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 June 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 August 4, 1994: 6,145,668 shares
Kansas City Life Insurance Company
Quarter ended June 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 earnings per share totaled $1.76 and $3.15 for the second
quarter and six months, respectively, reflecting a 19 percent decline for the
quarter and an 18 percent decline for the six months compared with 1993.
However, as mentioned in the first quarter report, two factors must be
considered for a meaningful comparison between the two years. First, the 1994
results reflect a $1.5 million net nonrecurring expense for postemployment
benefits, in accordance with SFAS No. 112. Second, realized gains from
investments continue to slow compared with 1993. These gains totaled $3.9
million for the first half of 1994, a decrease of $6.3 million versus 1993.
Thus, excluding both the nonrecurring expense and realized gains, earnings per
share totaled $1.53 for the second quarter, down just 1 percent, and $2.99 for
the six months, a 9 percent increase. The second quarter results were dampened
by increased benefit and surrender payments and are compared to 1993's best
quarter.
Sales
Consolidated annualized premiums from new business declined 18 percent for the
second quarter and 19 percent for the six months. Universal life sales were
down 20 and 24 percent for the quarter and six months, respectively. In
addition, our sales on flexible annuities were down 13 percent in the
quarter and 15 percent in the six months. This sales decline is somewhat
anticipated as the Company is in the midst of restructuring its marketing
department and its marketing strategies. Additionally, all three operating
companies have eliminated less profitable agents over the past year. While
we believe that these steps will improve our future sales and marketing
efforts, current sales have suffered.
Insurance Revenues
Total insurance revenues grew 8 percent for the second quarter and 7 percent for
the six months. Traditional life insurance premiums grew 11 percent in the
quarter and 8 percent in the first half while accident and health premiums,
largely composed of group products, increased 7 percent and 8 percent for the
same periods. Contract charges on our interest sensitive products rose 4
percent for the quarter and 5 percent for the six months.
Investment Revenues
Net investment income increased 6 percent in the second quarter and 3 percent in
the first half. Realized gains from investments dropped $3.7 million for the
second quarter and $6.3 million for the six months versus last year. As was the
case in the first quarter, the continued gradual rise in interest rates has
significantly reduced the volume of security calls compared with 1993. This
differential is expected to widen during the second half of 1994. Total
investment income, including realized gains, declined 3 percent for the quarter
and 4 percent for the first half.
Benefits
Total benefits were up 9 percent in the quarter and 4 percent for the six
months. Benefit payments and reserve increases were 113 percent of insurance
revenues for the second quarter, up from 112 percent last year. Death benefits
increased 21 percent for the quarter and 15 percent for the six months.
Surrenders of traditional life insurance increased 31 percent for the second
quarter and 16 percent for the first half.
As mentioned in the first quarter's report, the Company lowered the crediting
rates on its interest sensitive products at the start of the year to reflect
current market conditions.
Other Expenses
As part of the general corporate strategy, Kansas City Life focuses on expense
reduction and containment as one means of improving our competitive position.
Over the past several years the Company has been successful in completing
several programs designed to improve operational efficiencies, such as the
consolidation of its three operating companies' accounting and administrative
systems. These successes have allowed us to keep our operating expenses at or
below the level of inflation the past several years and to make significant
staffing reductions. Home office operating expenses increased just 3 percent
for the first six months of 1994. The Company has several ongoing programs that
enable us to monitor and keep expenses under control. However, these programs
should not sacrifice the high quality of service we provide our policyholders
and agents. Toward this end, the Company started a new program, the Quality
Service Initiative (QSI), in the second quarter, designed to monitor and enhance
service to our customers.
Liquidity and Capital Resources
Statements made in the Company's 1993 Annual Report to Stockholders remain
pertinent.
Funds provided from operations totaled $20.8 million. Funds from all sources
totaled $452.2 million, approximately 40 percent less than 1993 largely due to
decreased securities calls.
