-----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, WafKswAf7WujSlfKJSThdGeSXFy3chEzQL5ISVcN9Rq+3B8qApoCvndVEpZkhvS9 HUJPESpjfDmEhv2Nnlkapw== 0000950144-98-012621.txt : 19981116 0000950144-98-012621.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950144-98-012621 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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-Q SEC ACT: SEC FILE NUMBER: 001-05846 FILM NUMBER: 98747883 BUSINESS ADDRESS: STREET 1: P O BOX 789 STREET 2: 2000 WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29615 BUSINESS PHONE: 8032688283 MAIL ADDRESS: STREET 1: P O BOX 789 STREET 2: WADE HAMPTON BLVD CITY: GREENVILLE STATE: SC ZIP: 29602 10-Q 1 LIBERTY CORPORATION FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _______________ Commission File Number 1-5846 THE LIBERTY CORPORATION (Exact name of registrant as specified in its charter) South Carolina 57-0507055 (State or other jurisdiction of (IRS Employer incorporation or organization) identification No.)
Post Office Box 789, Wade Hampton Boulevard, Greenville, SC 29602 (Address of principal executive offices) Registrant's telephone number, including area code: 864/609-8256 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date.
Number of shares Outstanding Title of each class as of September 30, 1998 - ------------------- ---------------------------- Common Stock 18,642,501
Page 1 of 23 sequentially numbered pages. The Exhibit Index is on Page 16. 2 PART I, ITEM 1 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED BALANCE SHEETS
(In 000's) September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) ASSETS Investments: Fixed Maturity Securities available for sale, at market, cost of $887,656 at 9/30/98 and $1,587,587 at 12/31/97 $ 944,901 $ 1,673,888 Equity Securities, at market, cost of $67,296 at 9/30/98 and $55,992 at 12/31/97 69,697 74,568 Mortgage Loans 216,300 244,821 Investment Real Estate 42,159 49,169 Loans to Policyholders 90,143 100,322 Other Long-Term Investments 21,924 18,459 Short-Term Investments 250 250 ---------------- ---------------- Total Investments 1,385,374 2,161,477 Cash 22,591 61,786 Accrued Investment Income 13,087 21,723 Receivables 65,053 69,433 Receivable from Reinsurers 281,322 278,165 Deferred Acquisition Costs and Cost of Business Acquired 286,010 337,841 Buildings and Equipment 83,405 74,338 Intangibles Related to Television Operations 156,349 90,080 Goodwill Related to Insurance Acquisitions 23,109 33,950 Other Assets 60,598 55,965 ================ ================ Total Assets $ 2,376,898 $ 3,184,758 ================ ================ LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Liabilities Policy Liabilities $ 1,337,072 $ 1,955,931 Notes, Mortgages and Other Debt 224,250 191,914 Accrued Income Taxes 7,755 3,282 Deferred Income Taxes 130,753 173,562 Accounts Payable and Accrued Expenses 104,877 106,191 Other Liabilities 3,983 4,902 Minority Interest --- 37,160 ---------------- ---------------- Total Liabilities 1,808,690 2,472,942 ---------------- ---------------- Redeemable Preferred Stock 1994-A Series, $35.00 redemption value, shares issued and outstanding - 204,830 in 1998 and 504,168 in 1997 7,169 17,646 1994-B Series, $37.50 redemption value, shares issued and outstanding - 482,068 in 1998 and 525,948 in 1997 18,078 19,723 ---------------- ---------------- Total Redeemable Preferred Stock 25,247 37,369 ---------------- ---------------- Shareholders' Equity Common Stock 68,897 182,994 Series 1995-A Convertible Preferred Stock, $35.00 redemption value, 599,985 shares issued and outstanding 20,999 20,999 Unearned Stock Compensation (9,141) (10,872) Retained Earnings 430,439 419,476 Accumulated Other Comprehensive Income: Unrealized Investment Gains 31,767 61,515 Cumulative Foreign Currency Translation Adjustment --- 335 ---------------- ---------------- Total Shareholders' Equity 542,961 674,447 ---------------- ---------------- Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $ 2,376,898 $ 3,184,758 ================ ================
See Notes to Consolidated and Condensed Financial Statements. 2 3 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
Three Months ended Nine Months ended September 30, September 30, -------------------------------- ---------------------------- (In 000's, except per share data) 1998 1997 1998 1997 ------------ ------------ ------------ ----------- (Unaudited) REVENUES Insurance Premiums & Policy Charges $ 66,031 $ 88,445 $ 219,297 $ 263,807 Broadcasting Revenues 37,925 33,517 110,946 100,753 Net Investment Income 26,151 40,122 93,834 118,454 Service Contract Revenue 5,073 1,872 13,475 5,302 Realized Investment Gains 786 2,728 5,575 8,739 ------------ ------------ ------------ ------------ Total Revenues 135,966 166,684 443,127 497,055 ------------ ------------ ------------ ------------ EXPENSES Policyholder Benefits 33,163 55,637 122,581 172,293 Insurance Commissions 19,853 20,030 59,894 59,262 General Insurance Expenses 18,954 16,796 57,109 50,584 Amortization of Deferred Acquisition Costs 9,930 11,167 31,282 33,105 Broadcasting Expenses 26,517 24,115 77,158 70,282 Interest Expense 3,671 3,123 10,032 10,093 Loss on Sale of Subsidiary -- -- 13,811 -- Other Expenses 6,939 4,822 17,624 14,470 ------------ ------------ ------------ ------------ Total Expenses 119,027 135,690 389,491 410,089 ------------ ------------ ------------ ------------ Income Before Income Taxes 16,939 30,994 53,636 86,966 Income Tax Provision 6,032 10,765 28,884 30,472 ------------ ------------ ------------ ------------ NET INCOME $ 10,907 $ 20,229 $ 24,752 $ 56,494 ============ ============ ============ ============ EARNINGS PER SHARE: Basic earnings per common share $ .56 $ .94 $ 1.20 $ 2.64 Diluted earnings per common share $ .55 $ .90 $ 1.19 $ 2.53 Dividends Per Common Share $ .22 $ .20 $ .64 $ .585
See Notes to Consolidated and Condensed Financial Statements. 3 4 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, --------------------------------- (In 000's) 1998 1997 ------------- ------------- (Unaudited) OPERATING ACTIVITIES Net Income $ 24,752 $ 56,494 Adjustments to reconcile net income to net cash provided (used) in operating activities: (Decrease) increase in policy liabilities (10,132) 7,186 Increase (decrease) in accounts payable and accrued liabilities 3,575 (285) Increase in receivables (1,408) (2,055) Amortization of policy acquisition costs 31,282 33,105 Policy acquisition costs deferred (38,666) (39,549) Realized investment gains (5,575) (8,739) Gain on sale of operating assets (924) (1,604) Loss on sale of subsidiary 13,811 -- Depreciation and amortization 14,513 15,389 Amortization of bond premium and discount (5,602) (5,354) Provision for deferred income taxes 1,268 3,205 All other operating activities, net (3,740) (9,456) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 23,154 48,337 INVESTMENT ACTIVITIES Investment securities sold 53,239 108,522 Investment securities matured or redeemed by issuer 143,183 77,770 Cost of investment securities acquired - available for sale (223,032) (229,800) Mortgage loans made (30,936) (34,112) Mortgage loan repayments 30,022 27,290 Purchase of investment real estate, buildings and equipment (13,372) (17,795) Sale of investment real estate, buildings and equipment 11,594 54,959 Net cash received on sale of subsidiary 133,060 -- Net cash paid on purchase of television stations (78,787) -- Purchase of short-term investments (8,255) -- Sales of short-term investments 8,255 -- All other investment activities, net (405) (767) ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 24,566 (13,933) FINANCING ACTIVITIES Proceeds from borrowings 2,707,000 2,001,000 Principal payments on debt (2,674,664) (2,048,947) Dividends paid (13,788) (14,613) Stock issued for employee benefit and compensation programs 1,571 3,446 Repurchase of common stock (129,202) -- Return of policyholders' account balances (24,371) (28,756) Receipts credited to policyholders' account balances 46,539 53,544 ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (86,915) (34,326) (DECREASE) INCREASE IN CASH (39,195) 78 Cash at beginning of year 61,786 36,774 ----------- ----------- CASH AT END OF PERIOD $ 22,591 $ 36,852 =========== =============
