-----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, F/xfTZIqxOGFucZgPht+o1eGLy1IUu85Vos9A5Moh9lCOTLOTv/eaAMkMT34Xk4d MRvmNacAkw/iAL+iUHB1IQ== 0000950144-99-006069.txt : 19990517 0000950144-99-006069.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-006069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623861 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 THE LIBERT CORPORATION 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 March 31, 1999 -------------- [ ] 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 March 31, 1999 ------------------- ---------------------------- Common Stock 18,782,795 Page 1 of 15 sequentially numbered pages. The Exhibit Index is on Page 14. 2 PART I, ITEM 1 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED BALANCE SHEETS
(In 000's) March 31, December 31, 1999 1998 ----------- ----------- ASSETS (Unaudited) Investments: Fixed Maturity Securities available for sale, at market, cost of $899,618 at 3/31/99 and $896,944 at 12/31/98 $ 922,523 $ 935,178 Equity Securities, at market, cost of $48,695 at 3/31/99 and $54,354 at 12/31/98 56,120 63,658 Mortgage Loans 212,075 215,549 Investment Real Estate 33,268 34,788 Loans to Policyholders 90,796 90,653 Other Long-Term Investments 22,420 21,256 Short-Term Investments 250 250 ----------- ----------- Total Investments 1,337,452 1,361,332 Cash 16,880 16,633 Accrued Investment Income 13,640 13,508 Receivables 69,779 69,536 Receivable from Reinsurers 276,189 275,602 Deferred Acquisition Costs and Cost of Business Acquired 289,890 284,366 Buildings and Equipment 99,347 101,523 Intangibles Related to Television Operations 212,031 212,842 Goodwill Related to Insurance Acquisitions 22,627 22,868 Other Assets 50,212 52,473 ----------- ----------- Total Assets $ 2,388,047 $ 2,410,683 =========== =========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Liabilities Policy Liabilities $ 1,341,175 $ 1,334,531 Notes, Mortgages and Other Debt 278,000 285,000 Accrued Income Taxes 7,347 7,348 Deferred Income Taxes 117,405 122,650 Accounts Payable and Accrued Expenses 98,637 106,523 Other Liabilities 4,014 4,157 ----------- ----------- Total Liabilities 1,846,578 1,860,209 ----------- ----------- Redeemable Preferred Stock 1994-A Series, $35.00 redemption value, shares issued and outstanding - 169,797 in 1999 and 198,259 in 1998 5,943 6,939 1994-B Series, $37.50 redemption value, shares issued and outstanding - 284,273 in 1999 and 374,059 in 1998 10,660 14,028 ----------- ----------- Total Redeemable Preferred Stock 16,603 20,967 ----------- ----------- Shareholders' Equity Common Stock 73,073 70,565 Series 1995-A Convertible Preferred Stock, $35.00 redemption value, 599,985 shares issued and outstanding 20,999 20,999 Unearned Stock Compensation (5,077) (7,596) Retained Earnings 416,684 418,790 Accumulated Other Comprehensive Income: Unrealized Investment Gains 19,187 26,749 ----------- ----------- Total Shareholders' Equity 524,866 529,507 ----------- ----------- Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity $ 2,388,047 $ 2,410,683 =========== ===========
See Notes to Consolidated and Condensed Financial Statements. 2 3 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended March 31, --------------------------- (In 000's, except per share data) 1999 1998 --------- --------- (Unaudited) REVENUES Insurance Premiums & Policy Charges $ 64,053 $ 87,982 Broadcasting Revenues 39,866 32,367 Net Investment Income 24,359 40,892 Service Contract Revenue 4,668 4,152 Realized Investment (Losses) Gains (8,344) 3,129 --------- --------- Total Revenues 124,602 168,522 --------- --------- EXPENSES Policyholder Benefits 35,488 57,106 Insurance Commissions 18,559 20,557 General Insurance Expenses 18,010 20,132 Amortization of Deferred Acquisition Costs 10,377 12,446 Broadcasting Expenses 31,157 24,363 Interest Expense 3,927 3,290 Loss on sale of subsidiary -- 13,811 Other Expenses 3,622 5,464 --------- --------- Total Expenses 121,140 157,169 --------- --------- Income Before Income Taxes 3,462 11,353 Income Tax Provision 942 13,776 --------- --------- NET INCOME (LOSS) $ 2,520 $ (2,423) ========= ========= EARNINGS (LOSS) PER SHARE: Basic earnings (loss) per common share $ .11 $ (0.15) Diluted earnings (loss) per common share $ .11 $ (0.15) Dividends Per Common Share $ .22 $ .20