The Company's short-term investments equaled $83.1 million at June 30, 1994, a
decrease of $56.3 million from year end. Short-term borrowings in repurchase
agreements totaled $10.0 million at June 30, 1994.
The Company's assets totaled $2.7 billion at June 30. Book value per share
equaled $58.04, a 12 percent annualized decrease from year end and the return on
equity was 10.54 percent. However, comparisons with prior year data are
obscured due to the adoption, on January 1, 1994, of SFAS No. 115. This
accounting change requires investments to be classified as held to maturity,
trading or available for sale. Those investments classified as trading or
available for sale are to be reflected at current market values, which may
generate unrealized gains and losses. The unrealized gains and losses related
to securities classified as available for sale are included in equity net of
applicable taxes and related charges in deferred amortization costs. As of
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 June 30, 1994, the Company had a decline of $52.5 million in the market value
of these securities, due largely to rising interest rates in the market,
creating an unrealized loss of $24.0 million. This loss significantly
contributes to the decline in stockholder's equity and hinders asset growth.
Excluding these unrealized gains and losses in both periods, book value per
share would have increased at an 8 percent annualized rate and assets would
have risen at a 4 percent annualized rate.
At the second quarter board meeting the Board of Directors increased the
quarterly dividend $.02 a share to $.36 a share, a 6 percent increase.
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 June 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
Richard L. Finn
Senior Vice President, Finance
C. John Malacarne
Vice President, General Counsel and Secretary
John K. Koetting
Vice President and Controller
Date: August 4, 1994
<TABLE>
Consolidated Balance Sheet
[MULTIPLIER]
1,000
<CAPTION>
June 30 December 31
1994 1993
<S> <C> <C>
Assets
Investments:
Securities available for sale,at market 1,308,893 0
Securities held to maturity,at amortized cost 411,496 0
Fixed maturities, at amortized cost 0 1,524,387
Equity securities, at market 0 120,686
Mortgage loans 273,432 296,243
Real estate, net 52,936 51,987
Real estate joint ventures 21,558 20,385
Policy loans 95,707 97,783
Short-term 83,140 139,482
Other 0 4,000
2,247,162 2,254,953
Deferred acquisition costs 183,462 172,294
Other assets 224,351 224,183
2,654,975 2,651,430
Liabilities and equity
Future policy benefits 663,371 654,911
Accumulated contract values 1,414,174 1,378,543
Other liabilities 220,231 239,019
Total liabilities 2,297,776 2,272,473
Stockholders' equity 357,199 378,957
2,654,975 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
(6149869 - 1994 and 6146058 - 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 Six Months ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues
Insurance revenues:
Premiums:
Life insurance 26,226 23,585 52,789 49,000
Accident and health 7,931 7,389 16,086 14,893
Contract charges 17,347 16,643 34,915 33,353
Investment revenues:
Investment income, net 42,843 40,575 84,928 82,524
Realized gains 2,314 6,023 3,883 10,195
Other 2,271 2,077 4,809 4,620
Total revenues 98,932 96,292 197,410 194,585
Benefits and expenses
Policy benefits:
Death benefits 19,606 16,187 39,805 34,713
Surrenders of life insurance 4,877 3,713 9,443 8,139
Other benefits 14,454 12,710 27,284 24,933
Increase in benefit and contract reserve 19,300 20,607 40,033 43,978
Amortization of policy acquisition costs 7,080 6,159 14,222 13,333
Insurance operating expenses 17,893 17,328 35,627 35,083
Interest expense 103 292 414 599
Total benefits and expenses 83,313 76,996 166,828 160,778
Pretax income 15,619 19,296 30,582 33,807
Federal income taxes:
Current 6,201 8,731 12,672 14,086
Deferred (1,467) (2,841) (2,973) (3,838)
4,734 5,890 9,699 10,248
Income before nonrecurring item 10,885 13,406 20,883 23,559
Postemployment benefits, net 0 0 1,482 0
Net income 10,885 13,406 19,401 23,559
Per common share
Income before nonrecurring item 1.76 2.18 3.39 3.83
Postemployment benefits, net 0 0 0.24 0
Net income 1.76 2.18 3.15 3.83
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
