorized to operate in a limited coverage area. Authorizations are being granted by the Federal Communication Commission ("FCC") on a lottery basis. Direct Broadcast Satellite, which transmits television signals from satellite transponders to parabolic home antennae, is now being actively marketed. FEDERAL REGULATION OF BROADCASTING. Cosmos' broadcasting operations are subject to the jurisdiction of the FCC under the Communications Act. The Communications Act empowers the FCC, among other things, to issue, revoke or modify broadcasting licenses; to assign frequency bands; to determine the location of stations; to regulate the apparatus used by stations; to establish areas to be served; to adopt such regulations as may be necessary to carry out the provisions of the Communications Act and to impose certain penalties for violation of such regulations. The Communications Act prohibits the transfer of a license or the transfer of control or other change in control of a licensee without prior approval of the FCC. The Hipp family is considered by the FCC to have de facto control over Cosmos, and any action that would change such control would require prior approval of the FCC. The Telecommunications Act signed into law in 1996 (the "1996 Act") changed many existing regulations concerning, among other things, the ownership of television stations. Under previous regulations governing multiple ownership, a license to operate a television station generally would not be granted to any person (or persons under common control) if such person directly or indirectly held a significant interest in more than 12 television stations or less than 12 television stations if their audience coverage exceeded 25% of total United States households. The 1996 Act allows for unlimited ownership of stations as long as the audience coverage does not exceed 35% of total households. 10 11 Previous FCC regulations also limited ownership of television stations by those having interests in cable television systems and daily newspapers serving the same service area as the television stations. The 1996 Act dropped the station/cable same market ownership prohibition. The 1996 Act also lengthened the term for which television broadcasting licenses may be granted from a maximum term of five years to a maximum term of eight years. In the absence of adverse findings by the FCC as to the licensee's qualification, licenses are usually renewed without hearing by the FCC for additional eight year terms. Cosmos' renewal applications have always been granted without hearing for the full term. The loosening of the ownership provisions, as well as the other provisions included in the 1996 Act, are not expected to have any immediate impact on the operations of Cosmos. There are additional FCC Regulations and Policies, and regulations and policies of other federal agencies, principally the Federal Trade Commission, regulating network/affiliate relations, political broadcasts, children's programming, advertising practices, equal employment opportunity, carriage of television signals by CATV systems, application and reporting procedures and other areas affecting the business and operations of television stations. 11 12 EXECUTIVE OFFICERS The following is a list of the Executive Officers of the Registrant indicating their age and certain biographical data. W. HAYNE HIPP, Age 56 Chairman of the Board of Liberty since May, 1995 President and Chief Executive Officer of Liberty since September, 1981 Chairman of the Board of Liberty Life from January, 1979 -- February, 1988; September, 1989 -- present Chairman of the Board of Cosmos -- May , 1989 -- February, 1992 MARTHA G. WILLIAMS, Age 53 Vice President, General Counsel & Secretary of Liberty since January, 1982 Vice President, General Counsel & Secretary of Liberty Life since January, 1982 Secretary and Counsel of Cosmos since February, 1982 H. RAY EANES, Age 55 Senior Vice President of Finance and Treasurer of Liberty since May, 1994 Prior to joining Liberty was Vice Chairman -- Finance and Administration of Ernst & Young LLP W. KENNETH HUNT, III, Age 42 President of Liberty Life Insurance Company since December, 1994 President of Pierce National Life Insurance Company from September, 1993 to December, 1994 President of Liberty Insurance Services Corporation from August, 1991 to September, 1993 Chief Financial Officer of Liberty Life Insurance Company from February, 1987 to August, 1991 JENNIE M. JOHNSON, Age 48 President of Pierce National Life Insurance Company since August, 1995 Vice President, Administration of Liberty from February, 1994 to August, 1995 Vice President, Planning of Liberty from February, 1986 to December, 1994 JAMES M. KEELOR, Age 53 President of Cosmos since February, 1992 Vice President, Operations, of Cosmos from December, 1989 to February, 1992 M. PORTER B. ROSE, Age 54 President, Liberty Insurance Services, Inc. since June, 1995 President, Liberty Investment Group, Inc. since March, 1992 Chairman, Liberty Capital Advisors, Inc. since January, 1987 Chairman, Liberty Properties Group, Inc. since January, 1987 JOHN P. SMITH, Age 43 Controller of Liberty since September, 1994 Previously Vice President/Finance of Liberty Life Insurance Company 12 13 OTHER BUSINESS In addition to the operating subsidiaries, the Company has other minor organizations. These include the Company's administrative staff, an investment advisory company, a property development & management company and transportation operations. RESEARCH ACTIVITIES The Company and its subsidiaries do not have a formal program of research on new or improved products. As a part of its operation, each company continues to seek improved methods and products. No material amounts were spent in this area during 1995. INDUSTRY SEGMENT DATA Information concerning the Company's industry segments is contained in Selected Financial Data on page 40 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on page 30 of this report and is incorporated in this Item 1 by reference. ITEM 2. PROPERTIES MAIN OFFICES. The main office of the Company, Liberty Life, Pierce National, Liberty Insurance Services, and Cosmos is located on a 30-acre tract in Greenville, SC, and consists of three buildings totaling approximately 360,000 square feet plus parking. The main office facilities are owned by the Company and Liberty Life. Liberty Life leases branch office space in various cities. Leases are normally made for terms of one to ten years. Cosmos owns its television broadcast studios, office buildings and transmitter sites in Columbia, SC; Montgomery, AL; Toledo, OH; Louisville, KY; Evansville, IN; Jonesboro, AR; Lake Charles, LA; and Biloxi, Mississippi. ITEM 3. LEGAL PROCEEDINGS In January 1996, a lawsuit was filed against the Company alleging breach of contract in connection with an agreement to develop a state-of-art software system to administer the Company's insurance operations. The suit was filed by the software developer. Management of the Company, after consultation with legal counsel, believes that the lawsuit filed against the Company is without merit and intends to contest the suit vigorously. The Company believes the suit filed against it was in response to a suit filed by the Company in connection with failure of the software developer to deliver the system. The suit against the software developer seeks to recover amounts paid to the software developer, and other costs incurred by the Company, in an attempt to develop the system. The Company believes it will be successful in its lawsuit against the software developer; however, no reasonable estimate of the amount of the recovery is known at this time. In December 1995, a lawsuit was filed against the Company alleging breach of contract. The lawsuit relates to a transaction in which the Company was unsuccessful in acquiring certain entities partially owned by the plaintiff. Management, after consultation with legal counsel, believes the lawsuit is without merit and intends to contest the suit vigorously. Other than the suits mentioned above, the Company is not currently engaged in legal proceedings of material consequence other than ordinary routine litigation incidental to its business. Any proceedings reported in prior filings have been settled or otherwise satisfied. 13 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS None PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY STOCKHOLDER MATTERS Information concerning the market for the Company's Common Stock and related stockholder matters is contained on the inside back cover of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on page 29 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 40 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on page 30 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 9-13, 16-18 and 21 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on pages 31 - 38 of this report and is incorporated in this Item 7 by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION The Company's Consolidated Financial Statements and Report of Independent Auditors are contained on pages 8, 14, 15, 19, 20, and 22 - 39 of The Liberty Corporation Annual Report to Shareholders and is filed as Exhibit 13 on pages 39 - 61 of this report and are incorporated in this Item 8 by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning Directors of the Company is contained in The Liberty Corporation Proxy Statement for the May 7, 1996 Annual Meeting of Shareholders and is incorporated in this Item 10 by reference. Information concerning Executive Officers of the Company is submitted in a separate section of this report in Part I, Item 1 on page 12 and is incorporated in this Item 10 by reference. 14 15 ITEM 11. EXECUTIVE COMPENSATION Information concerning Executive Compensation and transactions is contained in The Liberty Corporation Proxy Statement for the May 7, 1996 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 7, 1996 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 7, 1996 Annual Meeting of Shareholders and is incorporated in this Item 13 by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) (1) AND (2). LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of The Liberty Corporation and Subsidiaries are included in the Company's Annual Report to Shareholders for the year ended December 31, 1995, filed as Exhibit 13 to this report and incorporated in Item 8 by reference: Consolidated Balance Sheets -- December 31, 1995 and 1994 Consolidated Statements of Income -- For Each of the Three Years Ended December 31, 1995 Consolidated Statements of Cash Flows -- For Each of the Three Years Ended December 31, 1995 Consolidated Statements of Shareholders' Equity -- For Each of the Three Years Ended December 31, 1995 Notes to Consolidated Financial Statements -- December 31, 1995 Report of Independent Auditors The following consolidated financial statement schedules of The Liberty Corporation and Subsidiaries are included in Item 14(d): I- Summary of Investments II- Condensed Financial Statements of The Liberty Corporation (Parent Company) III- Supplementary Insurance Information IV - Reinsurance V - Valuation and Qualifying Accounts and Reserves All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission, but which are excluded from this report, are not required under the related instructions or are inapplicable, and therefore have been omitted. 15 16 (A)(3).LIST OF EXHIBITS 3.1 Restated Articles of Incorporation, as amended through March 15, 1995. 3.2 Bylaws, as amended (filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and incorporated herein by reference). 4.1 See Articles 4, 5, 7 and 9 of the Company's Restated Articles of Incorporation (filed as Exhibit 3.1) and Articles I, II and VI of the Company's Bylaws (filed as Exhibit 3.2). 4.2 See the Form of Rights Agreement dated as of August 7, 1990 between The Liberty Corporation and The Bank of New York, as Rights Agent, which includes as Exhibit B thereto the form of Right Certificate (filed as Exhibits 1 and 2 to the Registrant's Form 8-A, dated August 10, 1990, and incorporated herein by reference) with respect to the Rights to purchase Series A Participating Cumulative Preferred Stock. 4.3 See Credit Agreement dated March 21, 1995 (filed as Exhibit 10 to the Registrant's Quarterly Report on Form 10Q for the quarter ended June 30, 1995 and incorporated herein by reference). 10. See Credit Agreement dated March 21, 1995 (filed as Exhibit 4.3). 11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation 13. Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 1995: Market for the Registrant's Common Stock and Related Security Stockholder Matters Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Statements and Supplementary Information: Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Income - For the three years ended December 31, 1995 Consolidated Statements of Cash Flows - For the three years ended December 31, 1995 Consolidated Statements of Shareholders' Equity - For the three years ended December 31, 1995 Notes to Consolidated Financial Statements - December 31, 1995 Report of Independent Auditors 21. The Liberty Corporation and Subsidiaries, List of Subsidiaries 23. Consent of Independent Auditors 24. A. Powers of Attorney applicable for certain signatures of members of the Board of Directors in Registrant's 10-K filed for the year ended December 31, 1983 B. Powers of Attorney applicable for certain signatures of members of the Board of Directors in Registrant's 10-K filed for the year ended December 31, 1985 C. Powers of Attorney applicable for certain signatures of members of the Board of Directors in Registrant's 10-K filed for the year ended December 31, 1986 D. Powers of Attorney applicable for certain signatures of members of the Board of Directors in Registrant's 10-K filed for the year ended December 31, 1989 E. Powers of Attorney applicable for certain signatures of members of the Board of Directors in Registrant's 10-K filed for the year ended December 31, 1994 F. Powers of Attorney applicable for certain signatures of members of the Board of Directors in Registrant's 10-K filed for the year ended December 31, 1995 16 17 27. Financial Data Schedule 99. Additional Exhibits A. Annual Statement on Form 11-K for The Liberty Corporation and Related Adopting Employers' 401(k) Thrift Plan for the year ended December 31, 1995 (b). REPORTS ON FORM 8-K FILED IN 1995 None (c). EXHIBITS FILED WITH THIS REPORT 3.1 Amendment to Articles of Incorporation, as amended through March 15, 1995. 11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation 13. Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 1995: Market for the Registrant's Common Stock and Related Security Stockholder Matters Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Statements and Supplementary Information: Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Income - For the three years ended December 31, 1995 Consolidated Statements of Cash Flows - For the three years ended December 31, 1995 Consolidated Statements of Shareholders' Equity - For the three years ended December 31, 1995 Notes to Consolidated Financial Statements - December 31, 1995 Report of Independent Auditors 21. The Liberty Corporation and Subsidiaries, List of Subsidiaries 23. Consent of Independent Auditors 24. Powers of Attorney applicable for certain signatures of members of the Board of Directors in Registrant's 10-K filed for the year ended December 31, 1995. 27. Financial Data Schedule 99. Additional Exhibits A. Annual Statement on Form 11-K for The Liberty Corporation and Related Adopting Employers' 401(k) Thrift Plan for the year ended December 31, 1995 (d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES FILED WITH THIS REPORT I- Summary of Investments - December 31, 1995 II- Condensed Financial Statements of The Liberty Corporation (Parent Company) December 31, 1995 and 1994 III-Supplementary Insurance Information - For the Three Years Ended December 31, 1995 IV- Reinsurance - For the Three Years Ended December 31, 1995 V- Valuation and Qualifying Accounts and Reserves - For the Three Years Ended December 31, 1995 17 18 Schedule I THE LIBERTY CORPORATION AND SUBSIDIARIES SUMMARY OF INVESTMENTS DECEMBER 31, 1995 (In 000's)
Amount at Which Shown on Balance Type of Investment Cost Value Sheet - ------------------------------------------------- ---------- ---------- ---------------- Fixed maturity securities, available for sale Bonds: United States Government and government agencies and authorities $ 512,740 $ 542,696 $ 542,696 States, municipalities, and political subdivisions 294 333 333 Foreign governments 93,819 95,031 95,031 Public utilities 153,876 174,072 174,072 Convertibles and bonds with warrants attached 515 528 528 All other corporate bonds 575,584 606,222 606,222 Redeemable preferred stocks 46,496 48,157 48,157 ---------- ---------- ---------- Total 1,383,324 $1,467,039 1,467,039 ---------- ========== ---------- Equity securities, available for sale Common stocks: Public utilities - - Banks, trusts and insurance companies $ 4,767 $ 8,354 $ 8,354 Industrial, miscellaneous, and all other 21,228 31,982 31,982 Nonredeemable preferred stocks 42,642 42,172 42,172 ---------- ---------- ---------- Total 68,637 $ 82,508 82,508 ---------- ========== ---------- Mortgage loans on real estate 213,223 213,223 Investment real estate 135,306 135,306 Policy loans 98,369 98,369 Other long-term investments 27,535 27,535 ---------- ---------- Total investments $1,926,394 $2,023,980 ========== ==========
18 19 Schedule II THE LIBERTY CORPORATION (PARENT COMPANY) CONDENSED BALANCE SHEETS DECEMBER 31, 1995 and 1994 (In $000's, except share data)
ASSETS 1995 1994 - ------ ---------- ---------- Cash $ 466 $ 6,835 Investment securities 679 661 Short term investments - 3,409 Loans, notes and other receivables 9,953 8,744 Investment properties, at cost less accumulated depreciation of $8,432 in 1995 and $7,659 in 1994 70,875 70,723 Other long-term investments 11,689 2,558 Buildings and equipment, at cost less accumulated depreciation of $9,863 in 1995 and $8,766 in 1994 21,379 19,951 Investment in affiliated companies* 652,420 515,476 Intercompany debt and advances* 96,606 29,348 Income taxes recoverable 12,053 8,620 Deferred income tax (liabilities) benefits (59) 2,305 Other assets 9,865 8,615 ---------- ---------- $ 885,926 $ 677,245 ========== ========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Liabilities Notes, mortgages and other debt $ 249,881 $ 222,392 Accounts payable and accrued expenses 10,959 8,481 Other liabilities 965 3,459 ---------- ---------- Total liabilities 261,805 234,332 Redeemable Preferred Stock 1994-A Series, $35.00 redemption value, 668,207 shares issued and outstanding 23,387 23,387 1994-B Series, $37.50 redemption value, 594,126 and 598,101 shares issued and outstanding in 1995 and 1994, respectively 22,280 22,429 Shareholders' equity Common stock Authorized - 50,000,000 shares, no par value Issued and Outstanding - 20,060,629 in 1995 and 19,841,470 in 1994 158,735 152,956 Convertible Preferred Stock, 1995-A Series, 599,985 shares issued and outstanding 20,999 --- Unearned stock compensation (6,050) (5,319) Unrealized appreciation (depreciation) on fixed maturity securities available for sale and equity securities of subsidiaries 57,986 (53,109) Cumulative foreign currency translation adjustment (999) (1,491) Retained earnings 347,783 304,060 ---------- ---------- Total shareholders' equity 578,454 397,097 ---------- ---------- $ 885,926 $ 677,245 ========== ==========
* Eliminated in consolidation. See notes to condensed financial statements. 19 20 Schedule II THE LIBERTY CORPORATION (PARENT COMPANY) CONDENSED STATEMENTS OF INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (In $000's)
1995 1994 1993 -------- --------- -------- REVENUES Dividends from subsidiaries* $ 45,331 $ 39,973 $ 31,209 Interest-unaffiliated 1,151 553 59 Intercompany interest* 8,303 7,068 6,933 Realized investment losses (3,195) --- --- Other 30,059 25,927 25,723 -------- --------- -------- Total Revenues 81,649 73,521 63,924 EXPENSES Salaries and wages 9,803 7,526 6,072 Interest-unaffiliated 14,867 10,475 9,360 Intercompany interest* 4,072 3,145 3,642 Taxes and licenses 1,508 1,206 821 Depreciation and amortization 5,275 4,552 3,718 Other 20,874 22,051 23,682 -------- --------- -------- Total Expenses 56,399 48,955 47,295 Income before income taxes and cumulative effect of accounting changes 25,250 24,566 16,629 Income tax benefits (7,359) (5,880) (4,859) -------- --------- -------- Income before cumulative effect of accounting changes 32,609 30,446 21,488 Cumulative effect of accounting changes --- --- (155) -------- --------- -------- 32,609 30,446 21,333 Earnings of subsidiaries net of dividends paid to parent* 27,928 (4,371) 16,202 -------- --------- -------- NET INCOME $ 60,537*** $ 26,075** $ 37,535** ======== ======== ========
* Eliminated in consolidation. ** Differs from consolidated net income by $103 and $1,612 in 1994 and 1993, respectively, due to gains recognized on a consolidated basis previously recognized by subsidiaries on intercompany transactions. Gains were deferred on a consolidated basis until completion of the earnings process. *** Differs from consolidated net income by $1,184 due to gains deferred on a consolidated basis until completion of the earnings process. See notes to condensed financial statements. 20 21 Schedule II THE LIBERTY CORPORATION (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (In $000's)
1995 1994 1993 ------------ ------------ ------------ OPERATING ACTIVITIES Net income $ 60,537 $ 26,075 $ 37,535 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,275 4,552 3,718 Provision for deferred income taxes 2,740 2,754 (2,834) Earnings from subsidiary operations, net of dividends paid to parent (27,928) 4,371 (16,202) (Gain) loss on disposal of assets (3,231) (2,989) 2,299 Realized investment losses 3,195 -- --- Change in operating assets and liabilities: Increase in intercompany debt and advances* (27,434) (9,426) (1,266) Increase in accounts and notes receivable (1,209) (97) (7,907) Increase (Decrease)in accounts payable and accrued expenses 2,478 2,212 (970) Increase in other assets (1,250) (5,334) (1,188) Increase (Decrease) in other liabilities, and accrued income taxes (5,927) (969) 3,075 Other 1,144 (3,869) (602) ------------ ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 8,390 17,280 15,658 INVESTING ACTIVITIES Additional investment in subsidiaries* --- (1,907) (6,500) Reduction in investment in subsidiaries* 4,048 10,000 10,000 Purchase of investment properties (34,177) (33,198) (19,055) Sale of investment properties 31,997 15,125 23,080 Net cash paid on purchase of insurance business --- (65,212) --- Net cash paid on purchase of broadcasting business (5,638) --- Other (9,264) --- (48) ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (13,034) (75,192) 7,477 FINANCING ACTIVITIES Proceeds from borrowings 1,901,001 2,537,169 2,192,635 Principal payments on debt (1,888,820) (2,462,620) (2,219,351) Dividends paid (16,814) (14,358) (13,108) Stock issued for employee benefit and performance incentive compensation programs 2,908 3,487 7,181 Common stock offering --- --- 8,544 ------------ ------------ ------------ NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (1,725) 63,678 (24,099) INCREASE (DECREASE) IN CASH (6,369) 5,766 (964) Cash at beginning of year 6,835 1,069 2,033 ------------ ------------ ------------ CASH AT END OF YEAR $ 466 $ 6,835 $ 1,069 ============ ============ ============ * Eliminated in consolidation. See notes to condensed financial statements.
21 22 Schedule II THE LIBERTY CORPORATION (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. NOTES, MORTGAGES AND OTHER DEBT The general debt obligations at December 31, 1995, are as follows:
Average (In 000's) Interest Rate Amount - ---------- ----------------------------- Notes due to banks 6.4% $236,500 Mortgage loans on investment property 8.0 2,662 Notes payable on purchase of broadcasting business 5.9 10,493 Other 8.5 226 -------- $249,881 ========
On March 21, 1995, the Parent Company completed the restructuring of its $325,000,000 revolving credit facility into a new $375,000,000, multi-tranche credit facility which will mature on various dates beginning in March 1998. This facility will be used to refinance indebtedness under the $325,000,000 facility, as well as to provide funds to meet working capital requirements and finance acquisitions. Note 5 of The Liberty Corporation and Subsidiaries Consolidated Financial Statements provides additional information as to this agreement. The maturities of the general debt obligations at December 31, 1995 are as follows:
(In 000's) Amount ---------- -------- 1996 $ 22,383 1997 15,856 1998 146,374 1999 20,000 2000 20,268 Thereafter 25,000 -------- $249,881 ========
2. COMMITMENTS AND CONTINGENT LIABILITIES The Parent Company has guaranteed a $7.0 million letter of credit for an unaffiliated marketing company. As of December 31, 1995, $4.0 million was outstanding under the letter of credit. 3. RETAINED EARNINGS As of December 31, 1995 and 1994, retained earnings of $347,783,000 and $304,060,000 respectively, in The Liberty Corporation (Parent Company) financial statements differs from The Liberty Corporation and Subsidiaries consolidated financial statements. The difference of $2,692,000 and $1,508,000 at December 31, 1995 and 1994, respectively, relates to the capitalization of interest on a consolidated basis and the elimination of gains on intercompany transactions. 22 23 Schedule III THE LIBERTY CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (In $000's)
Future Policy Other Policy Deferred Policy Benefits, Claims & Acquisition Cost of Business Losses, Claims Unearned Benefits Segment Costs Acquired and Loss Expenses Premiums Payable - ------------------------------------------------------------------------------------------------------------------------------- December 31, 1995 Life/Health Insurance $265,188 $86,925 $1,807,339 $4,078 $51,442 December 31, 1994 Life/Health Insurance $259,799 $98,056 $1,727,119 $4,535 $51,969 December 31, 1993 Life/Health Insurance $231,873 $56,762 $1,342,369 $3,135 $43,672 Amortization of Deferred Benefits Acquisition Accident & Net Claims, Losses Costs and Other Health Premium Investment & Settlement Cost of Business Operating Premiums Segment Revenue Income Benefits Acquired Expenses Written - ------------------------------------------------------------------------------------------------------------------------------------ 1995 Life/Health Insurance $331,370 $144,483 $236,774 $43,780 $122,400 $33,867 1994 Life/Health Insurance $315,789 $129,925 $225,745 $45,024 $137,092 $29,472 1993 Life/Health Insurance $250,922 $110,507 $159,452 $39,402 $112,025 $42,151
23 24 Schedule IV THE LIBERTY CORPORATION AND SUBSIDIARIES REINSURANCE FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (In $000's)
Amount Percentage of Assumed Amount Gross Ceded to Other From Net Assumed to Amount Companies Companies Amount Net ----------------------------------------------------------------------------------- Year ended December 31, 1995 Life insurance in force $21,334,019 $4,554,569 $17,578 $16,797,028 0.1% =============================================================== Insurance premiums and policy charges: Life, annuity and other considerations $ 325,571 $ 27,843 $ 169 $ 297,897 0.1% Accident and health 39,226 6,898 1,145 33,473 3.4% --------------------------------------------------------------- TOTAL $ 364,797 $ 34,741 $ 1,314 $ 331,370 =============================================================== Year ended December 31, 1994 Life insurance in force $21,600,665 $4,751,940 $15,391 $16,864,116 0.1% =============================================================== Insurance premiums and policy charges: Life, annuity and other considerations $ 311,551 $ 26,365 $ 222 $ 285,408 0.1% Accident and health 32,568 3,693 1,506 30,381 4.9% TOTAL $ 344,119 $ 30,058 $ 1,728 $ 315,789 =============================================================== Year ended December 31, 1993 Life insurance in force $20,202,101 $4,788,883 $20,431 $15,433,649 0.1% =============================================================== Insurance premiums and policy charges: Life, annuity and other considerations $ 233,263 $ 26,075 $ 208 $ 207,396 0.1% Accident and health 45,191 3,546 1,881 43,526 4.3% --------------------------------------------------------------- TOTAL $ 278,454 $ 29,621 $ 2,089 $ 250,922 ===============================================================
24 25 Schedule V THE LIBERTY CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (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, 1995 Accounts receivable - 334(b) reserve for bad debts $ 1,493 $ 858 $ 48 $ 90(a) $ 1,975 -------------- -------------- --------------- ----------------- --------------- Notes and other loans receivable - discounts $ --- $ --- $ --- $ --- $ --- -------------- -------------- --------------- ----------------- --------------- Investment properties - valuation reserves $ --- $ --- $ --- $ --- $ --- -------------- -------------- --------------- ----------------- --------------- Year Ended December 31, 1994 Accounts receivable - 28(b) reserve for bad debts $ 1,027 $ 408 $ 341 $ 255(a)$ 1,493 -------------- -------------- --------------- ----------------- --------------- Notes and other loans receivable - discounts $ --- $ --- $ --- $ --- $ --- -------------- -------------- --------------- ----------------- --------------- Investment properties - valuation reserves $ --- $ --- $ --- $ --- $ --- -------------- -------------- --------------- ----------------- --------------- Year Ended December 31, 1993 Accounts receivable - 5(b) reserve for bad debts $ 921 $ 1,004 $ --- $ 893(a) $ 1,027 -------------- -------------- --------------- ----------------- --------------- Notes and other loans receivable - discounts $ --- $ --- $ --- $ --- $ --- -------------- -------------- --------------- ----------------- --------------- Investment properties - valuation reserves $ --- $ --- $ --- $ --- $ --- -------------- -------------- --------------- ----------------- ---------------
Notes: (a) Uncollectible accounts written off, net of recoveries. (b) Reversal of reserves no longer required. 25 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized, as of the 27th day of March, 1996 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 27th day of March, 1996. By: /s/ John P. Smith *By: /s/ William S. Lee ----------------- ------------------ John P. Smith William S. Lee Corporate Controller Director By: /s/ H. Ray Eanes *By: /s/ William O. McCoy ------------------- -------------------- H. Ray Eanes William O. McCoy Sr. Vice President Finance & Treasurer Director *By: /s/ Rufus C. Barkley, Jr. *By: /s/ Buck Mickel -------------------------- --------------- Rufus C. Barkley, Jr. Buck Mickel Director Director *By: /s/ Edward E. Crutchfield *By: /s/ John H. Mullin III ------------------------- ---------------------- Edward E. Crutchfield John H. Mullin III Director Director *By: /s/ John R. Farmer *By: /s/ Benjamin F. Payton ------------------ ---------------------- John R. Farmer Benjamin F. Payton Director Director *By: /s/ Lawrence M. Gressette, Jr. *By: /s/ J. Thurston Roach ------------------------------ --------------------- Lawrence M. Gressette, Jr J. Thurston Roach Director Director By: /s/ Hayne Hipp *By: /s/ Martha G. Williams -------------- ---------------------- Hayne Hipp *Martha G. Williams, as Director Special Attorney in Fact *By: /s/ W. W. Johnson ----------------- W. W. Johnson Director 26 27 Annual Report on Form 10-K The Liberty Corporation December 31, 1995 Index to Exhibits
Exhibits Page Number -------- ----------- 11. The Liberty Corporation and Subsidiaries Consolidated Earnings Per Share Computation 28 13. Portions of The Liberty Corporation Annual Report to Shareholders for the year ended December 31, 1995: Market for the Registrant's Common Stock and Related Security Stockholder Matters 29 Selected Financial Data 30 Management's Discussion and Analysis of Financial Condition and Results of 31 - 38 Operations Financial Statements and Supplementary Information: Consolidated Balance Sheets - December 31, 1995 and 1994 39 - 40 Consolidated Statements of Income - For the three years ended December 31, 1995 41 Consolidated Statements of Cash Flows - For the three years ended December 31, 1995 42 Consolidated Shareholders' Equity - For the three years ended December 31, 1995 43 Notes to Consolidated Financial Statements - December 31, 1995 44 - 60 Report of Independent Auditors 61 21. The Liberty Corporation and Subsidiaries, List of Significant Subsidiaries 62 23. Consent of Independent Auditors 63 Powers of Attorney applicable for certain signatures of members of the Board of 24. Directors in Registrant's 10-K filed for the year ended December 31, 1995. 64 27. Financial Data Schedule 99. Additional Exhibits A. Annual Statement on Form 11-K for The Liberty Corporation and Adopting Related Employers' 401(k) Thrift Plan for the year ended December 31, 1995 65 - 80
27 28 EXHIBIT 11 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED EARNINGS PER SHARE COMPUTATION FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (In $000's, except per share data)
1995 1994 1993 ------------------------------------- PRIMARY SHARES Weighted average common shares outstanding 19,951 19,721 19,327 Weighted average common stock options outstanding 119 87 169 Preferred stock considered a common stock equivalent 502 --- --- Total primary shares 20,572 19,808 19,496 FULLY DILUTED SHARES Weighted average common shares outstanding 19,951 19,721 19,327 Weighted average common stock options outstanding 136 89 174 Preferred stock considered a common stock equivalent 502 --- --- Assumed conversion of redeemable preferred stock not considered a common stock equivalent 1,265 1,010 --- ------------------------------------- Total fully diluted shares 21,854 20,820 19,501 ===================================== NET INCOME Earnings $ 59,353 $26,178 $39,147 ===================================== PREFERRED STOCK DIVIDENDS Dividends paid on redeemable preferred stock $ 2,658 $ 2,117 $ --- ===================================== Primary earnings per share (Net income minus preferred dividends divided by total primary shares) $ 2.76 $ 1.22 $ 2.01 ===================================== Fully diluted earnings per share (Net income divided by total fully diluted shares) $ 2.72 $ 1.26 $ 2.01 =====================================
28 29 EXHIBIT 13 STOCK DATA The Liberty Corporation's Common Stock is listed on the New York Stock Exchange. Its symbol is LC. As of December 31, 1995, 1,395 shareholders of record in 44 states, the District of Columbia, Canada, Australia and New Zealand held the 20,060,629 Common Stock shares outstanding. Quarterly high and low stock prices and dividends per share as reported by the Wall Street Journal were:
Quarterly Market Price Per Share Dividend Per High Low Share -------------------------------------------- 1995 - ------------------------- Fourth Quarter 34 31 1/4 .170 Third Quarter 33 3/4 27 5/8 .170 Second Quarter 28 1/4 25 3/4 .170 First Quarter 27 1/2 24 3/4 .155 1994 - ------------------------- Fourth Quarter 27 1/4 24 1/4 .155 Third Quarter 28 3/4 25 3/4 .155 Second Quarter 29 7/8 23 7/8 .155 First Quarter 28 24 1/8 .155 1993 - ------------------------- Fourth Quarter 31 24 .140 Third Quarter 34 5/8 30 .140 Second Quarter 33 5/8 29 .140 First Quarter 31 7/8 28 3/8 .140
The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial condition. Also, the payment of dividends is subject to the restrictions described in Notes 5 and 8 of the Consolidated Financial Statements. CO-REGISTRAR AND CO-TRANSFER AGENTS - -------------------------------------------------------------------------------- Wachovia Bank of North Carolina, N.A. The Bank of New York P. O. Box 3001 101 Barclay Street Winston-Salem, NC 27102 New York, NY 10286 For a Copy of the 10-K or other information, contact: The Liberty Corporation Shareholder Relations Box 789 Greenville, SC 29602 Telephone (864) 609-8256 Stock Exchange Listing: New York Stock Exchange Symbol: LC Annual Meeting The Liberty Corporation will hold its annual meeting on Tuesday, May 7, 1996, at 10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South Carolina. All Shareholders are invited to attend. 29 30 EXHIBIT 13 SELECTED FINANCIAL DATA The Liberty Corporation and Subsidiaries December 31, 1995
(In 000's, except per share data) 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Insurance $ 486,980 $ 439,451 $ 384,132 $ 305,934 $ 271,806 $ 246,661 Broadcasting 119,529 98,266 87,984 89,989 88,174 89,709 Parent & Minor Subsidiaries 19,090 19,600 16,089 20,301 19,254 12,936 Adjustments & Eliminations (19,918) (16,071) (15,260) (13,468) (14,752) (13,707) - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues * $ 605,681 $ 541,246 $ 472,945 $ 402,756 $ 364,482 $ 335,599 - ------------------------------------------------------------------------------------------------------------------------------------ Income (Loss) Before Income Taxes & Cumulative Effect of Accounting Changes Insurance $ 83,483 $ 31,590 $ 71,518 $ 53,962 $ 43,255 $ 42,442 Broadcasting 27,127 21,701 16,180 16,859 16,417 22,158 Parent & Minor Subsidiaries (19,994) (14,423) (12,846) (13,690) (20,439) (25,911) Adjustments & Eliminations (1,821) --- 2,472 4,768 4,217 --- - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated Income Before Income Taxes & Cumulative Effect of Accounting Changes $ 88,795 $ 38,868 $ 77,324 $ 61,899 $ 43,450 $ 38,689 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) Insurance $ 56,582 $ 21,803 $ 33,459 $ 35,369 $ 30,077 $ 28,094 Broadcasting 16,590 12,919 12,217 10,262 9,967 13,600 Parent & Minor Subsidiaries (12,635) (8,544) (8,141) (8,153) (12,514) (16,136) Adjustments & Eliminations (1,184) --- 1,612 3,407 3,036 --- - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 59,353 $ 26,178 $ 39,147 $ 40,885 $ 30,566 $ 25,558 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share $ 2.76 $ 1.22 $ 2.01 $ 2.51 $ 1.93 $ 1.55 - ------------------------------------------------------------------------------------------------------------------------------------ Change in Net Unrealized Investment Gains (Losses) $ 111,095 $ (58,286) $ 1,276 $ (78) $ 7,316 $ (4,613) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Per Common Share $ 0.665 $ 0.62 $ 0.56 $ 0.515 $ 0.47 $ 0.46 - ------------------------------------------------------------------------------------------------------------------------------------ Depreciation and Amortization Insurance $ 4,515 $ 5,125 $ 3,286 $ 3,424 $ 3,381 $ 3,371 Broadcasting 9,244 6,276 6,566 6,848 10,654 11,044 Parent & Minor Subsidiaries 5,275 4,618 3,670 4,628 4,631 4,814 - ------------------------------------------------------------------------------------------------------------------------------------ Total Depreciation and Amortization $ 19,034 $ 16,019 $ 13,522 $ 14,900 $ 18,666 $ 19,229 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Expenditures Insurance $ 4,413 $ 2,270 $ 5,814 $ 3,618 $ 2,264 $ 3,534 Broadcasting 5,863 3,900 2,168 2,513 2,961 6,476 Parent & Minor Subsidiaries 3,012 3,446 7,483 698 1,088 895 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Expenditures $ 13,288 $ 9,616 $ 15,465 $ 6,829 $ 6,313 $ 10,905 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Insurance $2,769,619 $2,494,264 $2,057,126 $1,937,908 $1,528,901 $1,357,406 Broadcasting 168,672 98,705 101,982 110,849 119,714 141,467 Parent & Minor Subsidiaries 873,933 666,319 581,406 565,135 504,199 484,401 Adjustments & Eliminations (777,928) (592,024) (553,481) (539,014) (438,610) (438,899) - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $3,034,296 $2,667,264 $2,187,033 $2,074,878 $1,714,204 $1,544,375 - ------------------------------------------------------------------------------------------------------------------------------------ Notes, Mortgages and Other Debts $258,444 $ 231,647 $ 149,489 $ 176,632 $ 226,925 $ 246,531 - ------------------------------------------------------------------------------------------------------------------------------------ Redeemable Preferred Stock $45,667 $ 45,816 --- --- --- --- - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated Shareholders' Equity $575,762 $ 395,589 $ 433,845 $ 389,188 $ 277,108 $ 243,465 - ------------------------------------------------------------------------------------------------------------------------------------ * See Note 14 to the Consolidated Financial Statements related to 1995 and 1994 acquisitions.
