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 September 30, 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: Common Stock, $2.50 par value
Outstanding at November 1, 1994: 6,154,517 shares
Kansas City Life Insurance Company
Quarter ended September 30, 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 per share rose 54 percent in the third
quarter to $1.60 a share. Nine months operating earnings totaled $4.59 a share,
a 21 percent improvement. This performance is largely due to improved interest
spreads on our interest sensitive products, and continued control of our home
office operating expenses.
Net income per share, due to a $1.5 million nonrecurring charge for
postemployment benefits in the first quarter and a sharp decline in investment
gains, declined 11 percent for the nine months but rose 3 percent for the
quarter.
Sales
Change has been pervasive in our marketing operations in 1994. Our new
marketing officer has rapidly made his imprint since his hiring eight short
months ago. He has restructured Kansas City Life's marketing department while
reducing its size and adding several key seasoned marketing professionals. The
product mix is under review and new markets are being assessed. Our first
decision is to enter the Asian-American market and the requisite sales
professionals are being assembled. Additionally, we continue to trim out
poorly producing or unprofitable sales agents. These dramatic changes have hurt
current sales results. However we remain committed to long-term growth and
financial strength for the benefit of our agents, policyholders and
stockholders. We are willing therefore to suffer a pause in our sales growth in
1994 in order to build the marketing foundation we must have to be successful in
the future.
New annualized premiums declined 8 percent in the third quarter, but this
continued the trend of improved quarterly comparisons with last year.
Additionally the third quarter's new annualized premiums were slightly above
those of the second quarter. New annualized premiums were off 16 percent for
the nine months.
Insurance Revenues
Total insurance revenues fell 2 percent for the third quarter but grew 4 percent
for the nine months. Traditional life insurance and accident and health
premiums, as reflected on the income statement, each are down 4 percent for the
quarter, but both remained up for the nine months at 4 percent. Contract
charges on our interest sensitive products rose 3 percent for the quarter and 4
percent for the nine months.
Investment Revenues
Net investment income increased 6 percent in the third quarter and 4 percent in
the first nine months reflecting the increased market yields. Realized
investment gains continue to fall compared with last year. Interest rates have
gradually risen over the first nine months dramatically slowing the calls on
our securities portfolio therefore reducing realized gains on a year-to-year
comparison. For the third quarter these gains fell $4.8 million compared with
last year, while year-to-date they are down $11.1 million versus 1993.
Benefits
Total benefits fell 1 percent in the third quarter but were up 2 percent for the
year. This reflects some improvement compared with the first half as surrenders
fell in the quarter and mortality results improved. Benefit payments and
reserve increases, combined, were 114 percent of insurance revenues for the
nine months versus 116 percent last year. Death benefits and surrenders of
traditional life insurance were flat and down 9 percent for the quarter,
respectively. As mentioned in previous reports, the Company lowered its
crediting rates early in the year on its interest sensitive products to reflect
current market conditions.
Other Expenses
The Company continues to restrain the growth of its home office operating
expenses. During the third quarter, home office operating expenses fell 9
percent and are down 1 percent for the year.
Liquidity and Capital Resources
Statements made in the Company's 1993 Annual Report to Stockholders remain
pertinent.
Funds provided from operations totaled $34.3 million. Funds from all sources
totaled nearly $600 million, approximately half of the 1993 level, largely due
to decreased securities calls.
The Company's short-term investments equaled $54.8 million at September 30,
1994, a decrease of $84.7 million from year end. The Company currently has no
external borrowings.
Reported book value equaled $57.93 per share. However, the adoption of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1 of this year caused significant swings in the Company's reported
assets and equity from last year end. Three-fourths of Kansas City Life's
securities are considered to be available for sale, and are therefore carried at
market value in these statements. Due to rising market yields, these
securities' market value declined during the first nine months resulting in a
$33.7 million unrealized loss at the end of the third quarter, net of related
changes in deferred acquisition costs and Federal income taxes. Excluding
unrealized gains or losses, book value rose at a 9 percent annualized rate for
the nine months to $63.40 a share, and assets increased 5 percent. Since SFAS
No. 115 does not permit corresponding policy liabilities to be valued at market,
changes in reported stockholder's equity will likely be volatile in the future.
Kansas City Life will pay a quarterly dividend of $.36 a share, on November 21,
to shareholders of record on November 7.
Part II: Other Information
This part, Other Information, was not applicable this quarter.
No Form 8-K was required to be filed during the quarter ended September 30,
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
s/ Richard L. Finn
Richard L. Finn
Senior Vice President, Finance
s/ C. John Malacarne
C. John Malacarne
Vice President, General Counsel and Secretary
s/ John K. Koetting
John K. Koetting
Vice President and Controller
Date: November 1, 1994
<TABLE>
Consolidated
Balance Sheet
[MULTIPLIER]
1,000
September 30 December 31
1994 1993
<S> <C> <C>
Assets
Investments:
Securities available for sale,
at market 1,358,224 0
Securities held to maturity,
at amortized cost 404,971 0
Fixed maturities, at
amortized cost 0 1,524,387
Equity securities, at market 0 120,686
Mortgage loans 269,377 296,243
Real estate, net 54,956 51,987
Real estate joint ventures 25,443 20,385
Policy loans 95,746 97,783
Short-term 54,776 139,482
Other 0 4,000
2,263,493 2,254,953
Deferred acquisition costs 189,336 172,294
Other assets 217,427 224,183
2,670,256 2,651,430
Liabilities and equity
Future policy benefits 667,812 654,911
Accumulated contract values 1,440,668 1,378,543
Other liabilities 205,293 239,019
Total liabilities 2,313,773 2,272,473
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 11,516 10,597
Unrealized gains (losses) on
securities available for sale (33,700) 13,501
Retained earnings 441,627 417,381
Less treasury stock (86,081) (85,643)
356,483 378,957
2,670,256 2,651,430
<FN>
Notes:
* These financial statements are unaudited but, in
management's opinion, include all adjustments
necessary for a fair presentation of the results.
