Securities and Exchange Commission
Washington, D. C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarter ended March 31, 1994
Commission File No. 2-40764
Kansas City Life Insurance Company
3520 Broadway
Kansas City, Missouri 64111-2565
Phone: (816) 753-7000
IRS Number: 44-0308260
Incorporated in State of Missouri
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,
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 issuer's classes of
common stock, as of the most recent date available.
Class: Outstanding at May 4, 1994
Common Stock, $2.50 par value 6,148,472 shares
Kansas City Life Insurance Company
Quarter ended March 31, 1994
Part I
Item 1. Financial Statements
Incorporated by reference from the Quarterly Report to Stockholders (pages 4
through 7). These interim financial statements should be read in conjunction
with the Company's 1993 Annual Report to Stockholders.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Kansas City Life's operating earnings, which excludes realized gains and a
nonrecurring expense relating to the adoption of a new accounting guideline,
totaled $1.46 per share an increase of 22 percent versus 1993's $1.20 per
share. This increase is largely attributable to improvements in the margin
spreads on interest sensitive products and continued containment of home office
operating expenses.
The Company's net income equaled $1.39 per share, down 16 percent
versus the prior year. Net income declined largely due to a decrease in
realized gains, which fell $2.6 million from 1993, and a $1.5 million
nonrecurring expense.
Sales
Consolidated annualized premiums from new business dropped 21 percent in the
first quarter. In 1993, the Company took several steps to reinvigorate its
sales. These steps included terminating marginal or unprofitable agencies
totaling 18 percent of the agency force. Also during 1993 the Company
conducted a nationwide search to fill its Senior Marketing Officer position.
In mid-February, 1994, the Company hired Jack D. Hayes to lead the marketing
effort. Sales comparisons with 1993 should im prove as the year progresses.
Insurance Revenues
Total insurance revenues grew 5 percent in the first quarter. Traditional life
insurance premiums were up 5 percent as were contract charges on interest
sensitive products. Accident and health premiums increased 9 percent largely in
the group stop loss and dental lines.
Investment Revenues
Net investment income increased 1 percent in the first quarter. Realized gains
from investments dropped $2.6 million compared with 1993. Interest rates rose
during 1994's first quarter, thus slowing the calls that were taking place in
1993.
Benefits
Total benefits were flat compared to the first quarter of 1993. Claim payments
and reserve increases were 112 percent of insurance revenues, down from 118
percent a year ago. Death benefits increased 9 percent versus 1993 but
mortality continued be tter than that assumed in our reserving assumptions.
Surrenders of traditional life insurance increased 3 percent and other benefits,
which are mainly group accident and health payments, increased 5 percent. This
increase is consistent with the pre mium growth in these products.
The Company continually monitors both the financial markets and the insurance
industry in order to offer products with competitive interest rates. Given the
historic drop in interest rates over the past two years, the Company lowered the
crediting r ates on its interest sensitive products. This reduction in
crediting rates contributed to improved operating earnings.
Other Expenses
Programs designed to achieve operational efficiencies among the companies are
reflected in the 1 percent increase in home office operating expenses. The
Company continues to focus on expense control and reductions where possible.
During the first q uarter of 1994, the Company completed the conversion of an
affiliate's accounting system to the corporate accounting system allowing
improved consistency and reporting. Additionally, the Company continues to move
toward one administrative sy stem across all of its affiliates.
Liquidity and Capital Resources
Statements made in the Company's 1993 Annual Report to Stockholders remain
pertinent.
Total funds provided from operations totaled $20.2 million. Funds from all
sources totaled nearly $275 million. This is a 14 percent decrease versus 1993
due in large measure to the decrease in securities calls.
The Company's short-term investments totaled $84.8 million at March 31, 1994,
down $54.6 million from year end. Short-term borrowings in repurchase
agreements equaled $10.1 million at March 31, 1994.
The Company's assets totaled $2.7 billion at March 31, an annualized growth rate
of 2 percent. Book value per share equaled $60.12, a 10 percent annualized
decrease from year end primarily due to an accounting change which effected the
investments' carrying value, as discussed below.
