=================================================================
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
---------------
Date of Report (Date of earliest event reported):
June 30, 2000
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Kentucky 33-13142 61-0244930
(State or other 33-15521 (IRS Employer
jurisdiction of (Commission File Identification No.)
incorporation) Number)
Kincaid Towers, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
(859) 253-5351
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
================================================================
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information
-----------------------------------------------------
and Exhibits.
------------
(a) Financial Statements.
--------------------
Filed with this report are the following documents of
Kentucky Central Life Insurance Company-In Liquidation:
(1) Balance Sheet dated June 30, 2000 prepared on modified
liquidating basis (unaudited).
(2) Statements of Receipts and Disbursements for the six
months ended June 30, 2000 prepared on a modified
liquidating basis (unaudited).
(3) Notes to financial statements which have been filed
with this Form 8-K.
<PAGE>
Signatures
----------
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.
Dated: June 30, 2000
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
By: /s/ George Nichols III
------------------------------------
George Nichols III, Commissioner
of the Kentucky Department of
Insurance, as Liquidator of
Kentucky Central Life Insurance
Company
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF JUNE 30, 2000
(UNAUDITED)
<TABLE>
ASSETS Notes
<S> <C> <C> <C>
Cash: 5
Unrestricted $ 1,587,775
Restricted 40,034
----------
$ 1,627,809
Short-term investments: 6
Unrestricted 12,803,903
Restricted 16,864
----------
12,820,767
Bonds: 7
Unrestricted 61,946,514
61,946,514
Mortgage loans 8 637,460
Real estate 9 22,259,400
Investment in M-C Realty, Inc. 10 (222,740)
Federal income tax recoverable 11 0
Miscellaneous assets 12 2,000
Accrued investment income 1,035,257
------------
Total Assets $100,106,467
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
As of June 30, 2000
(UNAUDITED)
<TABLE>
LIABILITIES Notes
<S> <C> <C> <C>
Class 1
Guaranty associations' reimbursable
costs under the Plan 1,13 $ 7,000,000
Accrued administrative expenses 957,960
------------
$ 7,957,960
Class 2
Policy benefits 1 2,139,414
Opt-in amounts 1,14 102,645,336
Guaranty associations'
post-closing costs 1,15 33,878,198
------------
138,662,948
Class 3
Claims of the federal government 21(a) 0
Class 4
Not evaluated
Class 5
General creditors 16 9,149,144
Escheat funds 488,118
Taxes payable 4,497,750
------------
14,135,012
Class 6
2,222
Class 7
Not evaluated
Class 8 4
Policyholder deductible 16,853,300
General creditor deductible 33,127
Escheat funds deductible 2,500
Taxes payable deductible 2,250
Class 6 deductible 50
------------
16,891,227
Class 9 0
Class 10 17
Shareholder outstanding dividends
and fractional shares 666,224
Common capital stock:
Voting - par value, $100 per sh. 100,000
Class A non-voting - par value,
$1 per sh. 13,314,830
Preferred dividends, Mid-Central 3 2,639,970
Preferred stock, Mid-Central 3 8,799,900
------------
25,520,924
Other Liabilities 22
Tenant security deposits 5 40,034
------------
40,034
------------
Total Liabilities $203,210,327
(Deficiency) of Assets Over Liabilities (103,103,860)
------------
Total Liabilities and (Deficiency) $100,106,467
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
For the Six Months Ended June 30, 2000
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C>
RECEIPTS 2 1/1-6/30/00
-------- -----------
Rental receipts 1,022,405
Mortgage loans:
(a) Principal 0
(b) Interest 126,655
Proceeds from:
(a) Mortgage loans 4,000,000
(b) Real estate 884,721
(c) Other invested assets 0
Agents' balances received 75,532
Proceeds from settlements 42,670
Other miscellaneous receipts and changes 15,644
-----------
Receipts before Investment Activities 6,167,626
-----------
Interest and dividend receipts 1,566,841
Proceeds from Sales:
(a) Short-term investments 15,653,146
(b) Bonds 23,913,391
(c) Stocks 0
-----------
Receipts from Investment Activities 41,133,378
-----------
Total Cash Receipts $47,301,004
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C>