See Notes to Consolidated and Condensed Financial Statements. 4 5 THE LIBERTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS September 30, 1998 (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated and condensed financial statements of The Liberty Corporation and Subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information included is not necessarily indicative of the annual results that may be expected for the year ended December 31, 1998, but it does reflect all adjustments (which are of a normal and recurring nature) considered, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. For further information, refer to the consolidated financial statements and footnotes thereto included in The Liberty Corporation annual report on Form 10-K for the year ended December 31, 1997. 2. PURCHASE OF TELEVISION STATION On July 31, 1998, the Company completed the acquisition of WALB-TV in Albany, Georgia. The $78.8 million asset acquisition was funded using proceeds from the Company's credit facility. WALB-TV is affiliated with the NBC network. 3. SEGMENT REPORTING In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). This Standard is effective for financial statements issued for periods beginning after December 15, 1997. SFAS 131 requires that a public company report financial and descriptive information on the basis that it is reported internally for evaluating segment performance and deciding how to allocate resources to segments. The Company has adopted this standard as of January 1, 1998, but as permitted by SFAS 131 will not provide interim disclosures during the year of adoption. 4. COMPREHENSIVE INCOME The components of comprehensive income, net of related income taxes, for the three-month and nine-month periods ended September 30, 1998 and 1997, respectively, are as follows:
Three Months Ended Nine Months Ended September 30, September 30, --------------------- ----------------------- 1998 1997 1998 1997 ------- ------- -------- -------- (In 000's) Net Income $10,907 $20,229 $24,752 $56,494 Unrealized (losses) gains on securities (445) 11,883 (29,748) 11,494 Foreign currency translation adjustments 0 299 (335) 1,030 ------- ------- ------- ------- Comprehensive income (loss) $10,462 $32,411 $(5,331) $69,018 ======= ======= ======= =======
5 6 5. EARNINGS PER SHARE The calculation of basic and diluted earnings per share is as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------ 1998 1997 1998 1997 ------------- ------------- ------------- ------------ (Unaudited) Numerator - Earnings: Net Income $10,907,000 $20,229,000 $24,752,000 $56,494,000 Preferred Dividends (631,000) (916,000) (1,979,000) (2,762,000) ----------- ----------- ----------- ----------- Numerator for basic earnings per share 10,276,000 19,313,000 22,773,000 53,732,000 Effect of Dilutive Securities: Redeemable Preferred Stock 369,000 654,000 -- 1,976,000 Convertible Preferred Stock 262,000 262,000 -- 786,000 ----------- ----------- ----------- ----------- Numerator for diluted earnings per share $10,907,000 $20,229,000 $22,773,000 $56,494,000 =========== =========== =========== =========== Denominator - Average Shares Outstanding: Denominator for basic earnings per share - weighted average shares 18,417,000 20,472,000 19,005,000 20,319,000 Effect of Dilutive Securities: Stock Options 164,000 234,000 158,000 212,000 Redeemable Preferred Stock 677,000 1,253,000 -- 1,256,000 Convertible Preferred Stock 600,000 600,000 -- 600,000 --------- ---------- ---------- ---------- Denominator for diluted earnings per share 19,858,000 22,559,000 19,163,000 22,387,000 ========== ========== ========== ========== Basic Earnings Per Share $.56 $.94 $1.20 $2.64 Diluted Earnings Per Share $.55 $.90 $1.19 $2.53
6 7 6. COMMITMENTS AND CONTINGENCIES At September 30, 1998, the Company had made commitments as shown below:
(In 000's) Investment real estate $ 1,281 Mortgage loans and fixed maturity securities 32,855 Other 5,405 ------- $39,541 =======
7. RECLASSIFICATIONS Certain reclassifications have been made in the previously reported financial statements to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or shareholders' equity. 7 8 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations PART I, ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Unaudited) The Liberty Corporation is a holding company with operations in insurance and broadcasting. Liberty ("the Company") markets its insurance products through Liberty Life Insurance Company. Additionally, Liberty is one of the nation's largest life insurance third-party administrators, providing administrative services for over 4.5 million policies through Liberty Insurance Services Corporation. The Company's broadcasting subsidiary, Cosmos Broadcasting, consists of nine network-affiliated stations in the Southeast and Midwest. Six stations are affiliated with NBC, two with ABC, and one with CBS. RESULTS OF OPERATIONS On March 11, 1998, the Company completed a tender offer repurchasing 2.4 million shares of its stock at $52 per share and on April 8, 1998, the Company completed the sale of Pierce National Life Insurance Company ("Pierce"). These two transactions combined to have a significant impact on the Company's earnings for the quarter and year-to-date period. Liberty reported consolidated net income for the third quarter totaling $10.9 million, a 46% decline from the prior year quarter (see table below). Operating earnings (which exclude realized investment gains and losses) for the third quarter totaled $10.5 million, compared with operating earnings of $18.5 in the third quarter of 1997. Net income reflects realized investment gains (after-tax) of $0.4 million in the third quarter of 1998, compared with gains of $1.7 million during the same period last year. Year-to-date net income of $24.7 million was 56% lower than the $56.5 million reported for the comparable 1997 period. The difference is largely due to the loss on the sale of Pierce of $18.9 million reported in the first quarter of 1998. Operating earnings decreased $11.0 million (22%) from the same period of 1997. Net income includes realized investment gains (after-tax) of $3.5 million for the first nine months of 1998, compared with gains of $5.3 million for the first nine months of 1997.