New Accounting Guidelines
The Company adopted two new Financial Accounting Standards Board Statements
(FASB) effective January 1, 1994, Statement No. 112, "Employers' Accounting for
Postemployment Benefits" and Statement No. 115, "Accounting for Certain
Investments in Debt an d Equity Securities."
FASB Statement No. 112 generally requires the establishment of an accrued
liability for benefits provided to former or inactive employees after employment
but before retirement. This accounting change resulted in the immediate
recognition of a $1.5 million obligation net of applicable income taxes reported
as a nonrecurring expense. This new accounting treatment is expected to have
a minimal impact on current year operating earnings. FASB 112 prohibits the
restatement of prior year financial s tatements.
FASB Statement No. 115 generally replaces the historical cost accounting
approach for certain debt securities with market value accounting. This
Statement requires debt and equity securities to be classified into one of
three separate categorie s, each of which requires different accounting
treatments. "Held to maturity" securities will be reported at amortized cost
while "trading" and "available for sale" securities will be reported at market
value. The changes in the market value of available for sale securities flow
through equity, net of applicable taxes and acquisition cost effects. The
changes in trading securities' market value flow through earnings. FASB 115
made no changes to the carrying value of policy liabilities, whi ch are reported
at historical values. This Statement prohibits the restatement of previously
issued financial statements.
The Company classified approximately one-fourth of its debt and equity
securities as held to maturity and reports them on the balance sheet at their
amortized cost. The remaining three-fourths of its securities are classified as
available for sale.
Effective with the adoption of this Statement, on January 1, 1994, securities
classified as available for sale had an estimated unrealized gain of $28.5
million, net of deferred acquisition costs and taxes. At March 31, 1994, the
Company had a decli ne of $30.9 million in the market value of these securities,
creating an unrealized loss of $2.4 million, net of applicable deferred
acquisition costs and taxes. This unrealized loss significantly contributed to
the decline in stockholders' equity. Stockholders' equity is expected to have
substantial volatility in the future, both positively and negatively, as a
result of interest rate fluctuations.
Excluding unrealized gains and losses in both periods, book value per share
would have risen 7 percent on an annualized basis.
Part II: Other Information
Item 1. Legal Proceedings
On April 8, 1994, a jury in a District Court of Woods County, Oklahoma,
proceeding which was instituted March 16, 1992, returned a verdict against the
Company, assessing (a) $25,000 of compensatory damages, (b) $500,000 of actual
damages and (c) $10, 000,000 of punitive damages. The case, Nita Charlene
Pelter Cox and Verna Leanne Pelter Graybill, Personal Representatives of the
Estate of Leora Pearl Pelter, Deceased, Plaintiffs, vs. Kansas City Life
Insurance Company and Billy D. Stearman, Defen dants, arose out of certain
actions by one of the Company's agents. The agent had taken a beneficiary
designation form, signed in blank by the policyowner, and subsequently named his
wife as beneficiary for $25,000 of the $100,000 death benefit. Th e Company
settled the death claim of the insured's death by paying $25,000 to the agent's
wife (under her maiden name), with the balance of the proceeds to the
policyowner/beneficiary. Upon learning of this misappropriation over a year
after the dea th claim had been settled, the Company investigated the facts
involved and tendered to the policyowner/beneficiary the $25,000 plus interest,
within 90 days. At trial, Plaintiffs asserted the Company's tender of $25,000
plus interest in return for a release and the policyowner/beneficiary's
agreement to testify against the agent in any criminal indictment was oppressive
and in bad faith. The Company firmly believes that it committed no wrong in its
handling of this matter, and plans to appeal the trial court verdict.
Item 4. Result of Votes of Security Holders
On April 21, 1994, the Annual Stockholders Meeting was held at 3520 Broadway,
Kansas City, Missouri. At this meeting, the following Directors were elected
for a three year term:
Joseph R. Bixby
Robert Philip Bixby
Richard L. Finn
Warren J. Hunzicker, M.D.