DISBURSEMENTS 2 1/1-6/30/00
------------- -----------
Losses/benefit payments 18 $ 0
LAE payments 0
Legal fees 335,457
Accounting fees 35,123
Receivers fees 24,470
Consulting fees 239,860
Salaries 164,350
Employee benefits 37,908
Real estate taxes and expenses 591,712
Payroll and other taxes 93,784
Rent and related expenses 79,969
Office expenses and miscellaneous 210,947
Interest expense 0
-----------
Total Disbursements 1,813,579
-----------
Distributions:
(a) Distributions of assets 1 0
(b) Early access distributions 0
-----------
Distributions 0
-----------
Disbursements & Distributions Before
Investment Activities 1,813,579
-----------
Investment expenses 19
Purchase of:
(a) Short-term investments 12,901,771
(b) Bonds 32,357,518
(c) Stocks 0
(d) Mortgage loans 0
(e) Real estate 0
-----------
Disbursements for Investment Activities 45,259,289
-----------
Total Cash Disbursements 47,072,868
-----------
Net Increase (Decrease) in Cash 228,137
Cash at December 31,1999 1,399,673
-----------
Cash at June 30, 2000 5 $ 1,627,809
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-------------------------------------------------------------------------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
NOTES TO THE FINANCIAL STATEMENTS
June 30,2000
(UNAUDITED)
1. REORGANIZATION AND REINSURANCE OF THE LIFE AND HEALTH
INSURANCE ASSETS OF KENTUCKY CENTRAL LIFE INSURANCE COMPANY AND
ORDER OF LIQUIDATION - On February 12, 1993, Kentucky Central
Life Insurance Company ("Kentucky Central" or the "Company") was
placed into rehabilitation by an order of the Franklin Circuit
Court ("Court") after a determination by the Commissioner of the
Kentucky Department of Insurance that such action was necessary
for the protection of the Company's policyholders. On February
9, 1994, after a thorough investigation regarding rehabilitating
versus liquidating the Company, the Commissioner, in his capacity
as Rehabilitator of Kentucky Central, filed a motion for
reorganization and reinsurance of the Company's life and health
assets and a petition of liquidation with the Court.
On August 18, 1994, the Court issued an order approving the
motion of the Rehabilitator for Reorganization and Reinsurance of
the Company's life and health assets with Jefferson-Pilot Life
Insurance Company ("JP Life"). (The Rehabilitator's Plan of
Reorganization and Reinsurance together with the Guaranty
Association Participation Agreement By and Among the National
Organization of Life and Health Insurance Guaranty Associations
and the Participating State Life and Health Insurance Guaranty
Associations and Kentucky Central Life Insurance Company Acting
By and Through Don W. Stephens, Insurance Commissioner of the
Commonwealth of Kentucky, As Rehabilitator and Liquidator of KCL
and Jefferson Pilot Life Insurance Company are hereinafter
collectively referred to as the "Plan.") In conjunction
therewith, the Court issued an order terminating the
rehabilitation and directing the liquidation of the Company (the
"Order"). The Company was ordered into liquidation following a
determination by the Court that the Company was insolvent and
that rehabilitation of the Company was not feasible. The Order
was affirmed by the Supreme Court of Kentucky on May 11, 1995.
The key element of the Rehabilitator's Plan of
Reorganization and Reinsurance, the transfer to JP Life of most
of the Company's assets in exchange for JP Life's agreement to
assume and "enhance" the life insurance policies and annuity
contracts previously issued by the Company, was closed on May 31,
1995. All policyholders of the Company were given the right, if
they chose to do so, to keep their life insurance and annuity
contracts, and immediately become policyholders of JP Life; such
policyholders are referred to herein as "Opt-ins." Those
policyholders who elected not to have their policies transferred
are referred to herein as "Opt-outs."
In consideration for JP Life's assumption of the liabilities
for Opt-ins, the Company transferred bonds, short-term
securities, cash, policy loans and certain miscellaneous assets
with a total estimated value of $762,862,093 to JP Life on the
date of closing. Policyholders representing approximately 95% of
the total policy values in force opted into the Plan and were
transferred to JP Life on the date of closing.