30 31 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS The Liberty Corporation and Subsidiaries December 31, 1995 SUMMARY OF CONSOLIDATED RESULTS OF OPERATIONS Consolidated income before income taxes and the cumulative effect of accounting changes for 1995 was $88.8 million, up $49.9 million from the $38.9 million reported for 1994. The amounts reported for 1994 included non-recurring charges of $31.2 million.
(In 000's) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Income before income taxes and the cumulative effect of accounting changes $88,795 $38,868 $77,324 Income taxes 29,442 12,690 26,237 - --------------------------------------------------------------------------------------------------------- Income before the cumulative effect of accounting changes 59,353 26,178 51,087 Cumulative effect of accounting changes --- --- (11,940) - --------------------------------------------------------------------------------------------------------- Net income $59,353 $26,178 $39,147 - ---------------------------------------------------------------------------------------------------------
Adjusting for realized investment losses of $2.9 million in 1995, income before income taxes and the cumulative effect of accounting changes was $91.7 million, compared with $82.2 million for 1994, after adjusting the 1994 results for the non-recurring charges and realized investment losses. The increase for 1995 was the result of improvements in both the insurance (up $11.3 million) and broadcasting operations (up $5.4 million) offset by higher interest costs at the Corporate level. Consolidated income before income taxes and the cumulative effect of accounting changes for 1994 was $38.9 million ($70.1 million prior to the non-recurring charges) and compares with $77.3 million earned in 1993. Excluding realized investment gains and losses from both periods and the non-recurring charges from 1994, earnings before income taxes were $82.2 million and $62.6 million for 1994 and 1993, respectively. The increase in 1994 was primarily the result of contributions from insurance acquisitions closed in 1994 ($10.3 million) and improvement in broadcasting results ($5.5 million). The non-recurring charges in 1994 related to 1) the write-off of previously deferred costs associated with the development of a software system for administration of Liberty's insurance business and 2) a decision to cease marketing products through the general agency distribution system. The deferred systems charges were in connection with an agreement with a software developer to develop a state-of-the-art software system to handle the administration of Liberty's insurance operations. The non-cash charge of $20.9 million (pre-tax) had no impact on Liberty's cash flow. In 1994 Liberty decided to cease sales of its products through its general agency distribution system due to the absence of critical volume. This decision resulted in a pre-tax charge to earnings of $10.3 million, primarily to reduce deferred acquisition costs no longer considered recoverable. Premiums and policy charges from the general agency division represented approximately 2% of Liberty's total premiums and policy charges at the time the decision was made to cease sales though this marketing channel. The cumulative effect of accounting changes reported in 1993 represented a one-time, non-cash charge of $11.9 million relating to the implementation of Statement of Financial Accounting Standard ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Consolidated 1995 revenues of $605.7 million were up $64.5 million (12%) over last year's $541.2 million. The 1995 revenue growth consisted primarily of a $47.5 million increase in revenues from the insurance operations and a $21.3 million increase in broadcasting revenues. The increase in revenues from insurance operations was a combination of the 1994 insurance acquisitions contributing a full year of revenues and a $14.0 million increase from realized investment gains. Consolidated 1994 revenues of $541.2 million were up $68.3 million (14%) over the $472.9 million reported in 1993. This revenue growth consisted primarily of a $55.3 million increase in revenues from insurance operations and a $10.3 million increase in broadcasting revenues. The increase in revenue from insurance operations was a combination of the 1994 insurance acquisitions contributing revenues of $84.3 million offset by a decline of $29.0 million from existing insurance operations. The decline from existing insurance operations was due to a $26.2 million decline in realized investment gains coupled with the 1993 sale of Liberty's medicare supplement business that generated $12.5 million in revenues in 1993. 31 32 EXHIBIT 13 BUSINESS SEGMENTS Liberty reports the results of its business operations in two segments: Insurance and Broadcasting. The insurance segment consists of Liberty's insurance operations, which specializes in providing home service, pre-need and mortgage protection life and health insurance. The broadcasting segment consists of Cosmos Broadcasting, which owns and operates eight network-affiliated television stations. Activities of Corporate and other include financing and real estate operations. In order to make more meaningful comparisons, the segment data excludes the effect of realized investment gains and losses, non-recurring special charges, and accounting changes. A reconciliation of the segment operations to net income is as follows:
(in 000's) 1995 1994 1993 - --------------------------------------------------------------------------------- Segment Operating Earnings: Insurance $54,789 $46,396 $41,107 Broadcasting 16,590 12,919 9,716 Corporate and other (10,546) (6,446) (5,456) - --------------------------------------------------------------------------------- Total operating earnings 60,833 52,869 45,367 Net realized investment gains (losses) (1,480) (6,440) 9,281 Non-recurring special charges --- (20,251) (3,561) Cumulative effect of accounting changes --- --- (11,940) - --------------------------------------------------------------------------------- Net income $59,353 $26,178 $39,147 - --------------------------------------------------------------------------------- Earnings per Common Share: Operating earnings $ 2.83 $ 2.56 $ 2.33 Net realized investment gains (losses) (0.07) (0.32) 0.47 Non-recurring special charges --- (1.02) (0.18) Cumulative effect of accounting changes --- --- (0.61) - --------------------------------------------------------------------------------- Earnings per common share $ 2.76 $ 1.22 $ 2.01 - ---------------------------------------------------------------------------------
INSURANCE RESULTS OF OPERATIONS Operating earnings from insurance operations were $54.8 million in 1995, an increase of $8.4 million (18%) from the $46.4 million reported in 1994. Liberty Life's operating earnings were $5.3 million higher in 1995 as net investment income, policy benefits and general insurance expenses all improved. Net investment income for Liberty Life was positively impacted by stronger real estate development income in 1995. After a very high first quarter of 1995, Liberty Life's policy benefits improved each quarter and ended the year 60.8% of premium, down over 2% as a percent of premium from the prior year. The decision to stop accepting new business in the general agency division reduced expenses, resulting in a break-even performance in this division, compared to a pre-tax loss of $2.1 million in 1994. The FamilySide pre-need group also reported an increase in operating earnings of $2.3 million (20%) over 1994. FamilySide benefited from having two significant 1994 acquisitions included for a full year in 1995 compared to 10 months in 1994. And, for the first time ever, Liberty Insurance Services reported a profit on its unaffiliated client base. The increase in 1995 operating earnings followed a 13% increase in 1994 over 1993. Substantially all of the increase in 1994 was due to acquisitions (see Insurance Acquisitions section below). Operating earnings of Liberty Life were flat during the period from 1993 to 1994 as lower investment yields and higher mortality offset the benefit of lower general insurance expenses. 32 33 EXHIBIT 13
(in 000's) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Revenues (exclusive of realized investment gains and losses) Insurance premiums and policy charges $331,370 $315,789 $250,922 Net investment income 144,483 129,925 110,507 Service contract revenues 9,025 5,585 8,383 - ------------------------------------------------------------------------------------------------------------ Total revenues 484,878 $451,299 369,812 Policy benefits 236,774 225,745 159,452 Commissions 54,583 49,869 44,491 General insurance expenses 68,246 62,639 63,670 Amortization of deferred acquisition costs and cost of business acquired 43,697 41,443 39,402 Other 114 1,429 2,211 - ------------------------------------------------------------------------------------------------------------ Income from operations before income taxes 81,464 70,174 60,586 Income taxes 26,675 23,778 19,479 - ------------------------------------------------------------------------------------------------------------ Income from operations $ 54,789 $ 46,396 $ 41,107 - ------------------------------------------------------------------------------------------------------------
Revenues from insurance operations in 1995 were $484.9 million, increasing 7% over last year's $451.3 million. Insurance premiums and policy charges were $331.4 million, an increase of 5% from 1994, and net investment income increased 11% to $144.5 million. FamilySide contributed the majority of the increase in revenues on the strength of both higher premiums and policy charges and higher investment income. Liberty Life reported a 4% increase in insurance premiums and policy charges in 1995 and also reported higher investment income for the year. For 1994 revenues from insurance operations were $451.3 million, an increase of 22% over the $369.8 million reported in 1993. Premiums and policy charges were $315.8 million in 1994, an increase of $64.9 million (26%). The increase in premiums from 1993 was substantially due to the acquisitions closed in 1994. Investment income increased 22% to $129.9 million in 1994. The acquisitions fueled this increase as well. Without the acquisitions, investment income would have been level with the prior year. Policy benefits as a percent of premium were 71% in 1995, compared with 72% in 1994 and 64% in 1993. The increase in the benefit-to-premium ratio from 1993 to 1994 was principally attributable to the product characteristics of the pre-need products. The pre-need products are primarily limited-pay or single-premium products that have a higher benefit ratio than products historically sold by Liberty. As pre-need became a larger percentage of total company premiums in 1994, the overall benefit-to-premium ratio increased. In 1995 Liberty Life experienced higher than expected mortality in the first quarter. Mortality studies were performed and changes were implemented as a result of the studies. The consolidated benefit-to-premium ratio improved in the second half of 1995 as the ratio declined from 74% reported for the first half of 1995 to the annual rate of 71%. Management believes that some of the improvement in the second half of 1995 was attributable to actions taken as a result of the mortality studies; however, claims are inherently variable and will fluctuate, particularly when measured over a short period of time. The commissions-to-premium ratio was 16% in 1995 and 1994. The comparable ratio in 1993 was 18%. The drop in the ratio from 1993 to 1994 occurred as the pre-need products increased as a percent of total premium. The limited-pay characteristics of the pre-need products results in a lower commission structure than traditional life insurance. 33 34 EXHIBIT 13 General insurance expenses increased $5.6 million (9%) over 1994 levels with $3.6 million of the increase coming from expanding operations at Liberty Insurance Services. Excluding Liberty Insurance Services, the expense-to-premium ratio was 16% for 1995 and 1994, down from 21% in 1993. The 1994 decrease in the expense-to-premium ratio was after adding general expenses of $9.4 million from the 1994 acquisitions and was the result of continued emphasis on expense control. Amortization of deferred acquisition costs and cost of business acquired increased 5% over last year. The amortization-to-premium ratio remained constant at 13% of premiums for 1995 and 1994. The primary variable in the amortization expense from year to year is policy persistency, or lapses. For 1995 lapses were at a comparable level to 1994; however, the 1994 level was down significantly from 1993. The amortization expense in 1993 reflected high lapses in both home service and mortgage protection lines. Management believes that the high lapse experience in 1993 in the home service line was related to Liberty's consolidation of branch offices and, for mortgage protection, the high level of home mortgage refinancing in 1993 due to low interest rates. As expected, the persistency in both lines improved substantially in 1994, resulting in reduced amortization expense. As noted earlier, the 1995 persistency levels were comparable to 1994 levels. In the latter half of 1995 and continuing into 1996, mortgage loan interest rates returned to levels comparable to those of 1993; however, there has not been any indication of a marked increase in the level of mortgage protection lapses. INSURANCE OPERATIONS ACQUISITIONS AND EXPANSIONS Beginning in 1992 and continuing through the first half of 1994, Liberty established itself as a key player in the fast-growing pre-need market. The purchase of Pierce National Life in July 1992 provided Liberty with a substantial presence in the pre-need market and the opportunity to expand its presence on an international level. Pierce National markets its products through funeral directors and independent agents in the U.S. and Canada. In April 1993, Liberty further expanded its presence in the pre-need market with the acquisition of the assets of Estate Assurance Company, a pre-need insurance subsidiary of Stewart Enterprises, Inc. Additional expansion of Liberty's pre-need operations occurred in February 1994 with the acquisitions of North American National Corporation, headquartered in Columbus, Ohio, and American Funeral Assurance Company, headquartered in Amory, Mississippi. North American was a holding company whose principal subsidiaries, Pan-Western Life Insurance Company, Howard Life Insurance Company, and Brookings International Life Insurance Company, were providers of pre-need life insurance. This acquisition added strategic Midwest markets to Liberty's pre-need territory. American Funeral was one of the largest providers of pre-need life insurance, with extensive affiliations in the funeral industry. During 1995, Liberty focused on consolidating its pre-need operations. By the end of 1995 all of the pre-need operations had been relocated to Greenville and the companies merged into Pierce National. To cap off the consolidation of the pre-need acquisitions, Liberty introduced what it believes to be the industry's most comprehensive pre-need product portfolio during November 1995. The product portfolio is marketed under the brand name FamilySide. The actions taken in 1995 to consolidate the operations will provide for improved product profitability, focused marketing capability, and consistency and efficiency in administrative support. In addition to the pre-need acquisitions, Liberty grew its home service division through acquisitions. In October 1992, Liberty expanded its home service business with the acquisition of Magnolia Life Insurance Company headquartered in Lake Charles, Louisiana. On April 1, 1994, Liberty acquired State National Capital Corporation, headquartered in Baton Rouge, Louisiana.. These acquisitions gave Liberty a significant presence in the Louisiana home service market. Both Magnolia Life and State National Life were integrated into Liberty Life during 1994. In the fourth quarter of 1995, Liberty announced that the operations of Liberty Insurance Services will be combined in a joint venture with Continuum Administrative Services Company, the third-party administrative arm of The Continuum Company. The joint venture, operating under the name of ALLIANCE-ONE Services, LP, will be the largest third party administrator of life insurance business in the United States. Liberty believes there is substantial long-term potential for the joint venture; however, it is not expected to add substantially to Liberty's results in 1996. 34 35 EXHIBIT 13 BROADCASTING RESULTS OF OPERATIONS
(In 000's) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Gross broadcasting revenues $119,529 $98,266 $87,984 Broadcasting expenses 83,849 69,523 64,705 - --------------------------------------------------------------------------------------------------------------------- Income from operations before interest and taxes 35,680 28,743 23,279 Interest expense 8,553 7,042 7,099 - --------------------------------------------------------------------------------------------------------------------- Income from operations before income taxes 27,127 21,701 16,180 Income taxes 10,537 8,782 6,464 - --------------------------------------------------------------------------------------------------------------------- Income from operations $ 16,590 $12,919 $ 9,716 - ---------------------------------------------------------------------------------------------------------------------
Gross broadcasting revenues for 1995 were $119.5 million, an increase of $21.2 million (22%) over last year's $98.3 million. Excluding the $12.3 million in revenues added from the February 1995 acquisition of WLOX-TV, gross revenues were up 9%. Strong time sales (both national and local), coupled with increased network compensation, overcame the decline in political revenues as 1995 was an off-year for major political races. The increased network compensation came about as a result of the networks' competing for affiliations with local stations. Cosmos, due to the strength of its stations in the local market, was able to capitalize by re-negotiating network compensation contracts and reported a $4.0 million increase in network compensation revenue in 1995. Broadcasting expenses, excluding the impact of the WLOX-TV acquisition, rose only 2% in 1995. As a result of the increased revenues and expense control, Cosmos reported a $3.7 million increase in income from operations in 1995. Substantially all of the increase in earnings was generated from the existing station group as the WLOX-TV acquisition was not expected to, and did not, contribute significantly to operating earnings in 1995. Gross broadcasting revenues for 1994 were $98.3 million, an increase of $10.3 million (12%) from 1993 levels. Strong national revenues and the highest political revenues ever drove the revenue increase in 1994. Income from operations in 1994 was up $3.2 million (33%) over 1993, largely due to revenue trends. An additional measure of broadcasting performance is operating cash flow, defined as operating earnings before depreciation and amortization, interest, taxes and corporate expenses. Operating cash flow, and the related efficiency ratio (operating cash flow divided by revenues net of agency commissions) are measurements of broadcasting operating margins. For the year broadcasting cash flow was $44.9 million compared to $33.0 million in 1994 and $27.8 million in 1993. The acquisition of WLOX-TV added $6.2 million to 1995 operating cash flows. The efficiency ratio was at an all time high of 43% in 1995, compared to 40% in 1994 and 38% in 1993. The Company closed the acquisition of WLOX-TV on February 28, 1995. The purchase price of $40.1 million was funded with a combination of 599,985 shares of 1995-A Series convertible preferred stock with a stated value of $35 per share; cash of $5.6 million; and a note payable for $13.5 million. CORPORATE AND OTHER Corporate and other includes general corporate activities such as the overall management, legal and finance operations, debt service on debt not allocated to segments, intercompany eliminations and the operations of Liberty Investment Group. The increase in the loss in 1995 in this area was primarily due to higher interest costs as both the outstanding debt and interest rates were at higher levels than 1994. 35 36 EXHIBIT 13 BALANCE SHEET INVESTMENTS As of December 31, 1995, Liberty's consolidated investment portfolio was carried at $2.0 billion compared with $1.7 billion at the end of 1994. Of the $290 million increase in the carrying value of the portfolio, approximately $150 million was from the increase in the market value of the portfolio, with the remainder of the increase coming from investment of cash generated from operating and financing activities. Approximately 72% of consolidated invested assets were in fixed maturity securities (bonds and redeemable preferred stocks), 11% were in mortgage loans, 7% in real estate, with the balance consisting of policy loans (5%), equity securities (4%) and other long-term investments (1%). The overall average credit rating of fixed maturity securities as of December 31, 1995 was AA. Less than investment grade securities comprised 3.3% of the fixed maturity portfolio at December 31, 1995, compared with 5.3% at December 31, 1994. Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" requires that all debt and equity securities be classified into one of three categories -- held to maturity, available for sale, or trading. As of December 31, 1995, all securities have been classified as available for sale and are carried at fair value. During 1995, the Company transferred the portion of fixed maturity securities previously classified as held to maturity to the available for sale classification. As a result of the transfer, shareholders' equity was increased $14.6 million (net of deferred income taxes and adjustment to deferred acquisition costs) to reflect the unrealized gain on securities previously carried at cost. See Note 1 to the Consolidated Financial Statements for additional discussion of the transfer. SFAS 115 requires that available for sale securities be carried at fair value, with unrealized gains and losses, net of adjustment for deferred income taxes and deferred acquisition costs, be reported directly in shareholders' equity. The fair value of Liberty's fixed maturity portfolio, and the related adjustment to shareholders' equity, is significantly affected by changes in the overall interest rate environment. For example, as interest rates fell throughout 1995, shareholders' equity increased $111.1 million, reflecting the change in the fair value of the portfolio. In contrast, primarily as a result of the rising interest rate environment during 1994, the Company reported a net unrealized loss of $69.6 million for the year ended December 31, 1994. While the volatility experienced in 1995 and 1994 is not expected to be repeated on an annual basis, it is likely that there will continue to be significant fluctuations in shareholders' equity as a result of carrying fixed maturity securities at market value. Although Liberty's entire fixed maturity and equity securities portfolios have been classified as available for sale, Liberty follows a value-oriented, as opposed to a trading-oriented, investment philosophy concerning its securities portfolios. Accordingly, turnover in the portfolios has historically been low, although portfolio turnover in 1995 and particularly in 1994 was higher than historical levels as 1) investment portfolios from the companies acquired in 1994 were restructured to meet Liberty guidelines as to quality, yield and duration, and 2) Liberty took advantage of its tax position at the end of 1994 to sell securities with lower yields and reinvest in higher yielding securities of equal or better credit quality. Gains trading, which Liberty believes is short-sighted, is not consistent with its investment philosophy of longer term value-oriented investing. Going into 1996, yields remain at historically low levels and the yield curve is relatively flat. If this environment continues, in order to generate incremental returns above market yields without sacrificing credit quality, it may be necessary to more actively trade securities. Approximately 56% of Liberty's $1.5 billion fixed maturity portfolio at December 31, 1995, was comprised of mortgage-backed securities. This compares to approximately 54% at year-end 1994. Certain mortgage-backed securities are subject to significant prepayment risk or extension risk due to changes in interest rates. In periods of declining interest rates mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of the lower current rates. As a result, holders of mortgage-backed securities may receive large prepayments on their investments which cannot be reinvested at interest rates comparable to the rates on the prepaid mortgages. In a rising interest rate environment refinancings are significantly curtailed and the payments to the holders of the securities decline, limiting the ability of the holder to reinvest at the higher interest rates. Mortgage-backed pass-through securities and sequential collateralized mortgage obligations ("CMO's"), which comprised 20% of the book value of Liberty's mortgage-backed securities at December 31, 1995, and 17% at year-end 1994, are sensitive to prepayment or extension risk. The remaining 80% of Liberty's mortgage-backed investment portfolio at December 31, 1995, consisted of planned amortization class ("PAC") instruments. This compares to 83% at December 31, 1994. These investments are designed to amortize in a more predictable manner by shifting the primary prepayment and extension risk of the underlying collateral to investors in other tranches of the CMO. PAC's are tranches of CMO's specifically designed to protect against prepayment or extension risk. In periods of declining interest rates, prepayments are first applied to the non-PAC tranches of the CMO, creating improved call protection for the PAC tranches. Only after all non-PAC tranches have been paid off are prepayments applied to the PAC tranche. In periods of increasing interest rates, prepayments are first applied to the PAC tranche, thus reducing extension risk for PACs. As a result, PACs have a more stable cash flow than most other mortgage securities because they have better call protection and less extension risk. Mortgage loans of $213.2 million comprised 11% of the consolidated investment portfolio at December 31, 1995. This compares to mortgage loans of $203.4 million, or 12%, of the consolidated investment portfolio at December 31, 1994. Substantially all of these mortgage loans are commercial mortgages with a loan-to-value ratio not exceeding 75% when made. Approximately 50% of these loans at December 31, 1995, are concentrated in North and South Carolina; and 91% are in the states of North Carolina, South Carolina, Virginia, Florida, Georgia, 36 37 EXHIBIT 13 Tennessee and Louisiana. Mortgage loan delinquencies, defined as payments 60 or more days past due, have historically been low and were 1.3% at the end of 1995 compared to the latest available industry rate of 2.4%. As of December 31, 1995 and 1994, investment real estate totaled $135.3 million and $135.5 million, representing 7% and 8%, respectively, of the consolidated investment portfolio. Three property types make up the bulk of the portfolio. Residential land development and industrial land development projects accounted for 64% of the portfolio as of the end of 1995, with business property rentals making up another 26%. In 1995, Liberty decided to sell its existing shopping centers and not allocate future investments to this property type. At the end of 1994 shopping center investments were 15% of the real estate portfolio; however, substantially all of the shopping center properties were sold by the end of 1995. Of Liberty's investment real estate, 96% is located in South Carolina, Florida, Georgia, and North Carolina. Liberty has experienced pre-tax impairments on investment assets of $9.5 million, $2.7 million, and $6.2 million for the years ended December 31, 1995, 1994, and 1993, respectively. The high level of impairments in 1995 was due primarily to write-downs taken on an oil and gas investment. While the level of impairments is not predictable, management does not expect impairments to have a significant impact on Liberty's results of operations or liquidity. Beginning in 1996 a new accounting standard will potentially change the amounts of impairments recognized and the timing of the recognition. Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" prescribes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill that are used in the business, as well as establishing accounting standards for long-lived assets and certain identifiable intangibles to be disposed of. Under the provisions of the statement certain of the Company's investment real estate assets will be required to be valued at fair value, rather than net realizable value; however, the adoption of the statement is not expected to have a material impact on the net income or financial position of the Company. LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY In March 1995, Liberty refinanced its $325 million revolving credit facility into a new $375 million multi-tranche credit facility. The new facility consists of a $225 million three-year revolving credit facility; a $100 million seven year term loan facility; and a $50 million facility substantially identical to the revolving facility, which is convertible into terms substantially identical to the term facility anytime prior to March 1997. The credit facility contains various restrictive covenants typical of a credit facility agreement of this size and nature. These restrictions primarily pertain to levels of indebtedness, limitations on payment of dividends, limitations on the quality and types of investments, and capital expenditures. Additionally, Liberty must also comply with several financial covenant restrictions under the revolving credit agreement including defined ratios of consolidated debt to cash flow, consolidated debt to consolidated total capital, and fixed charges coverage. Liberty has entered into various interest rate swaps, caps and corridors in an attempt to minimize the impact of a potential significant rise in short-term interest rates on Liberty's outstanding variable-rate debt. See Note 5 to the Consolidated Financial Statements for additional discussion of these contracts. In 1994, Liberty issued 668,207 shares of Series 1994-A Voting Cumulative Preferred Stock having a total redemption value of $23.4 million, or $35.00 per share, in connection with the acquisition of State National Capital Corporation and 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a total redemption value of $22.4 million, or $37.50 per share, in connection with the acquisition of American Funeral Assurance Company. The shares have preference in liquidation and each share is entitled to one vote on any matters submitted to a vote of the shareholders of the Company. Both the Company and the holders of the preferred stock have the right to redeem any or all of the shares from time to time beginning five years and one month after the date of issue in exchange for cash or shares of the Company's common stock. There is no sinking fund for the redemption of either series of preferred stock. Both the 1994-A and 1994-B series of preferred stock are considered redeemable preferred stock and are classified outside of permanent equity. On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting Cumulative Convertible Preferred Stock, having a total redemption value of $21.0 million, or $35.00 per share, in connection with the acquisition of WLOX-TV. The Company has the right to redeem any or all of the shares from time to time at any time beginning five years and one month after the date of issue in exchange for cash, common stock, or a combination of both. Generally, the amount of consideration on the 1995-A Series will be equivalent to $35.00 per share plus the amount of any accumulated and unpaid dividends. There is no sinking fund for the redemption of the preferred stock. These shares are considered common stock equivalents for financial reporting purposes. During December 1992 and January 1993, Liberty completed its public stock offering of 2,725,100 shares of its common stock at a per share price of $28.25, which generated $73 million in net proceeds that were used to pay down outstanding bank debt. Of the total shares issued, 2,400,000 were issued during December 1992. The remaining 325,100 shares were issued in January 1993 as a result of the underwriters exercising the over-allotment provision of the stock offering 37 38 EXHIBIT 13 The National Association of Insurance Commissioners (the "NAIC") has Risk-Based Capital ("RBC") requirements for life/health insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, mortality and morbidity, asset and liability matching, and other business factors. The RBC formula will be used by states as an early warning tool to identify companies that potentially are inadequately capitalized for the purpose of initiating regulatory action. In addition, the formula defines new minimum capital standards that will supplement the current system of low fixed minimum capital and surplus requirements on a state-by-state basis. The RBC ratios for the insurance subsidiaries significantly exceed the minimum capital requirements at December 31, 1995. CASH FLOWS The parent company's short-term cash needs consist primarily of: (1) working capital requirements, (2) interest on corporate debt, (3) dividends to shareholders and (4) funds for real estate investments. The parent company's primary long-term cash need is the repayment of corporate debt. The parent company depends primarily on dividends, debt service payments and consolidated tax return benefits paid to it by its subsidiaries to meet its short-term and long-term cash needs. Historically, Liberty's primary businesses - insurance and broadcasting - have provided sufficient liquidity to fund their operations and the operations of the parent company. Liberty receives funds from its insurance subsidiaries primarily in the form of dividends. Dividends from each insurance subsidiary are restricted under applicable state law. Annual dividends in excess of maximum amounts prescribed by state statutes ("extraordinary dividends") may not be paid without the approval of the insurance commissioner of each state in which an insurance subsidiary is domiciled. In 1994 the National Association of Insurance Commissioners ("NAIC") proposed, and certain states adopted, legislation that lowers the threshold amount for determining what constitutes an extraordinary dividend. Such legislative changes could make it more difficult for insurance subsidiaries to pay dividends to their parent. See Note 8 to the Consolidated Financial Statements. On a consolidated basis, Liberty's net cash flow from operating activities was $87.4 million for 1995 compared with $87.1 million for the preceding year. Liberty's net cash used in investing activities was $133.6 million for 1995 compared to $176.3 million in 1994. The net cash used in investing activities in 1995 was primarily to fund the purchase of investment securities. Cash used in investing activities in 1994, in addition to funding investment security purchases, was used to fund insurance acquisitions ($54.1 million) and a bulk purchase of real estate assets ($43.0 million). Cash flow from financing activities fluctuates primarily based on the level of borrowings or debt repayment. In 1995 cash flow provided by financing activities was $38.5 million compared with cash provided of $111.2 million for 1994. Proceeds from borrowings exceeded debt repayments by $11.4 million in 1995 compared with $76.9 million in 1994. The excess of borrowings over repayments of debt in 1994 was used to fund insurance and real estate acquisitions. As a result of its activities, Liberty had a net decrease in cash of $7.7 million in 1995 compared with a $21.9 million increase in cash in 1994. Liberty believes that its current level of cash and future cash flows from operations is sufficient to meet the needs of its business and to satisfy its debt service. If suitable opportunities arise for additional acquisitions, Liberty plans to draw on its revolving credit facility or use Common Stock or Preferred Stock as payment of all or part of the consideration for such acquisitions; or Liberty may seek additional funds in the equity or debt markets. Under the restructured credit facility, there exists no restriction on acquisition funding; however, consolidated debt is limited to a maximum of $385 million. Outstanding debt at December 31, 1995 totaled $258 million. Management believes liquidity risk of the insurance operations is minimized by investment strategies that stress high quality assets and an integrated asset/liability matching process. Investments are primarily in intermediate to long-term maturities in order to match the long-term nature of insurance liabilities. Liberty has a relatively small block of universal life products that are interest-sensitive. Liberty actively manages the rates credited on these policies to maintain an acceptable spread between the earned and credited rate. In addition, Liberty has an integrated asset/liability matching process to minimize the liquidity risk that is associated with interest-sensitive products. Accordingly, most long-term investments are held to maturity and interim market fluctuations present no significant liquidity problems. Liberty's only use of derivative financial instruments is to minimize the exposure on its variable rate debt. Most states have laws requiring solvent life insurance companies to pay guaranty fund assessments to protect the interests of policyholders of insolvent life insurance companies. Due to the recent increase in the number of companies that are under regulatory supervision, there is expected to be an increase in assessments by state guaranty funds. Under present law, most assessments can be recovered through a credit against future premium taxes. Liberty has reviewed its exposure to potential assessments, and the effect on its financial position and results of operations is not expected to be material. Other Company commitments are shown in Note 7 to the Consolidated Financial Statements. Further discussion of investments and valuation is contained in Notes 1, 2 and 15 to the Consolidated Financial Statements. 38 39 EXHIBIT 13 CONSOLIDATED BALANCE SHEETS THE LIBERTY CORPORATION AND SUBSIDIARIES (In 000's)