Third Quarter Year-to-date -------------- ------------ 1998 1997 1998 1997 ----------- -------------- ------------ ------------- Income before income taxes and loss on sale of Pierce National $ 16,939 $ 30,994 $ 67,447 $ 86,966 Income taxes 6,032 10,765 23,776 30,472 ----------- -------------- ------------ ------------- Income before loss on sale of Pierce National 10,907 20,229 43,671 56,494 Loss on sale of Pierce National -- -- (18,919) -- ---------- ------------- ------------ ------------- Net Income $ 10,907 $ 20,229 $ 24,752 $ 56,494 =========== ============= ============ =============
8 9 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations A reconciliation of operating income to net income follows:
Third Quarter Year-to-date -------------- ------------ 1998 1997 1998 1997 ------- ------- ------- ------- Operating Earnings: Insurance $ 5,841 $14,108 $24,676 $36,679 Broadcasting 4,635 4,402 15,480 14,490 ------- ------- ------- ------- Total operating earnings 10,476 18,510 40,156 51,169 Net realized investment gains and losses 431 1,719 3,515 5,325 Loss on the sale of Pierce -- -- (18,919) -- ------- ------- ------- ------- Net income $10,907 $20,229 $24,752 $56,494 ======= ======= ======= ======= Diluted Earnings per Share: Operating earnings $ 0.53 $ 0.82 $ 1.95 $ 2.29 Net realized investment gains and losses 0.02 0.08 0.17 0.24 Loss on sale of Pierce -- -- (0.93) -- ------- ------- ------- ------- Diluted earnings per share $ 0.55 $ 0.90 $ 1.19 $ 2.53 ======= ======= ======= =======
The Company's insurance operations reported a decrease in operating earnings of $8.3 million compared with the third quarter of 1997. Adjusting for the proforma effect on operations of using the proceeds from the sale of Pierce (net of cash used for the share repurchase) to repay debt, the decrease in earnings from the third quarter of 1997 was $4.6 million. The decline in 1998 earnings compared with proforma 1997 earnings was a result of higher mortality costs in Liberty Life, higher deferred acquisition cost amortization in Liberty Life, and higher overall expenses. Liberty Life reported a decrease in operating earnings of $4.9 million from the prior year third quarter, with the two primary lines of business (Agency and Financial Services Marketing) both reporting decreases from the prior year. The decline in Agency was due to higher mortality costs, higher expenses and higher deferred acquisition cost amortization. Premium growth in the Financial Services Marketing (FSM) division was offset by higher deferred acquisition cost amortization and higher expenses. Beginning in 1998 the Company changed its method of allocating expenses and now allocates significantly higher expenses to the operating units. As a result, the expense level in Liberty Life will be considerably higher in 1998 compared with the prior year. On an overall basis the change in the expense allocation method does not impact total insurance operations results. The expenses being allocated were previously reported in "Corporate and Other" (now reported as part of the insurance operations results). Another factor contributing to higher expenses compared to the prior year was non-recurring litigation expenses associated with the settlement of previously disclosed litigation related to an acquisition-related contract dispute. These non-recurring litigation expenses contributed approximately $3.0 million to the expense variance for the quarter. The broadcasting operations reported a 5% increase in operating earnings compared with the comparable prior year quarter on the strength of a $4.4 million (13%) increase in revenues. Local and political revenues were the strongest contributors to the increase over the prior year quarter, with political alone accounting for $2.2 million of the increase. The results of WALB-TV ("WALB") are included in Cosmos third quarter earnings for two months. The incremental impact to Cosmos revenues and operating earnings from WALB was an increase in revenues of $2.3 million and a decrease in operating earnings of approximately $.3 million. Consolidated revenues decreased $30.7 million (18%) from the prior year quarter as a result of the loss of revenues from Pierce. Excluding realized gains and losses, revenues decreased $28.8 million, also as a result of the Pierce sale. Excluding Pierce from the 1997 results, Liberty reported a $10.7 million (9%) increase in revenues (excluding realized gains and losses). Insurance premiums and policy charges increased for the quarter and nine month period on the strength of year-over-year premium growth in Financial Services Marketing. Broadcasting revenues increased 13% and 10% for the quarter and year-to-date period, respectively, primarily on the strength of local and political revenues. Excluding the results of WALB, Cosmos revenues increased 6% and 8% for the 10 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations quarter and year-to-date periods, respectively. Liberty Insurance Services reported a $3.2 million increase in service contract revenues as a result of the servicing contract with Fortis which commenced in the first quarter of 1998. Revenues from the Fortis contract also accounted for the year-to-date increase of $8.2 million. Policyholder benefits decreased 40% and 29% for the quarter and year-to-date periods, respectively, due to the sale of Pierce. Excluding Pierce from the 1997 results, policyholder benefits for Liberty Life increased 5% over the third quarter of 1997 and 1% over the first nine months of 1997. Although mortality experience for the third quarter of 1998 was consistent with the last several quarters and expectations, the third quarter of 1997 benefited from very favorable mortality experience resulting in the negative year over year comparison. Commissions also decreased as a result of the Pierce sale. However, the decline was partially offset as third quarter commissions from the Liberty Life Financial Services Marketing division accidental death product group increased $2.2 million over the prior year. A substantial amount of this line of business is marketed through a third party marketing organization. All payments to this third party, which include commissions and certain payments for certain general and administrative functions, are reported as commissions expense. On a year-to-date basis Liberty Life commissions increased 12% due to the payments to this third party marketing organization. General insurance expenses increased over the prior year for both the quarter and year-to-date as lower expenses due to the Pierce sale have been offset by higher expenses in Liberty Insurance Services associated with the Fortis contract and higher allocations of expenses from Corporate as previously described. Liberty Insurance Services expenses increased $3.8 million and $9.2 million over the prior year quarter and year-to-date periods, respectively, primarily as a result of the Fortis contract. Deferred acquisition cost amortization declined for both the quarter and year to date periods as a result of the sale of Pierce. In Liberty Life however, amortization of deferred acquisition costs increased 15% and 12% for the quarter and year to date periods, respectively over the prior year. Broadcasting expenses increased 10% over the prior year quarter and year to date periods due to higher expenses resulting from planned strategic initiatives in several of the Company's markets, as well as the incremental expenses associated with WALB since its acquisition. WALB contributed an incremental $1.7 million to broadcasting expenses (excluding financing costs associated with the purchase) since the acquisition date. Interest expense increased from the prior year third quarter by $0.5 million as a result of higher debt following the acquisition of WALB-TV. The higher debt level was partially offset by lower rates. Year-to-date interest expense was essentially level with the prior year. Other expenses include primarily the parent company expenses. The negative comparison in this line for both the quarter and year-to-date periods is due to the non-recurring litigation expenses incurred in the third quarter of 1998 which were previously discussed. Liberty reported a pre-tax loss on the sale of Pierce National of $13.8 million during the first quarter. The loss is included as a separate line item in the financial statements and includes (i) approximately $2.7 million of expenses incurred directly related to the sale, and (ii) approximately $11.1 million representing the carrying value of Pierce in excess of consideration received on the sale. The income tax expense for the year includes a provision of $5.1 million representing taxes payable on the sale of Pierce. Liberty's tax basis in Pierce National was less than the net consideration received resulting in a taxable gain on the transaction and therefore an additional tax liability to the Company. The other expense line includes approximately $0.9 million representing Fortis' 21% interest in the earnings of Pierce through the sale date. The year to date effective tax rate is 53.8% for 1998, compared with 35% for 1997. The high rate for 1998 is attributable to the combined affect of the loss on Pierce described above, and the taxable gain on the transaction that resulted in $5.1 million of additional tax expense. 