The life insurance guaranty associations of the states where
the Company was licensed to do business transferred assets
consisting of cash and notes with a total value of $109,986,918
to JP Life in connection with the closing. Such assets, along
with an enhancement added by JP Life, were used to restore the
policy values of Opt-ins whose policies were covered by one of
the guaranty association funds to their full amount as recorded
by the Company as of the closing date and for uncovered
policyholders restructured account values to the extent supported
by the assets. In return for this advancement of assets on
behalf of covered policyholders, the state guaranty associations
obtained what is now a class 2 priority claim against the
Company. The shortfall on uncovered policies was calculated at
closing to be $11,231,328.
1
<PAGE>
Under the Plan, the Company retains a liability to Opt-ins
over and above the amount of their full policy value as of the
closing date. The ultimate amount of this liability, referred to
as the Reimbursable Amount, depends on the interest rates from
February 12, 1993 until a date five years from closing (i.e., May
31, 2000), and on the persistency of Opt-in policies during the
five-year period after closing.
Policyholders representing approximately 5% of the total
policy values in force opted out of the Plan. The Company is
obligated to pay these policyholders their proportionate share of
the Company's assets up to the full amount of their statutory
reserve as of February 12, 1993, plus any additions to their
policy values from premiums paid and less any deductions to their
policy values subsequent to that date. The full amount of such
obligation to Opt-outs was approximately $57 million. The Plan
calls for the Company to pay these amounts in three installments.
The first installment, equivalent to 75% of the total opt-out
amount, was due, and paid, 120 days after closing. The second
installment was paid June 23, 1997 and the final installment was
paid in June 1999.
Assets not transferred to JP Life remained with the Company
and are being liquidated by the Commissioner of the Kentucky
Department of Insurance who has been designated as the Liquidator
of the Company. The Liquidator is vested by operation of law
with the title to all of the Company's property, contracts, and
rights of action, and may recover and reduce all such assets to
possession and liquidate them in accordance with the terms of the
Order and applicable law. The court has ordered the Liquidator
to liquidate the remaining assets of the estate as rapidly and
economically as he can. As these assets are liquidated, they
will be utilized to repay the guaranty associations and to make
policyholders whole. The remaining assets of the Company, if
any, will be distributed to other creditors and shareholders in
the priority established by statute.
Pursuant to the terms of the Plan, $50,000,000 from the
assets of Kentucky Central was disbursed on February 13, 1996.
Of this amount $41,039,878 reduced the liability to the Guaranty
Associations on the Guaranty Associations' advances, $3,557,738
was applied to reduce policy benefits due uncovered policies and
$2,291,194 was applied to the Opt-in Traditional liability. The
remaining $3,111,190 was later distributed to Opt-out
policyholders.
In a similar transaction, $40,000,000 was distributed from
the assets of the Company in May and June 1997. Of this amount,
$32,890,768 reduced the liability to the Guaranty Associations on
the Guaranty Associations' advances, $2,774,651 was applied to
reduce policy benefits due uncovered policies and $1,834,469 was
applied to the Opt-in Traditional liability. The remaining
$2,500,112 was distributed to Opt-out policyholders on June 23,
1997.
In May 1998, an additional $34,880,662 was distributed from
the assets of the Company. Of this amount, $31,647,582 reduced
the liability to the Guaranty Associations on the Guaranty
Associations' advances, $3,233,080 was applied to reduce policy
benefits due uncovered policies and Opt-in Traditional liability.
In June 1999, $57,184,519 was distributed from the assets of
the Company. Of this amount, $41,081,377 reduced the liability
to the Guaranty Associations, $22,817,731 on the Guaranty
Associations' advances and $18,263,646 on the Guaranty
Associations' post closing costs. Additionally, $6,775,707 was
applied to reduce policy benefits due uncovered policies and Opt-
in amounts. The remaining $9,327,434 was distributed as the
final installment to Opt-out policyholders.
2. BASIS OF PRESENTATION - The accompanying financial
statements of Kentucky Central Life Insurance Company (In
Liquidation) are unaudited. The balance sheet has been prepared
on a modified liquidating basis, that is, assets have been
reported at their estimated market value when known, otherwise,
they are reported on the basis more particularly described
herein. The financial statements are presented generally in a
format established by the National Association of Insurance
Commissioners ("NAIC") Report on Receiverships.