At December 31 1995 1994 - --------------------------------------------------------------------------------------------------------------------- ASSETS Investments: Fixed maturity securities Available for sale, at market, cost of $1,383,324 in 1995 and $947,522 in 1994 $1,467,039 $ 883,029 Held to maturity, at cost, market of $311,129 in 1994 --- 299,118 Equity securities, primarily at market, cost of $68,637 in 1995, $78,116 in 1994 82,508 78,208 Mortgage loans 213,223 203,381 Investment real estate, at cost less accumulated depreciation $11,671 in 1995, $12,882 in 1994 135,306 135,545 Policy loans 98,369 96,160 Other long-term investments 27,535 31,624 Short-term investments --- 7,264 - --------------------------------------------------------------------------------------------------------------------- Total Investments 2,023,980 1,734,329 - --------------------------------------------------------------------------------------------------------------------- Cash 43,741 51,400 Accrued investment income 20,018 18,708 Receivables net of bad debt reserves, $1,975 in 1995, $1,493 in 1994 46,098 37,879 Receivable from reinsurers 275,090 258,969 Deferred acquisition costs 265,188 259,799 Cost of business acquired 86,925 98,056 Buildings and equipment, at cost, less accumulated depreciation $105,819 in 1995, $100,362 in 1994 79,789 66,360 Intangibles related to television operations, at cost, net of amortization $20,192 in 1995, $16,278 in 1994 99,056 46,934 Goodwill related to insurance acquisitions, at cost, net of amortization $8,076 in 1995, $6,490 in 1994 37,239 40,308 Other assets 57,172 54,522 - --------------------------------------------------------------------------------------------------------------------- Total Assets $3,034,296 $2,667,264 - ---------------------------------------------------------------------------------------------------------------------
39 40 EXHIBIT 13
At December 31 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Liabilities: Policy liabilities: Future policy benefits $1,811,417 $1,731,654 Claims and benefits payable 24,356 24,812 Policyholder funds 27,086 27,157 - ---------------------------------------------------------------------------------------------------------------------- 1,862,859 1,783,623 Notes and mortgages payable 158,444 131,647 Long-term debt 100,000 100,000 Accrued income taxes 6,665 4,418 Deferred income taxes 182,083 112,707 Accounts payable and accrued expenses 67,094 66,608 Other liabilities 35,722 26,856 - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities 2,412,867 2,225,859 - ---------------------------------------------------------------------------------------------------------------------- Redeemable Preferred Stock: 1994-A Series, $35.00 redemption value, 668,207 shares issued and outstanding 23,387 23,387 1994-B Series, $37.50 redemption value, 594,126 and 598,101 shares issued and outstanding in 1995 and 1994, respectively 22,280 22,429 - ---------------------------------------------------------------------------------------------------------------------- Total Redeemable Preferred Stock 45,667 45,816 - ---------------------------------------------------------------------------------------------------------------------- Shareholders' Equity: Common stock Authorized - 50,000,000 shares, no par value Issued and outstanding - 20,060,629 shares in 1995, 19,841,470 shares in 1994 158,735 152,956 Convertible Preferred Stock 1995-A Series, 599,985 shares issued and outstanding 20,999 --- Preferred Stock Authorized - 10,000,000 shares Issued and outstanding - 1,862,318 shares in 1995, 1,266,308 shares in 1994 Unearned stock compensation (6,050) (5,319) Unrealized appreciation (depreciation) on fixed maturity securities available for sale and equity securities 57,986 (53,109) Cumulative foreign currency translation adjustment (999) (1,491) Retained earnings 345,091 302,552 - ---------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 575,762 395,589 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $3,034,296 $2,667,264 - ----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 40 41 EXHIBIT 13 CONSOLIDATED STATEMENTS OF INCOME THE LIBERTY CORPORATION AND SUBSIDIARIES (In $000's, except per share data)
For the Years Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------- REVENUES Insurance premiums and policy charges $331,370 $315,789 $250,922 Broadcasting revenues 119,529 98,266 87,984 Net investment income 148,670 133,679 110,966 Service contract revenues 9,025 5,585 8,383 Realized investment gains (losses) (2,913) (12,073) 14,686 Other income --- --- 4 - ----------------------------------------------------------------------------------------------------------------- Total revenues 605,681 541,246 472,945 - ----------------------------------------------------------------------------------------------------------------- EXPENSES Policyholder benefits 236,774 225,745 159,452 Insurance commissions 54,583 49,869 44,491 General insurance expenses 67,703 84,930 66,213 Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402 Broadcasting expenses 83,849 69,523 64,705 Interest expense 15,047 11,097 9,945 Other expenses 15,150 16,190 11,413 - ----------------------------------------------------------------------------------------------------------------- Total expenses 516,886 502,378 395,621 - ----------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting changes 88,795 38,868 77,324 Provision for income taxes 29,442 12,690 26,237 - ----------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes 59,353 26,178 51,087 Cumulative effect of accounting changes SFAS 106 - Postretirement benefits --- --- (10,068) SFAS 112 - Postemployment benefits --- --- (1,872) - ----------------------------------------------------------------------------------------------------------------- Net income $ 59,353 $ 26,178 $ 39,147 - ----------------------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE Income before cumulative effect of accounting changes $ 2.76 $ 1.22 $ 2.62 Cumulative effect of accounting changes SFAS 106 - Postretirement benefits --- --- (.52) SFAS 112 - Postemployment benefits --- --- (.09) - ----------------------------------------------------------------------------------------------------------------- Net earnings per common share $ 2.76 $ 1.22 $ 2.01 - -----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 41 42 EXHIBIT 13 CONSOLIDATED STATEMENTS OF CASH FLOWS THE LIBERTY CORPORATION AND SUBSIDIARIES (In 000's)
For the Years Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 59,353 $ 26,178 $ 39,147 Adjustments to reconcile net income to net cash provided by operating activities: Increase in policy liabilities 18,845 53,961 30,763 (Decrease) increase in accounts payable and accrued expenses (3,964) 1,142 4,948 Increase in receivables (3,311) (7,374) (11,569) Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402 Policy acquisition costs deferred (54,522) (59,053) (58,017) Realized investment (gains) losses 2,913 12,073 (14,686) Gain on sale of operating assets (3,231) (3,214) (3,136) Depreciation and amortization 19,034 16,019 13,522 Amortization of bond premium and discount (7,485) (4,904) (6,033) Provision for deferred income taxes 6,225 (1,481) 2,089 All other operating activities, net 9,803 8,679 (1,730) - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 87,440 87,050 34,700 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Investment securities sold: Available for sale (equity securities in 1993) 155,670 225,100 40,698 Held to maturity (fixed maturities in 1993) --- --- 10,124 Investment securities matured or redeemed by issuer: Available for sale 32,913 61,216 --- Held to maturity 35,494 65,910 241,000 Cost of investment securities acquired: Available for sale (329,918) (420,244) --- Held to maturity --- --- (351,900) Mortgage loans made (32,905) (31,957) (28,883) Mortgage loan repayments 22,712 20,621 23,648 Purchase of investment properties, buildings and equipment (62,955) (87,115) (32,563) Sale of investment properties, buildings and equipment 49,103 31,158 40,374 Purchases of short-term investments (43,607) (388,465) (381,400) Sales of short-term investments 50,871 394,673 394,284 Net cash paid on purchases of insurance companies --- (54,087) (722) Net cash paid on sale of insurance business --- --- (2,250) Net cash paid on purchase of television station (5,140) --- --- All other investment activities, net (5,828) 6,860 (1,439) - --------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (133,590) (176,330) (49,029) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from borrowings 1,901,901 2,544,735 2,192,635 Principal payments on debt (1,890,521) (2,467,819) (2,219,778) Dividends paid (16,814) (14,358) (13,108) Stock issued for employee benefit and compensation programs 2,909 3,487 5,771 Common stock offering --- --- 8,544 Return of policyholders' account balances (32,637) (30,025) (26,201) Receipts credited to policyholders' account balances 73,653 75,173 63,773 - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 38,491 111,193 11,636 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH (7,659) 21,913 (2,693) Cash at beginning of year 51,400 29,487 32,180 - --------------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 43,741 $ 51,400 $ 29,487 - ---------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 42 43 EXHIBIT 13 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THE LIBERTY CORPORATION AND SUBSIDIARIES (Amounts in 000's except per share data)
UNREALIZED COMMON CONVERTIBLE UNEARNED SECURITY SHARES COMMON PREFERRED STOCK APPRECIATION OUTSTANDING STOCK STOCK COMPENSATION (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1993 18,859 $126,961 $ --- $(3,222) $ 3,901 Net income Net unrealized investment gains 1,276 Dividends - Common Stock - $0.56 per share Foreign currency translation adjustment Stock issued for employee benefit and performance incentive compensation programs 314 8,434 (1,253) Stock offering 325 8,544 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 19,498 143,939 --- (4,475) 5,177 Cumulative effect of change in accounting principle 11,357 Net income Net unrealized investment losses (69,643) Dividends - Common Stock - $0.62 per share Dividends - Redeemable Preferred Stock - $1.672 per share Foreign currency translation adjustment Stock issued for employee benefit and performance incentive compensation programs 229 5,816 (844) Stock issued as part of the purchase price of acquisitions 113 3,180 Stock issued for conversion of redeemable preferred stock 1 21 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 19,841 152,956 --- (5,319) (53,109) Net Income Net unrealized investment gains 111,095 Dividends - Common Stock - $0.665 per share Dividends - Redeemable Preferred Stock - $2.10 per share Dividends - Convertible Preferred Stock - $1.4583 per share Foreign currency translation adjustment Stock issued for employee benefit and performance incentive compensation programs 216 5,631 (731) Stock issued as part of the purchase price of acquisitions 20,999 Stock issued for conversion of redeemable preferred stock 4 148 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 20,061 $158,735 $20,999 $(6,050) $ 57,986 - ------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE FOREIGN CURRENCY RETAINED TRANSLATION EARNINGS TOTAL - ----------------------------------------------------------------------------------------------------- Balance at January 1, 1993 $ (880) $262,428 $389,188 Net income 39,147 39,147 Net unrealized investment gains 1,276 Dividends - Common Stock - $0.56 per share (10,842) (10,842) Foreign currency translation adjustment (649) (649) Stock issued for employee benefit and performance incentive compensation programs 7,181 Stock offering 8,544 - ------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 (1,529) 290,733 433,845 Cumulative effect of change in accounting principle 11,357 Net income 26,178 26,178 Net unrealized investment losses (69,643) Dividends - Common Stock - $0.62 per share (12,242) (12,242) Dividends - Redeemable Preferred Stock - $1.672 per share (2,117) (2,117) Foreign currency translation adjustment 38 38 Stock issued for employee benefit and performance incentive compensation programs 4,972 Stock issued as part of the purchase price of acquisitions 3,180 Stock issued for conversion of redeemable preferred stock 21 - ------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 (1,491) 302,552 395,589 Net Income 59,353 59,353 Net unrealized investment gains 111,095 Dividends - Common Stock - $0.665 per share (13,283) (13,283) Dividends - Redeemable Preferred Stock - $2.10 per share (2,658) (2,658) Dividends - Convertible Preferred Stock - $1.4583 per share (873) (873) Foreign currency translation adjustment 492 492 Stock issued for employee benefit and performance incentive compensation programs 4,900 Stock issued as part of the purchase price of acquisitions 20,999 Stock issued for conversion of redeemable preferred stock 148 - ------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $ (999) $345,091 $575,762 - -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 43 44 EXHIBIT 13 THE LIBERTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements of The Liberty Corporation and Subsidiaries (the Company) include the accounts of the Company after elimination of all significant intercompany balances and transactions. The primary subsidiaries of the Company are Liberty Life Insurance Company, Pierce National Life Insurance Company (doing business as FamilySide) and Liberty Insurance Services Corporation (collectively referred to as the insurance operations) and Cosmos Broadcasting Corporation. ORGANIZATION - The Company's operations include the sale and service of life insurance products in the United States and Canada and television broadcasting operations in the United States. The insurance operations are licensed to do business in 49 states and nine Canadian provinces. While the majority of the Company's assets and revenues are generated from its insurance operations, the Company also is a major television group broadcaster, owning and operating eight network affiliated television stations throughout the southeastern and midwestern states. Information on the Company's operations by segment is included on page 40 of this report (see Note 16). USE OF ESTIMATES AND ASSUMPTIONS - Financial statements prepared in accordance with generally accepted accounting principles require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements. Actual results could differ from those estimates and assumptions. INSURANCE PREMIUMS AND POLICY CHARGES - Revenues for traditional life insurance and accident and health insurance are recognized over the premium paying period as they become due. For limited payment whole life products, the excess of the premiums received over the portion of the premiums required to establish reserves is deferred and recognized in income over the anticipated life of the policy. For universal life products, revenues consist of policy charges for the cost of insurance, administration of the policies and surrender charges during the period. Policy issue fees are deferred and recognized in income over the life of the policies in relation to the incidence of expected gross profits. BENEFITS TO POLICYHOLDERS AND BENEFICIARIES - Benefits for traditional life insurance and accident and health insurance products include claims paid during the period, accrual for claims reported but not yet paid, and accrual for claims incurred but not reported based on historical claims experience modified for expected future trends. Benefits for universal life products are the amount of claims paid in excess of the policy value accrued to the benefit of the policyholder plus interest credited on account values. INSURANCE RESERVES AND POLICY MAINTENANCE EXPENSES - Insurance reserves and policy maintenance expenses for traditional life insurance and accident and health insurance are associated with earned premiums so as to recognize profits over the premium paying period. This association is accomplished by recognizing the liabilities for insurance reserves on a net level premium method based on assumptions deemed appropriate at the date of issue as to future investment yield, mortality, morbidity, withdrawals and maintenance expenses and including margins for adverse deviations. Interest assumptions are based on Company experience. Mortality, morbidity, and withdrawal assumptions are based on recognized actuarial tables or Company experience, as appropriate. Accident and health reserves consist principally of unearned premiums and claims reserves, including provisions for incurred but unreported claims. Insurance reserves for universal life products are determined following the retrospective deposit method and consist of policy values that accrue to the benefit of the policyholder, unreduced by surrender charges. DEFERRED ACQUISITION COSTS - Acquisition costs incurred by the Company in the process of acquiring new business are deferred and amortized to income as discussed below. Costs deferred consist primarily of commissions and certain policy underwriting, issue and agency expenses that vary with and are primarily related to production of new business. COST OF BUSINESS ACQUIRED is the value assigned the insurance inforce of acquired insurance companies at the date of acquisition. For traditional insurance products, the amortization of deferred acquisition costs and the cost of business acquired is recognized in proportion to the ratio of annual premium revenue to the total anticipated premium revenue, which gives effect to actual terminations. Deferred acquisition costs and the cost of business acquired are amortized over the premium paying period (not to exceed 30 years) of the related policies. Anticipated premium revenue is determined using assumptions consistent with those utilized in the determination of liabilities for insurance reserves. 44 45 EXHIBIT 13 For universal life products, the deferred acquisition costs are amortized in relation to the incidence of expected gross profits over the life of the policies (not to exceed 30 years). Gross profits are equal to revenues, as defined previously, plus investment income (including applicable realized investments gains and losses) less expenses. Expenses include interest credited to policy account balances, policy administration expenses, and expected benefit payments in excess of policy account balances. INVESTMENTS - Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" requires that all debt and equity securities be classified into one of three categories - -- held to maturity, available for sale, or trading. The Company has no securities classified as trading. On November 15, 1995, the Financial Accounting Standards Board issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities". In accordance with the provisions in that Special Report, on December 31, 1995, the Company chose to reclassify all securities previously classified as held to maturity to available for sale. The market value and amortized cost of the securities transferred were $307,100,000 and $281,691,000, respectively, at December 31, 1995. As a result of the transfer, shareholders' equity was increased $14,645,000 (net of deferred income taxes and adjustment to deferred acquisition costs) to reflect the unrealized gain on securities previously carried at cost. There were no sales of securities previously included in the held to maturity category during 1995 or 1994. Prior to December 31, 1995, the Company classified fixed maturity securities (bonds and redeemable preferred stock) as either held to maturity or available for sale. Management determined the appropriate classification of fixed maturities at the time of purchase. Fixed maturities were classified as held to maturity when the Company had the positive intent and ability to hold the securities to maturity. Investments are reported on the following basis: - - Fixed maturities classified as available-for-sale are stated at fair value with unrealized gains and losses, after adjustment for deferred income taxes and deferred acquisition costs, reported directly in shareholders' equity. Fixed maturities classified as held to maturity are stated at amortized cost, including impairments for other than temporary declines in value. Fair values for fixed maturity securities are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. - - Equity securities (common stocks and nonredeemable preferred stocks) are all considered available for sale and are carried at fair value. The fair values for equity securities are based on quoted market prices. - - Mortgage loans on real estate are carried at amortized cost, less an allowance for credit losses and provisions for impaired value, where appropriate. - - Investment real estate is carried at cost less accumulated depreciation and provisions for impaired value where appropriate. Depreciation over the estimated useful lives of the properties is determined principally using the straight-line method. - - Policy loans are carried at cost. - - Other long-term investments are carried at cost which includes provisions for impaired value where appropriate. Included in other long-term investments are investments in venture capital funds and oil and gas properties. - - Short-term investments are carried at cost which approximates fair value. UNREALIZED INVESTMENT GAINS AND LOSSES on investments carried at fair value, net of deferred taxes and adjustment for deferred acquisition costs related to universal life products, are recorded directly in shareholders' equity. REALIZED INVESTMENT GAINS AND LOSSES are recognized using the specific identification method to determine the cost of investments sold. Gains or losses on the sale of real estate held for investment are included in realized investment gains (losses). Gains and losses on the sale of real estate acquired for development and resale are included in net investment income. Realized gains and losses include write-downs for impaired values of investment assets. The Company establishes impairments on individual, specific assets at the time the Company judges the assets to have been impaired and this impairment can be estimated (see Note 2). BUILDINGS AND EQUIPMENT are recorded at cost. Depreciation over the estimated useful lives of the properties is determined principally using the straight-line method. INTANGIBLE ASSETS arose in the acquisition of certain television stations. Amounts not being amortized ($4,071,000) represent the excess of the total cost over the underlying value of the tangible and amortizable intangible assets acquired prior to 1970. Amounts being amortized are expensed principally over forty years. GOODWILL arose in the acquisition of insurance companies and is being amortized over lives ranging from twenty to forty years. FOREIGN CURRENCY TRANSLATION has been accounted for in accordance with SFAS No. 52, "Foreign Currency Translation." The assets and liabilities of the Canadian operations of FamilySide are translated into U.S. dollars at the rate of exchange in effect at the respective balance sheet date. Net exchange gains and losses resulting from translation are included as a separate component of shareholders' equity. Revenues and expenses are translated at average exchange rates for the year. Gains and losses from foreign currency transactions are included in net income. 45 46 EXHIBIT 13 INTEREST RATE CAPS AND SWAPS are used to limit the impact of changing interest rates on the Company's debt, which is substantially all floating rate (see Note 5). An interest rate swap is used to fix the interest rate on $100,000,000 of debt. The net interest effect of the swap transaction is reported as an adjustment to interest expense as incurred. Interest rate caps are used to protect a portion of the remaining debt against significant increases in interest rates. Premiums paid for the interest rate caps are being amortized to interest expense over the terms of the caps. INCOME TAXES are computed using the liability method required by Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes". Under SFAS 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and law that will be in effect when the differences are expected to reverse. EARNINGS PER COMMON SHARE is based on net income after redeemable preferred stock dividend requirements and the weighted average number of shares outstanding during the year, including the average number of dilutive shares under stock options. NON-PENSION POSTEMPLOYMENT BENEFITS - The Company provides certain health and life insurance benefits to eligible retirees and their dependents. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" whereby the cost of providing the benefits is accrued during the employees' working years. The Company elected to immediately recognize this obligation, resulting in a $15,254,000 charge ($10,068,000 after-tax) to 1993 operations. The Company also provides certain other postemployment benefits to qualified former and inactive employees. To account for these benefits the Company adopted Statement of Financial Accounting Standard No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1993. SFAS 112 requires the accrual of benefits provided to former or inactive employees after employment but before retirement, be accrued when it is probable a benefit will be provided. The adoption of this standard resulted in a $2,837,000 charge ($1,872,000 after-tax) which was expensed during 1993. With the exception of the one-time transition obligations, the adoption of these accounting standards did not have a material impact on the Company's annual earnings. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 114, "Accounting by Creditors for Impairments of a Loan" and Statement of Financial Accounting Standard No. 118, "Accounting by Creditors for Impairments of a Loan--Income Recognition and Disclosures" were adopted by the Company effective January 1, 1995. Under the standards, the Company provides for estimated credit losses related to the mortgage loans where it is probable that all amounts due according to the contractual terms of the mortgage agreement will not be collected. This provision for credit losses is based on discounting the expected cash flows from the loan using the loan's initial effective interest rate, or the fair value of the collateral for certain collateral dependent loans. The initial adoption of the standards resulted in recording an allowance for credit losses of $507,000 ($330,000 after-tax), which has been included in realized investment gains (losses) in the consolidated statement of income. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was issued by the Financial Accounting Standards Board in March 1995. This statement prescribes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill that are used in the business, as well as establishing accounting standards for long-lived assets and certain identifiable intangibles to be disposed of. The Company expects to adopt this standard as of January 1, 1996. Under the provisions of the statement certain of the Company's investment real estate assets will be required to be valued at fair value, rather than net realizable value as previously required; however, the adoption of the statement is not expected to have a material impact on the net income or financial position of the Company. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 123, "Accounting for Stock-Based Compensation" was issued by the Financial Accounting Standards Board in October 1995. This statement requires companies to measure the fair value of employee stock options at the date granted and expense the estimated fair value of grants or, alternatively, disclose the pro forma impact on net income and earnings per share of the grants in the notes to the financial statement. The Company will adopt this statement as of January 1, 1996 and make the pro forma disclosures required by SFAS 123 in its 1996 financial statements. RECLASSIFICATIONS have been made in the 1994 and 1993 Consolidated Financial Statements to conform to the 1995 presentation. 46 47 Exhibit 13 2. INVESTMENTS Amortized cost and estimated fair values of investments in available for sale and held to maturity securities at December 31, 1995 and 1994 are as follows:
Gross Gross Amortized Unrealized Unrealized 1995 (In 000's) Cost Gains Losses Fair Value - -------------------------------------------------------------------------------------------- AVAILABLE FOR SALE: Fixed maturity securities US government obligations $ 25,733 $ 993 $ 41 $ 26,685 States and political subdivisions 294 39 --- 333 Foreign obligations 93,819 3,746 2,534 95,031 Corporate securities 485,735 41,645 2,774 524,606 Mortgage-backed securities 777,743 43,530 889 820,384 - -------------------------------------------------------------------------------------------- Total 1,383,324 89,953 6,238 1,467,039 Equity securities 68,637 19,161 5,290 82,508 - -------------------------------------------------------------------------------------------- Total $1,451,961 $109,114 $11,528 $1,549,547 - -------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized 1994 (In 000's) Cost Gains Losses Fair Value - ----------------------------------------------------------------------------------------------- AVAILABLE FOR SALE: Fixed maturity securities US government obligations $ 33,723 $ 3 $ 2,341 $ 31,385 States and political subdivisions 45,514 3 3,081 42,436 Foreign obligations 23,543 1 2,916 20,628 Corporate securities 381,823 2,222 28,666 355,379 Mortgage-backed securities 462,919 267 29,985 433,201 - ----------------------------------------------------------------------------------------------- Total 947,522 2,496 66,989 883,029 Equity securities 78,116 7,503 7,411 78,208 - ----------------------------------------------------------------------------------------------- Total $1,025,638 $ 9,999 $74,400 $961,237 - ----------------------------------------------------------------------------------------------- HELD TO MATURITY: US government obligations $ 5,574 $ 38 $ 319 $ 5,293 Foreign obligations 454 104 -- 558 Corporate securities 86,723 10,352 1,019 96,056 Mortgage-backed securities 206,367 4,787 1,932 209,222 - ----------------------------------------------------------------------------------------------- Total $ 299,118 $15,281 $ 3,270 $311,129 - -----------------------------------------------------------------------------------------------
As of December 31, 1995, the Company reclassified all securities previously classified as held to maturity to available for sale (See Note 1). 47 48 EXHIBIT 13 Realized gains (losses) and the change in unrealized gains (losses) on the Company's fixed maturities and equity securities are summarized as follows:
Total Gains Fixed Equity (Losses) on (In 000's) Maturities Securities Investments - --------------------------------------------------------------------------------------------------------- 1995 Realized investment gains (losses) $ (2,347) $ 8,071 $ 5,724 Change in unrealized investment gains (losses) 136,197 13,779 149,976 - --------------------------------------------------------------------------------------------------------- Combined $ 133,850 $21,850 $ 155,700 - --------------------------------------------------------------------------------------------------------- 1994 Realized investment gains (losses) $ (11,957) $ 2,699 $ (9,258) Change in unrealized investment gains (losses) (118,937) (7,494) (126,431) - --------------------------------------------------------------------------------------------------------- Combined $(130,894) $(4,795) $(135,689) - --------------------------------------------------------------------------------------------------------- 1993 Realized investment gains $ 10,705 $ 6,546 $ 17,251 Change in unrealized investment gains (losses) 1,084 1,965 3,049 - --------------------------------------------------------------------------------------------------------- Combined $ 11,789 $ 8,511 $ 20,300 - ---------------------------------------------------------------------------------------------------------
The schedule below details consolidated investment income and related investment expenses for the years ended December 31.
(In 000's) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- Interest on Bonds $107,825 $ 89,518 $ 74,438 Mortgage loans 18,247 18,137 15,452 Policy loans 4,872 4,946 4,162 Short-term investments 752 869 1,376 Dividends on Preferred stocks 6,624 8,370 7,469 Common stocks 1,180 1,361 376 Investment property rentals 9,238 6,255 4,265 Net gain on investment real estate held for development 6,947 5,268 4,501 Other investment income 3,269 7,556 5,987 - ----------------------------------------------------------------------------------------------- Total investment income 158,954 142,280 118,026 Investment expenses 10,284 8,601 7,060 - ----------------------------------------------------------------------------------------------- Net investment income $148,670 $133,679 $110,966 - -----------------------------------------------------------------------------------------------
Proceeds from sales of fixed maturities and the related gross realized gains and losses for the three years ended December 31 are shown below. The amounts shown below do not include those related to unscheduled redemptions or prepayments, nor do they reflect any impairments taken during the years presented. No held to maturity securities were sold during 1995 or 1994.