Larry Winn, Jr.
The following Directors continued their term of office after this meeting:
Wood Arnold, II
Kathryn A. Bixby-Haddad
Walter E. Bixby
Ilus W. Davis
David D. Dysart
Webb R. Gilmore
Daryl D. Jensen
Francis P. Lemery
C. John Malacarne
Michael J. Ross
All of the above named Directors constitute the full Board of Kansas City Life
Insurance Company.
Item 6
(a) Exhibits: None
(b) Reports on 8-K: There were no reports on Form 8-K filed for the three
months ended March 31, 1994.
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 thereunto duly authorized.
KANSAS CITY LIFE INSURANCE COMPANY
Richard L. Finn
Senior Vice President, Finance
C. John Malacarne
Vice President, General Counsel and Secretary
John K. Koetting
Vice President and Controller
Date: May 9, 1994
Kansas City Life Insurance Company
Quarter ended March 31, 1994
Exhibit
Quarterly Report to Stockholders
<TABLE>
Consolidated Balance Sheet
[MULTIPLIER]
1,000
<CAPTION>
March 31 December 31
1994 1993
<S> <C> <C>
Assets
Securities Available for Sale, at Market 1,319,134 -
Securities Held to Maturity, at Amortized Cost 413,875 -
Fixed Maturities, at Amortized Cost - 1,524,387
Equity Securities, at Market - 120,686
Mortgages 281,493 296,243
Real Estate 52,789 51,987
Joint Ventures 21,194 20,385
Policy Loans 96,651 97,783
Short-Term 84,849 139,482
Total Investments 2,269,985 2,254,953
Deferred Acquisition Costs 176,598 172,294
Other Assets 217,340 224,184
2,663,923 2,651,431
Liabilities and Equity
Future Policy Benefits 660,577 654,911
Accumulated Contract Values 1,394,116 1,378,543
Other Liabilities 239,363 239,020
2,294,056 2,272,474
Stockholders' Equity 369,867 378,957
2,663,923 2,651,431
</TABLE>
<TABLE>
Consolidated Income Statement
[MULTIPLIER]
1,000
<CAPTION>
Quarter ended
March 31
1994 1993
<S> <C> <C>
Revenues
Insurance Revenues:
Premiums:
Life Insurance 26,563 25,415
Accident and Health 8,155 7,504
Contract Charges 17,568 16,710
Investment Revenues:
Investment Income, net 42,996 42,519
Realized Gains 1,569 4,172
Other 2,538 2,543
Total Revenues 99,389 98,863
Benefits and Expenses
Policy Benefits:
Death Benefits 20,199 18,526
Surrenders of Life Insurance 4,566 4,426
Other Benefits 12,830 12,223
Increase in Benefit and Contract Reserve 20,733 23,371
Amortization of Policy Acquisition Costs 7,142 7,174
Insurance Operating Expenses 18,645 18,325
Interest Expense 311 307
Total Benefits and Expenses 84,426 84,352
Pretax Income 14,963 14,511
Federal Income Taxes:
Current 6,471 5,355
Deferred (1,506) (997)
4,965 4,358
Income before Nonrecurring Item 9,998 10,153
Postemployment Benefits, net 1,482 -
Net Income 8,516 10,153
Per Common Share:
Income before Nonrecurring Item 1.63 1.65
Postemployment Benefits, net 0.24 -
Net Income 1.39 1.65
<FN>
Notes:
* These financial statements are unaudited but, in management's
opinion, include all adjustments nexessary for a fair
presentation of the results.
* Income per common share is based upon the weighted average
number of shares outstanding during the period (6,148,105 -
1994 and 6,143,549 - 1993).