2
<PAGE>
With regard to the liabilities, for the purposes of
these financial statements, the liabilities have been
preliminarily classified in accordance with the statutory
scheme set forth in Chapter 304 of the Kentucky Revised
Statutes, Subtitle 33, Section 430. The classifications and
amounts are subject to further review and change, and the
Liquidator is not bound or prejudiced by the classification
of the liabilities on the financial statements as the
process for reviewing the liabilities and claims is ongoing.
Claims filed in the amount of $1,302,380,874 are not
reflected on the financial statements. See footnote number
21(b) for additional information regarding these claims.
The Statement of Receipts and Disbursements is prepared on a
cash basis. Since the Company has been in both rehabilitation
and liquidation, the books and records were not organized in such
a manner to facilitate the accounting of receipts and
disbursements on a cash basis from the date of rehabilitation.
The information contained in these financial statements has
been prepared by the Liquidator from information available to or
known by the Liquidator as of the date of the financial
statements. The Liquidator makes no warranty as to the accuracy
of the information or of the opinions or evaluations contained in
the financial statements and expressly disclaims any liability
arising from the statements of fact, evaluation or opinion
contained in the financial statements.
3. OWNERSHIP AND AFFILIATED COMPANIES - The common stock of
Kentucky Central consists of two classes: Voting and Class A Non-
voting. The Class A Non-voting common stock is publicly held and
was traded on the NASDAQ stock market until removed from listing
in April 1993. Further, Kentucky Central owned 100% of the
common stock of Mid-Central Investment Co., Inc. ("Mid-Central").
The Company's investment in Mid-Central was previously reported
on the financial statements of Kentucky Central on an equity
basis. However, effective September 30, 1997, the assets and
liabilities of Mid-Central were combined with the assets and
liabilities of Kentucky Central consistent with the Liquidator's
position regarding the true nature of these assets and
liabilities under the Insurers Rehabilitation and Liquidation
Law, KRS 304.33-010 et seq. The preferred stock of Mid-Central
was not owned by Kentucky Central. The owners of said stock have
filed claims with the Liquidator. The Liquidator has classified
these claims, together with the related accrued dividends, as a
Class 10 liability.
4. ORDER OF DISTRIBUTION - The order of distribution from the
assets of the Company's estate is set forth at KRS 304.33-430. By
its express terms, the statute applies and governs the priority
of distribution of assets in any proceeding to liquidate an
insurer pending on the effective date of the statute.
Accordingly, the order of distribution of Kentucky Central's
assets is governed by the statute, as amended.
The statute provides as follows:
Section 1. The order of distribution of claims from
the insurer's estate shall be as stated in this
section. The first fifty dollars ($50) of the amount
allowed on each claim in the classes under subsections
(2) to (6), inclusive, of this section, shall be
deducted from the claim and included in the class under
subsection (8) of this section. Claims may not be
cumulated by assignment to avoid application of the
fifty dollars ($50) deductible provision. Subject to
the fifty dollars ($50) deductible provision, every
claim in each class shall be paid in full or adequate
funds retained for the payment before the members of
the next class receive any payment. No subclasses
shall be established within any class. No claim by a
shareholder, policyholder, or other creditor shall be
permitted to circumvent the priority classes through
the use of equitable remedies.
(1) Administration costs. The costs and expenses of
administration, including but not limited to the
following: the actual and necessary costs of
preserving or recovering the assets of the
insurer; compensation for all services rendered in
the liquidation; any necessary filing fees; the
fees and mileage payable to witnesses; and
reasonable attorneys' fees.
3
<PAGE>
(2) Loss and unearned premium claims. Claims by
policyholders, beneficiaries, and insureds arising from
and within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and liability claims
against insureds which claims are within the coverage
of and not in excess of the applicable limits of
insurance policies and insurance contracts issued by
the company, and claims of guaranty associations or
foreign guaranty associations. Notwithstanding the
foregoing, the following claims shall be excluded from
Class 2 priority:
(a) Obligations of the insolvent insurer arising out
of reinsurance contracts;
(b) Obligations incurred after the expiration date of
the insurance policy or after the policy has been
replaced by the insured or canceled at the
insured's request or after the policy has been
canceled as provided in this chapter.