10 11 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations INVESTMENTS As of September 30, 1998, Liberty's consolidated investment portfolio was carried at $1.4 billion. Approximately 68% of consolidated invested assets were in fixed maturity securities (bonds and redeemable preferred stocks), 16% were in mortgage loans, 7% in policy loans, with the balance consisting of equity securities (5%), real estate (3%), and other long term investments (1%). The overall average investment rating of fixed maturity securities as of September 30, 1998 was A+. Less than investment grade securities comprised 5.3% of the fixed maturity portfolio at September 30, 1998, compared with 3.2% at December 31, 1997. In accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company reported an unrealized gain of $31.8 million on fixed maturity securities available for sale and equity securities as of September 30, 1998. This compares with an unrealized gain of $61.5 million at December 31, 1997. Approximately $24.2 million of the gains reported at December 31, 1997 were associated with investments held by Pierce National. The year-to-date decrease in unrealized investment gains and losses associated with Liberty's continuing operations is $5.5 million. Due to the requirements of SFAS No. 115, shareholders' equity will be subject to future volatility from the effects of interest rate fluctuations on the fair value of fixed maturity securities. Approximately 29% of the Company's $945 million bond portfolio at September 30, 1998, was comprised of mortgage-backed securities compared to 40% at December 31, 1997. Certain mortgage-backed securities are subject to significant prepayment 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 27% of the book value of the Company's mortgage-backed securities at September 30, 1998, and 19% at December 31, 1997, are sensitive to prepayment or extension risk. The remaining 73% and 81% of the Company's mortgage-backed investment portfolio at September 30, 1998 and December 31, 1997, respectively, consisted of planned amortization class ("PAC") instruments. 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. Mortgage loans of $216.3 million comprised 16% of the consolidated investment portfolio at September 30, 1998. Substantially all of these mortgage loans are commercial mortgages with a loan to value ratio not exceeding 75% when made. These loans are concentrated in the southeast primarily in the states of North Carolina, South Carolina, Georgia, Florida, Virginia, Louisiana and Tennessee. CAPITAL, FINANCING AND LIQUIDITY At September 30, 1998 the Company's borrowings and notes payable amounted to $224.3 million, an increase of $32.4 million from the $191.9 million outstanding at December 31, 1997. The increase is due to using proceeds from the company's credit facility to fund the acquisition of WALB, offset by using the proceeds from the sale of Pierce in excess of the amounts required for the 2.4 million share repurchase to repay debt. In addition to the tender offer completed in March for 2.4 million shares of common stock, the Company purchased in the open market approximately 88,000 shares during the third quarter of 1998 at various prices between $40.50 per share and $43 per share. The total cost of the additional shares purchased was approximately $3.7 million. 11 12 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations In May, 1998 the Company refinanced its credit facility into a new, $300 million revolving credit facility maturing in April, 2003. The Company may request up to an additional $150 million under the new facility subject to approval by the bank group. The Company has the option to solicit money market interest quotes from the bank group for borrowings under the revolving credit facility. The revolving credit agreement also provides for borrowing at interest rates based on a formula that incorporates the use of the London Interbank Offered Rate ("LIBOR") plus an interest rate margin. A facility fee is charged on the facility based on the $300 million total commitment. The facility fee and the interest rate margin for the revolving credit facility are all based upon the ratio of consolidated debt to cash flow, as defined in the credit agreement. The credit agreement contains various restrictive and financial covenants typical of a credit facility of this size and nature. These restrictions primarily pertain to limitations on the quality and types of investments and defined ratios of consolidated debt to total capital and fixed charges coverage. As previously mentioned, Liberty completed the purchase of WALB in Albany, GA, an NBC affiliate, on July 31, 1998. The purchase price of $78 million was funded using proceeds from the credit facility. Additionally, the previously announced acquisitions of WWAY-TV in Wilmington, North Carolina, an ABC affiliate, and KGBT-TV in Harlingen, Texas, a CBS affiliate, are expected to close during the fourth quarter, pending completion of the definitive agreements and regulatory approvals, and will be funded using proceeds from the Company's credit facility. The Company has periodically used various interest rate swaps to help minimize the impact of a potential significant rise in short term interest rates. (See the Company's 1997 Annual Report to Shareholders for a description of the interest rate swaps in place.) The Company has not used interest rate swaps or any other derivative financial instruments to manage its interest rate exposure on interest sensitive universal-life type products. Other Company commitments are shown in Note 6 contained in the accompanying financial statements. Additional detail as to commitments and financing is contained in the Notes to the Consolidated Financial Statements in the Company's annual report on Form 10K for the year ended December 31, 1997. Further discussion of investments and valuation is contained in Notes 1 and 2 to the Consolidated Financial Statements in the Company's annual report on Form 10K for the year ended December 31, 1997. CASH FLOWS The Company's net cash flow from operating activities was $23.5 million for the first nine months of 1998 compared to $48.3 million for the same period of 1997. The Company's net cash provided by investing activities was $24.2 million, of which $133.1 million represents net cash proceeds from the sale of Pierce National. This is offset by $78.8 million representing net cash paid to purchase WALB. Net cash used in financing activities was $86.9 million, of which $129.2 million was used to complete the repurchase of 2.4 million shares of common stock during the first quarter of 1998, and an additional 88,000 shares in the third quarter. As a result of its activities, the Company had a $39.2 million decrease in cash compared to an increase of $.1 million in the same period in 1997. IMPACT OF YEAR 2000 GENERAL DESCRIPTION: The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations including among other things, a temporary inability to process transactions, send premium billings, pay personnel properly, or engage in normal business activities. 