[MULTIPLIER]
1,000
<CAPTION>
Six Months ended
June 30
1994 1993
<S> <C> <C>
Operating activities
Net cash provided 20,758 17,299
Investing activities
Investments called or matured:
Decrease (increase) in short-term investments, net 56,305 (130,190)
Securities available for sale 172,639 -
Securities held to maturity 55,740 -
Fixed maturities - 445,563
Equity securities - 6,951
Mortgage loans 24,010 20,759
Other 574 1,675
Investments sold:
Securities available for sale 29,982 -
Fixed maturities - 132,992
Equity securities - 13,756
Other 214 2,479
Investments made:
Securities available for sale (362,537) -
Securities held to maturity (21,210) -
Fixed maturities - (530,646)
Equity securities - (13,536)
Real estate (1,232) (5,167)
Real estate joint ventures (1,201) (5,369)
Other (2,278) (176)
Decrease in policy loans, net 2,075 1,063
Other, net (2,195) (1,337)
Net cash used (49,114) (61,183)
Financing activities
Policyowner contract deposits 89,860 99,847
Withdrawals of policyowner contract deposits (56,005) (45,260)
Dividends paid to stockholders (4,180) (4,178)
Other, net (53) 143
Net cash provided 29,622 50,552
Increase in cash 1,266 6,668
</TABLE>
[TEXT]
Message from the President
Operating income per share rose 9 percent in the first half of the year. Most
of the earnings increase was due to improved interest margins. Operating income
per share for the second quarter was slightly better than that of the first
quarter. However, earnings declined 1 percent compared to 1993's second
quarter, that year's strongest quarter. Taking into account reduced investment
gains this year and a nonrecurring charge in the first quarter, net income
equaled $3.15 a share, an 18 percent decline from a year ago.
Sales results continue to trail last year as new annualized premiums declined 19
percent. Our new marketing director, who was hired in February, is in the midst
of reorganizing and restructuring our marketing effort. Additionally, less
profitable agents have been pared over the past year at all three of our
insurance companies. While these actions have restrained sales this year, we
believe sales and earnings will be enhanced in the future.
Premiums reported in the enclosed financial statement rose 8 percent above a
year ago while contract charges assessed against our interest sensitive
products' policy values increased 5 percent.
Realized investment gains declined markedly this year as calls on our securities
portfolio subsided due to rising interest rates. Net investment income rose 3
percent in the first half and 6 percent in the second quarter. Interest margins
widened as crediting rates were lowered early in the year on our interest
sensitive policies.
We adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on January 1 of this year. Three-quarters of our securities
portfolio is classified as available-for-sale and is reported at market value.
The remainder of our portfolio is designated as held-to-maturity and is
reported at amortized cost. Due to the rise in interest rates so far this year,
we reflected a $24.0 million unrealized loss at June 30, net of taxes and
related deferred acquisition cost adjustme nts. Thus book value per share
declined from $61.68 at the beginning of the year to $58.04 at June 30. Without
the adoption of SFAS No. 115, book value per share would have increased at an
annualized rate of 8 percent. Continued volatility in stockholders' equity may
be expected in the future as interest rates fluctuate in the marketplace. These
unrealized gains or losses are only "paper" valuations with little relationship
to the future earnings power of Kansas City Life.
The Board of Directors increased the quarterly dividend by $.02 a share to $.36
a share. This quarter's dividend will be paid on August 22 to stockholders of
record on August 8.
The Kansas City Life family of companies has long prided itself on the service
we provide to our policyowners and agents. In order to reinforce this
commitment and to provide ever improved service and value to our customers, we
are undertaking a quality enhancement program called Quality Service Initiative
(QSI). QSI emphasizes a long-term commitment to excellence, and when allied
with our reengineering program, is expected to provide near-term benefits as
well.