Notwithstanding this subsection, earned premium
claims on policies, other than reinsurance
agreements, shall not be excluded;
(c) Obligations to insurers, insurance pools, or
underwriting associations and their claims for
contribution, indemnity or subrogation, equitable
or otherwise;
(d) Any claim which is in excess of any applicable
limits provided in the insurance policy issued by
the insolvent insurer;
(e) Any amount accrued as punitive or exemplary
damages unless expressly covered under the terms
of the policy; and
(f) Tort claims of any kind against the insurer, and
claims against the insurer for bad faith or
wrongful settlement practices.
(3) Claims of the federal government other than those
claims included in Class 2.
(4) Wages.
(a) Debts due to employees for services performed, not
to exceed one thousand dollars ($1,000) to each
employee which have been earned within one (1)
year before the filing of the petition for
liquidation. Officers shall not be entitled to
the benefit of this priority.
(b) This priority shall be in lieu of any other
similar priority authorized by law as to wages or
compensation of employees.
(5) Residual classification. All other claims including
claims of the federal or any state or local government,
not falling within other classes under this section.
Claims, including those of any governmental body, for a
penalty or forfeiture, shall be allowed in this class
only to the extent of the pecuniary loss sustained from
the act, transaction or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual
costs occasioned thereby. The remainder of such claims
shall be postponed to the class of claims under
subsection (8) of this section.
(6) Judgments. Claims based solely on judgments. If a
claimant files a claim and bases it both on the
judgment and on the underlying facts, the claim shall
be considered by the liquidator who shall give the
judgment such weight as he deems appropriate. The
claim as allowed shall receive the priority it would
receive in the absence of the judgment. If the
judgment is larger than the allowance on the underlying
claim, the remaining portion of the judgment shall be
treated as if it were a claim based solely on a
judgment.
4
<PAGE>
(7) Interest on claims already paid. Interest at the
legal rate compounded annually on all claims in the
classes under subsections (1) to (6) of this section,
inclusive, from the date of the petition for
liquidation or the date on which the claim becomes due,
whichever is later, until the date on which the
dividend is declared. The liquidator, with the
approval of the court may make reasonable
classifications of claims for purposes of computing
interest, may make approximate computations and may
ignore certain classifications and time periods as de
minimis.
(8) Miscellaneous subordinated claims. The remaining
claims or portions of claims not already paid, with
interest as in subsection (7) of this section:
(a) The first fifty dollars ($50) of each claim in the
classes under subsections (2) to (6), inclusive,
of this section, subordinated under this section;
(b) Claims under subsection (2) of KRS 304.33-380;
(c) Claims subordinated by KRS 304.33-600;
(d) Claims filed late;
(e) Portions of claims subordinated under subsection
(5) of this section; and
(f) Claims or portions of claims, payment of which is
provided by other benefits or advantages recovered
or recoverable by the claimant.
(9) Preferred ownership claims. Surplus or contribution
notes, or similar obligations, and premium refunds on
assessable policies. Interest at the legal rate shall
be added to each claim, as in subsections (7) and (8)
of this section.
(10) Proprietary claims. The claims of shareholders or
other owners.
Section 2. Section 1 of this Act shall apply to and govern
the priority of the distribution of assets in any proceeding
to liquidate an insurer pending on or commenced on or after
the effective date of the Act.
The liabilities on the accompanying balance sheet are presented
in accordance with the order of distribution set forth in the
amended statute.
5. CASH - As of June 30, 2000, Kentucky Central had cash on
deposit in banks of $ 1,627,809 of which $40,034 was restricted
as tenant security deposits on real estate owned by the Company.
6. SHORT-TERM INVESTMENTS - Short-term investments consisted of
the following: certificates of deposit in the amount of $366,864,
money market account in the amount of $9,918,334, U.S. Treasury
bill equal to $2,535,569. Certificates of deposit for $16,864 are
held as collateral to secure letters of credit which guarantee
contract performance on properties owned by the Company.
7. BONDS - Bonds in the amount of $61,946,514 are principally
stated at their market value as obtained from published
information concerning the market value of such bonds. The bond
values are not based upon valuations published by the NAIC
Committee on Valuation of Securities. The Kentucky Development
Finance Authority bonds with a par value of $4,800,000 are
included in the total at their book value of $4,800,000 as their
market value is not readily ascertainable.
