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, 1997
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 the 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 April 11, 1997
Common Stock, $2.50 par value 6,188,962 shares
Kansas City Life Insurance Company
Quarter ended March 31, 1997
Part I
Item 1. Financial Statements
Incorporated by reference from the Quarterly Report to Stockholders (pages 4
through 7) see the attached exhibit. These interim financial statements should
be read in conjunction with the Company's 1996 Annual Report to Stockholders.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Operating earnings per share equaled $1.66 for the first quarter, a 14 percent
decrease over last year. However, realized investment gains were nearly 3
times greater than a year ago, reducing the decline in net earnings to 3
percent. Net income per share decreased from $2.03 to $1.96 per share.
Sales
Consolidated new annualized premiums declined 1 percent for the quarter.
Variable annuity and universal life products, now in their second full year,
accounted for 20 percent of individual sales and 16 percent of total sales.
Premiums for group pro ducts continued to grow, an 18 percent increase from
last year. These successes were offset by reduced sales in the individual non-
variable lines of business. Life insurance in force totaled $22.2 billion at
period end, down slightly from the begin ning of the year.
Insurance Revenues
Despite increases in accident and health premiums and contract charges, a
decline in life insurance premiums left insurance revenues level with a year
ago. Life insurance premiums fell 8 percent due to decreases in single premium
annuities and traditional life premiums. Accident and health premiums
increased 14 percent due to growth in group coverages, primarily group dental.
Contract charge revenues arising from interest sensitive products increased 4
percent.
Investment Revenues
Net investment income was down less than one percent from last year. The book
value of the Company's invested assets increased 3 percent from March 31 a year
ago. Offsetting this growth was a 16 basis point decline in the portfolio's
yield, reflecting lower available returns on new investments. Realized gains,
as discussed earlier, were substantially greater than the first quarter, 1996,
and nearly equal to net realized gains for all of 1996. These gains vary at
management's discretion based on portfolio structuring decisions.
Benefits
Total benefits grew 1 percent. Mortality experience, which by its nature
fluctuates from year-to-year, was favorable, but not as positive as a year ago.
The relationship of claims to operating revenues for this year increased 1
percent from a year ago. This increase came in the group line of business.
Other Expenses
Increased marketing expenses, in the pursuit of increased sales, were the
primary cause of home office expenses rising 5 percent. The amortization of
deferred acquisition costs rose as well, reflecting increased profit margins on
the interest sensit ive business. The effective Federal income tax rate
declined from 30 percent in 1996 to 26 percent this year due to tax credits
generated by investments in affordable housing.
Liquidity and Capital Resources
Statements made in the Company's 1996 Annual Report to Stockholders remain
pertinent.
Cash provided from operating activities totaled $17.5 million for the first
quarter, a small decrease from a year ago. However, funds from all sources
totaled $209.4 million, up 12 percent versus last year.
Total assets of $2.9 billion at March 31 represents a small decrease from year
end. However, excluding market value changes in available-for-sale securities,
total assets increased an annualized 3 percent from last year end. Unrealized
gains and losses on available-for-sale securities also adds significant
volatility to stockholders' equity and book value. A $22.1 million decrease in
equity since last year end was due to changes in market value arising from
interest rate changes. Reported book value per share equaled $72.74, down from
$74.79 at last year end. Excluding the effects of unrealized gains and losses,
book value equaled $75.82 a share, an 8 percent annualized improvement since
last year end.
The Financial Accounting Standards Board issued Statement No. 128, "Earnings
Per Share and Disclosure of Information about Capital Structure", is effective
for periods ending after December 15, 1997. Kansas City Life adopted this
Statement during 1997's first quarter with no impact to reported results. Part
II: Other Information
Item 4. Result of Votes of Security Holders
On April 24, 1997, the Annual Stockholders Meeting was held at 3520 Broadway,
Kansas City, Missouri. At this meeting, there were 6,191,562 shares
outstanding and eligible to vote, and 5,605,627 shares were represented at the
meeting either in person or by proxy. The following Directors received the
number of votes indicated and were elected for a three year term:
J. R. Bixby - 5,567,683
Robert Philip Bixby - 5,567,154
Richard L. Finn - 5,565,481
Warren J. Hunzicker, M.D. - 5,562,101
Larry Winn, Jr. - 5,564,906
The following Directors continued their term of office after this meeting:
W. E. Bixby
W. E. Bixby, III
Webb R. Gilmore
Jack D. Hayes
Nancy Bixby Hudson
Daryl D. Jensen
Francis P. Lemery
C. John Malacarne
Michael J. Ross
At its meeting on April 28, 1997, the Board of Directors elected Elizabeth T.
Solberg, Executive Vice President and Senior Partner, Fleishman-Hillard, Inc.,
to fill an unexpired term which ends in April, 1998.
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, 1997.
