SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
December 31, 1999
Date of Report (Date of earliest event reported)
KENTUCKY INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
KENTUCKY
(State or other jurisdiction of incorporation)
0-3216 61-0574893
(Commission File Number) (IRS Employer Identification No.)
200 Capital Avenue
P.O. Box 717
Frankfort, Kentucky 40602-0717
(Address of principal executive offices) (Zip Code)
(502) 223-2361
(Registrant's Telephone Number, including Area Code)
Not Applicable
(Former name or former address, if changed since last report)
Item 1. Changes In Control of Registrant. Not Applicable
Item 2. Acquisition or Dispositions of Assets
The Registrant and Investors Heritage Life Insurance Company ("Investors
Heritage") entered into a Share Exchange Agreement effective December 31, 1999
pursuant to which the Registrant became the sole stockholder of Investors
Heritage through the issuance of the Registrant's common stock in exchange for
the outstanding common stock of Investors Heritage. As a consequence of this
transaction, the Registrant indirectly acquired the assets of Investors
Heritage. These assets include principally bonds (government, corporate, asset-
backed, mortgage-backed and foreign) as well as real estate mortgages. None of
the assets acquired by the Registrant constitute plant, equipment or other
physical property.
As consideration for the acquisition, the Registrant is exchanging 1.24 shares
of its common stock for each share of the outstanding common stock of Investors
Heritage. The nature of the consideration is solely the Registrant's common
stock. The Registrant is issuing approximately 292,000 shares of its common
stock in the transaction. Therefore, the total amount of consideration paid by
the Registrant is approximately $6,862,000 based on the bid price quoted per
share of $23.50 for the Registrant's common stock on December 31, 1999.
Investors Heritage retained The Robinson-Humphrey Company, LLC ("Robinson-
Humphrey") to provide financial advice and a fairness opinion, from a financial
point of view, of the consideration received by Investors Heritage's
stockholders. Its opinion is based on economic, market and other conditions
as in effect on, and the information made available to it, as of the date of its
analyses. In arriving at its opinion, Robinson-Humphrey reviewed and analyzed:
Publicly available information concerning Investors Heritage and the Registrant
which it believed relevant to its analysis;
Financial and operational information with respect to the business, operations
and prospects of Investors Heritage and the Registrant furnished to Robinson-
Humphrey;
A comparison of the historical financial results and present financial condition
of Investors Heritage and the Registrant with other companies that it deemed
relevant;
The trading history of Investors Heritage's common stock and the Registrant's
common stock for the period of June 1, 1995 to August 16, 1999;
The range of multiples of stock price to earnings per share and stock price to
generally accepted accounting principles stockholders' equity per share at which
Investors Heritage and the Registrant have traded since March 31, 1997; and
A comparison of the financial terms of the share exchange with terms of other
recent transactions which it deemed relevant.
In addition, Robinson-Humphrey had discussions with the management of Investors
Heritage concerning its business, operations, assets, present condition and
future prospects and undertook other studies, analyses and investigations as it
deemed appropriate.
Prior to the effective date of the transaction, the directors and executive
officers of Investors Heritage and their affiliates, including the Registrant,
owned 766,036 shares or 85% of the issued and outstanding common stock of
Investors Heritage. The holders of these shares voted in favor of the share
exchange. In addition, seven of the directors and seven of the officers of
Investors Heritage are also directors and officers of the Registrant.
Item 3. Bankruptcy or Receivership. Not Applicable
Item 4. Changes in Registrant Certifying Accountant. Not Applicable
Item 5. Other Events. Not Applicable
Item 6. Resignations of Registrant's Directors. Not Applicable
Item 7. Financial Statements and Exhibits.
(a) Financial Statements incorporated herein by reference in Item 8 to the
Investors Heritage Life Insurance Company Annual Report to Stockholders for
the year ended December 31, 1998 (pages 30-47) filed as Exhibit 1 to the
Investors Heritage Life Insurance Company Form 10-K filed with the Securities
and Exchange Commission on March 27, 1999.
(b) Financial Statements incorporated herein by reference in Item 1 to the
Investors Heritage Form 10-Q for the quarter ended September 30, 1999, filed
with the Securities and Exchange Commission on November 11, 1999.
(c) Pro Forma Financial Information.
(d) Exhibits.
10.1 Share Exchange Agreement between Kentucky Investors, Inc. and Investors
Heritage Life Insurance Company incorporated herein by reference in Annex A to
the Kentucky Investors, Inc. Form S-4 (file #333-87947) filed with the
Securities and Exchange Commission on October 12, 1999.
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated March 24, 1999,
with respect to the consolidated financial statements and schedules of Investors
Heritage Life Insurance Company, included in their Annual Report (Form 10-K) for
the year ended December 31, 1998, in the Registration Statement (Form S-4) and
related Prospectus of Kentucky Investors, Inc. for the registration of 291,316
shares of its common stock filed with the Securities and Exchange Commission.
/s/
Ernst & Young LLP
Louisville, Kentucky
January 12, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KENTUCKY INVESTORS, INC.