5
<PAGE>
8. MORTGAGE LOANS - Mortgage loans on real estate are not
stated at their market value as of June 30, 2000, but are stated
at the lower of their unpaid principal balance or at the
appraised value of the underlying collateral. The appraisals
being used were primarily obtained on varying dates in 1998 and
early 1999. Further, the mortgage loans are reported net of
$55,431, the estimated costs to dispose of the loans.
9. REAL ESTATE - Real estate is stated at its estimated market
value as of June 30, 2000, based on appraisals obtained between
1997 and 1999. Additionally, the total of the real estate is
reported less estimated disposition costs of $1,935,600.
10. INVESTMENT IN M-C REALTY, INC. - At June 30, 2000, the
Company owned 100% of the common stock of M-C Realty, Inc. ("M-
C"). M-C owns 100% of the common stock of Hotel Enterprises,
Inc. ("HE") (formerly known as Wilkinson Hotel Enterprises, Inc
("WHE")). HE is a 1% general partner and M-C is a 99% limited
partner in Frankfort Hotels, Ltd. (formerly known as Wilkinson
Hotels, Ltd.). Frankfort Hotels Ltd. is the owner and operator of
the Capital Plaza Hotel in Frankfort, Kentucky.
The Company's investment in M-C is reported on an equity
basis. The primary asset of M-C is the hotel and its furniture and
fixtures. As of December 31, 1999, the hotel and its furniture and
fixtures had an appraised value equal to $8,000,000.
The primary liabilities of M-C include bonds which were
payable at December 15, 1997 in the amount of $4,800,000, a
second mortgage in the amount of $186,018 held by Kentucky
Economic Development Finance Authority and $461,734 due on a
Community Development Block Grant issued by the City of
Frankfort. The Company holds the bonds while Central Bank &
Trust Company is the Trustee. The Liquidator has entered into an
agreement with the Trustee of the bonds and the holder of the
second mortgage which permits Frankfort Hotels, Ltd. to continue
to make interest and other payments on the bonds and the mortgage
through December 15, 1999.
In August 1996, M-C and certain current and former
affiliates of M-C filed refund claims for corporate taxes paid to
the Commonwealth of Kentucky for the 1991-94 tax years. The
total amount of refunds sought is $1,132,166. The probability of
collection of the refunds is unknown at this time. Accordingly,
the refund claims are not reflected on the balance sheet as of
this date.
11. FEDERAL INCOME TAX RECOVERABLE - The Company filed amended
federal income tax returns on September 13, 1996 for the 1989-91
tax years requesting refunds of $18,502,455 plus interest. The
amended returns were filed on the basis that certain Treasury
Regulations were invalid. The Treasury Regulations at issue
prevent the carryback of life subgroup losses to offset nonlife
subgroup income on a consolidated return. The Company filed suit
in the United States District Court for the Eastern District of
Kentucky on May 5, 1997 in order to collect the refund claims.
On July 17, 1998, the Court entered summary judgment in favor of
the United States. The Liquidator has appealed to the Sixth
Circuit Court of Appeals. The probability of collection of the
refund claims is unknown at this time. Accordingly, no amount is
shown for the refund claims on the balance sheet as of this date.
12. MISCELLANEOUS ASSETS - This amount consists of a utility
deposit of $2,000 for property owned by the Company in Frankfort,
Kentucky.
No value has been reflected on the balance sheet
for Agents Debit Balances, Furniture & Fixtures and Other
Receivables and Prepaid Expenses due to the fact that realization
of the value of the accounts is unlikely. However,
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collection activities continue on all accounts due the
Company and any unused fixed assets will be disposed of at the
appropriate time. The net book value of the accounts as of
December 31, 1999 was as follows: Agents net book value -
$4,788,060, Furniture & Fixtures - $32,913 and Other Receivables
and Prepaid Expenses - $14,499,478. In regards to Agents net
balance, Agents owe the Company $5,937,773 while the Company owes
Agents $1,149,713.
13. GUARANTY ASSOCIATIONS' REIMBURSABLE COSTS UNDER THE PLAN -
This is an estimate by the guaranty associations of their
administrative costs under the Plan. This amount has not been
agreed to by the Liquidator and is subject to change.