(In 000's) 1995 1994 1993 - --------------------------------------------------------------------------------------- Proceeds from sales $111,260 $187,597 $10,124 Gross realized gains 1,750 986 383 Gross realized losses (3,910) (13,437) (294)
48 49 EXHIBIT 13 The following investment assets were non-income producing for the twelve months ended December 31, 1995:
(In 000's) Balance Sheet Amount - ----------------------------------------------------------------------------------------------------- Investment real estate $11,827 Other long-term investments 24,834 Mortgage loans 50 Fixed maturities 71 - ----------------------------------------------------------------------------------------------------- Total $36,782 - -----------------------------------------------------------------------------------------------------
For the year ended December 31, 1995, the Company incurred realized losses of $9,462,000 due to impairment of assets included in the year-end investment portfolio. Cumulative provisions for impairments on the total investment portfolio by asset category at December 31, 1995, are as follows:
(In 000's) CUMULATIVE PROVISION FOR IMPAIRMENTS - ------------------------------------------------------------------ Mortgage loans $ 2,893 Investment real estate 4,401 Other long-term investments 7,462 Fixed maturities 1,380 - ------------------------------------------------------------------ Total $16,136 - ------------------------------------------------------------------
The amortized cost and estimated fair value of fixed maturities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(In 000's) Amortized Cost Fair Value - ------------------------------------------------------------------------------------------ Due in one year or less $ 21,005 $ 21,103 Due after one year through five years 166,973 178,644 Due after five years through ten years 247,643 267,709 Due after ten years 169,960 179,199 - ------------------------------------------------------------------------------------------ 605,581 646,655 Mortgage-backed securities primarily maturing in five to twenty-five years 777,743 820,384 - ------------------------------------------------------------------------------------------ Total $1,383,324 $1,467,039 - ------------------------------------------------------------------------------------------
3. REINSURANCE AGREEMENTS The Company uses reinsurance as a risk management tool in the normal course of business and in isolated, strategic assumption transactions to effectively buy or sell blocks of in force business. The reinsurance contracts do not relieve the Company from its contract with its policyholders, and it remains liable should any reinsurer be unable to meet its obligations. At December 31, 1995, $4.6 billion (21%) of the Insurance Group's total $21.4 billion gross insurance in force was ceded to other companies. In the accompanying financial statements, insurance premiums and policy charges, policyholder benefits and deferred acquisition costs are reported net of reinsurance ceded with policy liabilities being reported gross of reinsurance ceded. Amounts paid or deemed to be paid for reinsurance contracts are recorded as reinsurance receivables. The cost of reinsurance related to long-term duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. In 1991 Liberty Life entered into an agreement with Life Reassurance Corporation (Life Re) to coinsure the Company's General Agency Division's universal life policies in force. The initial agreement provided for 80% coinsurance on policies in force at December 31, 1991, and 50% coinsurance on policies issued subsequent to such date. Effective July 1, 1995, the amount coinsured on policies written after December 31, 1991, was increased to 80%. Under the terms of the agreement, assets supporting the business ceded are required to be held in escrow. At December 31, 1995, Liberty Life's interest in the assets held in escrow consisted of investments with an amortized cost of $56.3 million and a fair value of $59.7 million. Comparable book and fair value at December 31, 1994 was $62.7 million and $59.3 49 50 EXHIBIT 13 million, respectively. These investments had an average rating of AA+. The total face value of insurance ceded to Life Re at December 31, 1995, was $2.9 billion and the Company has recorded a receivable related to this transaction from Life Re of $257.7 million as of December 31, 1995. Currently, Life Re has an A.M. Best rating of A+. During 1995 and 1994, Liberty Life had ceded premiums and policy charges of $19.3 and $18.0 million, respectively, under the agreement. Effective September 30, 1991, Liberty Life entered into an agreement to coinsure 50% of its Home Service line of business. Under generally accepted accounting principles this agreement has been treated as financial reinsurance, and no reserve reduction had been taken for the business ceded. The reinsurance contract contains an escrow agreement that requires assets equal to the reserves reinsured, as determined under statutory accounting principles, be held in escrow for the benefit of this block of business. At December 31, 1995, the amortized cost of the invested assets held in escrow was approximately $228.9 million. The insurance subsidiaries also reinsures with other insurance companies portions of the life insurance they write in order to limit exposure on large or substandard risks. Due to this broad allocation of reinsurance with several insurance companies, there exists no significant concentration of credit risk. The maximum amount of life insurance that Liberty Life will retain on any life is $300,000, plus an additional $50,000 in the event of accidental death. This maximum is reduced for higher ages and for special classes of risks. The maximum amount of life insurance that the other insurance subsidiaries will retain on any life is $50,000. Insurance in excess of the retention limits is either automatically ceded under reinsurance agreements or is reinsured on an individually agreed basis with other insurance companies. The effect of reinsurance on premiums and policy charges and benefits was as follows for the years ending December 31:
(In 000's) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- Direct premiums and policy charges $364,797 $344,119 $278,454 Reinsurance assumed 1,314 1,728 2,089 Reinsurance ceded (34,741) (30,058) (29,621) - ----------------------------------------------------------------------------------------------------- Net premiums and policy charges $331,370 $315,789 $250,922 - ----------------------------------------------------------------------------------------------------- Gross benefits $249,861 $242,869 $174,588 Reinsurance recoveries (13,087) (17,124) (15,136) - ----------------------------------------------------------------------------------------------------- Net benefits $236,774 $225,745 $159,452 - -----------------------------------------------------------------------------------------------------
4. DEFERRED ACQUISITION COSTS, COST OF BUSINESS ACQUIRED AND FUTURE POLICY BENEFITS A summary of the changes in deferred acquisition costs is as follows:
(In 000's) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Beginning balance $259,799 $231,873 $211,945 Deferred during the year 54,522 59,053 58,017 Amortized during the year (32,594) (33,313) (31,917) Adjustment related to unrealized investment (gains) losses (10,327) 2,379 --- Insurance in force ceded (6,331) --- (6,082) Foreign currency translation 119 (193) (90) - ------------------------------------------------------------------------------------------------------- Ending balance $265,188 $259,799 $231,873 - -------------------------------------------------------------------------------------------------------
50 51 EXHIBIT 13 A summary of the changes in costs of business acquired through acquisitions is as follows:
(In 000's) 1995 1994 1993 - ------------------------------------------------------------------------------------ Beginning balance $98,056 $56,762 $63,930 Additions from acquisitions --- 53,139 317 Interest accrued 6,621 6,620 4,426 Foreign currency adjustment 55 (134) --- Amortized during the year (17,807) (18,331) (11,911) - ------------------------------------------------------------------------------------ Ending balance $86,925 $98,056 $56,762 - ------------------------------------------------------------------------------------
The Company accounts for these costs in a manner consistent with deferred acquisition costs. The Company's interest rate used to amortize these costs is 7.75% for a majority of the asset. Periodically, the Company performs tests to determine that the cost of business acquired remains recoverable from future premiums on the acquired business. The Company incurred no write-offs due to impairments as a result of these tests during the three years ended December 31, 1995. Under current assumptions amortization of these costs, prior to consideration of accrued interest implicit in the calculation of the amortization, for the next five years is expected to be as follows:
(In 000's) Amortization - ------------------------------------------------------------------------------------------- 1996 $15,779 1997 13,693 1998 12,126 1999 10,819 2000 9,624
The liabilities for traditional life insurance and accident and health insurance policy benefits and expenses are computed using a net level premium method, including assumptions based on the Company's experience, modified as necessary to reflect anticipated trends and to include provisions for possible unfavorable deviations. Reserve interest assumptions are graded and range from 3.5% to 9.5%. Such liabilities are, for some plans, graded to equal statutory values or cash values at or prior to maturity. The weighted average assumed investment yield for all traditional life and accident and health policy reserves was 6.6%, 6.8%, and 6.8% in 1995, 1994, and 1993, respectively. Benefit reserves for traditional life insurance policies include certain deferred profits on limited-payment policies that are being recognized in income over the policy term. Policy benefit claims are charged to expense in the period that the claims are incurred. Benefit reserves for universal life insurance and investment products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances. Interest crediting rates for universal life and investment products range from 5.5% to 6.8% in 1995, 5.5% to 7.0% in 1994, and 5.8% to 8.0% in 1993. Participating business accounts for approximately 1% of the Company's life insurance in force and premium income. The dividend to be paid is determined annually by the Board of Directors. 5. DEBT The debt obligations at December 31 are as follows:
(In 000's) INTEREST RATE 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Borrowings under revolving credit agreement and lines of credit 6.1% $136,500 $120,500 Long-term debt 6.7% 100,000 100,000 Other notes due to banks 4.8% 158 554 Mortgage loans on investment property 7.5% to 8.5% 5,469 4,882 Other Various 16,317 5,711 - --------------------------------------------------------------------------------------------------------------------- Total $258,444 $231,647 - ---------------------------------------------------------------------------------------------------------------------
The mortgage loans are secured by property with a net carrying value of $19.6 million at December 31, 1995. 51 52 EXHIBIT 13 Maturities of the debt obligations at December 31, 1995, are as follows:
Maturities Amount - --------------------------------------------------------------------------------------- 1996 $ 26,306 1997 17,057 1998 147,095 1999 20,724 2000 20,946 Thereafter 26,316 - --------------------------------------------------------------------------------------- Total $258,444 - ---------------------------------------------------------------------------------------
On March 21, 1995, the Company refinanced its then-existing $325,000,000 revolving credit facility into a new $375,000,000, multi-tranche credit facility. The current facility consists of a $225,000,000 three-year revolving credit facility; a $100,000,000 seven-year term loan facility; and a $50,000,000 facility substantially identical to the revolving facility, which is convertible into terms substantially identical to the term facility within two years of the closing date of this loan. The revolving portion of the facility will mature in March 1998, while the term portion shall be repaid in twenty quarterly installments of $5,000,000 commencing June 1997, and ending in March 2002. The Company's borrowings against the revolving credit facility were $126,000,000 and against the term facility were $100,000,000 at December 31, 1995. During 1995, the maximum amount outstanding on the revolving facility amounted to approximately $162,000,000, with an average balance outstanding of approximately $129,250,000 and an average weighted interest rate of 6.26%. In addition to the revolving facility, the Company also uses several lines of credit totaling $35,500,000 as of December 31, 1995, to manage day-to-day cash flow. The amount borrowed against the lines of credit at December 31, 1995 was $10,500,000. The average balance outstanding on the lines of credit was approximately $16,400,000 during 1995, with a maximum borrowing of $50,500,000 and an average weighted interest rate of 6.46%. The Company has the option to solicit money market interest quotes from the bank group for borrowings under the revolving credit facility. The revolving credit agreement also provides for borrowing at interest rates based on a formula that incorporates the use of the London Interbank Offered Rate ("LIBOR") plus an interest rate margin. The interest rate for the term loan is based upon LIBOR, plus an interest rate margin. A facility fee is charged on the facility based on $275,000,000 of the total commitment. The facility fee and the interest rate margin for the revolving credit facility and the term loan are all based upon the ratio of consolidated debt to cash flow, as defined in the credit agreement. The credit agreement contains various restrictive covenants typical of a credit facility of this size and nature. These restrictions primarily pertain to levels of indebtedness, limitations on payment of dividends, limitations on the quality and types of investments, and capital expenditures. Additionally, the Company must also comply with several financial covenant restrictions under the revolving credit agreement, including defined ratios of consolidated debt to cash flow, consolidated debt to consolidated total capital, and fixed charges coverage. As of December 31, 1995, the Company was in compliance with all covenants under its debt agreement. The Company has entered into interest rate swap and cap agreements as a means of managing its interest rate exposure on its floating rate debt. The interest rate swap effectively fixes the interest rate on the $100,000,000 seven-year term loan facility at 5.965% plus the interest rate margin and will expire in March, 2002. The agreement is a contract to exchange fixed and floating interest rate payments periodically over the life of the agreement without the exchange of the underlying notional amounts. The Company will pay the counterparty interest at 5.965%, and the counterparty will pay the Company interest at a variable rate based on the 3-month LIBOR rate. The notional principal amount under the agreement will amortize proportionately to the paydown of the $100,000,000 term loan as described above. The interest differential to be paid or received on interest rate swaps is accrued and included in interest expense for financial reporting purposes. The agreement is with a major financial institution and the Company's credit exposure is limited to the value of the interest-rate swap that has, or may become favorable to the Company. The Company has entered into interest rate caps and corridors in an attempt to minimize the impact of a potential significant rise in short-term interest rates on the Company's outstanding floating rate debt. As of December 31, 1995, the Company had the following interest rate protection instruments: (1) a $50,000,000 notional amount, interest rate corridor from 8%-10%, which is based on the 3-month LIBOR rate and caps the Company's rate at 8% if the index rate exceeds 8% but is less than 10%, and at LIBOR minus 2% if the rate exceeds 10%, and expiring in December 1996; and (2) a $50,000,000 notional amount cap with a strike rate of 9%, which will be permanently eliminated if rates exceed 11%, based on the 3-month LIBOR rate and expiring in December 1997. The combination of the above instruments protects a portion ($100,000,000 for one year, and $50,000,000 for two years) of the Company's variable rate debt from a potential significant rise in short-term interest rates. The Company was required to pay up-front fees related to these instruments at inception of each contract, which are being amortized straight-line over the term of each contract. Interest paid, net of amounts capitalized, amounted to approximately $14,021,000, $12,957,000, and $12,580,000 in 1995, 1994, and 1993, respectively. Interest capitalized amounted to $2,303,000, $2,030,000, and $1,161,000, in 1995, 1994, and 1993, respectively. 52 53 EXHIBIT 13 6. REDEEMABLE PREFERRED STOCK On February 24, 1994, the Company issued 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a total redemption value of $22,449,000, or $37.50 per share, in connection with the acquisition of American Funeral Assurance Company. Additionally, on April 1, 1994, the Company issued 668,207 shares of Series 1994-A Voting Cumulative Preferred Stock having a total redemption value of $23,387,000, or $35.00 per share, in connection with the acquisition of State National Capital Corporation. The shares have preference in liquidation, and each share is entitled to one vote on any matters submitted to a vote of the shareholders of the Company. In accordance with the financial reporting requirements of the Securities and Exchange Commission, the preferred stock has been classified outside of permanent equity as Redeemable Preferred Stock. Both the Company and the holders of the preferred stock have the right to redeem any or all of the shares from time to time beginning five years and one month after the date of issue in exchange for cash or shares of the Company's common stock. The Company will determine the form of all redemptions, which will consist of cash, common stock, or a combination of both. Generally, the amount of consideration on the 1994-A Series will be equivalent to $35.00 per share plus the amount of any accumulated and unpaid dividends; and for the 1994-B Series will be equivalent to $37.50 per share plus the amount of any accumulated and unpaid dividends. In addition, each share of the 1994-A Series and 1994-B Series is convertible, at the option of the shareholder, at any time into one share of the Company's common stock (plus a corresponding attached right to acquire a share of the Company's Series A Participating Cumulative Preferred Stock). There is no sinking fund for the redemption of either series of preferred stock. Dividends shall be paid on the 1994-A Series at the rate of 6% per annum and on the 1994-B Series at the rate of 5.6% per annum. Dividends accrue daily, are cumulative, and are payable quarterly. Both the 1994-A Series and the 1994-B Series are on a parity in rank with all other series of preferred stock of the Company whether or not such series exist now or are created in the future, with respect to payment of all dividends and distributions, unless a series of preferred stock expressly provides that it is junior or senior to the 1994-A and 1994-B Series. No dividends or distributions on the Company's common stock shall be declared or paid until all accumulated and unpaid dividends on the 1994-A Series and 1994-B Series have been declared and set aside for payment. 7. COMMITMENTS AND CONTINGENCIES In January 1996, a lawsuit was filed against the Company alleging breach of contract in connection with an agreement to develop a state-of-art software system to administer the Company's insurance operations. The suit was filed by the software developer. Management of the Company, after consultation with legal counsel, believes that the lawsuit filed against the Company is without merit and intends to contest the suit vigorously. The Company believes the suit filed against it was in response to a suit filed by the Company in connection with failure of the software developer to deliver the system. The suit against the software developer seeks to recover amounts paid to the software developer, and other costs incurred by the Company, in the attempt to develop the system (see Note 12 to the Consolidated Financial Statements concerning the 1994 charge taken to write-off deferred system costs). The Company believes it will be successful in its lawsuit against the software developer; however, no estimated recovery is included in the accompanying financial statements. In December 1995, a lawsuit was filed against the Company alleging breach of contract. The lawsuit relates to a transaction in which the Company was unsuccessful in acquiring certain entities partially owned by the plaintiff. Management, after consultation with legal counsel, believes the lawsuit is without merit and intends to contest the suit vigorously. The Company and its subsidiaries are also defendants in various lawsuits arising primarily from claims made under insurance policies. Where applicable, these lawsuits are considered in establishing the Company's policy liabilities. It is the opinion of management and legal counsel that the settlement of these actions will not have a material effect on the financial position or results of operations of the Company. The Company has lease agreements, primarily for branch offices, data processing and telephone equipment, which expire on various dates through 2004, none of which are material capital leases. Most of these agreements have optional renewal provisions covering additional periods of one to ten years. All leases were made in the ordinary course of business and contain no significant restrictions or obligations. Future commitments under operating leases are not material. Annual rental expense amounted to approximately $5,825,000, $5,497,000, and $6,225,000 in 1995, 1994, and 1993, respectively. Most states have laws requiring solvent life insurance companies to pay guaranty fund assessments to protect the interests of policyholders of insolvent life insurance companies. Due to the recent increase in the number of companies that are under regulatory supervision, there is expected to be an increase in assessments by state guaranty funds. Under present law, most assessments can be recovered through a credit against future premium taxes. The Company has reviewed its exposure to potential assessments, and the effect on its financial position and results of operations is not expected to be material. At December 31, 1995, the Company had commitments for additional investments and other items totaling $44,341,000. 53 54 EXHIBIT 13 8. SHAREHOLDERS' EQUITY On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting Cumulative Convertible Preferred Stock having a total redemption value of $20,999,475 or $35.00 per share in connection with the acquisition of WLOX-TV. The shares have preference in liquidation, and each share is entitled to one vote on any matters submitted to a vote of the shareholders of the Company. Each share of preferred stock is convertible at the option of the holder into one share of common stock. The Company has the right to redeem any or all of the shares from time to time at any time beginning five years and one month after the date of issue in exchange for cash, common stock, or a combination of both. Generally, the amount of consideration on the 1995-A Series will be equivalent to $35.00 per share plus the amount of any accumulated and unpaid dividends. There is no sinking fund for the redemption of the preferred stock. Dividends shall be paid on the preferred stock at the rate of 5% per annum. Dividends accrue daily, are cumulative, and are payable quarterly. The 1995-A Series preferred stock is on a parity in rank with all other series of preferred stock of the Company whether or not such series exist now or are created in the future, with respect to payment of all dividends and distributions, unless a series of preferred stock expressly provides that it is junior or senior to the 1995-A Series. No dividends or distributions on the Company's common stock shall be declared or paid until all accumulated and unpaid dividends on the 1995-A Series have been declared and set aside for payment. The Company has adopted a Shareholder Rights Plan and declared a dividend of one preferred stock purchase right for each outstanding share of common stock. Upon becoming exercisable, each right entitles the holder to purchase for a price of $150.00 one one-hundredth of a share of Series A Participating Cumulative Preferred Stock. All of the rights may be redeemed by the Company at a price of $.01 per right until ten business days (or such later date as the Board of Directors determines) after the public announcement that a person or group has acquired beneficial ownership of 20 percent or more of the outstanding common shares ("Acquiring Person"). Upon existence of an Acquiring Person, the Company may redeem the rights only with the concurrence of a majority of the directors not affiliated with the Acquiring Person. The rights, which do not have voting power and are not entitled to dividends, expire on August 7, 2000. The rights are not exercisable until ten business days after the public announcement that a person either (i) has become an Acquiring Person, or (ii) has commenced, or announced an intention, to make a tender offer or exchange offer if, upon consummation, such person or group would become an Acquiring Person. If, after the rights become exercisable, the Company becomes involved in a merger or certain other major corporate transactions, each right will entitle its holder, other than the Acquiring Person, to receive common shares with a deemed market value of twice such exercise price. There are 10,000,000 shares of preferred stock, no par value per share authorized for issuance. At December 31, 1995, there were 1,862,318 shares of preferred stock outstanding (See Note 6 for discussion of Redeemable Preferred Stock), and 140,000 shares of preferred stock were reserved for issuance in connection with the Shareholder Rights Plan. Shareholders' equity as determined under generally accepted accounting principles of the Company's insurance operations was $672,694,000 and $525,478,000 at December 31, 1995 and 1994, respectively. The comparable amounts as determined under statutory accounting practices were $166,469,000 and $161,023,000 at December 31, 1995 and 1994, respectively. The amount that retained earnings exceed statutory unassigned surplus ($448,826,000) is restricted and, therefore, not available for dividends. Without regulatory approval, dividends are generally limited to prior year statutory gain from operations. The components of the balance sheet caption unrealized appreciation (depreciation) on fixed maturity securities available for sale and equity securities in shareholders' equity as of December 31 are as follows:
(In 000's) 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Carrying value of securities $1,549,547 $ 961,237 Amortized cost of securities 1,451,961 1,025,638 - --------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) 97,586 (64,401) Adjustment to deferred acquisition costs (7,948) 2,379 Deferred income taxes (net of a valuation allowance of $11,021 in 1994) (31,652) 8,913 - --------------------------------------------------------------------------------------------------------------------------- Total $ 57,986 $ (53,109) - ---------------------------------------------------------------------------------------------------------------------------
9. STOCK OWNERSHIP AND STOCK OPTION PLANS The Company has a Performance Incentive Compensation Program (the "Program") which provides that the Compensation Committee of the Board of Directors may grant: (a) incentive stock options within the meaning of Section 422 of the Internal Revenue Code; (b) non-qualified stock options; (c) performance units; (d) awards of restricted shares of the Company's common stock; or (e) all or any combination of the foregoing to officers and key employees. Only common stock, not to exceed 2,800,000 shares, may be delivered under the Program; and shares so delivered will be made available from the authorized but unissued shares or from shares reacquired by the 54 55 EXHIBIT 13 Company, including shares purchased in the open market. The aggregate number of shares that may be acquired by any participant in the Program shall not exceed 20% of the shares subject to the Program. As of December 31, 1995, fifty-nine officers and employees were participants in the Program. Restricted shares awarded to participants under the Program vest in equal annual installments, generally over the five-year period commencing on the date the shares are awarded. Non-vested shares may not be assigned, transferred, pledged or otherwise encumbered or disposed of. During the applicable restriction period, the Company retains possession of the certificates for the restricted shares with executed stock powers attached. Participants are entitled to dividends and voting rights with respect to the restricted shares. Stock options under the Program are issued at 100% of the market price on the date of grant, are vested over such period of time, which may not be less than one year, as may be established by the Compensation Committee, and expire ten years after the grant. Of the incentive stock options outstanding, 51,165 were exercisable at December 31, 1995; 81,465 were exercisable at December 31, 1994; and 116,240 were exercisable at December 31, 1993. Of the non-qualified options outstanding, 290,480 were exercisable at December 31, 1995; 268,500 were exercisable at December 31, 1994; and 191,800 were exercisable at December 31, 1993. The options expire on various dates beginning February 12, 1996, and ending August 15, 2005. The following schedule summarizes activity in the Program during the three years ending December 31, 1995.
Restricted Shares Incentive Stock Options Non-Qualified Stock Options - ------------------------------------------------------------------------------------------------------------------------------------ Number of Market Price Number of Average Number of Average Shares at Date Given Options Exercise Price Options Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 1/1/93 271,850 191,700 $16.75 404,000 $22.26 Awarded 90,220 $29.23 --- 75,500 29.38 Vested (98,638) 31.43 Exercised (75,460) 14.80 (30,200) 20.20 Forfeited (4,749) 27.97 --- (3,200) 24.31 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 12/31/93 258,683 116,240 $18.02 446,100 $23.59 Awarded 108,835 25.78 --- 104,500 25.76 Vested (85,643) 26.90 Exercised --- (34,775) 17.35 (4,000) 25.63 Forfeited (19,241) 24.82 --- (6,000) 25.63 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 12/31/94 262,634 81,465 $18.31 540,600 $23.97 Awarded 108,915 26.35 --- 56,500 26.80 Vested (80,679) 24.98 Exercised (30,300) 17.98 (37,900) 21.20 Forfeited (15,826) 26.84 --- (46,000) 23.37 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 12/31/95 275,044 51,165 $18.50 513,200 $24.54 - ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1995, there were 414,380 shares of the Company's stock reserved for future grants under the Program. 10. EMPLOYEE BENEFITS The Company has several postretirement plans that provide medical and life insurance benefits for qualified retired employees. The postretirement medical plans are generally contributory with retiree contributions adjusted annually to limit employer contributions to predetermined amounts. The postretirement life plans provide free insurance coverage up to a maximum of $5,000 for retirees prior to January 1, 1993, of the Company with the exception of Cosmos, whose retirees are insured with an outside company. 55 56 EXHIBIT 13 Net periodic postretirement benefit cost was $1,506,000, $1,516,000, and $1,477,000 for the years ended December 31, 1995, 1994, and 1993, respectively, and included the following components:
1995 1994 1993 - ----------------------------------------------------------------------------------------------- (In $000's) Medical Life Medical Life Medical Life - ----------------------------------------------------------------------------------------------- Service cost $ 140 $--- $ 139 $--- $ 129 $--- Interest cost 1,082 284 1,067 282 1,071 277 Amortization of unrecognized net loss --- --- 22 6 --- --- - ----------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $1,222 $284 $1,228 $288 $1,200 $277 - -----------------------------------------------------------------------------------------------
The following schedule reconciles the status of the Company's plans with the unfunded postretirement benefit obligation included in its balance sheets at December 31:
1995 1994 - ---------------------------------------------------------------------------------------------------- (In $000's) Medical Life Medical Life - ---------------------------------------------------------------------------------------------------- Retirees $12,632 $3,996 $12,457 $3,678 Fully eligible active plan participants 834 --- 771 --- Other active plan participants 1,119 --- 920 --- - ---------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 14,585 3,996 14,148 3,678 Unrecognized net gain (loss) 183 (265) (158) (80) - ---------------------------------------------------------------------------------------------------- Accrued postretirement benefit obligation $14,768 $3,731 $13,990 $3,598 - ----------------------------------------------------------------------------------------------------
At December 31, 1995, the weighted-average annual assumed rate of increase in the per capita cost of covered medical benefits is 9.5% for 1996, and is assumed to decrease by 0.5% per year to 8% in 1999, then decrease 1% per year to 5.5% in 2002 and thereafter. At December 31, 1994, the health care cost trend rate assumption was 10% and the rate graded down by 0.5% per year to 8% in 1999, then decreased 1% per year to 6% in 2001 and thereafter. A 1% increase in the per capita cost of health care benefits results in a $679,000 increase in the accrued postretirement benefit obligation and a $55,000 increase in postretirement benefit expense. The assumed weighted average discount rate used in determining the accrued postretirement medical and life benefit obligation was 7.5% and 8% at December 31, 1995 and 1994, respectively. The Company has profit sharing plans for substantially all of its employees. Contributions to these plans are made at the discretion of the Board of Directors and are paid into a trust that is administered by a separate trustee. Contributions for these plans were $5,067,000, $4,840,000, and $4,234,000, in 1995, 1994 and 1993, respectively. The Company has a voluntary thrift and investment plan, qualified under Section 401(k) of the Internal Revenue Code, for substantially all of its employees. The Company makes a matching contribution to the plan of up to 3% of the employee's compensation. The Company's matching contribution percentage may be changed at the discretion of each participating subsidiary's Board of Directors. The Company's contributions for this plan were $2,102,000, $2,148,000, and $2,020,000 in 1995, 1994, and 1993, respectively. 11. PROVISION FOR INCOME TAXES The provision for income taxes consists of the following:
(In 000's) 1995 1994 1993 - -------------------------------------------------------------------------- Current: Federal $21,761 $12,625 $23,017 State 1,456 1,546 1,131 - -------------------------------------------------------------------------- Total current 23,217 14,171 24,148 Deferred: Federal 6,226 (1,361) 2,217 State (1) (120) (128) - -------------------------------------------------------------------------- Total deferred 6,225 (1,481) 2,089 - -------------------------------------------------------------------------- Total tax provision $29,442 $12,690 $26,237 - --------------------------------------------------------------------------
56 57 EXHIBIT 13 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, 1995 and 1994, are as follows:
(In 000's) 1995 1994 - ----------------------------------------------------------------------------------------------------------- Insurance operations deferred tax liabilities: Deferred acquisition costs $ 98,190 $100,601 Policy liabilities 22,205 21,922 Market discount on investments 10,477 8,044 Tax over book partnership losses 2,909 4,651 Unrealized investment gains recognized in equity 31,652 --- Non-insurance companies deferred tax liabilities: Book over tax basis in acquired television station 21,836 --- Tax over book depreciation 6,697 6,446 Tax over book amortization 4,594 4,485 - ----------------------------------------------------------------------------------------------------------- Total deferred tax liabilities $198,560 $146,149 - ----------------------------------------------------------------------------------------------------------- Insurance operations deferred tax assets: Taxable income from financial reinsurance not included in income per books $ 1,680 $ 3,359 Employee benefit accruals 6,881 6,752 Unrealized investment losses recognized in equity --- 19,934 Other 4,093 7,930 Non-insurance companies deferred tax assets: Net operating loss carryover 1,918 3,889 Other 1,905 3,441 - ----------------------------------------------------------------------------------------------------------- Total deferred tax assets before valuation allowance 16,477 45,305 Valuation allowance --- (11,863) - ----------------------------------------------------------------------------------------------------------- Deferred tax asset net of valuation allowance 16,477 33,442 - ----------------------------------------------------------------------------------------------------------- Net deferred tax liability $182,083 $112,707 - -----------------------------------------------------------------------------------------------------------
At December 31, 1995, the Company had unrealized gains from securities classified as available for sale and equity securities of $97,586,000, for which a deferred tax liability has been established. At December 31, 1994, the Company had unrealized losses from securities classified as available for sale and equity securities of $64,401,000. For financial reporting purposes, a valuation allowance of $11,021,000 was established to offset a portion of the deferred tax asset related to these unrealized losses. The Company also established a valuation allowance of $842,000 in connection with certain capital loss carryforwards in 1994. No valuation allowances were recognized at December 31, 1995, because the December 31, 1994 unrealized losses and capital loss carryforwards were offset against 1995 unrealized and realized gains. The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is:
(In 000's) 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Federal income tax rate 35% 35% 35% Rate applied to pre-tax income before the cumulative effect of accounting changes $31,078 $13,604 $27,063 Release of tax reserves (300) (500) (3,350) Rate change expense on beginning deferred tax liability --- --- 3,216 Tax exempt interest and dividends (1,384) (1,765) (1,466) State and local income taxes 948 928 652 Other (900) 423 122 - -------------------------------------------------------------------------------------------------- Provision for income taxes $29,442 $12,690 $26,237 - --------------------------------------------------------------------------------------------------
The Company has net operating loss carryforwards of $5,481,000 and $11,110,000 at December 31, 1995 and 1994, which will expire between the years 2006 and 2008. The utilization of these carryforwards are subject to special rules which provide that these loss carryforwards can only be utilized through earnings from the non-life insurance companies. Income taxes paid were approximately $21,199,000, $21,911,000, and $18,437,000 in 1995, 1994, and 1993, respectively. Under prior tax law, a portion of the life insurance subsidiaries' earnings was not taxed when earned. Such accumulated income ("policyholders' surplus") amounts to approximately $65,293,000 at December 31, 1983 and, under the Tax Reform Act of 1984, was frozen at that amount. That amount is not taxable unless it is distributed to the Company or unless it exceeds certain limitations under the Internal Revenue Code. The Company does not intend to take actions nor does it expect any events to occur that would cause tax to be 57 EX-11 2 CONSOLIDATED EARNINGS COMPUTATION 1 EXHIBIT 11 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED EARNINGS PER SHARE COMPUTATION FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (In $000's, except per share data)
1995 1994 1993 ------------------------------------- PRIMARY SHARES Weighted average common shares outstanding 19,951 19,721 19,327 Weighted average common stock options outstanding 119 87 169 Preferred stock considered a common stock equivalent 502 --- --- Total primary shares 20,572 19,808 19,496 FULLY DILUTED SHARES Weighted average common shares outstanding 19,951 19,721 19,327 Weighted average common stock options outstanding 136 89 174 Preferred stock considered a common stock equivalent 502 --- --- Assumed conversion of redeemable preferred stock not considered a common stock equivalent 1,265 1,010 --- ------------------------------------- Total fully diluted shares 21,854 20,820 19,501 ===================================== NET INCOME Earnings $ 59,353 $26,178 $39,147 ===================================== PREFERRED STOCK DIVIDENDS Dividends paid on redeemable preferred stock $ 2,658 $ 2,117 $ --- ===================================== Primary earnings per share (Net income minus preferred dividends divided by total primary shares) $ 2.76 $ 1.22 $ 2.01 ===================================== Fully diluted earnings per share (Net income divided by total fully diluted shares) $ 2.72 $ 1.26 $ 2.01 =====================================
28 EX-13 3 FINANCIAL STATEMENTS 1 EXHIBIT 13 STOCK DATA The Liberty Corporation's Common Stock is listed on the New York Stock Exchange. Its symbol is LC. As of December 31, 1995, 1,395 shareholders of record in 44 states, the District of Columbia, Canada, Australia and New Zealand held the 20,060,629 Common Stock shares outstanding. Quarterly high and low stock prices and dividends per share as reported by the Wall Street Journal were:
Quarterly Market Price Per Share Dividend Per High Low Share -------------------------------------------- 1995 - ------------------------- Fourth Quarter 34 31 1/4 .170 Third Quarter 33 3/4 27 5/8 .170 Second Quarter 28 1/4 25 3/4 .170 First Quarter 27 1/2 24 3/4 .155 1994 - ------------------------- Fourth Quarter 27 1/4 24 1/4 .155 Third Quarter 28 3/4 25 3/4 .155 Second Quarter 29 7/8 23 7/8 .155 First Quarter 28 24 1/8 .155 1993 - ------------------------- Fourth Quarter 31 24 .140 Third Quarter 34 5/8 30 .140 Second Quarter 33 5/8 29 .140 First Quarter 31 7/8 28 3/8 .140
The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial condition. Also, the payment of dividends is subject to the restrictions described in Notes 5 and 8 of the Consolidated Financial Statements. CO-REGISTRAR AND CO-TRANSFER AGENTS - -------------------------------------------------------------------------------- Wachovia Bank of North Carolina, N.A. The Bank of New York P. O. Box 3001 101 Barclay Street Winston-Salem, NC 27102 New York, NY 10286 For a Copy of the 10-K or other information, contact: The Liberty Corporation Shareholder Relations Box 789 Greenville, SC 29602 Telephone (864) 609-8256 Stock Exchange Listing: New York Stock Exchange Symbol: LC Annual Meeting The Liberty Corporation will hold its annual meeting on Tuesday, May 7, 1996, at 10:30 a.m. in The Liberty Corporation Headquarters, Greenville, South Carolina. All Shareholders are invited to attend. 29 2 EXHIBIT 13 SELECTED FINANCIAL DATA The Liberty Corporation and Subsidiaries December 31, 1995
(In 000's, except per share data) 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Insurance $ 486,980 $ 439,451 $ 384,132 $ 305,934 $ 271,806 $ 246,661 Broadcasting 119,529 98,266 87,984 89,989 88,174 89,709 Parent & Minor Subsidiaries 19,090 19,600 16,089 20,301 19,254 12,936 Adjustments & Eliminations (19,918) (16,071) (15,260) (13,468) (14,752) (13,707) - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues * $ 605,681 $ 541,246 $ 472,945 $ 402,756 $ 364,482 $ 335,599 - ------------------------------------------------------------------------------------------------------------------------------------ Income (Loss) Before Income Taxes & Cumulative Effect of Accounting Changes Insurance $ 83,483 $ 31,590 $ 71,518 $ 53,962 $ 43,255 $ 42,442 Broadcasting 27,127 21,701 16,180 16,859 16,417 22,158 Parent & Minor Subsidiaries (19,994) (14,423) (12,846) (13,690) (20,439) (25,911) Adjustments & Eliminations (1,821) --- 2,472 4,768 4,217 --- - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated Income Before Income Taxes & Cumulative Effect of Accounting Changes $ 88,795 $ 38,868 $ 77,324 $ 61,899 $ 43,450 $ 38,689 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) Insurance $ 56,582 $ 21,803 $ 33,459 $ 35,369 $ 30,077 $ 28,094 Broadcasting 16,590 12,919 12,217 10,262 9,967 13,600 Parent & Minor Subsidiaries (12,635) (8,544) (8,141) (8,153) (12,514) (16,136) Adjustments & Eliminations (1,184) --- 1,612 3,407 3,036 --- - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 59,353 $ 26,178 $ 39,147 $ 40,885 $ 30,566 $ 25,558 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share $ 2.76 $ 1.22 $ 2.01 $ 2.51 $ 1.93 $ 1.55 - ------------------------------------------------------------------------------------------------------------------------------------ Change in Net Unrealized Investment Gains (Losses) $ 111,095 $ (58,286) $ 1,276 $ (78) $ 7,316 $ (4,613) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends Per Common Share $ 0.665 $ 0.62 $ 0.56 $ 0.515 $ 0.47 $ 0.46 - ------------------------------------------------------------------------------------------------------------------------------------ Depreciation and Amortization Insurance $ 4,515 $ 5,125 $ 3,286 $ 3,424 $ 3,381 $ 3,371 Broadcasting 9,244 6,276 6,566 6,848 10,654 11,044 Parent & Minor Subsidiaries 5,275 4,618 3,670 4,628 4,631 4,814 - ------------------------------------------------------------------------------------------------------------------------------------ Total Depreciation and Amortization $ 19,034 $ 16,019 $ 13,522 $ 14,900 $ 18,666 $ 19,229 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Expenditures Insurance $ 4,413 $ 2,270 $ 5,814 $ 3,618 $ 2,264 $ 3,534 Broadcasting 5,863 3,900 2,168 2,513 2,961 6,476 Parent & Minor Subsidiaries 3,012 3,446 7,483 698 1,088 895 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Expenditures $ 13,288 $ 9,616 $ 15,465 $ 6,829 $ 6,313 $ 10,905 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Insurance $2,769,619 $2,494,264 $2,057,126 $1,937,908 $1,528,901 $1,357,406 Broadcasting 168,672 98,705 101,982 110,849 119,714 141,467 Parent & Minor Subsidiaries 873,933 666,319 581,406 565,135 504,199 484,401 Adjustments & Eliminations (777,928) (592,024) (553,481) (539,014) (438,610) (438,899) - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $3,034,296 $2,667,264 $2,187,033 $2,074,878 $1,714,204 $1,544,375 - ------------------------------------------------------------------------------------------------------------------------------------ Notes, Mortgages and Other Debts $258,444 $ 231,647 $ 149,489 $ 176,632 $ 226,925 $ 246,531 - ------------------------------------------------------------------------------------------------------------------------------------ Redeemable Preferred Stock $45,667 $ 45,816 --- --- --- --- - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated Shareholders' Equity $575,762 $ 395,589 $ 433,845 $ 389,188 $ 277,108 $ 243,465 - ------------------------------------------------------------------------------------------------------------------------------------ * See Note 14 to the Consolidated Financial Statements related to 1995 and 1994 acquisitions.
30 3 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS The Liberty Corporation and Subsidiaries December 31, 1995 SUMMARY OF CONSOLIDATED RESULTS OF OPERATIONS Consolidated income before income taxes and the cumulative effect of accounting changes for 1995 was $88.8 million, up $49.9 million from the $38.9 million reported for 1994. The amounts reported for 1994 included non-recurring charges of $31.2 million.