12 13 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations The Company has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Company currently believes that with modifications and replacements to software and certain hardware, the Year 2000 issue will be mitigated. However, if the required modifications and replacements are not made, or are not completed timely, the Year 2000 issue could have a material impact on the operations of the Company. The Company's plan to resolve the Year 2000 issue involves the following four phases: assessment, remediation, testing, and implementation. The Company has completed the full assessment of all systems that could be significantly affected by the Year 2000. The completed assessment indicated that a number of the Company's information technology systems could be affected, particularly the insurance administration, billing, and commissioning systems. The Company also completed an assessment of the equipment used at our broadcasting stations and has determined that that most of our broadcasting equipment will not require remediation to be Year 2000 compliant Accordingly, the Company does not believe that the Year 2000 issue presents a material exposure as it relates to the Company's broadcasting operations. In addition, the Company is gathering information about the Year 2000 compliance status of its significant suppliers and business partners and is continuing to monitor their compliance. STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT: For its information technology exposures, to date Liberty is 100% complete with its assessment phase, approximately 80% complete on the remediation phase, 50% complete with its testing phase and has implemented a number of business critical Year 2000 compliant systems. The Company plans to be significantly complete with its testing efforts by March 31, 1999. The remediation, testing, and implementation phases run concurrently for different systems. Completion of the implementation phase for all significant systems is expected by June 30, 1999. The Company is approximately 80% complete in the remediation phase of its operating equipment used in the broadcasting operations. The Company is approximately 60% complete with the testing of its remediated operating equipment. Once testing is complete, the operating equipment will be ready for immediate use. The Company expects to be substantially complete with its remediation by December 31, 1998. Testing and implementation of affected equipment is expected to be 100% complete by June 30, 1999. NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE YEAR 2000: The Company's insurance collection system interfaces directly with significant third party vendors including a large number of banks and financial institutions. The Company is in the process of working with its primary third party vendors to ensure that the Company's systems that interface directly with third parties are Year 2000 compliant by December 31, 1999. The Company has completed its remediation efforts on its mission critical collection system and is 80% complete with the testing phase. Testing of all significant systems that are tied to vendor interfaces is expected to be completed no later than December 31, 1998. The Company is asking its critical vendors to provide in written form, documentation relating to their Year 2000 compliance. The Company is in the process of querying its significant suppliers and subcontractors that do not share information systems with the Company. To date, Liberty is not aware of any significant supplier or subcontractor with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that its suppliers or subcontractors will be Year 2000 ready. The inability of the Company's suppliers or subcontractors to complete their Year 2000 resolution process in a timely fashion could materially impact the company. The effect of non-compliance by significant suppliers or subcontractors is not fully determinable. The Company will continue to monitor correspondence from significant suppliers and subcontractors and develop contingency plans where deemed appropriate. RISK: Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company 13 14 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations does not complete any additional phases, the Company would be unable to correctly issue certain insurance policies, invoice customers, collect payments or pay agents properly. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Company. Additionally, the Company could be subject to litigation for computer systems product failure, for example, equipment shutdown or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. CONTINGENCY PLANS: The Company has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds, and adjusting staffing strategies. Additionally, the Company has decided to remediate and test older systems that are planned for replacement during the first half of 1999. Thus, if replacement projects are delayed for any reason, the older systems will function beyond the Year 2000. COSTS: The Company will utilize both internal and external resources to reprogram, or replace, test and implement the software and equipment to ensure the Company is Year 2000 compliant. The Company has implemented several major systems projects during the last three and one-half years that were not specifically performed to remediate Year 2000 issues. However, during the course of those projects, systems have been modified to ensure that they are Year 2000 compliant. The total cost of the projects to be undertaken for which a component of the project, or the entire project, has to do with remediating the Year 2000 problem is estimated to be approximately $21 million and is being funded through operating cash flows. Of the total, approximately $5.7 million will be expensed as incurred, with the remainder to be capitalized as it relates primarily to upgrading or replacing systems for business reasons other than the Year 2000. To date the Company has incurred approximately $15.3 million of costs ($13.8 million capitalized and $1.5 million expensed). Of this total, the amounts spent in 1998 include approximately $5.1 million capitalized and $0.9 million expensed. ACCOUNTING DEVELOPMENTS As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This Standard establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this standard had no impact on the Company's net income or shareholders' equity. In addition to certain other adjustments, SFAS 130 requires unrealized gains or losses on the Company's available for sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity to be included in other comprehensive income. See Note 4. In June, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). This Standard is effective for financial statements issued for periods beginning after December 15, 1997. SFAS 131 requires that a public company report financial and descriptive information on the basis that it is reported internally for evaluating segment performance and deciding how to allocate resources to segments. The Company has adopted this standard as of January 1, 1998, but as permitted by SFAS 131 will not provide interim disclosures during the year of adoption. In June, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, " Accounting for Derivative Instruments and Hedging Activities". This standard is required to be adopted in years beginning after June 15, 1999. The Company has not determined when it will adopt this standard. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will be either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company's use of derivatives is limited to fixing the cost of borrowings on a 14 15 The Liberty Corporation and Subsidiaries Quarter Ended September 30, 1998 Management's Discussion And Analysis of Operations portion of the outstanding debt. The Company has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Company, but it is not expected to be material. FORWARD LOOKING INFORMATION The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information contained herein or in any other written or oral statements made by, or on behalf of the Company, are or may be viewed as forward looking. Although the Company has used appropriate care in developing any such forward looking information, forward looking information involves risks and uncertainties that could significantly impact actual results. These risks and uncertainties include, but are not limited to, the following: changes in general economic conditions, including the performance of financial markets and interest rates; competitive, regulatory, or tax changes that affect the cost of or demand for the Company's products; and adverse litigation results. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future developments, or otherwise. 15 16 PART II, ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K (a) A list of the exhibits filed with this report is included in the Index to Exhibits filed herewith. (b) The filing of Form 8-K was not required during the third quarter of 1998. INDEX TO EXHIBITS EXHIBIT 3.2 Bylaws, as amended through November 3, 1998 EXHIBIT 11 Consolidated Earnings Per Share Computation (included in Note 5 of Notes to Consolidated and Condensed Financial Statements) EXHIBIT 27 Financial Data Schedule (Electronic Filing Only)