See Notes to Consolidated and Condensed Financial Statements. 3 4 THE LIBERTY CORPORATION AND SUBSIDIARIES CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ------------------------------- (In 000's) 1999 1998 ----------- ----------- (Unaudited) OPERATING ACTIVITIES Net income (loss) $ 2,520 $ (2,423) Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Decrease) increase in policy liabilities (4,937) 705 Decrease in accounts payable and accrued liabilities (8,288) (1,248) Increase in receivables (1,478) (31) Amortization of policy acquisition costs 10,376 12,446 Policy acquisition costs deferred (10,572) (15,332) Realized investment losses (gains ) 8,344 (3,129) Gain on sale of operating assets (109) (166) Loss on sale of subsidiary -- 13,811 Minority interest in earnings of subsidiary -- 781 Depreciation and amortization 5,420 4,693 Amortization of bond premium and discount (1,000) (2,398) Provision for deferred income taxes (1,166) 1,373 All other operating activities, net 7,620 758 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,730 9,840 INVESTMENT ACTIVITIES Investment securities sold 17,622 33,135 Investment securities matured or redeemed by issuer 32,347 64,408 Cost of investment securities acquired - available for sale (53,396) (142,828) Mortgage loans made (4,399) (30,077) Mortgage loan repayments 6,802 28,277 Purchase of investment real estate, buildings and equipment (3,353) (5,307) Sale of investment real estate, buildings and equipment 2,346 2,388 Purchase of short-term investments -- (8,255) Sales of short-term investments -- 8,255 All other investment activities, net (869) 132 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (2,900) (49,872) FINANCING ACTIVITIES Proceeds from borrowings 663,000 1,359,000 Principal payments on debt (670,000) (1,236,840) Dividends paid (4,626) (4,360) Stock issued for employee benefit and compensation programs 821 1,713 Repurchase of common stock -- (125,036) Return of policyholders' account balances (7,793) (9,568) Receipts credited to policyholders' account balances 15,015 17,311 ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,583) 2,220 INCREASE (DECREASE) IN CASH 247 (37,812) Cash at beginning of year 16,633 61,786 ----------- ----------- CASH AT END OF PERIOD $ 16,880 $ 23,974 =========== ===========
See Notes to Consolidated and Condensed Financial Statements 4 5 THE LIBERTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS March 31, 1999 (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated and condensed financial statements of The Liberty Corporation and Subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The information included is not necessarily indicative of the annual results that may be expected for the year ended December 31, 1999, 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, 1998. 2. COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This Standard established 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. The components of comprehensive income, net of related income taxes, for the three months ended March 31, 1999 and 1998, respectively are as follows:
(In $000s) 1999 1998 ---------- ------------------------------------------ Net Income $ 2,520 $(2,423) Unrealized losses on securities (7,562) (602) Foreign currency translation adjustments - 146 ------------------------------------------ Comprehensive income $(5,042) $(2,879) ==========================================
3. EARNINGS PER SHARE The calculation of basic and diluted earnings per share is as follows:
Three Months Ended March 31, ---------------------------------- 1999 1998 --------------- --------------- (Unaudited) Numerator: Net Income $ 2,520,000 $(2,423,000) Preferred Stock Dividends (534,000) (676,000) --------------- -------------- Numerator for basic earnings per share - income available to common shareholders 1,986,000 (3,099,000) Effect of Dilutive securities: Stock Options --- --- Redeemable Preferred Stock --- --- Convertible Preferred Stock --- --- --------------- --------------- Numerator for diluted earnings per share $ 1,986,000 $(3,099,000) =============== =============== Denominator: Denominator for basic earnings per share - weighted average shares 18,563,000 20,161,000 Effect of Dilutive securities: Stock Options --- --- Redeemable Preferred Stock --- --- Convertible Preferred Stock --- --- --------------- --------------- Denominator for diluted earnings per share - weighted average shares plus assumed conversions 18,563,000 20,161,000 =============== =============== Basic Earnings Per Share $.11 $(0.15) =============== ============== Diluted Earnings Per Share $.11 $(0.15) =============== ==============
5 6 4. 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 adopted this standard as of January 1, 1998. The Company operates primarily in the television broadcasting and life insurance industries. The Company currently has five reportable segments. Prior to the sale of Pierce in April 1998, the Company had six reportable segments. All segments except the television broadcasting are included in Insurance Operations. The Company evaluates segment performance based on several factors. For segments that are comprised of a separate company (LIS and Cosmos) the primary factor is net income excluding unusual, non-operating items. For those segments that are not separate companies performance is evaluated based on income before income taxes excluding realized gains and losses and unusual, non-operating items. See the Company's 1998 form 10K for additional information on the types of operations for each of the Company's segments. The following tables summarize financial information by segment for the periods ended March 31, 1999 and 1998:
Liberty LIS Cosmos - For the quarter Liberty Life Pierce Insurance Adjust- Total Television ended March 31, Life Liberty National Admin- Corporate ments Insurance Broad- Elimin- Total 1999 Agency Direct Pre-need istration & Other (1) Operations casting ations Consolidated - ------------------- -------- --------- -------- -------- --------- --------- ---------- --------- --------- ----------- Outside revenues $51,447 $29,711 $ - $ 4,668 $ 7,254 $(8,344) $ 84,736 $ 39,866 $ - $ 124,602 Intersegment revenues - - - 9,612 5,300 - 14,912 - (14,912) - Segment profit (loss) before income taxes 3,307 2,121 - (1,113) 3,791 (8,344) (238) 3,700 3,462 Income tax expense (benefit) - (385) 142 (243) 1,185 942 --------- --------- ---------- --------- ----------- Segment net income - $ (728) $ 5 $ 2,515 $ 2,520 ========= ========= ========== ========= ===========
Liberty LIS Cosmos - For the quarter Liberty Life Pierce Insurance Adjust- Total Television ended March 31, Life Liberty National Admin- Corporate ments Insurance Broad- Elimin- Total 1998 Agency Direct Pre-need istration & Other (1) Operations casting ations Consolidated - ------------------- -------- --------- -------- -------- --------- --------- ---------- --------- --------- ----------- Outside revenues $52,535 $28,595 $ 38,460 $ 4,152 $ 9,284 $ 3,129 $ 136,155 $ 32,367 $ - $ 168,522 Intersegment revenues - - - - 2,308 561 2,869 - (2,869) - Segment profit (loss) before income taxes 6,035 3,766 5,640 650 1,260 (11,463) 5,888 5,465 11,353 Income tax expense (benefit) 2,098 249 9,698 12,045 1,731 13,776 --------- --------- ---------- --------- ----------- Segment net income $ 3,452 $ 401 $ (6,157) $ 3,734 $ (2,423) ========= ========= ========== ========= ===========
(1) The adjustments column reflects unallocated realized investment gains and losses, income taxes, and unusual, non-operating items. 6 7 5. COMMITMENTS AND CONTINGENCIES At March 31, 1999, the Company had made commitments as shown below: (In 000's) Investment real estate $ 836 Mortgage loans and bonds 18,368 Other 48 ----------- $19,252 =========== 6. REDEMPTION OF 1994-A and 1994-B SERIES PREFERRED STOCK On April 29, 1999, the Company announced that it has called for the redemption of its 1994-A Series voting cumulative preferred stock, and its 1994-B Series voting cumulative preferred stock. Shares will be redeemed at $35.00 per share and $37.50 per share for the 1994-A and 1994-B preferred stock, respectively, plus accrued interest from April 1, 1999 through the redemption date. Alternatively, at any time up to 5:00 p.m. Eastern time on May 25, 1999, holders of either series of preferred stock may convert their shares into the common stock of the Company on a share for share basis. 7. SALE OF PIERCE NATIONAL LIFE On April 8, 1998, the Company completed the sale of Pierce National Life Insurance Company to Fortis, Inc. Fortis purchased 21% of the common stock of Pierce as of December 31, 1997. The Company received cash totaling approximately $139 million at closing. The Company recognized a loss on the sale of Pierce of $18.9 million during the first quarter of 1998. 8. 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 PART I, ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Unaudited) The Liberty Corporation is a holding company with operations in insurance and broadcasting. Liberty ("the Company") markets its insurance products through Liberty Life Insurance Company. Additionally, Liberty is one of the nation's largest life insurance third-party administrators, providing administrative services for approximately 4.4 million policies through Liberty Insurance Services Corporation. The Company's broadcasting subsidiary, Cosmos Broadcasting, consists of eleven network affiliated stations in the Southeast and Midwest. Six stations are affiliated with NBC, three with ABC, and two with CBS. SIGNIFICANT 1998 TRANSACTIONS AFFECTING COMPARABILITY WITH 1999 Sale of Pierce National Life On April 8, 1998, Liberty completed the sale of Pierce National Life Insurance Company ("Pierce") to Fortis, Inc. Liberty recognized a loss of approximately $18.9 million related to the sale of Pierce in the first quarter of 1998. Stock Repurchase On March 11, 1998, Liberty completed the repurchase of 2.4 million shares of common stock at a price of $52 per share. The stock repurchase was funded from the Company's credit facility. RESULTS OF OPERATIONS Liberty reported a consolidated first quarter net income of $2.5 million compared with a net loss of $2.4 million for the first quarter of 1998 (see table below). Operating earnings (which exclude net realized investment gains and losses and the loss on the Pierce sale) were $7.9 million, a decrease of approximately 45% compared with the $14.5 million reported in the comparable prior-year quarter. Contributing to the decline in operating earnings was the dilutive impact of the three television station acquisitions Cosmos completed in the second half of 1998, higher policyholder benefit costs in Liberty Life, and a reduction in operating earnings at Liberty Insurance Services. Net income (loss) reflects after-tax realized investment losses of $5.4 million in the first quarter of 1999 compared with gains of $2.0 million in 1998. 8 9 The Liberty Corporation and Subsidiaries Quarter ended March 31, 1999 Management's Discussion and Analysis of Operations