(In 000's) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- Income before income taxes and the cumulative effect of accounting changes $88,795 $38,868 $77,324 Income taxes 29,442 12,690 26,237 - --------------------------------------------------------------------------------------------------------- Income before the cumulative effect of accounting changes 59,353 26,178 51,087 Cumulative effect of accounting changes --- --- (11,940) - --------------------------------------------------------------------------------------------------------- Net income $59,353 $26,178 $39,147 - ---------------------------------------------------------------------------------------------------------
Adjusting for realized investment losses of $2.9 million in 1995, income before income taxes and the cumulative effect of accounting changes was $91.7 million, compared with $82.2 million for 1994, after adjusting the 1994 results for the non-recurring charges and realized investment losses. The increase for 1995 was the result of improvements in both the insurance (up $11.3 million) and broadcasting operations (up $5.4 million) offset by higher interest costs at the Corporate level. Consolidated income before income taxes and the cumulative effect of accounting changes for 1994 was $38.9 million ($70.1 million prior to the non-recurring charges) and compares with $77.3 million earned in 1993. Excluding realized investment gains and losses from both periods and the non-recurring charges from 1994, earnings before income taxes were $82.2 million and $62.6 million for 1994 and 1993, respectively. The increase in 1994 was primarily the result of contributions from insurance acquisitions closed in 1994 ($10.3 million) and improvement in broadcasting results ($5.5 million). The non-recurring charges in 1994 related to 1) the write-off of previously deferred costs associated with the development of a software system for administration of Liberty's insurance business and 2) a decision to cease marketing products through the general agency distribution system. The deferred systems charges were in connection with an agreement with a software developer to develop a state-of-the-art software system to handle the administration of Liberty's insurance operations. The non-cash charge of $20.9 million (pre-tax) had no impact on Liberty's cash flow. In 1994 Liberty decided to cease sales of its products through its general agency distribution system due to the absence of critical volume. This decision resulted in a pre-tax charge to earnings of $10.3 million, primarily to reduce deferred acquisition costs no longer considered recoverable. Premiums and policy charges from the general agency division represented approximately 2% of Liberty's total premiums and policy charges at the time the decision was made to cease sales though this marketing channel. The cumulative effect of accounting changes reported in 1993 represented a one-time, non-cash charge of $11.9 million relating to the implementation of Statement of Financial Accounting Standard ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Consolidated 1995 revenues of $605.7 million were up $64.5 million (12%) over last year's $541.2 million. The 1995 revenue growth consisted primarily of a $47.5 million increase in revenues from the insurance operations and a $21.3 million increase in broadcasting revenues. The increase in revenues from insurance operations was a combination of the 1994 insurance acquisitions contributing a full year of revenues and a $14.0 million increase from realized investment gains. Consolidated 1994 revenues of $541.2 million were up $68.3 million (14%) over the $472.9 million reported in 1993. This revenue growth consisted primarily of a $55.3 million increase in revenues from insurance operations and a $10.3 million increase in broadcasting revenues. The increase in revenue from insurance operations was a combination of the 1994 insurance acquisitions contributing revenues of $84.3 million offset by a decline of $29.0 million from existing insurance operations. The decline from existing insurance operations was due to a $26.2 million decline in realized investment gains coupled with the 1993 sale of Liberty's medicare supplement business that generated $12.5 million in revenues in 1993. 31 4 EXHIBIT 13 BUSINESS SEGMENTS Liberty reports the results of its business operations in two segments: Insurance and Broadcasting. The insurance segment consists of Liberty's insurance operations, which specializes in providing home service, pre-need and mortgage protection life and health insurance. The broadcasting segment consists of Cosmos Broadcasting, which owns and operates eight network-affiliated television stations. Activities of Corporate and other include financing and real estate operations. In order to make more meaningful comparisons, the segment data excludes the effect of realized investment gains and losses, non-recurring special charges, and accounting changes. A reconciliation of the segment operations to net income is as follows:
(in 000's) 1995 1994 1993 - --------------------------------------------------------------------------------- Segment Operating Earnings: Insurance $54,789 $46,396 $41,107 Broadcasting 16,590 12,919 9,716 Corporate and other (10,546) (6,446) (5,456) - --------------------------------------------------------------------------------- Total operating earnings 60,833 52,869 45,367 Net realized investment gains (losses) (1,480) (6,440) 9,281 Non-recurring special charges --- (20,251) (3,561) Cumulative effect of accounting changes --- --- (11,940) - --------------------------------------------------------------------------------- Net income $59,353 $26,178 $39,147 - --------------------------------------------------------------------------------- Earnings per Common Share: Operating earnings $ 2.83 $ 2.56 $ 2.33 Net realized investment gains (losses) (0.07) (0.32) 0.47 Non-recurring special charges --- (1.02) (0.18) Cumulative effect of accounting changes --- --- (0.61) - --------------------------------------------------------------------------------- Earnings per common share $ 2.76 $ 1.22 $ 2.01 - ---------------------------------------------------------------------------------
INSURANCE RESULTS OF OPERATIONS Operating earnings from insurance operations were $54.8 million in 1995, an increase of $8.4 million (18%) from the $46.4 million reported in 1994. Liberty Life's operating earnings were $5.3 million higher in 1995 as net investment income, policy benefits and general insurance expenses all improved. Net investment income for Liberty Life was positively impacted by stronger real estate development income in 1995. After a very high first quarter of 1995, Liberty Life's policy benefits improved each quarter and ended the year 60.8% of premium, down over 2% as a percent of premium from the prior year. The decision to stop accepting new business in the general agency division reduced expenses, resulting in a break-even performance in this division, compared to a pre-tax loss of $2.1 million in 1994. The FamilySide pre-need group also reported an increase in operating earnings of $2.3 million (20%) over 1994. FamilySide benefited from having two significant 1994 acquisitions included for a full year in 1995 compared to 10 months in 1994. And, for the first time ever, Liberty Insurance Services reported a profit on its unaffiliated client base. The increase in 1995 operating earnings followed a 13% increase in 1994 over 1993. Substantially all of the increase in 1994 was due to acquisitions (see Insurance Acquisitions section below). Operating earnings of Liberty Life were flat during the period from 1993 to 1994 as lower investment yields and higher mortality offset the benefit of lower general insurance expenses. 32 5 EXHIBIT 13
(in 000's) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Revenues (exclusive of realized investment gains and losses) Insurance premiums and policy charges $331,370 $315,789 $250,922 Net investment income 144,483 129,925 110,507 Service contract revenues 9,025 5,585 8,383 - ------------------------------------------------------------------------------------------------------------ Total revenues 484,878 $451,299 369,812 Policy benefits 236,774 225,745 159,452 Commissions 54,583 49,869 44,491 General insurance expenses 68,246 62,639 63,670 Amortization of deferred acquisition costs and cost of business acquired 43,697 41,443 39,402 Other 114 1,429 2,211 - ------------------------------------------------------------------------------------------------------------ Income from operations before income taxes 81,464 70,174 60,586 Income taxes 26,675 23,778 19,479 - ------------------------------------------------------------------------------------------------------------ Income from operations $ 54,789 $ 46,396 $ 41,107 - ------------------------------------------------------------------------------------------------------------
Revenues from insurance operations in 1995 were $484.9 million, increasing 7% over last year's $451.3 million. Insurance premiums and policy charges were $331.4 million, an increase of 5% from 1994, and net investment income increased 11% to $144.5 million. FamilySide contributed the majority of the increase in revenues on the strength of both higher premiums and policy charges and higher investment income. Liberty Life reported a 4% increase in insurance premiums and policy charges in 1995 and also reported higher investment income for the year. For 1994 revenues from insurance operations were $451.3 million, an increase of 22% over the $369.8 million reported in 1993. Premiums and policy charges were $315.8 million in 1994, an increase of $64.9 million (26%). The increase in premiums from 1993 was substantially due to the acquisitions closed in 1994. Investment income increased 22% to $129.9 million in 1994. The acquisitions fueled this increase as well. Without the acquisitions, investment income would have been level with the prior year. Policy benefits as a percent of premium were 71% in 1995, compared with 72% in 1994 and 64% in 1993. The increase in the benefit-to-premium ratio from 1993 to 1994 was principally attributable to the product characteristics of the pre-need products. The pre-need products are primarily limited-pay or single-premium products that have a higher benefit ratio than products historically sold by Liberty. As pre-need became a larger percentage of total company premiums in 1994, the overall benefit-to-premium ratio increased. In 1995 Liberty Life experienced higher than expected mortality in the first quarter. Mortality studies were performed and changes were implemented as a result of the studies. The consolidated benefit-to-premium ratio improved in the second half of 1995 as the ratio declined from 74% reported for the first half of 1995 to the annual rate of 71%. Management believes that some of the improvement in the second half of 1995 was attributable to actions taken as a result of the mortality studies; however, claims are inherently variable and will fluctuate, particularly when measured over a short period of time. The commissions-to-premium ratio was 16% in 1995 and 1994. The comparable ratio in 1993 was 18%. The drop in the ratio from 1993 to 1994 occurred as the pre-need products increased as a percent of total premium. The limited-pay characteristics of the pre-need products results in a lower commission structure than traditional life insurance. 33 6 EXHIBIT 13 General insurance expenses increased $5.6 million (9%) over 1994 levels with $3.6 million of the increase coming from expanding operations at Liberty Insurance Services. Excluding Liberty Insurance Services, the expense-to-premium ratio was 16% for 1995 and 1994, down from 21% in 1993. The 1994 decrease in the expense-to-premium ratio was after adding general expenses of $9.4 million from the 1994 acquisitions and was the result of continued emphasis on expense control. Amortization of deferred acquisition costs and cost of business acquired increased 5% over last year. The amortization-to-premium ratio remained constant at 13% of premiums for 1995 and 1994. The primary variable in the amortization expense from year to year is policy persistency, or lapses. For 1995 lapses were at a comparable level to 1994; however, the 1994 level was down significantly from 1993. The amortization expense in 1993 reflected high lapses in both home service and mortgage protection lines. Management believes that the high lapse experience in 1993 in the home service line was related to Liberty's consolidation of branch offices and, for mortgage protection, the high level of home mortgage refinancing in 1993 due to low interest rates. As expected, the persistency in both lines improved substantially in 1994, resulting in reduced amortization expense. As noted earlier, the 1995 persistency levels were comparable to 1994 levels. In the latter half of 1995 and continuing into 1996, mortgage loan interest rates returned to levels comparable to those of 1993; however, there has not been any indication of a marked increase in the level of mortgage protection lapses. INSURANCE OPERATIONS ACQUISITIONS AND EXPANSIONS Beginning in 1992 and continuing through the first half of 1994, Liberty established itself as a key player in the fast-growing pre-need market. The purchase of Pierce National Life in July 1992 provided Liberty with a substantial presence in the pre-need market and the opportunity to expand its presence on an international level. Pierce National markets its products through funeral directors and independent agents in the U.S. and Canada. In April 1993, Liberty further expanded its presence in the pre-need market with the acquisition of the assets of Estate Assurance Company, a pre-need insurance subsidiary of Stewart Enterprises, Inc. Additional expansion of Liberty's pre-need operations occurred in February 1994 with the acquisitions of North American National Corporation, headquartered in Columbus, Ohio, and American Funeral Assurance Company, headquartered in Amory, Mississippi. North American was a holding company whose principal subsidiaries, Pan-Western Life Insurance Company, Howard Life Insurance Company, and Brookings International Life Insurance Company, were providers of pre-need life insurance. This acquisition added strategic Midwest markets to Liberty's pre-need territory. American Funeral was one of the largest providers of pre-need life insurance, with extensive affiliations in the funeral industry. During 1995, Liberty focused on consolidating its pre-need operations. By the end of 1995 all of the pre-need operations had been relocated to Greenville and the companies merged into Pierce National. To cap off the consolidation of the pre-need acquisitions, Liberty introduced what it believes to be the industry's most comprehensive pre-need product portfolio during November 1995. The product portfolio is marketed under the brand name FamilySide. The actions taken in 1995 to consolidate the operations will provide for improved product profitability, focused marketing capability, and consistency and efficiency in administrative support. In addition to the pre-need acquisitions, Liberty grew its home service division through acquisitions. In October 1992, Liberty expanded its home service business with the acquisition of Magnolia Life Insurance Company headquartered in Lake Charles, Louisiana. On April 1, 1994, Liberty acquired State National Capital Corporation, headquartered in Baton Rouge, Louisiana.. These acquisitions gave Liberty a significant presence in the Louisiana home service market. Both Magnolia Life and State National Life were integrated into Liberty Life during 1994. In the fourth quarter of 1995, Liberty announced that the operations of Liberty Insurance Services will be combined in a joint venture with Continuum Administrative Services Company, the third-party administrative arm of The Continuum Company. The joint venture, operating under the name of ALLIANCE-ONE Services, LP, will be the largest third party administrator of life insurance business in the United States. Liberty believes there is substantial long-term potential for the joint venture; however, it is not expected to add substantially to Liberty's results in 1996. 34 7 EXHIBIT 13 BROADCASTING RESULTS OF OPERATIONS
(In 000's) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Gross broadcasting revenues $119,529 $98,266 $87,984 Broadcasting expenses 83,849 69,523 64,705 - --------------------------------------------------------------------------------------------------------------------- Income from operations before interest and taxes 35,680 28,743 23,279 Interest expense 8,553 7,042 7,099 - --------------------------------------------------------------------------------------------------------------------- Income from operations before income taxes 27,127 21,701 16,180 Income taxes 10,537 8,782 6,464 - --------------------------------------------------------------------------------------------------------------------- Income from operations $ 16,590 $12,919 $ 9,716 - ---------------------------------------------------------------------------------------------------------------------
Gross broadcasting revenues for 1995 were $119.5 million, an increase of $21.2 million (22%) over last year's $98.3 million. Excluding the $12.3 million in revenues added from the February 1995 acquisition of WLOX-TV, gross revenues were up 9%. Strong time sales (both national and local), coupled with increased network compensation, overcame the decline in political revenues as 1995 was an off-year for major political races. The increased network compensation came about as a result of the networks' competing for affiliations with local stations. Cosmos, due to the strength of its stations in the local market, was able to capitalize by re-negotiating network compensation contracts and reported a $4.0 million increase in network compensation revenue in 1995. Broadcasting expenses, excluding the impact of the WLOX-TV acquisition, rose only 2% in 1995. As a result of the increased revenues and expense control, Cosmos reported a $3.7 million increase in income from operations in 1995. Substantially all of the increase in earnings was generated from the existing station group as the WLOX-TV acquisition was not expected to, and did not, contribute significantly to operating earnings in 1995. Gross broadcasting revenues for 1994 were $98.3 million, an increase of $10.3 million (12%) from 1993 levels. Strong national revenues and the highest political revenues ever drove the revenue increase in 1994. Income from operations in 1994 was up $3.2 million (33%) over 1993, largely due to revenue trends. An additional measure of broadcasting performance is operating cash flow, defined as operating earnings before depreciation and amortization, interest, taxes and corporate expenses. Operating cash flow, and the related efficiency ratio (operating cash flow divided by revenues net of agency commissions) are measurements of broadcasting operating margins. For the year broadcasting cash flow was $44.9 million compared to $33.0 million in 1994 and $27.8 million in 1993. The acquisition of WLOX-TV added $6.2 million to 1995 operating cash flows. The efficiency ratio was at an all time high of 43% in 1995, compared to 40% in 1994 and 38% in 1993. The Company closed the acquisition of WLOX-TV on February 28, 1995. The purchase price of $40.1 million was funded with a combination of 599,985 shares of 1995-A Series convertible preferred stock with a stated value of $35 per share; cash of $5.6 million; and a note payable for $13.5 million. CORPORATE AND OTHER Corporate and other includes general corporate activities such as the overall management, legal and finance operations, debt service on debt not allocated to segments, intercompany eliminations and the operations of Liberty Investment Group. The increase in the loss in 1995 in this area was primarily due to higher interest costs as both the outstanding debt and interest rates were at higher levels than 1994. 35 8 EXHIBIT 13 BALANCE SHEET INVESTMENTS As of December 31, 1995, Liberty's consolidated investment portfolio was carried at $2.0 billion compared with $1.7 billion at the end of 1994. Of the $290 million increase in the carrying value of the portfolio, approximately $150 million was from the increase in the market value of the portfolio, with the remainder of the increase coming from investment of cash generated from operating and financing activities. Approximately 72% of consolidated invested assets were in fixed maturity securities (bonds and redeemable preferred stocks), 11% were in mortgage loans, 7% in real estate, with the balance consisting of policy loans (5%), equity securities (4%) and other long-term investments (1%). The overall average credit rating of fixed maturity securities as of December 31, 1995 was AA. Less than investment grade securities comprised 3.3% of the fixed maturity portfolio at December 31, 1995, compared with 5.3% at December 31, 1994. Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" requires that all debt and equity securities be classified into one of three categories -- held to maturity, available for sale, or trading. As of December 31, 1995, all securities have been classified as available for sale and are carried at fair value. During 1995, the Company transferred the portion of fixed maturity securities previously classified as held to maturity to the available for sale classification. As a result of the transfer, shareholders' equity was increased $14.6 million (net of deferred income taxes and adjustment to deferred acquisition costs) to reflect the unrealized gain on securities previously carried at cost. See Note 1 to the Consolidated Financial Statements for additional discussion of the transfer. SFAS 115 requires that available for sale securities be carried at fair value, with unrealized gains and losses, net of adjustment for deferred income taxes and deferred acquisition costs, be reported directly in shareholders' equity. The fair value of Liberty's fixed maturity portfolio, and the related adjustment to shareholders' equity, is significantly affected by changes in the overall interest rate environment. For example, as interest rates fell throughout 1995, shareholders' equity increased $111.1 million, reflecting the change in the fair value of the portfolio. In contrast, primarily as a result of the rising interest rate environment during 1994, the Company reported a net unrealized loss of $69.6 million for the year ended December 31, 1994. While the volatility experienced in 1995 and 1994 is not expected to be repeated on an annual basis, it is likely that there will continue to be significant fluctuations in shareholders' equity as a result of carrying fixed maturity securities at market value. Although Liberty's entire fixed maturity and equity securities portfolios have been classified as available for sale, Liberty follows a value-oriented, as opposed to a trading-oriented, investment philosophy concerning its securities portfolios. Accordingly, turnover in the portfolios has historically been low, although portfolio turnover in 1995 and particularly in 1994 was higher than historical levels as 1) investment portfolios from the companies acquired in 1994 were restructured to meet Liberty guidelines as to quality, yield and duration, and 2) Liberty took advantage of its tax position at the end of 1994 to sell securities with lower yields and reinvest in higher yielding securities of equal or better credit quality. Gains trading, which Liberty believes is short-sighted, is not consistent with its investment philosophy of longer term value-oriented investing. Going into 1996, yields remain at historically low levels and the yield curve is relatively flat. If this environment continues, in order to generate incremental returns above market yields without sacrificing credit quality, it may be necessary to more actively trade securities. Approximately 56% of Liberty's $1.5 billion fixed maturity portfolio at December 31, 1995, was comprised of mortgage-backed securities. This compares to approximately 54% at year-end 1994. Certain mortgage-backed securities are subject to significant prepayment risk or extension risk due to changes in interest rates. In periods of declining interest rates mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of the lower current rates. As a result, holders of mortgage-backed securities may receive large prepayments on their investments which cannot be reinvested at interest rates comparable to the rates on the prepaid mortgages. In a rising interest rate environment refinancings are significantly curtailed and the payments to the holders of the securities decline, limiting the ability of the holder to reinvest at the higher interest rates. Mortgage-backed pass-through securities and sequential collateralized mortgage obligations ("CMO's"), which comprised 20% of the book value of Liberty's mortgage-backed securities at December 31, 1995, and 17% at year-end 1994, are sensitive to prepayment or extension risk. The remaining 80% of Liberty's mortgage-backed investment portfolio at December 31, 1995, consisted of planned amortization class ("PAC") instruments. This compares to 83% at December 31, 1994. These investments are designed to amortize in a more predictable manner by shifting the primary prepayment and extension risk of the underlying collateral to investors in other tranches of the CMO. PAC's are tranches of CMO's specifically designed to protect against prepayment or extension risk. In periods of declining interest rates, prepayments are first applied to the non-PAC tranches of the CMO, creating improved call protection for the PAC tranches. Only after all non-PAC tranches have been paid off are prepayments applied to the PAC tranche. In periods of increasing interest rates, prepayments are first applied to the PAC tranche, thus reducing extension risk for PACs. As a result, PACs have a more stable cash flow than most other mortgage securities because they have better call protection and less extension risk. Mortgage loans of $213.2 million comprised 11% of the consolidated investment portfolio at December 31, 1995. This compares to mortgage loans of $203.4 million, or 12%, of the consolidated investment portfolio at December 31, 1994. Substantially all of these mortgage loans are commercial mortgages with a loan-to-value ratio not exceeding 75% when made. Approximately 50% of these loans at December 31, 1995, are concentrated in North and South Carolina; and 91% are in the states of North Carolina, South Carolina, Virginia, Florida, Georgia, 36 9 EXHIBIT 13 Tennessee and Louisiana. Mortgage loan delinquencies, defined as payments 60 or more days past due, have historically been low and were 1.3% at the end of 1995 compared to the latest available industry rate of 2.4%. As of December 31, 1995 and 1994, investment real estate totaled $135.3 million and $135.5 million, representing 7% and 8%, respectively, of the consolidated investment portfolio. Three property types make up the bulk of the portfolio. Residential land development and industrial land development projects accounted for 64% of the portfolio as of the end of 1995, with business property rentals making up another 26%. In 1995, Liberty decided to sell its existing shopping centers and not allocate future investments to this property type. At the end of 1994 shopping center investments were 15% of the real estate portfolio; however, substantially all of the shopping center properties were sold by the end of 1995. Of Liberty's investment real estate, 96% is located in South Carolina, Florida, Georgia, and North Carolina. Liberty has experienced pre-tax impairments on investment assets of $9.5 million, $2.7 million, and $6.2 million for the years ended December 31, 1995, 1994, and 1993, respectively. The high level of impairments in 1995 was due primarily to write-downs taken on an oil and gas investment. While the level of impairments is not predictable, management does not expect impairments to have a significant impact on Liberty's results of operations or liquidity. Beginning in 1996 a new accounting standard will potentially change the amounts of impairments recognized and the timing of the recognition. Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" prescribes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill that are used in the business, as well as establishing accounting standards for long-lived assets and certain identifiable intangibles to be disposed of. Under the provisions of the statement certain of the Company's investment real estate assets will be required to be valued at fair value, rather than net realizable value; however, the adoption of the statement is not expected to have a material impact on the net income or financial position of the Company. LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY In March 1995, Liberty refinanced its $325 million revolving credit facility into a new $375 million multi-tranche credit facility. The new facility consists of a $225 million three-year revolving credit facility; a $100 million seven year term loan facility; and a $50 million facility substantially identical to the revolving facility, which is convertible into terms substantially identical to the term facility anytime prior to March 1997. The credit facility contains various restrictive covenants typical of a credit facility agreement of this size and nature. These restrictions primarily pertain to levels of indebtedness, limitations on payment of dividends, limitations on the quality and types of investments, and capital expenditures. Additionally, Liberty must also comply with several financial covenant restrictions under the revolving credit agreement including defined ratios of consolidated debt to cash flow, consolidated debt to consolidated total capital, and fixed charges coverage. Liberty has entered into various interest rate swaps, caps and corridors in an attempt to minimize the impact of a potential significant rise in short-term interest rates on Liberty's outstanding variable-rate debt. See Note 5 to the Consolidated Financial Statements for additional discussion of these contracts. In 1994, Liberty issued 668,207 shares of Series 1994-A Voting Cumulative Preferred Stock having a total redemption value of $23.4 million, or $35.00 per share, in connection with the acquisition of State National Capital Corporation and 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a total redemption value of $22.4 million, or $37.50 per share, in connection with the acquisition of American Funeral Assurance Company. The shares have preference in liquidation and each share is entitled to one vote on any matters submitted to a vote of the shareholders of the Company. Both the Company and the holders of the preferred stock have the right to redeem any or all of the shares from time to time beginning five years and one month after the date of issue in exchange for cash or shares of the Company's common stock. There is no sinking fund for the redemption of either series of preferred stock. Both the 1994-A and 1994-B series of preferred stock are considered redeemable preferred stock and are classified outside of permanent equity. On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting Cumulative Convertible Preferred Stock, having a total redemption value of $21.0 million, or $35.00 per share, in connection with the acquisition of WLOX-TV. The Company has the right to redeem any or all of the shares from time to time at any time beginning five years and one month after the date of issue in exchange for cash, common stock, or a combination of both. Generally, the amount of consideration on the 1995-A Series will be equivalent to $35.00 per share plus the amount of any accumulated and unpaid dividends. There is no sinking fund for the redemption of the preferred stock. These shares are considered common stock equivalents for financial reporting purposes. During December 1992 and January 1993, Liberty completed its public stock offering of 2,725,100 shares of its common stock at a per share price of $28.25, which generated $73 million in net proceeds that were used to pay down outstanding bank debt. Of the total shares issued, 2,400,000 were issued during December 1992. The remaining 325,100 shares were issued in January 1993 as a result of the underwriters exercising the over-allotment provision of the stock offering 37 10 EXHIBIT 13 The National Association of Insurance Commissioners (the "NAIC") has Risk-Based Capital ("RBC") requirements for life/health insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, mortality and morbidity, asset and liability matching, and other business factors. The RBC formula will be used by states as an early warning tool to identify companies that potentially are inadequately capitalized for the purpose of initiating regulatory action. In addition, the formula defines new minimum capital standards that will supplement the current system of low fixed minimum capital and surplus requirements on a state-by-state basis. The RBC ratios for the insurance subsidiaries significantly exceed the minimum capital requirements at December 31, 1995. CASH FLOWS The parent company's short-term cash needs consist primarily of: (1) working capital requirements, (2) interest on corporate debt, (3) dividends to shareholders and (4) funds for real estate investments. The parent company's primary long-term cash need is the repayment of corporate debt. The parent company depends primarily on dividends, debt service payments and consolidated tax return benefits paid to it by its subsidiaries to meet its short-term and long-term cash needs. Historically, Liberty's primary businesses - insurance and broadcasting - have provided sufficient liquidity to fund their operations and the operations of the parent company. Liberty receives funds from its insurance subsidiaries primarily in the form of dividends. Dividends from each insurance subsidiary are restricted under applicable state law. Annual dividends in excess of maximum amounts prescribed by state statutes ("extraordinary dividends") may not be paid without the approval of the insurance commissioner of each state in which an insurance subsidiary is domiciled. In 1994 the National Association of Insurance Commissioners ("NAIC") proposed, and certain states adopted, legislation that lowers the threshold amount for determining what constitutes an extraordinary dividend. Such legislative changes could make it more difficult for insurance subsidiaries to pay dividends to their parent. See Note 8 to the Consolidated Financial Statements. On a consolidated basis, Liberty's net cash flow from operating activities was $87.4 million for 1995 compared with $87.1 million for the preceding year. Liberty's net cash used in investing activities was $133.6 million for 1995 compared to $176.3 million in 1994. The net cash used in investing activities in 1995 was primarily to fund the purchase of investment securities. Cash used in investing activities in 1994, in addition to funding investment security purchases, was used to fund insurance acquisitions ($54.1 million) and a bulk purchase of real estate assets ($43.0 million). Cash flow from financing activities fluctuates primarily based on the level of borrowings or debt repayment. In 1995 cash flow provided by financing activities was $38.5 million compared with cash provided of $111.2 million for 1994. Proceeds from borrowings exceeded debt repayments by $11.4 million in 1995 compared with $76.9 million in 1994. The excess of borrowings over repayments of debt in 1994 was used to fund insurance and real estate acquisitions. As a result of its activities, Liberty had a net decrease in cash of $7.7 million in 1995 compared with a $21.9 million increase in cash in 1994. Liberty believes that its current level of cash and future cash flows from operations is sufficient to meet the needs of its business and to satisfy its debt service. If suitable opportunities arise for additional acquisitions, Liberty plans to draw on its revolving credit facility or use Common Stock or Preferred Stock as payment of all or part of the consideration for such acquisitions; or Liberty may seek additional funds in the equity or debt markets. Under the restructured credit facility, there exists no restriction on acquisition funding; however, consolidated debt is limited to a maximum of $385 million. Outstanding debt at December 31, 1995 totaled $258 million. Management believes liquidity risk of the insurance operations is minimized by investment strategies that stress high quality assets and an integrated asset/liability matching process. Investments are primarily in intermediate to long-term maturities in order to match the long-term nature of insurance liabilities. Liberty has a relatively small block of universal life products that are interest-sensitive. Liberty actively manages the rates credited on these policies to maintain an acceptable spread between the earned and credited rate. In addition, Liberty has an integrated asset/liability matching process to minimize the liquidity risk that is associated with interest-sensitive products. Accordingly, most long-term investments are held to maturity and interim market fluctuations present no significant liquidity problems. Liberty's only use of derivative financial instruments is to minimize the exposure on its variable rate debt. Most states have laws requiring solvent life insurance companies to pay guaranty fund assessments to protect the interests of policyholders of insolvent life insurance companies. Due to the recent increase in the number of companies that are under regulatory supervision, there is expected to be an increase in assessments by state guaranty funds. Under present law, most assessments can be recovered through a credit against future premium taxes. Liberty has reviewed its exposure to potential assessments, and the effect on its financial position and results of operations is not expected to be material. Other Company commitments are shown in Note 7 to the Consolidated Financial Statements. Further discussion of investments and valuation is contained in Notes 1, 2 and 15 to the Consolidated Financial Statements. 38 11 EXHIBIT 13 CONSOLIDATED BALANCE SHEETS THE LIBERTY CORPORATION AND SUBSIDIARIES (In 000's)
At December 31 1995 1994 - --------------------------------------------------------------------------------------------------------------------- ASSETS Investments: Fixed maturity securities Available for sale, at market, cost of $1,383,324 in 1995 and $947,522 in 1994 $1,467,039 $ 883,029 Held to maturity, at cost, market of $311,129 in 1994 --- 299,118 Equity securities, primarily at market, cost of $68,637 in 1995, $78,116 in 1994 82,508 78,208 Mortgage loans 213,223 203,381 Investment real estate, at cost less accumulated depreciation $11,671 in 1995, $12,882 in 1994 135,306 135,545 Policy loans 98,369 96,160 Other long-term investments 27,535 31,624 Short-term investments --- 7,264 - --------------------------------------------------------------------------------------------------------------------- Total Investments 2,023,980 1,734,329 - --------------------------------------------------------------------------------------------------------------------- Cash 43,741 51,400 Accrued investment income 20,018 18,708 Receivables net of bad debt reserves, $1,975 in 1995, $1,493 in 1994 46,098 37,879 Receivable from reinsurers 275,090 258,969 Deferred acquisition costs 265,188 259,799 Cost of business acquired 86,925 98,056 Buildings and equipment, at cost, less accumulated depreciation $105,819 in 1995, $100,362 in 1994 79,789 66,360 Intangibles related to television operations, at cost, net of amortization $20,192 in 1995, $16,278 in 1994 99,056 46,934 Goodwill related to insurance acquisitions, at cost, net of amortization $8,076 in 1995, $6,490 in 1994 37,239 40,308 Other assets 57,172 54,522 - --------------------------------------------------------------------------------------------------------------------- Total Assets $3,034,296 $2,667,264 - ---------------------------------------------------------------------------------------------------------------------
39 12 EXHIBIT 13
At December 31 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Liabilities: Policy liabilities: Future policy benefits $1,811,417 $1,731,654 Claims and benefits payable 24,356 24,812 Policyholder funds 27,086 27,157 - ---------------------------------------------------------------------------------------------------------------------- 1,862,859 1,783,623 Notes and mortgages payable 158,444 131,647 Long-term debt 100,000 100,000 Accrued income taxes 6,665 4,418 Deferred income taxes 182,083 112,707 Accounts payable and accrued expenses 67,094 66,608 Other liabilities 35,722 26,856 - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities 2,412,867 2,225,859 - ---------------------------------------------------------------------------------------------------------------------- Redeemable Preferred Stock: 1994-A Series, $35.00 redemption value, 668,207 shares issued and outstanding 23,387 23,387 1994-B Series, $37.50 redemption value, 594,126 and 598,101 shares issued and outstanding in 1995 and 1994, respectively 22,280 22,429 - ---------------------------------------------------------------------------------------------------------------------- Total Redeemable Preferred Stock 45,667 45,816 - ---------------------------------------------------------------------------------------------------------------------- Shareholders' Equity: Common stock Authorized - 50,000,000 shares, no par value Issued and outstanding - 20,060,629 shares in 1995, 19,841,470 shares in 1994 158,735 152,956 Convertible Preferred Stock 1995-A Series, 599,985 shares issued and outstanding 20,999 --- Preferred Stock Authorized - 10,000,000 shares Issued and outstanding - 1,862,318 shares in 1995, 1,266,308 shares in 1994 Unearned stock compensation (6,050) (5,319) Unrealized appreciation (depreciation) on fixed maturity securities available for sale and equity securities 57,986 (53,109) Cumulative foreign currency translation adjustment (999) (1,491) Retained earnings 345,091 302,552 - ---------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 575,762 395,589 - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $3,034,296 $2,667,264 - ----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 40 13 EXHIBIT 13 CONSOLIDATED STATEMENTS OF INCOME THE LIBERTY CORPORATION AND SUBSIDIARIES (In $000's, except per share data)