By: /s/
Harry Lee Waterfield II
Its: President
Date: January 18, 2000
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data gives effect to the share exchange
as a purchase under generally accepted accounting principles. The following
unaudited pro forma financial data has been prepared using the historical
consolidated financial statements incorporated by reference in Kentucky
Investors' Annual Report on Form 10-K for the year ended December 31, 1998.
Approximately 99% of Kentucky Investors' operations are comprised of the
operations of Investors Heritage. For the pro forma presentation of the
purchase of the minority interest of Investors Heritage by Kentucky Investors,
only Kentucky Investors' historical financial data has been presented.
The accompanying unaudited pro forma balance sheet gives effect to the
share exchange as if it had occurred as of September 30, 1999. Furthermore, the
unaudited pro forma statements of income include the impact of the share
exchange as if it had occurred on January 1, 1999 and 1998 for the unaudited pro
forma statements of income for the nine months ending September 30, 1999 and the
year ending December 31, 1998, respectively.
The unaudited pro forma income per share data is based upon the historical
average number of outstanding shares of Kentucky Investors common stock,
adjusted to include the number of Kentucky Investors shares of common stock that
would be issued in the share exchange based upon an exchange ratio of 1.24 to 1.
The unaudited pro forma share data and the unaudited equivalent pro forma per
share data for Kentucky Investors do not include any cost savings or other
financial or operational benefits from the share exchange.
Stockholders should read the information set forth below in conjunction
with the historical consolidated financial data of Kentucky Investors and
Investors Heritage incorporated by reference herein.
The actual operating results might have differed from the pro forma results
if Kentucky Investors and Investors Heritage had actually been combined during
the periods presented. You should not rely on the pro forma information as
being indicative of either the historical results that we would have had or the
future results that we will experience after the share exchange is completed.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1999
Historical Kentucky
Kentucky Pro Forma Investors
Investors Adjustments as Adjusted
Assets
Investments
Securities available-for
-sale at fair value:
Fixed maturities $194,604,358 $194,604,358
Equity securities 2,577,336 2,577,336
Mortgage loans on
real estate 14,674,647 120,823 (2) 14,795,470
Policy loans 7,291,783 7,291,783
Other long-term
investments 485,332 53,081 (2) 538,413
Short-term investments 1,001,076 1,001,076
Total investments 220,634,532 173,904 220,808,436
Cash and cash
equivalents 5,468,281 5,468,281
Accrued investment
income 3,180,732 3,180,732
Due and deferred
premiums 4,496,596 4,496,596
Deferred acquisition
costs 30,141,274 (7,836,731)(2),(4) 22,304,543
Present value of future
profits 0 405,809 (2) 405,809
Leased property under
capital leases 292,755 292,755
Property and equipment 1,580,594 568,109 (2) 2,148,703
Goodwill 1,802,170 (379,491)(2) 1,422,679
Other Assets 1,687,021 1,687,021
Amounts recoverable
from reinsurers 27,816,953 (338,607)(2) 27,478,346
$297,100,908 ($7,407,007) $289,693,901
Liabilities and Stock-
holders' Equity
Liabilities
Policy liabilities:
Benefit reserves $221,703,744 $221,703,744
Unearned premium
reserves 23,657,239 (307,544)(2) 23,349,695
Policy claims 1,960,559 1,960,559
Other policyholders'
funds:
Dividend & endow-
ment accumula-
tions 1,025,389 1,025,389
Reserves for divi-
dends & endow-
ments & other 809,546 809,546
Total policy
liabilities 249,156,477 (307,544) 248,848,933
Federal income
taxes 4,905,141 (3,658,513)(2),(6) 1,246,628
Obligations under
capital leases 300,915 300,915
Other liabilities 4,276,105 162,000 (2) 4,438,105
Total liabilities 258,638,638 (3,804,057)(2) 254,834,581
Minority interest in
subsidiary 10,709,233 (10,709,233)(2) 0
Stockholders' Equity
Common stock 857,886 291,685 (2) 1,149,571
Paid-in surplus 3,510,342 4,457,523 (2) 7,967,865
Accumulated other
comprehensive
income 329,209 329,209
Retained earnings 23,055,600 2,357,075 (2) 25,412,675
Total stock-
holders equity 27,753,037 7,106,283 34,859,320
$297,100,908 ($7,407,007) $289,693,901
See Notes to Unaudited Pro Forma Financial Data.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Historical Kentucky
Kentucky Pro Forma Investors
Investors Adjustments as Adjusted
Revenues
Premiums and other
considerations $35,546,511 $35,546,511
Investment income,
net of expense 11,273,046 (288,967) (3) 10,984,079
Realized loss on
investments, net (177,834) (177,834)
Other income 729,026 729,026
Total revenue 47,370,749 (288,967) 47,081,782
Benefits and Expenses
Death and other
benefits 16,918,730 16,918,730
Guaranteed annual
endowments 605,093 605,093
Dividends to policy-
holders 549,490 549,490
Increase on benefit
reserves and unearned
premiums 15,628,611 15,628,611
Acquisition costs
deferred (6,598,304) (6,598,304)
Amortization of deferred
acquisition costs 5,143,130 (1,439,257)(4) 3,703,873
Commissions 4,759,313 4,759,313
Other insurance
expense 6,756,186 (35,7122)(5) 6,720,464
Total benefits
and expenses 43,762,249 (1,474,979) 42,287,270
Income from operations
before federal income
tax and minority
interest in net income
of subsidiary 3,608,500 1,186,012 4,794,512
Provision for income taxes 1,176,703 403,244 (6) 1,579,947
Income from operations
before minority
interest in net income
of subsidiary 2,431,797 782,768 3,214,565
Minority interest in net
income of subsidiary 642,566 (642,566)(7) 0
Net Income $ 1,789,231 $1,425,334 $ 3,214,565
Weighted Average
Number of Common
Shares Outstanding $ 851,380 $ 1,138,628
Earnings per share $2.10 $2.82
See Notes to Unaudited Pro Forma Financial Data.