</FN>
</TABLE>
<TABLE>
CONSOLIDATED
STATEMENT OF CASH FLOWS
[MULTIPLIER]
1,000
<CAPTION>
Quarter ended
March 31
1994 1993
<S> <C> <C>
Operating activities
Net cash provided 20,229 8,646
Investing activities
Investments called or matured:
Decrease (increase) in short-term
investments, net 54,621 (28,119)
Securities available for sale 86,549 -
Securities held to maturity 35,367 -
Fixed maturities - 163,590
Equity securities - 3,447
Mortgage loans 14,033 11,751
Other 337 52
Decrease in policy loans, net 1,132 679
Investments sold:
Securities available for sale 15,965 -
Fixed maturities - 67,076
Equity securities - 10,203
Other 229 1,239
Investments made:
Securities available for sale (243,512) -
Fixed maturities - (257,267)
Equity securities - (6,640)
Other (1,847) (2,798)
Other, net (1,243) 462
Net cash used (38,369) (36,325)
Financing activities
Policyowner contract deposits 44,696 50,706
Withdrawals of policyowner
contract deposits (30,262) (24,244)
Dividends paid to stockholders (2,090) (2,088)
Other, net (374) 208
Net cash provided 11,970 24,582
Decrease in cash (6,170) (3,097)
</TABLE>
[TEXT]
Message from the President
Kansas City Life recorded a solid first quarter as operating earnings,
which exclude realized gains and a nonrecurring charge related to a new
accounting requirement, rose 21 percent from the previous year. Much of
the increase was due to improved yield spreads on our interest sensitive
products. Including realized gains and the nonrecurring charge of $1.5
million, net income declined 16 percent for the quarter to $1.39 per share.
In the first quarter, the Company implemented two new accounting
requirements: SFAS No. 112, "Employers' Accounting for Postemployment
Benefits" and SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 112 generally requires an accrual of the
benefits available to former or inactive employees whose employment has
ended before they were eligible to retire. This accounting change resulted
in the immediate recognition of a transition liability of $1.5 million net
of applicable income taxes, which was reported as a nonrecurring charge.
The new accounting treatment is expected to have minimal impact on current
year operating earnings.
SFAS No. 115 generally requires that certain fixed-income securities which
were formerly carried on the balance sheet at amortized cost be stated at
market value (net of income taxes and related effects on deferred
acquisition costs). However, this treatment is not required for those
fixed-income securities where the Company has the positive intent and
ability to hold to maturity. As of the beginning of the quarter, the
Company classified approximately 25 percent of its fixed-income securities
as "held to maturity" and they continue to be carried at amortized cost.
The balance is classified as "available for sale" and carried at market
value. Changes in the market values are taken directly to stockholders'
equity and are not reflected in the income statement. SFAS No. 115 made no
changes to the carrying value of policy liabilities, which are still
reported at historical values, or to equities, which continue to be carried
at market value. The effect of the rise in interest rates and these
accounting changes was an unrealized loss for the quarter for those
securities which were marked to market. This was reflected in
stockholders' equity, and contributed to a 10 percent annualized decline in
reported book value to $60.12 a share. Further volatility in stockholders'
equity can be expected in the future as interest rates fluctuate.
Marketing results were mixed as sales, in terms of annualized premiums,
declined 21 percent in the first quarter. As mentioned in our Fourth
Quarter Report and the 1993 Annual Report, our new marketing officer is
Jack Hayes, who assumed his duties midway through the quarter. We
anticipate improved marketing results as the year progresses.
On April 8, a jury in Alva, Oklahoma, awarded a judgment against Kansas
City Life for $550,000 in actual and compensatory damages and $10 million
in punitive damages. The case arose out of actions of a former agent who
was alleged to have fraudulently converted $25,000 of death benefits on a
Company life insurance policy. When the Company was informed of the
agent's actions, we investigated the allegations, terminated the agent, and
restored the $25,000 to the beneficiary with interest. The Company feels
strongly that the verdict is unwarranted and that the amount of the damages
awarded is clearly excessive. Kansas City Life will vigorously seek a
reversal of the judgment. No liability has been established in these
financial statements for this judgment.
A quarterly dividend of $.34 a share will be paid on May 23 to stockholders
of record on May 9.