For the Years Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------- REVENUES Insurance premiums and policy charges $331,370 $315,789 $250,922 Broadcasting revenues 119,529 98,266 87,984 Net investment income 148,670 133,679 110,966 Service contract revenues 9,025 5,585 8,383 Realized investment gains (losses) (2,913) (12,073) 14,686 Other income --- --- 4 - ----------------------------------------------------------------------------------------------------------------- Total revenues 605,681 541,246 472,945 - ----------------------------------------------------------------------------------------------------------------- EXPENSES Policyholder benefits 236,774 225,745 159,452 Insurance commissions 54,583 49,869 44,491 General insurance expenses 67,703 84,930 66,213 Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402 Broadcasting expenses 83,849 69,523 64,705 Interest expense 15,047 11,097 9,945 Other expenses 15,150 16,190 11,413 - ----------------------------------------------------------------------------------------------------------------- Total expenses 516,886 502,378 395,621 - ----------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting changes 88,795 38,868 77,324 Provision for income taxes 29,442 12,690 26,237 - ----------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes 59,353 26,178 51,087 Cumulative effect of accounting changes SFAS 106 - Postretirement benefits --- --- (10,068) SFAS 112 - Postemployment benefits --- --- (1,872) - ----------------------------------------------------------------------------------------------------------------- Net income $ 59,353 $ 26,178 $ 39,147 - ----------------------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE Income before cumulative effect of accounting changes $ 2.76 $ 1.22 $ 2.62 Cumulative effect of accounting changes SFAS 106 - Postretirement benefits --- --- (.52) SFAS 112 - Postemployment benefits --- --- (.09) - ----------------------------------------------------------------------------------------------------------------- Net earnings per common share $ 2.76 $ 1.22 $ 2.01 - -----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 41 14 EXHIBIT 13 CONSOLIDATED STATEMENTS OF CASH FLOWS THE LIBERTY CORPORATION AND SUBSIDIARIES (In 000's)
For the Years Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 59,353 $ 26,178 $ 39,147 Adjustments to reconcile net income to net cash provided by operating activities: Increase in policy liabilities 18,845 53,961 30,763 (Decrease) increase in accounts payable and accrued expenses (3,964) 1,142 4,948 Increase in receivables (3,311) (7,374) (11,569) Amortization of deferred acquisition costs and cost of business acquired 43,780 45,024 39,402 Policy acquisition costs deferred (54,522) (59,053) (58,017) Realized investment (gains) losses 2,913 12,073 (14,686) Gain on sale of operating assets (3,231) (3,214) (3,136) Depreciation and amortization 19,034 16,019 13,522 Amortization of bond premium and discount (7,485) (4,904) (6,033) Provision for deferred income taxes 6,225 (1,481) 2,089 All other operating activities, net 9,803 8,679 (1,730) - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 87,440 87,050 34,700 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Investment securities sold: Available for sale (equity securities in 1993) 155,670 225,100 40,698 Held to maturity (fixed maturities in 1993) --- --- 10,124 Investment securities matured or redeemed by issuer: Available for sale 32,913 61,216 --- Held to maturity 35,494 65,910 241,000 Cost of investment securities acquired: Available for sale (329,918) (420,244) --- Held to maturity --- --- (351,900) Mortgage loans made (32,905) (31,957) (28,883) Mortgage loan repayments 22,712 20,621 23,648 Purchase of investment properties, buildings and equipment (62,955) (87,115) (32,563) Sale of investment properties, buildings and equipment 49,103 31,158 40,374 Purchases of short-term investments (43,607) (388,465) (381,400) Sales of short-term investments 50,871 394,673 394,284 Net cash paid on purchases of insurance companies --- (54,087) (722) Net cash paid on sale of insurance business --- --- (2,250) Net cash paid on purchase of television station (5,140) --- --- All other investment activities, net (5,828) 6,860 (1,439) - --------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (133,590) (176,330) (49,029) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from borrowings 1,901,901 2,544,735 2,192,635 Principal payments on debt (1,890,521) (2,467,819) (2,219,778) Dividends paid (16,814) (14,358) (13,108) Stock issued for employee benefit and compensation programs 2,909 3,487 5,771 Common stock offering --- --- 8,544 Return of policyholders' account balances (32,637) (30,025) (26,201) Receipts credited to policyholders' account balances 73,653 75,173 63,773 - --------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 38,491 111,193 11,636 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH (7,659) 21,913 (2,693) Cash at beginning of year 51,400 29,487 32,180 - --------------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 43,741 $ 51,400 $ 29,487 - ---------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 42 15 EXHIBIT 13 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THE LIBERTY CORPORATION AND SUBSIDIARIES (Amounts in 000's except per share data)
UNREALIZED COMMON CONVERTIBLE UNEARNED SECURITY SHARES COMMON PREFERRED STOCK APPRECIATION OUTSTANDING STOCK STOCK COMPENSATION (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1993 18,859 $126,961 $ --- $(3,222) $ 3,901 Net income Net unrealized investment gains 1,276 Dividends - Common Stock - $0.56 per share Foreign currency translation adjustment Stock issued for employee benefit and performance incentive compensation programs 314 8,434 (1,253) Stock offering 325 8,544 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 19,498 143,939 --- (4,475) 5,177 Cumulative effect of change in accounting principle 11,357 Net income Net unrealized investment losses (69,643) Dividends - Common Stock - $0.62 per share Dividends - Redeemable Preferred Stock - $1.672 per share Foreign currency translation adjustment Stock issued for employee benefit and performance incentive compensation programs 229 5,816 (844) Stock issued as part of the purchase price of acquisitions 113 3,180 Stock issued for conversion of redeemable preferred stock 1 21 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 19,841 152,956 --- (5,319) (53,109) Net Income Net unrealized investment gains 111,095 Dividends - Common Stock - $0.665 per share Dividends - Redeemable Preferred Stock - $2.10 per share Dividends - Convertible Preferred Stock - $1.4583 per share Foreign currency translation adjustment Stock issued for employee benefit and performance incentive compensation programs 216 5,631 (731) Stock issued as part of the purchase price of acquisitions 20,999 Stock issued for conversion of redeemable preferred stock 4 148 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 20,061 $158,735 $20,999 $(6,050) $ 57,986 - ------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE FOREIGN CURRENCY RETAINED TRANSLATION EARNINGS TOTAL - ----------------------------------------------------------------------------------------------------- Balance at January 1, 1993 $ (880) $262,428 $389,188 Net income 39,147 39,147 Net unrealized investment gains 1,276 Dividends - Common Stock - $0.56 per share (10,842) (10,842) Foreign currency translation adjustment (649) (649) Stock issued for employee benefit and performance incentive compensation programs 7,181 Stock offering 8,544 - ------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 (1,529) 290,733 433,845 Cumulative effect of change in accounting principle 11,357 Net income 26,178 26,178 Net unrealized investment losses (69,643) Dividends - Common Stock - $0.62 per share (12,242) (12,242) Dividends - Redeemable Preferred Stock - $1.672 per share (2,117) (2,117) Foreign currency translation adjustment 38 38 Stock issued for employee benefit and performance incentive compensation programs 4,972 Stock issued as part of the purchase price of acquisitions 3,180 Stock issued for conversion of redeemable preferred stock 21 - ------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 (1,491) 302,552 395,589 Net Income 59,353 59,353 Net unrealized investment gains 111,095 Dividends - Common Stock - $0.665 per share (13,283) (13,283) Dividends - Redeemable Preferred Stock - $2.10 per share (2,658) (2,658) Dividends - Convertible Preferred Stock - $1.4583 per share (873) (873) Foreign currency translation adjustment 492 492 Stock issued for employee benefit and performance incentive compensation programs 4,900 Stock issued as part of the purchase price of acquisitions 20,999 Stock issued for conversion of redeemable preferred stock 148 - ------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $ (999) $345,091 $575,762 - -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 43 16 EXHIBIT 13 THE LIBERTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements of The Liberty Corporation and Subsidiaries (the Company) include the accounts of the Company after elimination of all significant intercompany balances and transactions. The primary subsidiaries of the Company are Liberty Life Insurance Company, Pierce National Life Insurance Company (doing business as FamilySide) and Liberty Insurance Services Corporation (collectively referred to as the insurance operations) and Cosmos Broadcasting Corporation. ORGANIZATION - The Company's operations include the sale and service of life insurance products in the United States and Canada and television broadcasting operations in the United States. The insurance operations are licensed to do business in 49 states and nine Canadian provinces. While the majority of the Company's assets and revenues are generated from its insurance operations, the Company also is a major television group broadcaster, owning and operating eight network affiliated television stations throughout the southeastern and midwestern states. Information on the Company's operations by segment is included on page 40 of this report (see Note 16). USE OF ESTIMATES AND ASSUMPTIONS - Financial statements prepared in accordance with generally accepted accounting principles require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements. Actual results could differ from those estimates and assumptions. INSURANCE PREMIUMS AND POLICY CHARGES - Revenues for traditional life insurance and accident and health insurance are recognized over the premium paying period as they become due. For limited payment whole life products, the excess of the premiums received over the portion of the premiums required to establish reserves is deferred and recognized in income over the anticipated life of the policy. For universal life products, revenues consist of policy charges for the cost of insurance, administration of the policies and surrender charges during the period. Policy issue fees are deferred and recognized in income over the life of the policies in relation to the incidence of expected gross profits. BENEFITS TO POLICYHOLDERS AND BENEFICIARIES - Benefits for traditional life insurance and accident and health insurance products include claims paid during the period, accrual for claims reported but not yet paid, and accrual for claims incurred but not reported based on historical claims experience modified for expected future trends. Benefits for universal life products are the amount of claims paid in excess of the policy value accrued to the benefit of the policyholder plus interest credited on account values. INSURANCE RESERVES AND POLICY MAINTENANCE EXPENSES - Insurance reserves and policy maintenance expenses for traditional life insurance and accident and health insurance are associated with earned premiums so as to recognize profits over the premium paying period. This association is accomplished by recognizing the liabilities for insurance reserves on a net level premium method based on assumptions deemed appropriate at the date of issue as to future investment yield, mortality, morbidity, withdrawals and maintenance expenses and including margins for adverse deviations. Interest assumptions are based on Company experience. Mortality, morbidity, and withdrawal assumptions are based on recognized actuarial tables or Company experience, as appropriate. Accident and health reserves consist principally of unearned premiums and claims reserves, including provisions for incurred but unreported claims. Insurance reserves for universal life products are determined following the retrospective deposit method and consist of policy values that accrue to the benefit of the policyholder, unreduced by surrender charges. DEFERRED ACQUISITION COSTS - Acquisition costs incurred by the Company in the process of acquiring new business are deferred and amortized to income as discussed below. Costs deferred consist primarily of commissions and certain policy underwriting, issue and agency expenses that vary with and are primarily related to production of new business. COST OF BUSINESS ACQUIRED is the value assigned the insurance inforce of acquired insurance companies at the date of acquisition. For traditional insurance products, the amortization of deferred acquisition costs and the cost of business acquired is recognized in proportion to the ratio of annual premium revenue to the total anticipated premium revenue, which gives effect to actual terminations. Deferred acquisition costs and the cost of business acquired are amortized over the premium paying period (not to exceed 30 years) of the related policies. Anticipated premium revenue is determined using assumptions consistent with those utilized in the determination of liabilities for insurance reserves. 44 17 EXHIBIT 13 For universal life products, the deferred acquisition costs are amortized in relation to the incidence of expected gross profits over the life of the policies (not to exceed 30 years). Gross profits are equal to revenues, as defined previously, plus investment income (including applicable realized investments gains and losses) less expenses. Expenses include interest credited to policy account balances, policy administration expenses, and expected benefit payments in excess of policy account balances. INVESTMENTS - Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" requires that all debt and equity securities be classified into one of three categories - -- held to maturity, available for sale, or trading. The Company has no securities classified as trading. On November 15, 1995, the Financial Accounting Standards Board issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities". In accordance with the provisions in that Special Report, on December 31, 1995, the Company chose to reclassify all securities previously classified as held to maturity to available for sale. The market value and amortized cost of the securities transferred were $307,100,000 and $281,691,000, respectively, at December 31, 1995. As a result of the transfer, shareholders' equity was increased $14,645,000 (net of deferred income taxes and adjustment to deferred acquisition costs) to reflect the unrealized gain on securities previously carried at cost. There were no sales of securities previously included in the held to maturity category during 1995 or 1994. Prior to December 31, 1995, the Company classified fixed maturity securities (bonds and redeemable preferred stock) as either held to maturity or available for sale. Management determined the appropriate classification of fixed maturities at the time of purchase. Fixed maturities were classified as held to maturity when the Company had the positive intent and ability to hold the securities to maturity. Investments are reported on the following basis: - - Fixed maturities classified as available-for-sale are stated at fair value with unrealized gains and losses, after adjustment for deferred income taxes and deferred acquisition costs, reported directly in shareholders' equity. Fixed maturities classified as held to maturity are stated at amortized cost, including impairments for other than temporary declines in value. Fair values for fixed maturity securities are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. - - Equity securities (common stocks and nonredeemable preferred stocks) are all considered available for sale and are carried at fair value. The fair values for equity securities are based on quoted market prices. - - Mortgage loans on real estate are carried at amortized cost, less an allowance for credit losses and provisions for impaired value, where appropriate. - - Investment real estate is carried at cost less accumulated depreciation and provisions for impaired value where appropriate. Depreciation over the estimated useful lives of the properties is determined principally using the straight-line method. - - Policy loans are carried at cost. - - Other long-term investments are carried at cost which includes provisions for impaired value where appropriate. Included in other long-term investments are investments in venture capital funds and oil and gas properties. - - Short-term investments are carried at cost which approximates fair value. UNREALIZED INVESTMENT GAINS AND LOSSES on investments carried at fair value, net of deferred taxes and adjustment for deferred acquisition costs related to universal life products, are recorded directly in shareholders' equity. REALIZED INVESTMENT GAINS AND LOSSES are recognized using the specific identification method to determine the cost of investments sold. Gains or losses on the sale of real estate held for investment are included in realized investment gains (losses). Gains and losses on the sale of real estate acquired for development and resale are included in net investment income. Realized gains and losses include write-downs for impaired values of investment assets. The Company establishes impairments on individual, specific assets at the time the Company judges the assets to have been impaired and this impairment can be estimated (see Note 2). BUILDINGS AND EQUIPMENT are recorded at cost. Depreciation over the estimated useful lives of the properties is determined principally using the straight-line method. INTANGIBLE ASSETS arose in the acquisition of certain television stations. Amounts not being amortized ($4,071,000) represent the excess of the total cost over the underlying value of the tangible and amortizable intangible assets acquired prior to 1970. Amounts being amortized are expensed principally over forty years. GOODWILL arose in the acquisition of insurance companies and is being amortized over lives ranging from twenty to forty years. FOREIGN CURRENCY TRANSLATION has been accounted for in accordance with SFAS No. 52, "Foreign Currency Translation." The assets and liabilities of the Canadian operations of FamilySide are translated into U.S. dollars at the rate of exchange in effect at the respective balance sheet date. Net exchange gains and losses resulting from translation are included as a separate component of shareholders' equity. Revenues and expenses are translated at average exchange rates for the year. Gains and losses from foreign currency transactions are included in net income. 45 18 EXHIBIT 13 INTEREST RATE CAPS AND SWAPS are used to limit the impact of changing interest rates on the Company's debt, which is substantially all floating rate (see Note 5). An interest rate swap is used to fix the interest rate on $100,000,000 of debt. The net interest effect of the swap transaction is reported as an adjustment to interest expense as incurred. Interest rate caps are used to protect a portion of the remaining debt against significant increases in interest rates. Premiums paid for the interest rate caps are being amortized to interest expense over the terms of the caps. INCOME TAXES are computed using the liability method required by Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes". Under SFAS 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and law that will be in effect when the differences are expected to reverse. EARNINGS PER COMMON SHARE is based on net income after redeemable preferred stock dividend requirements and the weighted average number of shares outstanding during the year, including the average number of dilutive shares under stock options. NON-PENSION POSTEMPLOYMENT BENEFITS - The Company provides certain health and life insurance benefits to eligible retirees and their dependents. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" whereby the cost of providing the benefits is accrued during the employees' working years. The Company elected to immediately recognize this obligation, resulting in a $15,254,000 charge ($10,068,000 after-tax) to 1993 operations. The Company also provides certain other postemployment benefits to qualified former and inactive employees. To account for these benefits the Company adopted Statement of Financial Accounting Standard No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1993. SFAS 112 requires the accrual of benefits provided to former or inactive employees after employment but before retirement, be accrued when it is probable a benefit will be provided. The adoption of this standard resulted in a $2,837,000 charge ($1,872,000 after-tax) which was expensed during 1993. With the exception of the one-time transition obligations, the adoption of these accounting standards did not have a material impact on the Company's annual earnings. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 114, "Accounting by Creditors for Impairments of a Loan" and Statement of Financial Accounting Standard No. 118, "Accounting by Creditors for Impairments of a Loan--Income Recognition and Disclosures" were adopted by the Company effective January 1, 1995. Under the standards, the Company provides for estimated credit losses related to the mortgage loans where it is probable that all amounts due according to the contractual terms of the mortgage agreement will not be collected. This provision for credit losses is based on discounting the expected cash flows from the loan using the loan's initial effective interest rate, or the fair value of the collateral for certain collateral dependent loans. The initial adoption of the standards resulted in recording an allowance for credit losses of $507,000 ($330,000 after-tax), which has been included in realized investment gains (losses) in the consolidated statement of income. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was issued by the Financial Accounting Standards Board in March 1995. This statement prescribes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill that are used in the business, as well as establishing accounting standards for long-lived assets and certain identifiable intangibles to be disposed of. The Company expects to adopt this standard as of January 1, 1996. Under the provisions of the statement certain of the Company's investment real estate assets will be required to be valued at fair value, rather than net realizable value as previously required; however, the adoption of the statement is not expected to have a material impact on the net income or financial position of the Company. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 123, "Accounting for Stock-Based Compensation" was issued by the Financial Accounting Standards Board in October 1995. This statement requires companies to measure the fair value of employee stock options at the date granted and expense the estimated fair value of grants or, alternatively, disclose the pro forma impact on net income and earnings per share of the grants in the notes to the financial statement. The Company will adopt this statement as of January 1, 1996 and make the pro forma disclosures required by SFAS 123 in its 1996 financial statements. RECLASSIFICATIONS have been made in the 1994 and 1993 Consolidated Financial Statements to conform to the 1995 presentation. 46 19 Exhibit 13 2. INVESTMENTS Amortized cost and estimated fair values of investments in available for sale and held to maturity securities at December 31, 1995 and 1994 are as follows:
Gross Gross Amortized Unrealized Unrealized 1995 (In 000's) Cost Gains Losses Fair Value - -------------------------------------------------------------------------------------------- AVAILABLE FOR SALE: Fixed maturity securities US government obligations $ 25,733 $ 993 $ 41 $ 26,685 States and political subdivisions 294 39 --- 333 Foreign obligations 93,819 3,746 2,534 95,031 Corporate securities 485,735 41,645 2,774 524,606 Mortgage-backed securities 777,743 43,530 889 820,384 - -------------------------------------------------------------------------------------------- Total 1,383,324 89,953 6,238 1,467,039 Equity securities 68,637 19,161 5,290 82,508 - -------------------------------------------------------------------------------------------- Total $1,451,961 $109,114 $11,528 $1,549,547 - -------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized 1994 (In 000's) Cost Gains Losses Fair Value - ----------------------------------------------------------------------------------------------- AVAILABLE FOR SALE: Fixed maturity securities US government obligations $ 33,723 $ 3 $ 2,341 $ 31,385 States and political subdivisions 45,514 3 3,081 42,436 Foreign obligations 23,543 1 2,916 20,628 Corporate securities 381,823 2,222 28,666 355,379 Mortgage-backed securities 462,919 267 29,985 433,201 - ----------------------------------------------------------------------------------------------- Total 947,522 2,496 66,989 883,029 Equity securities 78,116 7,503 7,411 78,208 - ----------------------------------------------------------------------------------------------- Total $1,025,638 $ 9,999 $74,400 $961,237 - ----------------------------------------------------------------------------------------------- HELD TO MATURITY: US government obligations $ 5,574 $ 38 $ 319 $ 5,293 Foreign obligations 454 104 -- 558 Corporate securities 86,723 10,352 1,019 96,056 Mortgage-backed securities 206,367 4,787 1,932 209,222 - ----------------------------------------------------------------------------------------------- Total $ 299,118 $15,281 $ 3,270 $311,129 - -----------------------------------------------------------------------------------------------
As of December 31, 1995, the Company reclassified all securities previously classified as held to maturity to available for sale (See Note 1). 47 20 EXHIBIT 13 Realized gains (losses) and the change in unrealized gains (losses) on the Company's fixed maturities and equity securities are summarized as follows:
Total Gains Fixed Equity (Losses) on (In 000's) Maturities Securities Investments - --------------------------------------------------------------------------------------------------------- 1995 Realized investment gains (losses) $ (2,347) $ 8,071 $ 5,724 Change in unrealized investment gains (losses) 136,197 13,779 149,976 - --------------------------------------------------------------------------------------------------------- Combined $ 133,850 $21,850 $ 155,700 - --------------------------------------------------------------------------------------------------------- 1994 Realized investment gains (losses) $ (11,957) $ 2,699 $ (9,258) Change in unrealized investment gains (losses) (118,937) (7,494) (126,431) - --------------------------------------------------------------------------------------------------------- Combined $(130,894) $(4,795) $(135,689) - --------------------------------------------------------------------------------------------------------- 1993 Realized investment gains $ 10,705 $ 6,546 $ 17,251 Change in unrealized investment gains (losses) 1,084 1,965 3,049 - --------------------------------------------------------------------------------------------------------- Combined $ 11,789 $ 8,511 $ 20,300 - ---------------------------------------------------------------------------------------------------------
The schedule below details consolidated investment income and related investment expenses for the years ended December 31.
(In 000's) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- Interest on Bonds $107,825 $ 89,518 $ 74,438 Mortgage loans 18,247 18,137 15,452 Policy loans 4,872 4,946 4,162 Short-term investments 752 869 1,376 Dividends on Preferred stocks 6,624 8,370 7,469 Common stocks 1,180 1,361 376 Investment property rentals 9,238 6,255 4,265 Net gain on investment real estate held for development 6,947 5,268 4,501 Other investment income 3,269 7,556 5,987 - ----------------------------------------------------------------------------------------------- Total investment income 158,954 142,280 118,026 Investment expenses 10,284 8,601 7,060 - ----------------------------------------------------------------------------------------------- Net investment income $148,670 $133,679 $110,966 - -----------------------------------------------------------------------------------------------
Proceeds from sales of fixed maturities and the related gross realized gains and losses for the three years ended December 31 are shown below. The amounts shown below do not include those related to unscheduled redemptions or prepayments, nor do they reflect any impairments taken during the years presented. No held to maturity securities were sold during 1995 or 1994.
(In 000's) 1995 1994 1993 - --------------------------------------------------------------------------------------- Proceeds from sales $111,260 $187,597 $10,124 Gross realized gains 1,750 986 383 Gross realized losses (3,910) (13,437) (294)
48 21 EXHIBIT 13 The following investment assets were non-income producing for the twelve months ended December 31, 1995:
(In 000's) Balance Sheet Amount - ----------------------------------------------------------------------------------------------------- Investment real estate $11,827 Other long-term investments 24,834 Mortgage loans 50 Fixed maturities 71 - ----------------------------------------------------------------------------------------------------- Total $36,782 - -----------------------------------------------------------------------------------------------------
For the year ended December 31, 1995, the Company incurred realized losses of $9,462,000 due to impairment of assets included in the year-end investment portfolio. Cumulative provisions for impairments on the total investment portfolio by asset category at December 31, 1995, are as follows:
(In 000's) CUMULATIVE PROVISION FOR IMPAIRMENTS - ------------------------------------------------------------------ Mortgage loans $ 2,893 Investment real estate 4,401 Other long-term investments 7,462 Fixed maturities 1,380 - ------------------------------------------------------------------ Total $16,136 - ------------------------------------------------------------------
The amortized cost and estimated fair value of fixed maturities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(In 000's) Amortized Cost Fair Value - ------------------------------------------------------------------------------------------ Due in one year or less $ 21,005 $ 21,103 Due after one year through five years 166,973 178,644 Due after five years through ten years 247,643 267,709 Due after ten years 169,960 179,199 - ------------------------------------------------------------------------------------------ 605,581 646,655 Mortgage-backed securities primarily maturing in five to twenty-five years 777,743 820,384 - ------------------------------------------------------------------------------------------ Total $1,383,324 $1,467,039 - ------------------------------------------------------------------------------------------
3. REINSURANCE AGREEMENTS The Company uses reinsurance as a risk management tool in the normal course of business and in isolated, strategic assumption transactions to effectively buy or sell blocks of in force business. The reinsurance contracts do not relieve the Company from its contract with its policyholders, and it remains liable should any reinsurer be unable to meet its obligations. At December 31, 1995, $4.6 billion (21%) of the Insurance Group's total $21.4 billion gross insurance in force was ceded to other companies. In the accompanying financial statements, insurance premiums and policy charges, policyholder benefits and deferred acquisition costs are reported net of reinsurance ceded with policy liabilities being reported gross of reinsurance ceded. Amounts paid or deemed to be paid for reinsurance contracts are recorded as reinsurance receivables. The cost of reinsurance related to long-term duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. In 1991 Liberty Life entered into an agreement with Life Reassurance Corporation (Life Re) to coinsure the Company's General Agency Division's universal life policies in force. The initial agreement provided for 80% coinsurance on policies in force at December 31, 1991, and 50% coinsurance on policies issued subsequent to such date. Effective July 1, 1995, the amount coinsured on policies written after December 31, 1991, was increased to 80%. Under the terms of the agreement, assets supporting the business ceded are required to be held in escrow. At December 31, 1995, Liberty Life's interest in the assets held in escrow consisted of investments with an amortized cost of $56.3 million and a fair value of $59.7 million. Comparable book and fair value at December 31, 1994 was $62.7 million and $59.3 49 22 EXHIBIT 13 million, respectively. These investments had an average rating of AA+. The total face value of insurance ceded to Life Re at December 31, 1995, was $2.9 billion and the Company has recorded a receivable related to this transaction from Life Re of $257.7 million as of December 31, 1995. Currently, Life Re has an A.M. Best rating of A+. During 1995 and 1994, Liberty Life had ceded premiums and policy charges of $19.3 and $18.0 million, respectively, under the agreement. Effective September 30, 1991, Liberty Life entered into an agreement to coinsure 50% of its Home Service line of business. Under generally accepted accounting principles this agreement has been treated as financial reinsurance, and no reserve reduction had been taken for the business ceded. The reinsurance contract contains an escrow agreement that requires assets equal to the reserves reinsured, as determined under statutory accounting principles, be held in escrow for the benefit of this block of business. At December 31, 1995, the amortized cost of the invested assets held in escrow was approximately $228.9 million. The insurance subsidiaries also reinsures with other insurance companies portions of the life insurance they write in order to limit exposure on large or substandard risks. Due to this broad allocation of reinsurance with several insurance companies, there exists no significant concentration of credit risk. The maximum amount of life insurance that Liberty Life will retain on any life is $300,000, plus an additional $50,000 in the event of accidental death. This maximum is reduced for higher ages and for special classes of risks. The maximum amount of life insurance that the other insurance subsidiaries will retain on any life is $50,000. Insurance in excess of the retention limits is either automatically ceded under reinsurance agreements or is reinsured on an individually agreed basis with other insurance companies. The effect of reinsurance on premiums and policy charges and benefits was as follows for the years ending December 31:
(In 000's) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------- Direct premiums and policy charges $364,797 $344,119 $278,454 Reinsurance assumed 1,314 1,728 2,089 Reinsurance ceded (34,741) (30,058) (29,621) - ----------------------------------------------------------------------------------------------------- Net premiums and policy charges $331,370 $315,789 $250,922 - ----------------------------------------------------------------------------------------------------- Gross benefits $249,861 $242,869 $174,588 Reinsurance recoveries (13,087) (17,124) (15,136) - ----------------------------------------------------------------------------------------------------- Net benefits $236,774 $225,745 $159,452 - -----------------------------------------------------------------------------------------------------
4. DEFERRED ACQUISITION COSTS, COST OF BUSINESS ACQUIRED AND FUTURE POLICY BENEFITS A summary of the changes in deferred acquisition costs is as follows:
(In 000's) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- Beginning balance $259,799 $231,873 $211,945 Deferred during the year 54,522 59,053 58,017 Amortized during the year (32,594) (33,313) (31,917) Adjustment related to unrealized investment (gains) losses (10,327) 2,379 --- Insurance in force ceded (6,331) --- (6,082) Foreign currency translation 119 (193) (90) - ------------------------------------------------------------------------------------------------------- Ending balance $265,188 $259,799 $231,873 - -------------------------------------------------------------------------------------------------------
50 23 EXHIBIT 13 A summary of the changes in costs of business acquired through acquisitions is as follows:
(In 000's) 1995 1994 1993 - ------------------------------------------------------------------------------------ Beginning balance $98,056 $56,762 $63,930 Additions from acquisitions --- 53,139 317 Interest accrued 6,621 6,620 4,426 Foreign currency adjustment 55 (134) --- Amortized during the year (17,807) (18,331) (11,911) - ------------------------------------------------------------------------------------ Ending balance $86,925 $98,056 $56,762 - ------------------------------------------------------------------------------------
The Company accounts for these costs in a manner consistent with deferred acquisition costs. The Company's interest rate used to amortize these costs is 7.75% for a majority of the asset. Periodically, the Company performs tests to determine that the cost of business acquired remains recoverable from future premiums on the acquired business. The Company incurred no write-offs due to impairments as a result of these tests during the three years ended December 31, 1995. Under current assumptions amortization of these costs, prior to consideration of accrued interest implicit in the calculation of the amortization, for the next five years is expected to be as follows:
(In 000's) Amortization - ------------------------------------------------------------------------------------------- 1996 $15,779 1997 13,693 1998 12,126 1999 10,819 2000 9,624
The liabilities for traditional life insurance and accident and health insurance policy benefits and expenses are computed using a net level premium method, including assumptions based on the Company's experience, modified as necessary to reflect anticipated trends and to include provisions for possible unfavorable deviations. Reserve interest assumptions are graded and range from 3.5% to 9.5%. Such liabilities are, for some plans, graded to equal statutory values or cash values at or prior to maturity. The weighted average assumed investment yield for all traditional life and accident and health policy reserves was 6.6%, 6.8%, and 6.8% in 1995, 1994, and 1993, respectively. Benefit reserves for traditional life insurance policies include certain deferred profits on limited-payment policies that are being recognized in income over the policy term. Policy benefit claims are charged to expense in the period that the claims are incurred. Benefit reserves for universal life insurance and investment products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances. Interest crediting rates for universal life and investment products range from 5.5% to 6.8% in 1995, 5.5% to 7.0% in 1994, and 5.8% to 8.0% in 1993. Participating business accounts for approximately 1% of the Company's life insurance in force and premium income. The dividend to be paid is determined annually by the Board of Directors. 5. DEBT The debt obligations at December 31 are as follows:
(In 000's) INTEREST RATE 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Borrowings under revolving credit agreement and lines of credit 6.1% $136,500 $120,500 Long-term debt 6.7% 100,000 100,000 Other notes due to banks 4.8% 158 554 Mortgage loans on investment property 7.5% to 8.5% 5,469 4,882 Other Various 16,317 5,711 - --------------------------------------------------------------------------------------------------------------------- Total $258,444 $231,647 - ---------------------------------------------------------------------------------------------------------------------