16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE LIBERTY CORPORATION Date: November 13, 1998 (Registrant) /s/ Kenneth W. Jones - -------------------- Kenneth W. Jones Corporate Controller /s/ Martha G. Williams - ---------------------- Martha G. Williams Vice President, General Counsel and Secretary 17 EX-3.2 2 BY-LAWS AS AMENDED 11-3-1998 1 EXHIBIT 3.2 THE LIBERTY CORPORATION BYLAWS ARTICLE I - SHAREHOLDERS Section 1. Annual Meetings. The annual meeting of the shareholders of the Company shall be held on such day during the first one hundred and fifty days of the calendar year as the Board of Directors may determine. Section 2. Special Meetings. Special meetings of the shareholders may be called at any time by a majority of the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, or upon request of shareholders holding at least one-tenth of the outstanding stock of the Company entitled to vote at such meeting. Section 3. Place of Meetings. Each annual and special meeting of the shareholders shall be held at the principal office of the Company, or at such other place within or without the State of South Carolina as shall be designated by the Board of Directors or the officer calling such meeting. Section 4. Notice of Meetings. Written or printed notice stating the place, day and hour of meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be mailed by or at the direction of the Secretary, an Assistant Secretary or officer calling the meeting, not less than ten nor more than fifty days before the date of the meeting, to each shareholder of record, addressed to him at his address as it appears on the stock books of the Company, as of the date set pursuant to Section 4 of Article VI hereof. Section 5. Proxies. At a meeting of shareholders, a shareholder may vote by proxy executed in writing by the shareholder and filed with the Secretary of the Company, bearing date within eleven months prior to the meeting unless a longer period is provided therein and is permitted by law. Section 6. Quorum. A majority of the issued and outstanding shares of the Company, present in person or by proxy and entitled to vote thereat, shall constitute a quorum at a meeting of shareholders. Section 7. Voting. Subject to the laws of the State of South Carolina with respect to multiple ownership of stock and the provisions of the Articles of Incorporation and Article VI hereof, each shareholder shall be entitled to one vote for each share of stock standing in his name on the books of the Company. Only those whose names appear as shareholders on the books of the Company, or their proxies or legal representatives, shall be entitled to vote or to participate in any meeting of shareholders. A majority of the votes cast at a duly called meeting at which a quorum is present shall decide any question that may come before the meeting, except as otherwise provided by law, these Bylaws or the Articles of Incorporation of the Company. Section 8. Control Share Statute. Article 1 of Title 36, Chapter 2 of the Code of Laws of South Carolina 1976 does not apply to control share acquisition of shares of this Corporation (as defined in such Article). Section 9. Shareholder Nominations and Proposals. At a meeting of the shareholders, only such business shall be conducted which has been properly brought before the meeting. To be properly brought before a meeting, business must be specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a shareholder. For business to be properly brought before a meeting by a shareholder, the Secretary of the Company must have received written notice thereof from the shareholder describing the nomination or proposal not less than one hundred and twenty nor more than one hundred and fifty calendar days before the date of the Company's proxy statement released to shareholders in connection with the previous year's annual meeting; provided however, that in the event an annual meeting was not held during the previous year, or if the date of the current year's annual meeting has been changed by more than thirty days from the date of the previous year's meeting, the required notice by the shareholder of such nomination or proposal to be timely 18 2 must be received by the Secretary of the Company within a reasonable time before the Company begins to print its proxy materials. In the case of shareholder nominations for election to the Board of Directors, the shareholder's notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and, if known, residence address, (ii) the principal occupation or employment for the past five years, (iii) the class and number of shares of the Company which are legally or beneficially owned, (iv) other directorships held, (v) the names of business entities of which each such nominee owns a ten percent or more legal or beneficial interest, and (vi) all other information with respect to the nominees required by the Federal proxy rules in effect at the time the notice is submitted; and (b) as to the shareholder giving the notice (i) the name and record address of the shareholder and (ii) the class and number of shares of capital stock of the Company which are legally or beneficially owned by the shareholder. In addition, the notice shall be accompanied by a written statement of each proposed nominee consenting to the proposed nomination, agreeing to serve as a director if elected, and confirming the accuracy of the information relating to the proposed nominee as set forth in the notice. The Company may require any proposed nominee to furnish such other information as may be reasonably required to determine the eligibility of such nominee to serve as a director of the Company. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth herein. In the case of shareholder proposals other than the election of directors, the shareholder's notice to the Secretary shall set forth as to each matter proposed to be brought before the meeting (i) a brief description of the business to be brought before the meeting, (ii) the name, business and residence address of each of the shareholders submitting the proposal, (iii) the principal occupation or employment of that shareholder, (iv) the class and number of shares of the Company which are legally or beneficially owned by such shareholder, (v) any material interest of the shareholder in such business, and (vi) such other information as the Board of Directors reasonably determines is necessary or appropriate. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a shareholder nomination or proposal was not made in accordance with the procedures prescribed in these Bylaws or is otherwise not in accordance with law. If the Chairman should so determine, he shall so declare to the meeting and the defective nomination or proposal shall be disregarded. Notwithstanding anything in these Bylaws to the contrary, no elections or other business shall be conducted at any meeting of the shareholders except in accordance with the procedures set forth in Section 9 of Article I hereof. ARTICLE II - DIRECTORS Section 1. General Powers and Authority. The business and property of the Company shall be managed by the Board of Directors and they shall and may exercise all powers and authority of the Company except as limited by law, the Articles of Incorporation, or elsewhere by these Bylaws. They shall have power and authority to make all necessary rules and regulations for their government and for the regulation of the business of the Company which are not inconsistent with the Articles of Incorporation and these Bylaws, and shall have general management and control of the Company. The Board of Directors may delegate from time to time to any committee, officer or agent, such power and authority as permitted by law. Section 2. Number, Election and Terms. Except as otherwise fixed pursuant to Article 4 of the Restated Articles