14. OPT-IN AMOUNTS - This liability is a combination of the
following: reimbursement for the reduced account values
resulting from the difference in the rate credited to
policyholders from February 12, 1993 to May 31, 1995 versus the
new money rate as described in the Plan, reimbursement for the
reduced account values resulting from non-contractual expenses
charged by JP Life during the moratorium period subsequent to the
closing as required by the Plan and reimbursement of reduced
account values resulting from lower than market credited interest
rates applied by JP Life during the moratorium period subsequent
to the closing as required under the Plan.
15. GUARANTY ASSOCIATIONS' POST-CLOSING COSTS - This is an
estimate of the guaranty associations continuing support costs
through the five-year Plan period, together with accrued interest
at the rate set forth in the plan.
16. GENERAL CREDITORS - This liability consists primarily of
amounts due to agents under a deferred compensation agreement
formerly maintained by the Company.
17. OTHER EQUITY CLAIMS - The amounts reflected as Class 10
claims include the book value of the shareholders' common stock
and additional paid-in-capital ($13,414,830), the outstanding
dividends and fractional shares related to the common stock
($666,224), the book value of the preferred stock of Mid-Central
($8,799,900) and the related accrued dividends ($2,639,970).
18. LOSSES/BENEFIT PAYMENTS - This amount includes payments made
to policyholders with claims occurring prior to May 31, 1995 and
continuing claims on credit insurance.
19. INVESTMENT EXPENSES - This expense is generally related to
the operation and maintenance of the Company's investments in
bonds.
20. LIABILITY TO OPT-IN POLICYHOLDERS - The Plan creates a
liability to policyholders for the difference between
policyholder account values as calculated before and after
restructuring. The liability to Opt-in policyholders was reduced
at closing by amounts paid to JP Life for the benefit of the
policyholders by the guaranty associations on behalf of Kentucky
Central (and such reduction is currently shown as a liability to
the guaranty associations). The Plan also calls for a discharge
of the liability to Opt-in policyholders upon an order by the
Court after several events have occurred. It is currently
anticipated that the entire amount of this liability
(approximately $249 million) will ultimately be discharged by the
Court. Therefore, no dollar amount is included in the financial
statement.
21. CONTINGENT LIABILITIES
(a) INCOME TAXES - The Company may have a tax liability for
Phase III taxable income. Phase III taxable income results from
certain reductions to the Company's "policyholders' surplus
account." The policyholders' surplus account is an untaxed
income account that was accumulated under prior tax law. It is
the Company's contention, supported by tax case law, that the
Company will not have any federal tax liability related to
reductions in this account. If a liability is found to exist,
the tax is estimated to be between $2.1 and $2.6 million.
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Additionally, any such tax liability will increase the amount by
which the Company's liabilities exceed its assets.
(b) CLAIMS FILED - Claims in the amount of $1,302,380,874
have been filed against Kentucky Central pursuant to the claims
process required under KRS 304 Subtitle 33. The majority of
these claims are not reflected in the financial statements as
they are in the process of being reviewed. However, a few of the
known claims are reflected. While a number of the claims may be
rejected and disallowed, to the extent these claims are proven
valid, they will have the effect of increasing the amount by
which the Company's liabilities exceed its assets for the claims
which are not already recorded as liabilities. Additionally,
interest will accrue at the legal rate on those claims which are
proven valid; such interest is a class 7 liability.
The Liquidator cautions that under KRS 304.33-360(2),
certain claimants may assert valid claims after the expiration of
the claims bar date. Further, under KRS 304.33-360(1), certain
claims - specifically, preferred ownership and proprietary claims
under subsections (9) and (10) of KRS 304.33-430 and claims for
unearned premiums and cash surrender values or other investment
values in life insurance and annuities - are not required to be
filed. Thus, total claims asserted against the Liquidator may
actually be in excess of the amounts set forth above. The extent
of any such additional liability is uncertain at this time.
(c) PENDING LITIGATION - A summary of the litigation in
which the Company is a party is included in each Report to the
Court filed on a periodic basis in Franklin Circuit Court. The
claims of litigants against the Company have not been analyzed
for financial reporting purposes. Accordingly, no judgment has
been made as to whether the Company will have any liability to
the litigants or the amount, if any, of such liability.
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