The mortgage loans are secured by property with a net carrying value of $19.6 million at December 31, 1995. 51 24 EXHIBIT 13 Maturities of the debt obligations at December 31, 1995, are as follows:
Maturities Amount - --------------------------------------------------------------------------------------- 1996 $ 26,306 1997 17,057 1998 147,095 1999 20,724 2000 20,946 Thereafter 26,316 - --------------------------------------------------------------------------------------- Total $258,444 - ---------------------------------------------------------------------------------------
On March 21, 1995, the Company refinanced its then-existing $325,000,000 revolving credit facility into a new $375,000,000, multi-tranche credit facility. The current facility consists of a $225,000,000 three-year revolving credit facility; a $100,000,000 seven-year term loan facility; and a $50,000,000 facility substantially identical to the revolving facility, which is convertible into terms substantially identical to the term facility within two years of the closing date of this loan. The revolving portion of the facility will mature in March 1998, while the term portion shall be repaid in twenty quarterly installments of $5,000,000 commencing June 1997, and ending in March 2002. The Company's borrowings against the revolving credit facility were $126,000,000 and against the term facility were $100,000,000 at December 31, 1995. During 1995, the maximum amount outstanding on the revolving facility amounted to approximately $162,000,000, with an average balance outstanding of approximately $129,250,000 and an average weighted interest rate of 6.26%. In addition to the revolving facility, the Company also uses several lines of credit totaling $35,500,000 as of December 31, 1995, to manage day-to-day cash flow. The amount borrowed against the lines of credit at December 31, 1995 was $10,500,000. The average balance outstanding on the lines of credit was approximately $16,400,000 during 1995, with a maximum borrowing of $50,500,000 and an average weighted interest rate of 6.46%. The Company has the option to solicit money market interest quotes from the bank group for borrowings under the revolving credit facility. The revolving credit agreement also provides for borrowing at interest rates based on a formula that incorporates the use of the London Interbank Offered Rate ("LIBOR") plus an interest rate margin. The interest rate for the term loan is based upon LIBOR, plus an interest rate margin. A facility fee is charged on the facility based on $275,000,000 of the total commitment. The facility fee and the interest rate margin for the revolving credit facility and the term loan are all based upon the ratio of consolidated debt to cash flow, as defined in the credit agreement. The credit agreement contains various restrictive covenants typical of a credit facility of this size and nature. These restrictions primarily pertain to levels of indebtedness, limitations on payment of dividends, limitations on the quality and types of investments, and capital expenditures. Additionally, the Company must also comply with several financial covenant restrictions under the revolving credit agreement, including defined ratios of consolidated debt to cash flow, consolidated debt to consolidated total capital, and fixed charges coverage. As of December 31, 1995, the Company was in compliance with all covenants under its debt agreement. The Company has entered into interest rate swap and cap agreements as a means of managing its interest rate exposure on its floating rate debt. The interest rate swap effectively fixes the interest rate on the $100,000,000 seven-year term loan facility at 5.965% plus the interest rate margin and will expire in March, 2002. The agreement is a contract to exchange fixed and floating interest rate payments periodically over the life of the agreement without the exchange of the underlying notional amounts. The Company will pay the counterparty interest at 5.965%, and the counterparty will pay the Company interest at a variable rate based on the 3-month LIBOR rate. The notional principal amount under the agreement will amortize proportionately to the paydown of the $100,000,000 term loan as described above. The interest differential to be paid or received on interest rate swaps is accrued and included in interest expense for financial reporting purposes. The agreement is with a major financial institution and the Company's credit exposure is limited to the value of the interest-rate swap that has, or may become favorable to the Company. The Company has entered into interest rate caps and corridors in an attempt to minimize the impact of a potential significant rise in short-term interest rates on the Company's outstanding floating rate debt. As of December 31, 1995, the Company had the following interest rate protection instruments: (1) a $50,000,000 notional amount, interest rate corridor from 8%-10%, which is based on the 3-month LIBOR rate and caps the Company's rate at 8% if the index rate exceeds 8% but is less than 10%, and at LIBOR minus 2% if the rate exceeds 10%, and expiring in December 1996; and (2) a $50,000,000 notional amount cap with a strike rate of 9%, which will be permanently eliminated if rates exceed 11%, based on the 3-month LIBOR rate and expiring in December 1997. The combination of the above instruments protects a portion ($100,000,000 for one year, and $50,000,000 for two years) of the Company's variable rate debt from a potential significant rise in short-term interest rates. The Company was required to pay up-front fees related to these instruments at inception of each contract, which are being amortized straight-line over the term of each contract. Interest paid, net of amounts capitalized, amounted to approximately $14,021,000, $12,957,000, and $12,580,000 in 1995, 1994, and 1993, respectively. Interest capitalized amounted to $2,303,000, $2,030,000, and $1,161,000, in 1995, 1994, and 1993, respectively. 52 25 EXHIBIT 13 6. REDEEMABLE PREFERRED STOCK On February 24, 1994, the Company issued 598,656 shares of Series 1994-B Voting Cumulative Preferred Stock having a total redemption value of $22,449,000, or $37.50 per share, in connection with the acquisition of American Funeral Assurance Company. Additionally, on April 1, 1994, the Company issued 668,207 shares of Series 1994-A Voting Cumulative Preferred Stock having a total redemption value of $23,387,000, or $35.00 per share, in connection with the acquisition of State National Capital Corporation. The shares have preference in liquidation, and each share is entitled to one vote on any matters submitted to a vote of the shareholders of the Company. In accordance with the financial reporting requirements of the Securities and Exchange Commission, the preferred stock has been classified outside of permanent equity as Redeemable Preferred Stock. Both the Company and the holders of the preferred stock have the right to redeem any or all of the shares from time to time beginning five years and one month after the date of issue in exchange for cash or shares of the Company's common stock. The Company will determine the form of all redemptions, which will consist of cash, common stock, or a combination of both. Generally, the amount of consideration on the 1994-A Series will be equivalent to $35.00 per share plus the amount of any accumulated and unpaid dividends; and for the 1994-B Series will be equivalent to $37.50 per share plus the amount of any accumulated and unpaid dividends. In addition, each share of the 1994-A Series and 1994-B Series is convertible, at the option of the shareholder, at any time into one share of the Company's common stock (plus a corresponding attached right to acquire a share of the Company's Series A Participating Cumulative Preferred Stock). There is no sinking fund for the redemption of either series of preferred stock. Dividends shall be paid on the 1994-A Series at the rate of 6% per annum and on the 1994-B Series at the rate of 5.6% per annum. Dividends accrue daily, are cumulative, and are payable quarterly. Both the 1994-A Series and the 1994-B Series are on a parity in rank with all other series of preferred stock of the Company whether or not such series exist now or are created in the future, with respect to payment of all dividends and distributions, unless a series of preferred stock expressly provides that it is junior or senior to the 1994-A and 1994-B Series. No dividends or distributions on the Company's common stock shall be declared or paid until all accumulated and unpaid dividends on the 1994-A Series and 1994-B Series have been declared and set aside for payment. 7. COMMITMENTS AND CONTINGENCIES In January 1996, a lawsuit was filed against the Company alleging breach of contract in connection with an agreement to develop a state-of-art software system to administer the Company's insurance operations. The suit was filed by the software developer. Management of the Company, after consultation with legal counsel, believes that the lawsuit filed against the Company is without merit and intends to contest the suit vigorously. The Company believes the suit filed against it was in response to a suit filed by the Company in connection with failure of the software developer to deliver the system. The suit against the software developer seeks to recover amounts paid to the software developer, and other costs incurred by the Company, in the attempt to develop the system (see Note 12 to the Consolidated Financial Statements concerning the 1994 charge taken to write-off deferred system costs). The Company believes it will be successful in its lawsuit against the software developer; however, no estimated recovery is included in the accompanying financial statements. In December 1995, a lawsuit was filed against the Company alleging breach of contract. The lawsuit relates to a transaction in which the Company was unsuccessful in acquiring certain entities partially owned by the plaintiff. Management, after consultation with legal counsel, believes the lawsuit is without merit and intends to contest the suit vigorously. The Company and its subsidiaries are also defendants in various lawsuits arising primarily from claims made under insurance policies. Where applicable, these lawsuits are considered in establishing the Company's policy liabilities. It is the opinion of management and legal counsel that the settlement of these actions will not have a material effect on the financial position or results of operations of the Company. The Company has lease agreements, primarily for branch offices, data processing and telephone equipment, which expire on various dates through 2004, none of which are material capital leases. Most of these agreements have optional renewal provisions covering additional periods of one to ten years. All leases were made in the ordinary course of business and contain no significant restrictions or obligations. Future commitments under operating leases are not material. Annual rental expense amounted to approximately $5,825,000, $5,497,000, and $6,225,000 in 1995, 1994, and 1993, respectively. Most states have laws requiring solvent life insurance companies to pay guaranty fund assessments to protect the interests of policyholders of insolvent life insurance companies. Due to the recent increase in the number of companies that are under regulatory supervision, there is expected to be an increase in assessments by state guaranty funds. Under present law, most assessments can be recovered through a credit against future premium taxes. The Company has reviewed its exposure to potential assessments, and the effect on its financial position and results of operations is not expected to be material. At December 31, 1995, the Company had commitments for additional investments and other items totaling $44,341,000. 53 26 EXHIBIT 13 8. SHAREHOLDERS' EQUITY On February 28, 1995, the Company issued 599,985 shares of Series 1995-A Voting Cumulative Convertible Preferred Stock having a total redemption value of $20,999,475 or $35.00 per share in connection with the acquisition of WLOX-TV. The shares have preference in liquidation, and each share is entitled to one vote on any matters submitted to a vote of the shareholders of the Company. Each share of preferred stock is convertible at the option of the holder into one share of common stock. The Company has the right to redeem any or all of the shares from time to time at any time beginning five years and one month after the date of issue in exchange for cash, common stock, or a combination of both. Generally, the amount of consideration on the 1995-A Series will be equivalent to $35.00 per share plus the amount of any accumulated and unpaid dividends. There is no sinking fund for the redemption of the preferred stock. Dividends shall be paid on the preferred stock at the rate of 5% per annum. Dividends accrue daily, are cumulative, and are payable quarterly. The 1995-A Series preferred stock is on a parity in rank with all other series of preferred stock of the Company whether or not such series exist now or are created in the future, with respect to payment of all dividends and distributions, unless a series of preferred stock expressly provides that it is junior or senior to the 1995-A Series. No dividends or distributions on the Company's common stock shall be declared or paid until all accumulated and unpaid dividends on the 1995-A Series have been declared and set aside for payment. The Company has adopted a Shareholder Rights Plan and declared a dividend of one preferred stock purchase right for each outstanding share of common stock. Upon becoming exercisable, each right entitles the holder to purchase for a price of $150.00 one one-hundredth of a share of Series A Participating Cumulative Preferred Stock. All of the rights may be redeemed by the Company at a price of $.01 per right until ten business days (or such later date as the Board of Directors determines) after the public announcement that a person or group has acquired beneficial ownership of 20 percent or more of the outstanding common shares ("Acquiring Person"). Upon existence of an Acquiring Person, the Company may redeem the rights only with the concurrence of a majority of the directors not affiliated with the Acquiring Person. The rights, which do not have voting power and are not entitled to dividends, expire on August 7, 2000. The rights are not exercisable until ten business days after the public announcement that a person either (i) has become an Acquiring Person, or (ii) has commenced, or announced an intention, to make a tender offer or exchange offer if, upon consummation, such person or group would become an Acquiring Person. If, after the rights become exercisable, the Company becomes involved in a merger or certain other major corporate transactions, each right will entitle its holder, other than the Acquiring Person, to receive common shares with a deemed market value of twice such exercise price. There are 10,000,000 shares of preferred stock, no par value per share authorized for issuance. At December 31, 1995, there were 1,862,318 shares of preferred stock outstanding (See Note 6 for discussion of Redeemable Preferred Stock), and 140,000 shares of preferred stock were reserved for issuance in connection with the Shareholder Rights Plan. Shareholders' equity as determined under generally accepted accounting principles of the Company's insurance operations was $672,694,000 and $525,478,000 at December 31, 1995 and 1994, respectively. The comparable amounts as determined under statutory accounting practices were $166,469,000 and $161,023,000 at December 31, 1995 and 1994, respectively. The amount that retained earnings exceed statutory unassigned surplus ($448,826,000) is restricted and, therefore, not available for dividends. Without regulatory approval, dividends are generally limited to prior year statutory gain from operations. The components of the balance sheet caption unrealized appreciation (depreciation) on fixed maturity securities available for sale and equity securities in shareholders' equity as of December 31 are as follows:
(In 000's) 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Carrying value of securities $1,549,547 $ 961,237 Amortized cost of securities 1,451,961 1,025,638 - --------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) 97,586 (64,401) Adjustment to deferred acquisition costs (7,948) 2,379 Deferred income taxes (net of a valuation allowance of $11,021 in 1994) (31,652) 8,913 - --------------------------------------------------------------------------------------------------------------------------- Total $ 57,986 $ (53,109) - ---------------------------------------------------------------------------------------------------------------------------
9. STOCK OWNERSHIP AND STOCK OPTION PLANS The Company has a Performance Incentive Compensation Program (the "Program") which provides that the Compensation Committee of the Board of Directors may grant: (a) incentive stock options within the meaning of Section 422 of the Internal Revenue Code; (b) non-qualified stock options; (c) performance units; (d) awards of restricted shares of the Company's common stock; or (e) all or any combination of the foregoing to officers and key employees. Only common stock, not to exceed 2,800,000 shares, may be delivered under the Program; and shares so delivered will be made available from the authorized but unissued shares or from shares reacquired by the 54 27 EXHIBIT 13 Company, including shares purchased in the open market. The aggregate number of shares that may be acquired by any participant in the Program shall not exceed 20% of the shares subject to the Program. As of December 31, 1995, fifty-nine officers and employees were participants in the Program. Restricted shares awarded to participants under the Program vest in equal annual installments, generally over the five-year period commencing on the date the shares are awarded. Non-vested shares may not be assigned, transferred, pledged or otherwise encumbered or disposed of. During the applicable restriction period, the Company retains possession of the certificates for the restricted shares with executed stock powers attached. Participants are entitled to dividends and voting rights with respect to the restricted shares. Stock options under the Program are issued at 100% of the market price on the date of grant, are vested over such period of time, which may not be less than one year, as may be established by the Compensation Committee, and expire ten years after the grant. Of the incentive stock options outstanding, 51,165 were exercisable at December 31, 1995; 81,465 were exercisable at December 31, 1994; and 116,240 were exercisable at December 31, 1993. Of the non-qualified options outstanding, 290,480 were exercisable at December 31, 1995; 268,500 were exercisable at December 31, 1994; and 191,800 were exercisable at December 31, 1993. The options expire on various dates beginning February 12, 1996, and ending August 15, 2005. The following schedule summarizes activity in the Program during the three years ending December 31, 1995.
Restricted Shares Incentive Stock Options Non-Qualified Stock Options - ------------------------------------------------------------------------------------------------------------------------------------ Number of Market Price Number of Average Number of Average Shares at Date Given Options Exercise Price Options Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 1/1/93 271,850 191,700 $16.75 404,000 $22.26 Awarded 90,220 $29.23 --- 75,500 29.38 Vested (98,638) 31.43 Exercised (75,460) 14.80 (30,200) 20.20 Forfeited (4,749) 27.97 --- (3,200) 24.31 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 12/31/93 258,683 116,240 $18.02 446,100 $23.59 Awarded 108,835 25.78 --- 104,500 25.76 Vested (85,643) 26.90 Exercised --- (34,775) 17.35 (4,000) 25.63 Forfeited (19,241) 24.82 --- (6,000) 25.63 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 12/31/94 262,634 81,465 $18.31 540,600 $23.97 Awarded 108,915 26.35 --- 56,500 26.80 Vested (80,679) 24.98 Exercised (30,300) 17.98 (37,900) 21.20 Forfeited (15,826) 26.84 --- (46,000) 23.37 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding 12/31/95 275,044 51,165 $18.50 513,200 $24.54 - ------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1995, there were 414,380 shares of the Company's stock reserved for future grants under the Program. 10. EMPLOYEE BENEFITS The Company has several postretirement plans that provide medical and life insurance benefits for qualified retired employees. The postretirement medical plans are generally contributory with retiree contributions adjusted annually to limit employer contributions to predetermined amounts. The postretirement life plans provide free insurance coverage up to a maximum of $5,000 for retirees prior to January 1, 1993, of the Company with the exception of Cosmos, whose retirees are insured with an outside company. 55 28 EXHIBIT 13 Net periodic postretirement benefit cost was $1,506,000, $1,516,000, and $1,477,000 for the years ended December 31, 1995, 1994, and 1993, respectively, and included the following components:
1995 1994 1993 - ----------------------------------------------------------------------------------------------- (In $000's) Medical Life Medical Life Medical Life - ----------------------------------------------------------------------------------------------- Service cost $ 140 $--- $ 139 $--- $ 129 $--- Interest cost 1,082 284 1,067 282 1,071 277 Amortization of unrecognized net loss --- --- 22 6 --- --- - ----------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $1,222 $284 $1,228 $288 $1,200 $277 - -----------------------------------------------------------------------------------------------
The following schedule reconciles the status of the Company's plans with the unfunded postretirement benefit obligation included in its balance sheets at December 31:
1995 1994 - ---------------------------------------------------------------------------------------------------- (In $000's) Medical Life Medical Life - ---------------------------------------------------------------------------------------------------- Retirees $12,632 $3,996 $12,457 $3,678 Fully eligible active plan participants 834 --- 771 --- Other active plan participants 1,119 --- 920 --- - ---------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 14,585 3,996 14,148 3,678 Unrecognized net gain (loss) 183 (265) (158) (80) - ---------------------------------------------------------------------------------------------------- Accrued postretirement benefit obligation $14,768 $3,731 $13,990 $3,598 - ----------------------------------------------------------------------------------------------------
At December 31, 1995, the weighted-average annual assumed rate of increase in the per capita cost of covered medical benefits is 9.5% for 1996, and is assumed to decrease by 0.5% per year to 8% in 1999, then decrease 1% per year to 5.5% in 2002 and thereafter. At December 31, 1994, the health care cost trend rate assumption was 10% and the rate graded down by 0.5% per year to 8% in 1999, then decreased 1% per year to 6% in 2001 and thereafter. A 1% increase in the per capita cost of health care benefits results in a $679,000 increase in the accrued postretirement benefit obligation and a $55,000 increase in postretirement benefit expense. The assumed weighted average discount rate used in determining the accrued postretirement medical and life benefit obligation was 7.5% and 8% at December 31, 1995 and 1994, respectively. The Company has profit sharing plans for substantially all of its employees. Contributions to these plans are made at the discretion of the Board of Directors and are paid into a trust that is administered by a separate trustee. Contributions for these plans were $5,067,000, $4,840,000, and $4,234,000, in 1995, 1994 and 1993, respectively. The Company has a voluntary thrift and investment plan, qualified under Section 401(k) of the Internal Revenue Code, for substantially all of its employees. The Company makes a matching contribution to the plan of up to 3% of the employee's compensation. The Company's matching contribution percentage may be changed at the discretion of each participating subsidiary's Board of Directors. The Company's contributions for this plan were $2,102,000, $2,148,000, and $2,020,000 in 1995, 1994, and 1993, respectively. 11. PROVISION FOR INCOME TAXES The provision for income taxes consists of the following:
(In 000's) 1995 1994 1993 - -------------------------------------------------------------------------- Current: Federal $21,761 $12,625 $23,017 State 1,456 1,546 1,131 - -------------------------------------------------------------------------- Total current 23,217 14,171 24,148 Deferred: Federal 6,226 (1,361) 2,217 State (1) (120) (128) - -------------------------------------------------------------------------- Total deferred 6,225 (1,481) 2,089 - -------------------------------------------------------------------------- Total tax provision $29,442 $12,690 $26,237 - --------------------------------------------------------------------------
56 29 EXHIBIT 13 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, 1995 and 1994, are as follows:
(In 000's) 1995 1994 - ----------------------------------------------------------------------------------------------------------- Insurance operations deferred tax liabilities: Deferred acquisition costs $ 98,190 $100,601 Policy liabilities 22,205 21,922 Market discount on investments 10,477 8,044 Tax over book partnership losses 2,909 4,651 Unrealized investment gains recognized in equity 31,652 --- Non-insurance companies deferred tax liabilities: Book over tax basis in acquired television station 21,836 --- Tax over book depreciation 6,697 6,446 Tax over book amortization 4,594 4,485 - ----------------------------------------------------------------------------------------------------------- Total deferred tax liabilities $198,560 $146,149 - ----------------------------------------------------------------------------------------------------------- Insurance operations deferred tax assets: Taxable income from financial reinsurance not included in income per books $ 1,680 $ 3,359 Employee benefit accruals 6,881 6,752 Unrealized investment losses recognized in equity --- 19,934 Other 4,093 7,930 Non-insurance companies deferred tax assets: Net operating loss carryover 1,918 3,889 Other 1,905 3,441 - ----------------------------------------------------------------------------------------------------------- Total deferred tax assets before valuation allowance 16,477 45,305 Valuation allowance --- (11,863) - ----------------------------------------------------------------------------------------------------------- Deferred tax asset net of valuation allowance 16,477 33,442 - ----------------------------------------------------------------------------------------------------------- Net deferred tax liability $182,083 $112,707 - -----------------------------------------------------------------------------------------------------------
At December 31, 1995, the Company had unrealized gains from securities classified as available for sale and equity securities of $97,586,000, for which a deferred tax liability has been established. At December 31, 1994, the Company had unrealized losses from securities classified as available for sale and equity securities of $64,401,000. For financial reporting purposes, a valuation allowance of $11,021,000 was established to offset a portion of the deferred tax asset related to these unrealized losses. The Company also established a valuation allowance of $842,000 in connection with certain capital loss carryforwards in 1994. No valuation allowances were recognized at December 31, 1995, because the December 31, 1994 unrealized losses and capital loss carryforwards were offset against 1995 unrealized and realized gains. The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is:
(In 000's) 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Federal income tax rate 35% 35% 35% Rate applied to pre-tax income before the cumulative effect of accounting changes $31,078 $13,604 $27,063 Release of tax reserves (300) (500) (3,350) Rate change expense on beginning deferred tax liability --- --- 3,216 Tax exempt interest and dividends (1,384) (1,765) (1,466) State and local income taxes 948 928 652 Other (900) 423 122 - -------------------------------------------------------------------------------------------------- Provision for income taxes $29,442 $12,690 $26,237 - --------------------------------------------------------------------------------------------------
The Company has net operating loss carryforwards of $5,481,000 and $11,110,000 at December 31, 1995 and 1994, which will expire between the years 2006 and 2008. The utilization of these carryforwards are subject to special rules which provide that these loss carryforwards can only be utilized through earnings from the non-life insurance companies. Income taxes paid were approximately $21,199,000, $21,911,000, and $18,437,000 in 1995, 1994, and 1993, respectively. Under prior tax law, a portion of the life insurance subsidiaries' earnings was not taxed when earned. Such accumulated income ("policyholders' surplus") amounts to approximately $65,293,000 at December 31, 1983 and, under the Tax Reform Act of 1984, was frozen at that amount. That amount is not taxable unless it is distributed to the Company or unless it exceeds certain limitations under the Internal Revenue Code. The Company does not intend to take actions nor does it expect any events to occur that would cause tax to be 57 30 EXHIBIT 13 payable on policyholders' surplus; therefore, no income tax provision on that amount has been made in the accompanying financial statements. However, if such taxes were assessed, the amount of the taxes payable would be approximately $22,853,000. 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly results of operations for each of the years ended December 31, 1995 and 1994, are as follows:
Quarter Ended - ------------------------------------------------------------------------------------------------------------ 1995 (In 000's except per share amounts) March 31 June 30 Sept. 30 Dec. 31 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ Revenues $143,485 $155,126 $153,233 $153,837 - ------------------------------------------------------------------------------------------------------------ Income before income taxes $ 16,080 $ 22,846 $ 23,622 $ 26,247 - ------------------------------------------------------------------------------------------------------------ Net income $ 10,538 $ 15,405 $ 15,218 $ 18,192 - ------------------------------------------------------------------------------------------------------------ Earnings per common share $ 0.49 $ 0.72 $ 0.70 $ 0.84 - ------------------------------------------------------------------------------------------------------------ Quarter Ended - ------------------------------------------------------------------------------------------------------------ 1994 (In 000's except per share amounts) March 31 June 30 Sept. 30 Dec. 31 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ Revenues $119,621 $143,124 $141,562 $136,939 - ------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes $ 16,135 $ 22,343 $ 19,631 $(19,241) - ------------------------------------------------------------------------------------------------------------ Net income (loss) $ 10,573 $ 14,600 $ 12,902 $(11,897) - ------------------------------------------------------------------------------------------------------------ Earnings (loss) per common share $ 0.53 $ 0.70 $ 0.62 $ (0.63) - ------------------------------------------------------------------------------------------------------------
The fourth quarter of 1994 contained an after-tax charge of $20,300,000 related to two unique situations: a write-off of deferred costs connected with the development of a software system for administration of the Company's insurance business, and a decision to cease marketing products through the general agency distribution system. The write-off of the deferred systems costs was in connection with an agreement with a software developer to develop a state-of-the-art software system to handle the administration of the Company's insurance operations. After an internal review of the project, the Company engaged an independent consultant to provide an estimate of the value of the software. The value was less than the cost previously deferred by the Company, resulting in an after-tax charge to earnings of $13,600,000. The Company's decision to cease sales of its products through its general agency distribution system was due to the absence of critical volume. The decision to close the general agency distribution system resulted in an after-tax charge to earnings of $6,700,000 million, primarily to reduce deferred acquisition costs no longer considered recoverable. For 1994, approximately 2% of total premiums and policy charges were generated by the general agency division. 13. STATUTORY RESULTS OF OPERATIONS Statutory net income of the Insurance Group for each of the years ended December 31, 1995, 1994, and 1993 was $32.4, $16.4 million, and $22.1, million, respectively. The results of the insurance companies acquired (See Note 14) are included in the above amounts from the date of acquisition. 14. ACQUISITIONS In February 1995, the Company completed the acquisition of WLOX television located in Biloxi, Mississippi. WLOX-TV is affiliated with the ABC television network. This acquisition was accounted for as a purchase, and the results of operations of WLOX have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price of $40.1 million was funded through a combination of proceeds from the Company's credit facility totaling $5.6 million, a new class of convertible preferred stock totaling $21.0 million (See Note 8), and notes payable totaling $13.5 million. The following unaudited proforma results of operations for the year ended December 31, 1994, give effect to the acquisition of WLOX as though it had occurred at the beginning of that year. Pro forma results are not necessarily indicative of the results that actually would have occurred or that will be obtained in the future. 58 31 EXHIBIT 13
(In 000's, except per share data) 1994 1994 - ----------------------------------------------------------------------------------------------- Revenues $552,174 Net income $ 25,045 Earnings per share $ 1.12 - -----------------------------------------------------------------------------------------------
In February 1994, the Company completed the acquisition of North American and American Funeral, two pre-need companies which have significantly expanded the Company's pre-need life insurance business. North American was a holding company whose principal subsidiaries, Pan-Western Life Insurance Company, Howard Life Insurance Company and Brookings International Life Insurance Company, were providers of pre-need life insurance. The acquisition added strategic midwest markets to Liberty's pre-need territory. The $51.9 million purchase price was funded with proceeds from the Company's credit facility. North American was relocated to Greenville, South Carolina, in May 1994. Effective September 26, 1995, Brookings was merged into Pan-Western. On September 27, 1995, Pan-Western was merged into Pierce National Life Insurance Company. American Funeral, previously headquartered in Amory, Mississippi, was one of the largest providers of pre-need insurance. The $28.1 million purchase price was funded through a combination of proceeds from the Company's credit facility and a new class of redeemable preferred stock (see Note 6) issued at the time of closing. Effective November 1, 1995, American Funeral was relocated to Greenville, South Carolina and merged into Pierce National Life Insurance Company. In addition to the pre-need insurance acquisitions, the Company completed the purchase of State National headquartered in Baton Rouge, Louisiana in April 1994. State National was the parent company of State National Life Insurance Company, a home service company, and several other small subsidiaries. The $27.5 million purchase price was funded through a combination of proceeds from the Company's credit facility, a new class of redeemable preferred stock issued at closing (see Note 6), and the issuance of 113,611 shares of common stock. State National was relocated to Greenville, South Carolina, in August 1994 and merged into Liberty Life. In May 1994, the Company completed the purchase of a portion of the real estate assets of SCANA Development Corporation, a subsidiary of SCANA Corporation for approximately $43 million. The real estate assets acquired from SCANA consisted of residential properties under development, undeveloped land held for future development, business parks, and retail and office properties (rental income producing). A substantial majority of the projects are located in South Carolina. The purchase price was funded with proceeds from a combination of internally generated funds and the Company's credit facility. 15. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires the disclosure of the estimated fair value of all financial instruments, including both assets and liabilities unless specifically exempted. The following methods were used to estimate the fair values of the Company's financial instruments. - - Cash and short-term investments: The carrying amounts reported in the balance sheet for these instruments approximate their fair values. - - Investment securities: Fair values for fixed maturity securities are based on quoted market prices, where available. For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values for equity securities are based on quoted market prices. - - Mortgage loans and policy loans: The fair values for mortgage loans and policy loans are estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. - - Other long-term investments: Other long-term investments consist primarily of venture capital investments and investments in oil and gas producing property. The Company determined that it was not practicable to estimate the fair values of its venture capital investments because of a lack of primary and secondary market prices and the inability to estimate fair values without incurring excessive costs. The Company's investment in venture capital totaled $20,382,000 and $16,055,000 at December 31, 1995 and 1994, respectively. - - Policy liabilities: Fair values for the Company's liabilities under investment-type insurance contracts that are not subject to policyholder mortality or morbidity risk are estimated using discounted cash flow calculations, based on interest rates currently being offered for similar contracts with remaining maturities consistent with those for the contracts being valued. 59 32 EXHIBIT 13 - - Short and long-term debt: Substantially all of the Company's short and long-term debt is floating rate debt. Accordingly, the carrying amount approximates its fair value. - - Other liabilities: Fair values on film contract obligations related to the Company's broadcasting operations were determined by discounting future cash flows using current fixed borrowing rates for similar types of borrowing arrangements. - - Interest Rate Swap: Fair value of the interest rate swap is based on an estimate provided by the financial institution which is the counterparty to the swap, and was determined by discounting the value of estimated future cash flows. The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
1995 1994 - ---------------------------------------------------------------------------------------------------------- Estimated Estimated Carrying Fair Carrying Fair (in 000's) Amount Value Amount Value - ---------------------------------------------------------------------------------------------------------- ASSETS Fixed maturity securities available for sale $1,467,039 $1,467,039 $883,029 $883,029 Fixed maturity securities held to maturity --- --- 299,118 311,129 Equity securities 82,508 82,508 78,208 78,208 Mortgage loans 213,223 215,774 203,381 197,715 Policy loans 98,369 94,196 96,160 93,678 Other long-term investments 27,535 27,535 31,624 31,624 Short-term investments and cash 43,741 43,741 58,664 58,664 LIABILITIES Investment-type insurance contracts 69,287 65,057 59,208 55,907 Notes, mortgages and other debt 158,444 158,444 131,647 131,647 Long-term debt 100,000 100,000 100,000 100,000 Film contract obligations included in other liabilities 7,462 6,611 5,365 4,963 Interest rate swap --- 1,416 --- ---