of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation (the "Preferred Stock") to elect additional directors under specified circumstances, the number of directors shall be 12; provided however, that the number of directors may be fixed from time to time at any number, not less than 9 nor more than 16, by resolution adopted by the Board of Directors. The directors, other than those who may be elected under specified circumstances by the holders of any class or series of Preferred Stock, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number of members as possible, as determined by the Board of Directors. One such class shall hold office initially for a term expiring at the annual meeting of shareholders to be held in 1986, another class shall hold office initially for a term expiring at the annual meeting of shareholders to be held in 1987, and another class shall hold office initially for a term expiring at the annual meeting of shareholders to be held in 1988. At each annual meeting of shareholders, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election, and the successor to any director previously elected by the directors pursuant to Section 3 below as a member of a class whose term is not expiring at that meeting shall be elected by the shareholders for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred. The members of each class of directors shall hold office until their successors are elected and qualified or until their earlier resignation, disqualification, disability, death or removal from office. 19 3 Section 3. Newly Created Directorships and Vacancies. Except for any directors who may be elected under specified circumstances by the holders of any class or series of Preferred Stock, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until the next shareholders' meeting at which directors of any class are elected and until such director's successor shall have been elected and qualified, or until his earlier resignation, disqualification, disability, death or removal from office. At the time of any increase in the number of directors, except in the case of directors elected in specified circumstances by the holders of any class or series of Preferred Stock, the Board of Directors shall specifically allocate the additional directorships among the three classes so as to make the three classes as nearly equal in number of members as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director, but subject to this restriction, the Board of Directors shall effect and allocate any decrease in the number of directors in a manner and at such time or times so as to keep the three classes as nearly equal in number of members as possible. Section 4. Removal. Except for any directors who may be elected under specified circumstances by the holders of any class or series of Preferred Stock, any director may be removed from office, without cause, only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. Section 5. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the date, time and place, either within or without the State of South Carolina, for the holding of additional regular meetings without other notice than such resolution. Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the Executive Committee, the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or upon request of a majority of the Board, and may be held at such time and place, either within or without the State of South Carolina, as may be specified in the notice thereof. To the extent permitted by applicable law, special meetings of the Board of Directors, or of any committee thereof, may be held by conference telephone communication. Section 7. Notice of Meetings. Notice of each special meeting of the Board of Directors, stating the time, manner and place where the meeting is to be held, shall be given by or at the direction of the Secretary or an Assistant Secretary by mailing the same to each director at his residence or business address not less than three days before such meeting, or by giving the same to him personally or telegraphing or telephoning the same to him at his residence or business address not later than the day before the day on which the meeting is to be held. Any and all requirements for call and notice of meetings may be dispensed with if all directors are present at the meeting or if those not present at the meeting shall at any time waive or have waived notice thereof. Section 8. Quorum and Manner of Action. A majority of the number of directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. Except as otherwise provided in the Restated Articles of Incorporation, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 9. Compensation. The directors shall receive such fees, retainers, expenses and the like for attendance at meetings of the Board and performance of their duties, as may be determined by the Board of Directors; provided, however, that no salaried officer shall receive a fee or retainer for attendance at such meetings or performance of such Board duties. 20 4 ARTICLE III - COMMITTEES Section 1. Executive Committee. The Executive Committee shall consist of not less than two members, all of whom shall be members of the Board of Directors. Except as otherwise limited by law, the Executive Committee shall be vested with full authority to act for and on behalf of the Board of Directors in the management of the business and affairs of the Company and to do all things, including actions specified by these Bylaws to be performed by the Board of Directors, in the same manner and with the same authority and effect as if such acts had been performed by the Board of Directors. The members of the Executive Committee shall be elected by the Board of Directors and shall serve at the pleasure of the Board of Directors. The Board of Directors shall designate the chairman of such committee, or if for any reason the Board shall fail to designate the chairman, then such committee shall elect its own chairman. Meetings of each such committee shall be held at such times and places as may be determined by its chairman or as may be agreed upon by members of the committee. A quorum at any meeting of such committee shall consist of a majority of the committee, and any action taken by such committee shall require the assent of at least a majority of the members who are present. Notice of meetings shall be given in the same manner as for special meetings of the Board of Directors. Any action taken by the Executive Committee shall be deemed to be action taken by the Board of Directors and shall be binding on the Company, but the Board of Directors shall at all times have the power to reverse and overrule any action taken by such committee, provided that the exercise of such power by the Board of Directors shall not in any way abrogate the obligations or duties owing by the Company to third parties who have acted in reliance on the action taken by such committee. All proceedings by such committee and all action taken by each such committee shall be reported to the Board of Directors at the meeting of the Board of Directors next following such proceedings or action. Section 2. Other Committees. There shall be such other committees consisting of directors, officers and employees of the Company as the Board of Directors, chairman of the Board, or the Chief Executive Officer of the Company may appoint from time to time. Section 3. Compensation. Members of committees shall receive such fees, retainers and expenses for attendance at committee meetings and performance of committee duties as may be determined by the Board of Directors; provided, however, that no salaried officer of the Company shall receive a fee or retainer for attendance at such meetings or performance of such committee duties. ARTICLE IV - OFFICERS Section 1. Designation and Number. The officers of the Company shall be a Chairman of the Board, a Chief Executive officer, a President, one or more Vice-Presidents, a Secretary, a Treasurer, and a controller, with such designation of rank, powers and duties as the Board of Directors may from time to time designate and determine. Such other officers or assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors with such duties and powers as the Board may from time to time designate and determine. Any two or more of said offices may be held by one person at the same time, except that the Chairman, Chief Executive Officer, or President may not also be the Secretary or Treasurer. Section 2. Election and Tenure. The officers of the Company shall be elected annually at the first regular meeting of the Board of Directors held after each annual meeting of shareholders, or at a special meeting called for that purpose if for any reason officers should not be elected at such first meeting, and shall hold office until the first regular meeting of the Board of Directors held after the next annual meeting of shareholders and their successors are duly elected and qualified; provided, however, that any officer may be removed from office by the Board of Directors at any regular or special meeting, meeting, and any vacancy in any office, however caused, may be filled by the Board of Directors at any regular or special meeting. Section 3. Duties of Officers. The Board of Directors shall, from time to time, in its discretion, designate and prescribe the duties incident to each office, and it may, at any time, expressly authorize any officer to perform any duty or function which is usually performed by any other officer. Section 4. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors or by a committee of the Board. No officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Company. 21 5 ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS To the extent permitted by and subject to the laws of the State of South Carolina, any present or former director, officer or employee of the Company, or any person who, at the request of the Company, express or implied, may have served as a director or officer of another Company in which this Company owns shares or of which this Company is a creditor, shall be entitled to reimbursement of expenses and other liabilities, including attorney's fees actually and reasonably incurred by him and any amount owing or paid by him in discharge of a judgment, fine, penalty of costs against him or paid by him in a settlement approved by a court of competent jurisdiction, in any action or proceeding, including any civil, criminal or administrative action, suit, hearing or proceeding, to which he is a party by reason of being or having been a director, officer or employee of this or such other Company. To the extent permitted by and subject to the laws of the State of South Carolina, the Company is authorized to purchase and maintain insurance on behalf of any present or former director, officer, or employee of the Company, or any person who, at the request of the Company, express or implied, may have served as a director or officer of another company in which this Company owns shares or of which this Company is a creditor, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such together with such costs, fees, penalties, fines and the like with respect thereto, all as set forth hereinabove. This section is not intended to extend or to limit in any way the rights and remedies provided with respect to indemnification of directors, officers, employees, and other persons provided by the laws of the State of South Carolina but is intended to express the desire of the shareholders of this Company that indemnification be granted to such directors, officers, employees and other persons to the fullest extent allowable by such laws. ARTICLE VI - CAPITAL STOCK Section 1. Certificates of Stock. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and every holder of uncertificated shares, upon request, shall be entitled to have a certificate, which shall be in such form as may be prescribed by the Board of Directors, shall be signed by the Chairman, Vice Chairman, Chief Executive Officer, President or a Vice President and by the Treasurer or the Secretary or an Assistant Secretary, and shall be sealed with the Company's seal or a facsimile thereof; provided, however, that if the certificate is countersigned by a transfer agent or any assistant transfer agent, or is registered by a registrar, other than the Company itself or an employee of the Company, such certificates may be signed with the facsimile signatures of the officers authorized to execute such certificates. All certificates shall be consecutively numbered or otherwise identified. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. Section 2. Stock Record. The name and address of the person or entity to whom shares of the capital stock are issued, together with the certificate number, if a certificate is issued, number of shares and date of issue, shall be entered on the stock transfer books of the Company. All certificates surrendered to the Company for transfer shall be canceled, and no new certificate or record of uncertificated shares shall be issued or made until the former certificate for a like number of shares shall have been surrendered and canceled. In the case of a lost, destroyed or mutilated certificate, a new certificate of stock or record of uncertificated shares may be issued or made therefor upon such terms and indemnity to the Company as the Board of Directors may prescribe. Section 3. Transfer of Stock. Transfer of stock of the Company shall be made on the books of the Company by direction of the person or entity named in the certificate or, in the case of uncertificated shares, by the person or entity in whose name shares stand on the books of the Company, or his attorney, lawfully constituted in writing, and upon the surrender of the certificate or certificates for such shares, where certificated, properly endorsed, with such evidence of the authenticity of such transfer, authorization and other matters as the Company or its agents may reasonably require, and accompanied by any necessary stock transfer tax stamps; or if the Board of Directors shall by resolution so provide, transfer of stock may be made in any other manner provided by law. Any such resolution providing for the issuance of uncertificated shares shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. The person or entity in whose name shares stand on the books of the Company shall be deemed by the Company to be the owner thereof for all purposes. 22 6 Section 4. Closing Stock Transfer Books and Fixing Record Date. The Board of Directors shall have power to close the stock transfer books of the Company for a period not exceeding fifty days preceding the date of any meeting of shareholders, payment of dividends, allocation of rights, change, conversion or exchange of capital stock, or the date of determining shareholders for any other purpose. In lieu of closing the stock transfer books, in order to determine the holders of record of the Company's stock who are entitled to notice of meetings, to vote at a meeting or adjournment thereof or to receive payment of any dividend or allotment of rights, or to exercise rights with respect to any change, conversion or exchange of capital stock, or to give consent, or to make a determination of the shareholders of record for any other purpose, the Board of Directors of the Company may fix in advance a record date for such determination of shareholders, which date shall not be more than fifty days prior to the date of the action which requires such determination, nor, in the case of a shareholders' meeting, shall it be less than ten days in advance of such meeting. ARTICLE VII - AMENDMENTS Section 1. Amendment by Shareholders. These Bylaws may be added to, amended or repealed, by the majority vote of the entire outstanding stock of the Company at any regular meeting of the shareholders, or at any special meeting, where such proposed action has been announced in the call and notice of such meeting. Section 2. Amendment by Board of Directors. Subject to the right of the shareholders to adopt, amend or repeal Bylaws, the Board of Directors shall have the power to adopt, amend or repeal Bylaws, by an affirmative vote of a majority of all directors then holding office, provided that notice of the proposal to adopt, amend or repeal the Bylaws is included in the notice to the directors with respect to the meeting at which such action takes place. EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 944,901 0 0 69,697 216,300 42,159 1,385,374 22,591 281,322 286,010 2,376,898 1,275,870 0 36,478 24,724 224,250 68,897 25,247 20,999 453,065 2,376,898 219,297 93,834 5,575 124,421 122,581 31,282 117,603 53,636 28,884 24,752 0 0 0 24,752 1.20 1.19 0 0 0 0 0 0 0
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