First Quarter 1999 1998 --------- --------- Insurance revenues $ 93,080 $ 133,026 Broadcasting revenues 39,866 32,367 --------- --------- Total revenues (excluding realized gains and losses) 132,946 165,393 ========= ========= Insurance operating earnings $ 5,386 $ 10,760 Broadcasting operating earnings 2,515 3,734 --------- --------- Total operating earnings 7,901 14,494 Net realized investment gains (losses) (5,381) 2,002 Loss on sale of subsidiary -- (18,919) --------- --------- Net income (loss) $ 2,520 $ (2,423) ========= =========
Consolidated revenues (excluding realized gains and losses) decreased $32.4 million (20%) compared to the first quarter of 1998. Adjusting to exclude the first quarter revenues of Pierce National Life Insurance Company, which was sold in April 1998, and excluding realized investment gains and losses, first-quarter revenues increased 5 percent compared with the first quarter of 1998. Pro-forma insurance revenues were level with the comparable prior-year period while broadcasting revenues increased 23% (3% excluding the impact of the three stations acquired during 1998). Insurance operating earnings of $5.4 million for the quarter were down $5.4 million (50%) from the comparable prior year quarter. On a pro forma basis (adjusting for the sale of Pierce and the use of the sale proceeds) operating earnings declined approximately $3.1 million as compared to the prior year first quarter. Liberty Life operating earnings were down $2.6 million compared with the first quarter of 1998 as higher benefit costs reduced earnings $1.8 million and investment income declined $0.5 million. The increased mortality cost combined with lower investment income contributed to a decline in agency pre-tax earnings. In addition to increased mortality cost, LibertyDirect experienced increased expenses in its direct marketing operations, as compared to the prior year first quarter. Liberty Insurance Services' (LIS) contribution to first quarter 1999 operating earnings was $1.1 million lower than the first quarter of 1998. LIS's fluctuation reflects lower earnings from incremental client services in first quarter 1999 compared with the prior-year first quarter. The broadcasting operations reported operating earnings of $2.5 million, down $1.2 million from the $3.7 million reported in the prior-year first quarter. The decline in earnings is attributable to higher levels of non-cash amortization expense and additional financing costs related to the 1998 station acquisitions. 9 10 The Liberty Corporation and Subsidiaries Quarter ended March 31, 1999 Management's Discussion and Analysis of Operations INVESTMENTS As of March 31, 1999, Liberty's consolidated investment portfolio was carried at $1.3 billion. Approximately 70% 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 (3%), real estate (2%), and other long term investments (2%). The overall average credit rating of fixed maturity securities as of March 31, 1999 was A. Less than investment grade securities comprised 5.4% of the fixed maturity portfolio at March 31, 1999, compared with 4.9% at December 31, 1998. 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 $19.2 million on fixed maturity securities available for sale and equity securities as of March 31, 1999. This compares with an unrealized gain of $26.7 million at December 31, 1998. Due to the requirements of SFAS No. 115, shareholders' equity will be subject to future volatility from the effects of interest rate fluctuations on the fair value of fixed maturity securities. CAPITAL, FINANCING, AND LIQUIDITY At March 31, 1999 the Company's borrowings and notes payable amounted to $278.0 million, a decrease of $7.0 million from the $285.0 million outstanding at December 31, 1998. Other Company commitments are shown in Note 4 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, 1998. 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, 1998. CASH FLOWS The Company's net cash flow from operating activities was $6.7 million for the first three months of 1999 compared to $9.8 million for the same period of 1998. The Company's net cash used in investing activities was $2.9 million in 1999 compared with $49.9 million in 1998. The decrease in net cash used in investing activities resulted from a decrease in the purchasing of investment securities. In the first quarter of 1998 investment securities were purchased using the proceeds received from Fortis during 1997 when it acquired 21% of Pierce's common stock for approximately $37.2 million. Cash flow used in financing activities was $3.6 million 1999, compared with $2.2 million provided in 1998. 