SFAS No. 107 excludes insurance contract liabilities, except for investment-type contracts, from the definition of financial instruments. However, the fair value of the liabilities under all insurance contracts is taken into consideration in the overall management of interest rate risk. Because of the exclusion of the majority of the Company's insurance contracts as well as other non-financial assets and liabilities from fair value disclosure, care should be taken in deriving conclusions about the Company's financial position based on the fair value information presented above. 16. BUSINESS SEGMENT INFORMATION The Company is actively engaged through certain of its subsidiaries in two major business segments: insurance and broadcasting. Sales between the various subsidiaries of the Company are not material and are eliminated. Information for these segments is contained in the Selected Financial Data on page 40 and, with respect to the years 1993 through 1995, is incorporated by reference. 60 33 EXHIBIT 13 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The consolidated financial statements included in this Annual Report have been prepared by management which is responsible for the integrity and fair presentation of the financial data and related disclosures. The consolidated financial statements are in accordance with generally accepted accounting principles and necessarily include amounts that are based on management's estimates and assumptions. Management believes that the consolidated financial statements fairly reflect the Company's financial position and results of operations. To gather and control financial data, the Company maintains accounting systems supported by internal controls that provide reasonable assurance over the preparation of reliable financial statements. Management believes that a high level of internal control is maintained by the selection and training of qualified personnel, by the establishment and communication of accounting and business policies, and by internal audits. Ernst & Young LLP, independent auditors, are engaged to audit and to render an opinion as to whether the Company's financial statements, considered in the entirety, present the Company's financial condition and operating results fairly. Their audit is conducted in accordance with generally accepted auditing standards, and their report is included on this page. The Audit Committee of the Board of Directors, composed of four outside directors, reviews the Company's accounting and auditing policies and meets regularly with the Company's internal audit staff and the independent auditors. REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS THE LIBERTY CORPORATION We have audited the accompanying consolidated balance sheets of The Liberty Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Liberty Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, effective January 1, 1994, the Company changed its method of accounting for certain investments in debt securities and, effective January 1, 1993, the Company changed its methods of accounting for postemployment benefits and postretirement benefits other than pensions. /s/ Ernst & Young LLP Greenville, South Carolina February 9, 1996 61 EX-21 4 LIST OF SUBSIDIARIES 1 EXHIBIT 21 THE LIBERTY CORPORATION AND SUBSIDIARIES LIST OF SUBSIDIARIES DECEMBER 31, 1995
Percentage of Voting Stock Jurisdiction of Incorporation Owned by Immediate Parent ----------------------------- -------------------------- A. The Liberty Corporation S. C. B. Liberty Life Insurance Company S. C. 100 C. Orion Life Insurance Company Delaware 100 C. Park Avenue Associates, Inc. S. C. 100 C. Tanyard Creek Partnership S. C. 60 C. Exchange Place Corporation N. C. 100 C. Greensboro Holdings, Inc. S. C. 100 C. State National Fire Insurance Company Louisiana 100 C. State National Title Guaranty Company Louisiana 100 C. State National Mortgage Corporation Louisiana 100 B. Liberty Insurance Services Corporation S. C. 100 B. Pierce National Life Insurance Co. California 100 B. Delta National Life Insurance Company Louisiana 100 B. Cosmos Broadcasting Corporation S. C. 100 C. CableVantage Inc. S. C. 100 D. Special Services Corporation S. C. 100 D. Hampton Insurance Agency, Inc. S. C. 100 D. The Liberty Marketing Corporation S. C. 100 D. Bent Tree Corporation Georgia 100 D. TLC Business Ventures, Inc. S. C. 100 D. LC Insurance Limited Bermuda 100 D. Liberty Investment Group, Inc. S. C. 100 D. Liberty Capital Advisors, Inc. S. C. 100 D. Liberty Properties Group, Inc. S. C. 100 D. LPG Development Corporation S. C. 100 D. SouthChase Development Corporation S. C. 100 D. LIBCO of Florida, Inc. Florida 100 D. LPC of S. C., Inc. S. C. 100 D. Johnson/Liberty LLC S. C. 22 D. Commerce Center of Greenville, Inc. S. C. 100 D. Park Place Associates S. C. 50 D. Liberty Stone Associates, Inc. S. C. 50
A. Separate condensed financial statements filed as a schedule to the consolidated financial statements. Also included in the consolidated financial statements. B. Separate financial statements not filed. Included in the consolidated financial statements. C. Consolidated with the applicable parent. D. Minor subsidiaries. Included in the condensed financial statements of The Liberty Corporation. 62 EX-23 5 CONSENT OF INDEPENDENT AUDITOR 1 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference and the inclusion herein in this Annual Report (Form 10-K) of The Liberty Corporation of our report dated February 9, 1996, included in the 1995 Annual Report to Shareholders of The Liberty Corporation and included in Form 10-K in Exhibit 13. Our audits also included the financial statement schedules of The Liberty Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Post-Effective Amendment No. 5 to the Registration Statement (form S-8 No. 2-53890) pertaining to the Company's Stock Option Plan, in the Registration Statement (Form S-8 No. 33-34314) pertaining to the 1983 Performance Incentive Compensation Program, in the Registration Statement (Form S-8 No. 33-34816) pertaining to The Liberty Corporation and Adopting Related Employers' 401(k) Thrift Plan, in the Registration Statement (Form S-8 No. 33-34814) pertaining to the Cosmos Profit Sharing Retirement Plan and Trust, and in the Registration Statement (Form S-8 No. 33-34815) pertaining to The Liberty Corporation Profit Sharing Plan and Trust of our report dated February 9, 1996 with respect to the consolidated financial statements and schedules of The Liberty Corporation included and incorporated by reference in the annual report on Form 10-K and our report dated March 8, 1996 with respect to the financial statements and schedules included in the annual report on Form 11-K of The Liberty Corporation and Adopting Related Employers' 401(k) Thrift Plan for the year ended December 31, 1995. /s/ Ernst & Young LLP March 29, 1996 63 2 EXHIBIT 24 SPECIAL POWERS OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that I, John R. Farmer, Director of The Liberty Corporation, do hereby appoint Martha G. Williams and R. David Black, or either of them, Special Attorney for me and in my name and on my behalf to sign the Annual Report on Form 10-K and any amendments thereto for The Liberty Corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, for each fiscal year ended December 31, and generally to do and to perform all things necessary to be done in the premises as fully and effectually in all respects as I could do if personally present. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of May, 1995. /s/ John R. Farmer ------------------- John R. Farmer Director, The Liberty Corporation A South Carolina Corporation KNOW ALL MEN BY THESE PRESENTS that I, Benjamin F. Payton, Director of The Liberty Corporation, do hereby appoint Martha G. Williams and R. David Black, or either of them, Special Attorney for me and in my name and on my behalf to sign the Annual Report on Form 10-K and any amendments thereto for The Liberty Corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, for each fiscal year ended December 31, and generally to do and to perform all things necessary to be done in the premises as fully and effectually in all respects as I could do if personally present. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of May, 1995. /s/ Benjamin F. Payton --------------------------------- Benjamin F. Payton Director, The Liberty Corporation A South Carolina Corporation 64 EX-27 6 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF LIBERTY CORPORATION FOR THE YEAR ENDED DEC-31-1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,467,039 0 0 82,508 213,223 135,306 2,023,980 43,741 275,090 352,113 3,034,296 1,811,417 0 24,356 27,086 258,444 45,667 20,999 158,735 396,028 3,034,296 331,370 148,670 (2,913) 9,025 236,774 43,780 122,286 88,795 29,442 0 0 0 0 59,353 2.76 2.72 0 0 0 0 0 0 0
EX-99.A 7 ADDITIONAL EXHIBITS 1 EXHIBIT 99-A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 --------- FORM 11-K --------- ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 THE LIBERTY CORPORATION 2000 WADE HAMPTON BOULEVARD GREENVILLE, SOUTH CAROLINA 29615 FOR THE YEAR ENDED DECEMBER 31, 1995 --------- THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN THE LIBERTY CORPORATION 2000 WADE HAMPTON BOULEVARD GREENVILLE, SOUTH CAROLINA 29615 -1- 65 2 ITEM 1. CHANGES IN THE PLAN None. ITEM 2. CHANGES IN INVESTMENT POLICY None. ITEM 3. CONTRIBUTIONS UNDER THE PLAN Contributions under the Plan by The Liberty Corporation (the "Company") and its participating subsidiaries (the Company and the participating subsidiaries being collectively referred to as the "employers") are measured by reference to the employees' contributions which may be on a pre-tax or after-tax basis. Employer matching contributions are made only on pre-tax employee contributions in accordance with a formula set each year by the employer's board of directors. During 1995, the Company and all participating subsidiaries, contributed an amount equal to 100% of a participant's pre-tax contribution, up to a maximum of 3% of the participant's compensation. Employer matching contributions totaling $2,127,000 in 1995, $2,045,000 in 1994, $2,052,000 in 1993, $1,655,000 in 1992, and $1,388,000 in 1991, were credited to the accounts of participating employees. ITEM 4. PARTICIPATING EMPLOYEES There were 1,927 enrolled participants in the Plan as of December 31, 1995. -2- 66 3 ITEM 5. ADMINISTRATION OF THE PLAN (a) Parties responsible for the administration of the Plan are: (1) the Plan Committee, made up of at least three members named by the Company, (2) the Trustee and (3) the Plan Administrator which is named by the Plan Committee. The Plan Committee is responsible for the administration and operation of the Plan, except as to responsibilities which have been specifically assigned to the Trustee, to an Investment Manager, or to the Plan Administrator. Present members of the Plan Committee, their positions with the Company and its subsidiaries, and their addresses are as follows: Jennie M. Johnson President, Pierce National Life Insurance Company Vice President, Administration The Liberty Corporation P.O. Box 789 Greenville, South Carolina 29602 Porter B. Rose President Liberty Insurance Services Corporation Liberty Investment Group, Inc. Chairman of the Board Liberty Capital Advisors, Inc. Liberty Properties Group, Inc. P.O. Box 789 Greenville, South Carolina 29602 Susan W. Mink Director, Human Resources The Liberty Corporation P.O. Box 789 Greenville, South Carolina 29602 Neil Smith Vice President, Controller Cosmos Broadcasting Corporation P.O. Box 789 Greenville, South Carolina 29602 Martha G. Williams Vice President, General Counsel and Secretary The Liberty Corporation P.O. Box 789 Greenville, South Carolina 29602 -3- 67 4 The Trustee is responsible for the management, investment and control of the assets of the Trust established by the Plan, and for the disbursements of benefits therefrom, except to the extent that the Trustee may be relieved of investment responsibility by the appointment of an Investment Manager or by direction of the Plan Committee. The present Trustee is Wachovia Bank of NC, N.A., P.O. Box 3099, Winston-Salem, North Carolina 27102. Wachovia Bank of NC, N.A., is also trustee under Profit-Sharing Plans maintained by the Company and its subsidiaries for employees. Neuberger & Berman Pension Management, Inc. ("Neuberger & Berman") is Investment Manager of a portion of the Common Stock Fund, one of the four funds comprising the Plan (see page 9, Notes to Financial Statements - Description of Plan for further details). Neuberger & Berman's address is 522 Fifth Avenue, New York, New York 10036. Hellman, Jordan Management Company, Inc. ("Hellman, Jordan") is also Investment Manager of a portion of the Common Stock Fund. Their address is P.O. Box 389, Boston, MA 02101. Wachovia has investment responsibility for one of the Plan's other three funds, The Liberty Corporation Stock Fund. Liberty Capital Advisors, Inc., a subsidiary of the Company and a participating employer of the Plan, was given investment responsibility of the Plan's Money Market Fund, effective January 1, 1988 and of the Plan's Intermediate Bond Fund, effective July 1, 1990. Liberty Capital Advisor's address is Post Office Box 789, Greenville, South Carolina 29602. The Plan Administrator is currently an Administrative Committee which is responsible for the daily administration and operational functions of the Plan, including filing all reports with governmental agencies, providing Plan participants with information, preparing year-end reports to participants, maintaining all required records, interpreting the provisions of the Plan and settling disputes over the rights of employees, participants and beneficiaries. Present members of the Administrative Committee, their positions with the Company and its subsidiaries, and their addresses are as follows: Mary Anne Bunton, Assistant Vice President of the Benefits Department of The Liberty Corporation, whose address is P.O. Box 789, Greenville, South Carolina 29602 Susan E. Cyr, Counsel and Assistant Secretary of the Legal Department of The Liberty Corporation, whose address is P.O. Box 789, Greenville, South Carolina 29602 The Plan Committee members, the Trustee and the Administrative Committee members do not have any positions or offices with the Company or any of its affiliates except as indicated above. (b) For the year ended December 31, 1995, expenses of administration of the Plan of approximately $285,000, including fees and expenses of the Trustee and two of the Investment Managers, Neuberger & Berman and Hellman, Jordan, were paid out of the assets of the Plan. Expenses of Liberty Capital Advisors were paid by the employers rather than out of the Plan assets. ITEM 6. CUSTODIAN OF INVESTMENTS (a) Wachovia Bank of NC, N.A., P.O. Box 3099, Winston-Salem, North Carolina 27102 serves as Trustee of the Plan and the assets of the Plan. (b) The Trustee received compensation from the assets of the Plan of $29,959 during the year ended December 31, 1995. (c) No bond was furnished by the custodian (Wachovia). ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES Each Plan participant receives a quarterly statement showing the balance in his Plan account (including a breakdown of the amounts invested in each investment medium offered), amounts contributed by him and by his Employer, dividends, interest and other gains credited to his account, any amounts forfeited or otherwise charged against his account, and additional shares purchased if the employee has elected to have some or all of his and his Employer's contributions invested in the Company's stock. These individualized reports, a copy of the proxy statement and a copy of the annual report are the reports that were distributed to Plan participants during the year ended December 31, 1995. -4- 68 5 ITEM 8. INVESTMENT OF FUNDS (a) Employee contributions and matching Employer contributions may be invested in increments of 25% in: the Liberty Corporation Stock Fund which consists solely of Company common stock, the Money Market Fund which consists of various money market instruments and U.S. Government securities, the Intermediate Bond Fund which consists of intermediate - term government and good quality corporate bonds, or the Common Stock Fund which consists of high quality common stock or securities convertible into common stock, other than Company stock. For the years ended December 31, 1995, 1994, and 1993, there were no brokerage commissions paid by the Plan for the Intermediate Bond Fund and the Money Market Fund, but there were brokerage commissions paid by the Plan for the Common Stock Fund. (b) No brokerage transactions effected for the Plan, during the three years ended December 31, 1995, were directed to brokers because of research services provided. ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
Page No. -------- (a) Financial Statements Report of Independent Auditors 6 (The Consent of Independent Auditors is Exhibit 23 of the Form 10-K of which this report is also an exhibit.) Statements of Net Assets Available for Plan Benefits - December 31, 1995 and 1994 7 Statements of Changes in Net Assets Available for Plan Benefits - For the Years Ended December 31, 1995 and 1994 8 Notes to Financial Statements - December 31, 1995 9 to 13 Schedule of Assets Held for Investments - December 31, 1995 14 and 15 Schedule of Transactions or Series of Transactions in Excess of 5% of the Current Value of Plan Assets - December 31, 1995 16 (b) Exhibits None
-5- 69 6 REPORT OF INDEPENDENT AUDITORS To the Administrative Committee of The Liberty Corporation and Adopting Related Employers' 401(k) Thrift Plan and Board of Directors The Liberty Corporation We have audited the accompanying statements of net assets available for plan benefits of The Liberty Corporation and Adopting Related Employers' 401(k) Thrift Plan as of December 31, 1995 and 1994, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted audited standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial status of the Plan at December 31, 1995 and 1994, and the changes in its financial status for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment as of December 31, 1995 and transactions or series of transactions in excess of 5% of the current value of plan assets for the year then ended are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1976 and are not a required part of the basic financial statements. The supplemental schedules have been subjected to the auditing procedures applied in our audit of the 1995 financial statements and, in our opinion, are fairly stated in all material respects in relation to the 1995 financial statements taken as a whole. /s/ Ernst & Young LLP March 8, 1996 -6- 70 7 THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS DECEMBER 31, 1995 AND 1994 (IN $000'S)
1995 1994 ------------------------------------------ ----------------------------------------- LIBERTY MONEY COMMON INTER. LIBERTY MONEY COMMON INTER. STOCK MARKET STOCK BOND STOCK MARKET STOCK BOND FUND FUND FUND FUND TOTAL FUND FUND FUND FUND TOTAL ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ASSETS Cash $ -- $ -- $ 1 $ -- $ 1 $ -- $ 10 $ 3 $ -- $ 13 Investments Short-term investments (total cost of $10,032 in 1995 and $6,129 in 1994) 9 8,405 605 1,013 10,032 12 4,224 982 911 6,129 The Liberty Corporation common stock (total cost of $9,049 in 1995 and $8,420 in 1994) 12,320 -- -- -- 12,320 9,004 -- -- -- 9,004 Other common stocks (total cost of $21,658 in 1995 and $17,346 in 1994) -- -- 27,121 -- 27,121 -- -- 18,518 -- 18,518 Securities of US government and agencies (total cost of $5,327 in 1995 and $9,306 in 1994) -- 1,757 -- 3,521 5,278 -- 5,699 -- 3,266 8,965 Corporate collateralized mortgage obligations (total cost of $451 in 1995 and $193 in 1994) -- -- -- 459 459 -- -- -- 194 194 Corporate asset-backed securities (total cost of $510 in 1995) -- 505 -- -- 505 -- -- -- -- -- Due from broker for securities sold -- -- 61 5 66 212 10 156 5 383 Participant loans receivable 869 916 1,483 121 3,389 831 971 1,383 143 3,328 Accrued investment income 63 86 51 41 241 55 113 24 43 235 ------- ------- ------- ------ ------- ------- ------- ------- ------ ------- 13,261 11,669 29,322 5,160 59,412 10,114 11,027 21,066 4,562 46,769 ------- ------- ------- ------ ------- ------- ------- ------- ------ ------- LIABILITIES Expenses payable 17 18 34 8 77 16 16 31 7 70 Due to broker for securities purchased -- -- -- -- -- 212 10 192 -- 414 ------- ------- ------- ------ ------- ------- ------- ------- ------ ------- NET ASSETS AVAILABLE FOR PLAN BENEFITS $13,244 $11,651 $29,288 $5,152 $59,335 $9,886 $11,001 $20,843 $4,555 $46,285 ======= ======= ======= ====== ======= ======= ======= ======= ====== =======
SEE NOTES TO FINANCIAL STATEMENTS. -7- 71 8 THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (IN $000'S)
1995 1994 ----------------------------------------- ----------------------------------------- LIBERTY MONEY COMMON INTER. LIBERTY MONEY COMMON INTER. STOCK MARKET STOCK BOND STOCK MARKET STOCK BOND FUND FUND FUND FUND TOTAL FUND FUND FUND FUND TOTAL ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- INVESTMENT INCOME Income Dividends The Liberty Corporation common stock $ 244 $ -- $ -- $ -- $ 244 $ 215 $ -- $ -- $ -- $ 215 Other stocks -- -- 372 -- 372 -- -- 268 -- 268 Interest on securities 2 634 94 280 1,010 1 492 68 239 800 Interest on participant loans 62 40 109 18 229 50 35 85 15 185 Miscellaneous -- -- -- 2 2 -- -- 4 3 7 -------- ------- ------- ------ ------- ------ ------- ------- ------ ------- TOTAL INVESTMENT INCOME 308 674 575 300 1,857 266 527 425 257 1,475 NET REALIZED AND UNREALIZED APPRECIATION (DEPRECIATION) IN FAIR VALUE OF INVESTMENTS 3,028 54 7,047 254 10,383 330 (206) (481) (251) (608) CONTRIBUTIONS Employer 460 443 970 254 2,127 477 408 913 247 2,045 Employee 851 725 1,844 481 3,901 872 675 1,686 475 3,708 -------- ------- ------- ------ ------- ------ ------- ------- ------ ------- TOTAL CONTRIBUTIONS 1,311 1,168 2,814 735 6,028 1,349 1,083 2,599 722 5,753 -------- ------- ------- ------ ------- ------ ------- ------- ------ ------- TRANSFERS FROM OTHER QUALIFIED PLANS 3 39 16 6 64 3 4 13 2 22 TRANSFERS BETWEEN FUNDS (249) 373 122 (246) -- (25) 177 131 (283) -- WITHDRAWALS BENEFITS PAID (1,020) (1,626) (1,911) (440) (4,997) (602) (998) (920) (261) (2,781) PLAN EXPENSES (23) (32) (218) (12) (285) (23) (23) (184) (11) (241) -------- ------- ------- ------ ------- ------ ------- ------- ------ ------- INCREASE (DECREASE) IN NET ASSETS AVAILABLE FOR PLAN BENEFITS 3,358 650 8,445 597 13,050 1,298 564 1,583 175 3,620 NET ASSETS AVAILABLE FOR PLAN BENEFITS AT BEGINNING OF YEAR 9,886 11,001 20,843 4,555 46,285 8,588 10,437 19,260 4,380 42,665 -------- ------- ------- ------ ------- ------ ------- ------- ------ ------- NET ASSETS AVAILABLE FOR PLAN BENEFITS AT END OF YEAR $13,244 $11,651 $29,288 $5,152 $59,335 $9,886 $11,001 $20,843 $4,555 $46,285 ======= ======= ======= ====== ======= ====== ======= ======= ====== =======
SEE NOTES TO FINANCIAL STATEMENTS. -8- 72 9 THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting records of the Plan are maintained on the accrual basis. Investments are carried in the financial statements at market value. Securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the Plan year; investments traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and ask prices. The difference between proceeds received and the cost of investments sold is recognized as realized gains (losses) in the statements of changes in net assets available for plan benefits. Cost is determined based on the average cost method for The Liberty Corporation (the "Company") stock, and the first-in, first-out basis for other investments. The net change in the aggregate market value of investments is reflected in the statements of net assets available for plan benefits as unrealized gains (losses). 2. DESCRIPTION OF THE PLAN The Plan was first offered to eligible employees beginning January, 1982. Effective July 1, 1985, the Plan was amended to include a provision for a "qualified cash or deferred arrangement" under Section 401(k) of the Internal Revenue Code, to provide for the merger and consolidation of the Cosmos Broadcasting Corporation Thrift and Investment Plan into the Company's Plan and to rename the Plan "The Liberty Corporation and Adopting Related Employers' 401(k) Thrift Plan". Any employee of the Company or participating subsidiaries who (a) is at least 21 years old, (b) works a minimum of 500 hours per year and (c) has completed at least one year of service in which they worked at least 1,000 hours is eligible to participate in the Plan. Subsidiaries of the Company presently participating in the Plan consist of Liberty Life Insurance Company, Special Services Corporation, Cosmos Broadcasting Corporation, Liberty Capital Advisors, Inc., Liberty Properties Group, Inc., Liberty Insurance Services Corporation, Liberty Investment Group, Inc., and Pierce National Life Insurance Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Administrative costs of the Plan incurred are paid either out of Plan assets or by the Company or its subsidiaries. Participation in the Plan is voluntary and eligible employees may elect to contribute up to a total of 13% of their compensation on either a pre-tax or after-tax basis, or a combination of both, through payroll deductions. Each participating employer makes matching contributions on pre-tax employee contributions of up to 3% of each employee participants' annual compensation. The matching percentage may be changed by resolution of the Board of Directors of a participating company, effective at the beginning of any plan year (January 1). Each participant's account is credited with the participant's contributions and allocations of (a) the Company's contributions and (b) Plan earnings, and is charged with an allocation of administrative expenses. Allocations are based on participant contributions or account balances, as defined. Forfeited balances of terminated participants' nonvested accounts are used to reduce future company contributions. The Plan is comprised of four separate funds with different investment alternatives. The Liberty Corporation Stock Fund ("Liberty Stock Fund") invests in the common stock of The Liberty Corporation. The Money Market Fund invests in certificates of deposit, government securities and other money market instruments. The Intermediate Bond Fund invests in intermediate term government and good quality corporate bonds with three year to seven year average maturity. The Common Stock Fund invests in common stock, or securities convertible into common stock, other than The Liberty Corporation stock. Certain investments in the Money Market Fund and idle investments waiting to be invested in stock in The Liberty Stock Fund, Intermediate Bond Fund, and Common Stock Fund are invested in short-term investments. Employee participants may elect to invest their contributions in increments of 25% in any fund. Beginning January 1, 1993, the plan was changed to provide for the quarterly transfers of a participant's or former participant's future and/or existing account balances under the plan. Matching employer contributions will be invested in the same way as the employee's pre-tax contributions upon which they are based. At December 31, 1995, there were 1,927 active participants in the Plan of whom 1,043; 887; 671 and 1,495 were electing to invest, either wholly or partially, in the Liberty Stock Fund, Money Market Fund, Intermediate Bond Fund and Common Stock Fund, respectively. -9- 73 10 Amounts credited to a participant's employee account, either before tax or after tax, are fully vested at all times. Amounts credited to a participant's employer matching account vest based on the total number of years of service (as defined under the Plan) with the Company or its Related Employers:
NUMBER OF YEARS PERCENTAGE OF SERVICE OF VESTING ------------------ ---------------- Less than 3 years --- 3 years 25% 4 years 50% 5 years 75% 6 years 100%
All amounts credited to a participant's employee (before tax or after tax) and employer matching accounts are fully vested upon termination of employment due to a participant's death, total disability or retirement, or after a participant has completed six or more years of service. A participant who has completed less than six years of service and is terminated for any reason other than those mentioned above forfeits the non-vested amounts in his employer matching account. All amounts credited to the employee's account (before tax or after tax) and all vested amounts credited to the employer's matching account are distributable upon termination. The Plan allows participants to obtain loans, within stated limits, from the vested portion of their account balance. Repayment is required over a period not to exceed five years, unless the loan is used for the purchase of a principal residence. Interest is charged on outstanding loans at a rate determined by the plan administrator. -10- 74 11 3. INVESTMENTS During 1995 and 1994, the Plan's investments (including investments bought, sold, and held during the year) appreciated (depreciated) in value by $10,383,000 and $608,000, respectively, as follows:
NET APPRECIATION (DEPRECIATION) IN FAIR VALUE FAIR VALUE AT END OF DURING YEAR YEAR ----------- ---- ($000'S) YEAR ENDED DECEMBER 31, 1995 - ---------------------------- Short-term investments $ --- $10,032 The Liberty Corporation common stock 3,028 12,320 Other common stock 7,047 27,121 U.S. Government and agency securities 306 5,278 Collateralized mortgage obligations 7 459 Corporate asset-backed securities (5) 505 ------- ------- $10,383 $55,715 ======= ======= YEAR ENDED DECEMBER 31, 1994 - ---------------------------- Short-term investments $ --- $ 6,129 The Liberty Corporation common stock 330 9,004 Other common stock (481) 18,518 U.S. Government and agency securities (458) 8,965 Collateralized mortgage obligations 1 194 ------- ------- $ (608) $42,810 ======= =======
The market value of individual investments that represent 5% or more of the Plan's total assets are as follows:
DECEMBER 31, 1995 1994 ---------- ----------- ($000'S) Wachovia Short-Term Investment Fund $10,032 $6,129 The Liberty Corporation Common Stock 12,320 9,004 (365,042 shares and 354,830 shares in 1995 and 1994, respectively)
4. INCOME TAX STATUS The Plan is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974. The Plan has received a determination letter from the Internal Revenue Service stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code, and is not subject to income taxation. The Plan is required to operate in conformity with the Internal Revenue Code to maintain its qualification. The Plan Committee is not aware of any course of action or events that have occurred that might adversely affect the Plan's qualified status. -11- 75 12 Contributions made by a participant and a participating Company on or after July 1, 1985 which constitute employee before-tax contributions will not be currently taxable to participants when they are contributed to the Plan, assuming this part of the Plan constitutes a "qualified cash or deferred arrangement" within the meaning of section 401(k) of the Code. To constitute a "qualified cash or deferred arrangement," the ratio of contributions to compensation for highly compensated eligible employees must not exceed the ratio of contributions to compensation for the non-highly compensated eligible employees by more than certain percentages specified in section 401(k) and 401(m) of the Code. These percentage tests have been satisfied, and the above tax consequences relating to employee before tax contributions are based on the assumption that they are governed by the provisions of section 401(k). Participating Company matching contributions and investment earnings on all contributions are not taxable to a participant until these amounts are paid to the participant. The participating Company is entitled to a business expense deduction for its contributions. After-tax contributions (contributions not designated as employee before-tax contributions) made by a participant are not deductible in computing the participant's federal taxable income. 5. SOURCES OF CONTRIBUTIONS The sources of contributions for the two years ended December 31, 1995, consist of the following:
1995 1994 -------- -------- ($000'S) Employer: The Liberty Corporation $ 125 $ 83 Liberty Life Insurance Company 1,113 1,180 Cosmos Broadcasting Corporation 497 460 Special Services Corporation 5 6 Liberty Capital Advisors, Inc. 13 12 Liberty Properties Group, Inc. 37 33 Pierce National Life Insurance Co. 80 41 Liberty Investment Group, Inc. 19 17 Liberty Insurance Services Corporation 238 213 Total employer contributions 2,127 2,045 ------ ------ Employee: The Liberty Corporation 263 180 Liberty Life Insurance Company 2,017 2,138 Cosmos Broadcasting Corporation 901 822 Special Services Corporation 8 12 Liberty Capital Advisors, Inc. 38 31 Liberty Properties Group, Inc. 73 62 Pierce National Life Insurance Co. 151 74 Liberty Investment Group, Inc. 36 32 Liberty Insurance Services Corporation 414 357 ------ ------ Total employee contributions 3,901 3,708 ------ ------ TOTAL CONTRIBUTIONS $6,028 $5,753 ====== ======
Forfeitures of non-vested balances in employer accounts of $112,000 in 1995 and $124,000 in 1994 were used to reduce employer contributions. Additionally, amounts contributed by the employer during 1995 and 1994 included non-cash contributions of the Company's common stock which had a market value, at date of contribution, of $1,561,000 and $1,579,000, respectively. All other employer contributions were made in cash. -12- 76 13 6. PRIORITIES ON TERMINATION OF PLAN In the event that the Plan is terminated, all expenses will be paid and the accounts of the affected participants will be proportionately adjusted to reflect such expenses and all contributions and withdrawals up to the date of termination. The Plan will then be revalued and each participant will be paid all amounts credited to his accounts. The accounts of all participants become fully vested as of the date of termination. An exception to this method of distribution at termination is made for the case in which termination is due to revocation of the Plan's exemption from income taxes under Section 401 of the Internal Revenue Code. In that case, all contributions, including those made by the employer, would be returned to the respective contributors. 7. TRANSACTIONS WITH PARTIES-IN-INTEREST During 1995 and 1994, the Plan purchased and sold securities of parties-in-interest as summarized below:
1995 1994 --------------------- ------------------------ SHARES OR SHARES OR PRINCIPAL PRINCIPAL AMOUNT COST AMOUNT COST --------- --------- ---------- --------- (IN $000'S, EXCEPT NUMBER OF SHARE DATA) Common Stock of The Liberty Corporation: Purchases 88,696 $ 2,535 88,755 $ 2,329 Sales 78,484 $ 1,910 60,251 $ 1,520 Short-term investments of Plan Trustee (Wachovia Bank & Trust Co., N.A.): Purchases $26,313 $26,313 $21,823 $21,823 Sales $22,410 $22,410 $21,649 $21,649
The Plan also received dividends of $243,000 in 1995 and $215,000 in 1994 from The Liberty Corporation and interest of $499,000 in 1995 and $256,000 in 1994 from a short-term investment fund sponsored by the Plan trustee. Liberty Capital Advisors, Inc., a subsidiary of The Liberty Corporation and a participating employer in the Plan, was given investment responsibility of the Money Market Fund effective January 1, 1988 and the Intermediate Bond Fund effective July 1, 1990. All expenses for services performed by Liberty Capital Advisors, Inc. were paid by the participating employers. 8. AMOUNTS PAYABLE TO WITHDRAWN PARTICIPANTS At December 31, 1995 and 1994, amounts payable to withdrawn participants totaled $807,000 and $742,000, respectively. These amounts were disbursed in the first quarter of the following year. -13- 77 14 THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN ASSETS HELD FOR INVESTMENT DECEMBER 31, 1995 (IN $000'S EXCEPT NUMBER OF SHARES DATA)
PRINCIPAL AMOUNT NAME OF ISSUER AND OF BONDS & NOTES, PURCHASE MARKET TITLE OF EACH ISSUE NUMBER OF SHARES PRICE VALUE - ---------------------------------------------------- ---------------- -------- ------- SHORT-TERM INVESTMENTS Wachovia Short-Term Investment Fund $ 10,032 $10,032 $10,032 COMMON STOCKS The Liberty Corporation 365,042 9,049 12,320 OTHER COMMON STOCKS McDonnell Douglas Corp. 6,000 232 552 Rockwell Intl Corp. 8,000 285 423 Chrysler Corp. 21,300 945 1,174 Ford Motor Co 10,600 317 306 General Mtrs Corp. 11,000 503 582 Citicorp 14,000 550 942 Du Pont De Nemours & Co E I 8,500 557 594 Hercules Inc. 7,500 250 423 Monsanto Company 6,500 512 796 Bay Networks Inc. 9,450 128 389 Cisco Sys Inc. 3,100 72 231 Compaq Computer Corp. 14,000 644 672 Dell Computer Corporation 6,000 133 208 International Business Machs Corp 6,000 559 548 Seagate Technology 5,000 215 238 Microsoft Corp 4,300 261 377 Triple P N.V. 8,000 80 80 Colgate Palmolive Co. 8,500 567 597 Procter & Gamble Co. 6,000 339 498 Magainin Pharmaceuticals Inc. 8,000 81 105 DSC Communications Corp. 5,200 147 192 Ucar International Inc. 12,000 285 405 Avid Technology Inc. 2,800 84 53 Intel Corp. 18,000 572 1,022 Loral Corp. 15,000 263 531 Micron Technology Inc. 5,000 93 198 Tandy Corp. 5,100 252 212 Texas Instrs Inc. 15,800 908 814 Varian Assoc Inc. 12,000 582 574 Trump Hotels & Casino Resorts Inc 6,200 85 133 Merrill Lynch & Co Inc. 17,000 666 867 Morgan Stanley Group Inc 2,300 185 185 Paine Webber Group inc. 13,800 264 276 Travelers Group Inc. 5,500 252 345 Premark Intl Inc. 12,000 610 607 General Re Corp. 1,100 148 170 MBIA Inc. 8,500 464 637 Applied Matls Inc. 7,000 405 276 Varity Corp 10,000 372 371 Baxter Intl Inc. 15,000 533 628 Columbia/HCA Healthcare Corp. 17,000 554 863 Value Health Inc. 7,900 278 217 American Standard Companies Inc. 20,000 588 560 First USA Inc. 18,100 653 803 Atlantic Richfield Co. 2,100 231 233 Enron Oil & Gas Co. 14,000 304 336 Petro-Canada 25,000 125 144 Texaco Inc. 2,200 157 173 Kimberly Clark Corp. 11,700 642 968 Xerox Corp. 3,500 329 479 Time Warner Inc. 14,000 512 530 Liberty Ppty Tr. 11,700 228 243 GAP Inc. 6,600 310 277 Lowes Companies Inc. 7,000 191 234 Officemax Inc. 7,400 114 166 Rite-Aid Corp. 20,000 400 685 Goodyear Tire & Rubr Co. 12,000 429 545 Philip Morris Cos Inc. 7,000 449 632 UST, Inc. 7,000 192 234 Viacom Inc. 12,000 572 568 ------- ------- TOTAL OTHER COMMON STOCK 21,658 27,121 ------- -------
-14- 78 15 THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN ASSETS HELD FOR INVESTMENT (CONTINUED) DECEMBER 31, 1995 (IN $000'S EXCEPT NUMBER OF SHARES DATA)
PRINCIPAL AMOUNT NAME OF ISSUER AND OF BONDS & NOTES, PURCHASE MARKET TITLE OF EACH ISSUE NUMBER OF SHARES PRICE VALUE - ---------------------------------------------------------------- ---------------- -------- -------- SECURITIES OF UNITED STATES GOVERMENT & AGENCIES United States Treasury Notes 4.375% due 08/15/1996 250 250 249 United States Treasury Notes 4.375% due 11/15/1996 500 498 496 United States Treasury Notes 4.25% due 12/31/1995 250 250 250 United States Treasury Notes 7.375% due 05/15/1996 750 780 756 United States Treasury Notes 7.50% due 01/31/1996 1,000 1,051 1,002 Federal Home Loan Banks Cons DB 6.85% due 02/25/1997 250 259 254 Federal National Mortgage Assn Deb 6.10% due 02/10/2000 500 516 510 Federal National Mortgage Corp 7.00% due 05/15/2020 262 251 264 Federal Home Loan Mortgage Corp 7.00% due 04/15/2002 400 417 413 Federal Home Loan Mortgage Corp 6.00% due 11/15/2006 350 334 351 Federal Home Loan Mortgage Corp 7.00% due 08/25/2005 127 121 130 Federal National Mortgage Assn 6.25% due 09/25/2007 300 296 304 Federal National Mortgage Assn 6.00% due 04/25/2001 300 304 299 ------- ------- TOTAL SECURITIES OF UNITED STATES GOVERNMENT & AGENCIES 5,327 5,278 ------- ------- COLLATERALIZED MORTGAGE OBLIGATIONS Prudential Home Mtg Secs Co 7.75% 10/25/2024 200 193 206 Mississippi Home Corp 8.81% due 09/15/2011 250 258 253 ------- ------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 451 459 ------- ------- CORPORATE ASSET-BACKED SECURITIES Sears Cr Account Tr 8.60% due 5/15/1998 500 510 505 TOTAL INVESTMENTS $47,027 $55,715 ======= =======
-15- 79 16 THE LIBERTY CORPORATION AND ADOPTING RELATED EMPLOYERS' 401(K) THRIFT PLAN TRANSACTIONS OR SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN $000'S, EXCEPT NUMBER OF SHARES DATA) CATEGORY (III) - SERIES OF SECURITIES TRANSACTIONS - --------------------------------------------------
PURCHASE SALES EXPENSES PARTY INVOLVED DESCRIPTION OF ASSETS PRICE PRICE INCURRED COST - ------------------------ ------------------------------------------------ --------- --------- -------- ------------ Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund - $26,313 principal amount, various interest rates $26,313 $ --- $--- $26,313 Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund - $22,410 principal amount, various interest rates $ --- $22,410 $--- $22,410 The Liberty Corporation The Liberty Corporation Common Stock - 88,696 shares $ 2,535 $ --- $--- $ 2,535 The Liberty Corporation The Liberty Corporation Common Stock - 78,484 shares $ --- $ 2,246 $--- $ 1,910 VALUE ON REALIZED TRANSACTION GAIN PARTY INVOLVED DESCRIPTION OF ASSETS DATE (LOSS) - ------------------------ ------------------------------------------------ ------------ ---------- Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund - $26,313 principal amount, various interest rates $26,313 $--- Wachovia Bank & Trust Co. Wachovia Short-Term Investment Fund - $22,410 principal amount, various interest rates $22,410 $--- The Liberty Corporation The Liberty Corporation Common Stock - 88,696 share $ 2,535 $--- The Liberty Corporation The Liberty Corporation Common Stock - 78,484 share $ --- $336
THERE WERE NO CATEGORY (I), (II), OR (IV) REPORTABLE TRANSACTIONS DURING 1995. -16- 80 -----END PRIVACY-ENHANCED MESSAGE-----