Unaudited Pro Forma Statement of Income
For the Year Ended December 31, 1998
Historical Kentucky
Kentucky Pro Forma Investors
Investors Adjustments as Adjusted
Revenues
Premiums and other
considerations $42,638,289 $42,638,289
Investment income,
net of expense 14,167,232 (203,823)(3) 13,963,409
Realized loss on
investments, net 126,179 126,179
Other income 776,612 776,612
Total revenue 57,708,312 (203,823) 57,504,489
Benefits and Expenses
Death and other
benefits 20,767,497 20,767,497
Guaranteed annual
endowments 800,041 800,041
Dividends to policy-
holders 626,325 626,325
Increase on benefit
reserves and unearned
premiums 18,400,657 18,400,657
Acquisition costs
deferred (7,006,366) (7,006,366)
Amortization of deferred
acquisition costs 6,497,263 (1,712,143)(4) 4,785,120
Commissions 5,231,882 5,231,882
Other insurance
expense 8,380,727 (52,805)(5) 8,327,922
Total benefits
and expenses 53,698,026 (1,764,948) 51,933,078
Income from operations
before federal income
tax and minority
interest in net income
of subsidiary 4,010,286 1,561,125 5,571,411
Provision for income taxes 1,314,000 530,783 (6) 1,844,783
Income from operations
before minority
interest in net income
of subsidiary 2,696,286 1,030,343 3,726,629
Minority interest in net
income of subsidiary 721,149 (721,149)(7) 0
Net Income $ 1,975,137 $1,751,492 $3,7,26,629
Weighted Average
Number of Common
Shares Outstanding $ 843,251 $ 1,141,154
Earnings per share $2.34 $3.27
See Notes to Unaudited Pro Forma Financial Data.
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
In connection with the share exchange, the following pro forma adjustments
are being made to the historical consolidated balance sheet and consolidated
statements of income of Kentucky Investors. The objective of these adjustments
is to illustrate the possible scope of the change in Kentucky Investor's
historical consolidated financial position and results of operations as a result
of the share exchange.
The following describes the pro forma adjustments reflected in the
accompanying unaudited pro forma financial statements.
(1) Kentucky Investors' total assets as of December 31, 1998, on a pro forma
basis, would have been approximately $278,965,000.
(2) Reflects the share exchange whereby Kentucky Investors acquired 235,230
Investors Heritage shares held by minority stockholders through an exchange
of Kentucky Investors stock at an exchange rate of 1.24 to 1. This
transaction is treated as a purchase whereby the minority interest in
Investors Heritage's assets and liabilities is recorded at fair value. The
fair value of the minority interest assets and liabilities exceeded the
purchase price by $6,948,372, which represents negative goodwill. The
resulting negative goodwill was applied against the present value of future
profits and the minority interest portion of goodwill. Present value of
future profits of $405,809 remains after the application of negative
goodwill. The portion of the assets and liabilities representing the
historical ownership interest of Kentucky Investors will continue to be
carried at historical book value. The effect of the purchase adjustments
on operations for each of the next five years beginning with the year ended
December 31, 1999 is to increase net income by approximately $255,000.
(3) The cost bases of Investors Heritage's fixed maturities have been increased
to current market values at the pro forma purchase dates to the extent the
fixed maturities were part of minority interest's asset ownership.
Amortization of the net premium on fixed maturities has been adjusted to
reflect the change in amortized cost basis assuming an average duration of
the portfolio of 9.05 for 1998 and 8.10 for 1999.
(4) The portion of deferred acquisition costs owned by the minority interest
has been eliminated. The amortization related to the eliminated deferred
acquisition costs has been reflected as a pro forma adjustment.
(5) Other insurance expense was decreased to eliminate the minority interest
portion of goodwill amortization recognized. Additionally, depreciation was
adjusted for increases in cost basis for real estate owned and home office
property held using an average estimated useful life of 30 years.
(6) Income tax effects resulting from the pro forma adjustments have been
reflected at a rate of 34%.
(7) The minority interest portion in net income of the subsidiary has been
eliminated to reflect the 100% ownership by Kentucky Investors of Investors
Heritage subsequent to the share exchange.