10 11 The Liberty Corporation and Subsidiaries Quarter ended March 31, 1999 Management's Discussion and Analysis of Operations IMPACT OF YEAR 2000 The Year 2000 issue is the result of computer programs written to use two digits rather than four to define the applicable year. Any 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. The Company has determined that it will be required to modify or replace significant portions of its software and certain hardware so that its 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 the television stations. 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. Progress in Becoming Year 2000 Compliant As mentioned previously the Company has completed the assessment phase to determine its information technology exposures. Liberty is 100% complete with its assessment phase, approximately 95% complete on the remediation phase, 75% 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 June 30, 1999. Completion of the implementation phase for all significant systems is expected by June 30, 1999. The Company is approximately 90% complete in the remediation phase of its operating equipment used in the broadcasting operations. The Company is approximately 95% complete with the testing of its remediated operating equipment. Once testing is complete, the operating equipment will be ready for immediate use. Testing and implementation of affected equipment is expected to be 100% complete by July 31, 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 collection system and is 95% complete with the testing phase. Testing of all significant systems that are tied to vendor interfaces was completed by December 31, 1998. The Company has asked its critical vendors to provide, in written form, documentation relating to their Year 2000 compliance. The Company has received responses from over 75% of those sent. Certain of the responses were not deemed acceptable, and follow up procedures are currently being performed on these vendors, and those that have not yet replied. 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, although 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. 11 12 The Liberty Corporation and Subsidiaries Quarter ended March 31, 1999 Management's Discussion and Analysis of Operations Risk and Risk Factors Management 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, for unforeseen reasons, 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. 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, such as, 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. Year 2000 Costs The Company is using both internal and external resources to reprogram or replace, test and implement the software and equipment to ensure it 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 were 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 $18.4 million and is being funded through operating cash flows. Of the total, approximately $11.1 million is expected to be expensed, 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 $16.3 million of these costs. ACCOUNTING DEVELOPMENTS In June, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". This standard is required to be adopted in years beginning after June 15, 1999. The Company has not determined when it will adopt this standard. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will be either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company's use of derivatives is limited to fixing the cost of borrowings on a portion of the outstanding debt. The Company has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Company, but it is not expected to be material. MARKET RISK EXPOSURES With respect to the Company's exposure to market risks, see management's comments under the Fixed Maturity Securities heading in the Company's annual report included in its 1998 Form 10-K. 12 13 The Liberty Corporation and Subsidiaries Quarter ended March 31, 1999 Management's Discussion and Analysis of Operations 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, is 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. 13 14 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. INDEX TO EXHIBITS EXHIBIT 11 Consolidated Earnings Per Share Computation (included in Note 3 of Notes to Consolidated and Condensed Financial Statements) EXHIBIT 27 Financial Data Schedule (Electronic Filing Only) 14 15 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: May 14, 1999 - ----------------------- (Registrant) /s/ Kenneth W. Jones - -------------------- Kenneth W. Jones Corporate Controller /s/ Martha G. Williams - ---------------------- Martha G. Williams Vice President, General Counsel and Secretary 15 EX-27 2 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 922,523 0 0 56,120 212,075 33,268 1,337,452 16,880 276,189 289,890 2,388,047 1,282,214 0 33,896 25,065 278,000 16,603 20,999 73,073 430,794 2,388,047 64,053 24,359 (8,344) 44,534 35,488 10,377 36,569 3,462 942 2,520 0 0 0 2,520 .11 .11 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----