* Income per common share is based upon the weighted
average number of shares outstanding during the period
(6150042 - 1994 and 6147867 - 1993).
* Certain amounts from the prior year's financial
statements have been reclassified to conform with
current year presentation.
</FN>
</TABLE>
<TABLE>
Consolidated
Income Statement
[MULTIPLIER]
1,000
<CAPTION>
Quarter ended Nine Months ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues
Insurance revenues:
Premiums:
Life insurance 25,222 26,312 78,011 75,312
Accident and health 7,395 7,719 23,481 22,612
Contract charges 17,130 16,659 52,045 50,012
Investment revenues:
Investment income, net 43,736 41,454 128,664 123,978
Realized gains 2,128 6,953 6,011 17,148
Other 2,725 2,269 7,534 6,889
Total revenues 98,336 101,366 295,746 295,951
Benefits and expenses
Policy benefits:
Death benefits 18,886 18,959 58,691 53,672
Surrenders of life insurance 3,277 3,597 12,720 11,736
Other benefits 14,348 13,588 41,632 38,521
Increase in benefit and contract reserve 22,362 23,481 62,395 67,459
Amortization of policy acquisition costs 6,215 4,968 20,437 18,301
Insurance operating expenses 16,842 18,449 52,469 53,532
Interest expense 30 234 444 833
Total benefits and expenses 81,960 83,276 248,788 244,054
Pretax income 16,376 18,090 46,958 51,897
Federal income taxes:
Current 4,487 8,103 17,160 22,189
Deferred 651 (864) (2,322) (4,702)
5,138 7,239 14,838 17,487
Income before nonrecurring item 11,238 10,851 32,120 34,410
Postemployment benefits, net 0 0 1,481 0
Net income 11,238 10,851 30,639 34,410
Per common share
Income before nonrecurring item 1.83 1.77 5.22 5.60
Postemployment benefits, net 0 0 0.24 0
Net income 1.83 1.77 4.98 5.60
</TABLE>
<TABLE>
CONSOLIDATED
STATEMENT OF CASH FLOWS
[MULTIPLIER]
1,000
<CAPTION>
Nine Months ended
September 30
1994 1993
<S> <C> <C>
Operating activities
Net cash provided 34,289 19,531
Investing activities
Investments called or matured:
Decrease in short-term
investments, net 84,641 12,217
Securities available for sale 206,668 -
Securities held to maturity 64,278 -
Fixed maturities - 628,109
Equity securities - 25,444
Mortgage loans 30,057 32,861
Other 1,475 4,951
Investments sold:
Securities available for sale 32,003 -
Fixed maturities - 174,921
Equity securities - 25,379
Other 387 1,430
Investments made:
Securities available for sale (464,570) -
Securities held to maturity (21,533) -
Fixed maturities - (954,042)
Equity securities - (28,835)
Real estate (1,308) (5,672)
Real estate joint ventures (5,465) (5,574)
Other (5,242) (176)
Other, net (299) (614)
Net cash used (78,908) (89,601)
Financing activities
Policyowner contract deposits 135,697 143,362
Withdrawals of policyowner
contract deposits (80,889) (65,646)
Repayment of borrowings (11,446) (11,928)
Dividends paid to stockholders (6,395) (6,270)
Other, net 1,264 2,259
Net cash provided 38,231 61,777
Decrease in cash (6,388) (8,293)
</TABLE>
Message from the President
Kansas City Life's operating earnings were a record for the first nine months.
Operating earnings, which exclude realized investment gains and nonrecurring
items, equaled $4.59 a share for the nine months, 21 percent better than a year
ago. The Company earned $1.60 a share in the third quarter, a 54 percent
improvement. Calls on our securities portfolio subsided this year, thus
realized investment gains are just a third of 1993's level. Net income per
share, therefore, was $4.98 for the nine months, an 11 percent decline from last
year. Third quarter's net income equaled $1.83 a share, a 3 percent increase.
The improved earnings arose primarily from widened interest spreads on our
interest sensitive products. This should continue to benefit earnings
comparisons in the fourth quarter. Investment income, reflecting rising market
yields, rose 6 percent in the third quarter and 4 percent for the nine months.
Additionally, home office operating expenses were restrained, declining 1
percent in the nine months, thus widening profit margins.
Our new marketing officer has taken a number of substantive steps to revitalize
our marketing efforts in the eight months he has been with us. He has completed
the process of assembling his management team, reducing the overall staffing in
the marketing area while adding several seasoned marketing professionals. We
are assessing our product mix and focusing on developing new markets as well,
among them the Asian-American market. While we are laying the foundation for
solid future sales growth , 1994's sales remain behind those of last year even
though the third quarter's premiums were slightly ahead of those for the second
quarter. Total insurance revenues, as reported in the accompanying income
statement, declined 2 percent in the third quarter but rose 4 percent for the
nine months.
Reported stockholders' equity per share equaled $57.93, having been reduced by
$5.47 a share for unrealized losses on our securities which are classified as
"available for sale." If these unrealized losses had been excluded,
stockholders' equity per share would have been $63.40 a share, an annualized
increase of 9 percent.
We will pay a regular quarterly dividend of $.36 a share on November 21 to
stockholders of record on November 7. Kansas City Life has paid a dividend to
its stockholders every year since 1908.
We hope that you are not only our stockholder, but also our policyholder as
well. Please contact one of our agents should you have any questions or need
additional protection.
W. E. Bixby