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
Senior Vice President, Finance
/s/ John K. Koetting
Vice President and Controller
/s/ C. John Malacarne
Vice President, General Counsel and Secretary
Date: May 12, 1997
KANSAS CITY LIFE INSURANCE COMPANY
Quarter ended March 31, 1997
EXHIBIT
Quarterly Report to Stockholders
Consolidated
Balance Sheet
(in thousands)
March 31 December 31
1997 1996
------------- -------------
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 1,756,730 1,759,153
Securities held to maturity,
at amortized cost 218,076 248,433
Equity securities available
for sale, at market 85,583 79,018
Mortgage loans 236,377 246,493
Real estate, net 44,009 43,750
Real estate joint ventures 40,273 28,356
Policy loans 93,507 94,412
Short-term 30,677 19,642
------------- -------------
2,505,232 2,519,257
Deferred acquisition costs 207,585 207,020
Other assets 214,459 214,517
Separate account assets 17,235 13,916
------------- -------------
$ 2,944,511 2,954,710
============= =============
Liabilities and equity
Future policy benefits $ 702,582 701,560
Accumulated contract values 1,546,545 1,544,714
Other liabilities 227,973 231,656
Separate account liabilities 17,235 13,916
------------- -------------
Total liabilities 2,494,335 2,491,846
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 15,208 14,761
Unrealized gains (losses) on
securities available for sale (19,104) 2,963
Retained earnings 519,158 509,748
Less treasury stock (88,207) (87,729)
------------- -------------
450,176 462,864
------------- -------------
$ 2,944,511 2,954,710
============= =============
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
(6,189,437 in 1997 and 6,181,663 in 1996).
* These interim financial statements should be read
in conjunction with the Company's Annual Report to
Stockholders. The results of operations for any
interim period are not necessarily indicative of
the Company's operating results for a full year.
* Certain amounts from the prior year's financial
statements have been reclassified to conform with
the current year's presentation.
Consolidated
Income Statement
(in thousands, except per share data)
Quarter ended Quarter ended
March 31 March 31
1997 1996 1997 1996
------- ------- ------- -------
Revenues
Insurance revenues:
Premiums:
Life insurance $ 24,647 26,780 24,647 26,780
Accident and health 10,732 9,408 10,732 9,408
Contract charges 20,456 19,655 20,456 19,655
Investment revenues:
Investment income, net 46,669 46,926 46,669 46,926
Realized gains 2,823 944 2,823 944
Other 2,677 2,721 2,677 2,721
------- ------- ------- -------
Total revenues 108,004 106,434 108,004 106,434
------- ------- ------- -------
Benefits and expenses
Policy benefits:
Death benefits 23,805 20,814 23,805 20,814
Surrenders of life insurance 3,643 3,940 3,643 3,940
Other benefits 16,029 15,478 16,029 15,478
Increase in benefit and contract reserve 19,418 21,981 19,418 21,981
Amortization of policy acquisition costs 8,666 7,557 8,666 7,557
Insurance operating expenses 20,071 18,620 20,071 18,620
Interest expense 0 1 0 1
------- ------- ------- -------
Total benefits and expenses 91,632 88,391 91,632 88,391
------- ------- ------- -------
Pretax income 16,372 18,043 16,372 18,043
------- ------- ------- -------
Federal income taxes:
Current 7,240 7,652 7,240 7,652
Deferred (3,002) (2,156) (3,002) (2,156)
------- ------- ------- -------
4,238 5,496 4,238 5,496
------- ------- ------- -------
Net income $ 12,134 12,547 12,134 12,547
======= ======= ======= =======
Per common share
Operating income $ 1.66 1.93 1.66 1.93
Realized gains, net 0.30 0.10 0.30 0.10
------- ------- ------- -------
Net income $ 1.96 2.03 1.96 2.03
======= ======= ======= =======
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands)
Quarter ended
March 31
1997 1996
Operating activities
Net cash provided $17,489 17,586
Investing activities
Investments called or matured:
Fixed maturities available for sale 32,558 48,975
Fixed maturities held to maturity 31,622 16,657
Equity securities available for sale 5,429 1,720
Mortgage loans 17,531 11,736
Real estate joint ventures 420 5,125
Other 153 352
Investments sold:
Fixed maturities available for sale 58,921 14,900
Real estate joint ventures 0 5,623
Other 848 1,483
Investments made:
Decrease (increase) in
short-term investments, net (11,033) 18,620
Fixed maturities available for sale (121,981) (136,891)
Equity securities available for sale (11,040) (6,297)
Mortgage loans (8,465) (3,500)
Real estate joint ventures (11,436) (646)
Other (176) (748)
Other, net (2,257) 1,487
Net cash used (18,906) (21,404)
Financing activities
Policyowner contract deposits 44,306 43,495
Withdrawals of policyowner
contract deposits (39,477) (36,928)
Dividends paid to stockholders (2,723) (2,596)
Other, net 146 211
Net cash provided 2,252 4,182
Increase in cash $835 364
Net income per share equaled $1.96 in the first quarter, a 3
percent decline from a year ago. Operating income, which
excludes realized investment gains, declined 14 percent to $1.66
a share for the quarter.
The first quarter of last year provided a difficult comparison
since it was the best quarter we have yet achieved by a
considerable amount. The decline in earnings from last year was
due primarily to a retreat from the excellent mortality results
which the Company experienced last year, increased amortization
of deferred policy acquisition costs and moderate growth in
operating expenses. Offsetting these somewhat was a lower
effective income tax rate due to our investments in low-income
housing tax credit projects.
New annualized premiums declined 1 percent for the quarter. New
premiums from our variable products more than doubled from last
year, nearly offsetting declines in the non-variable individual
lines and in new group premiums. Variable products generated 16
percent of total new annualized premiums for the consolidated
group in the first quarter. Total insurance revenues, as
reported in the attached earnings statement, were level with a
year ago. Contract charges arising from the interest sensitive
lines of business increased 4 percent. Life insurance premiums
decreased 8 percent due to declines in single premium annuities
and traditional life premiums. Accident and health premiums
rose 14 percent primarily due to increased group dental
premiums. Insurance in force totaled $22.2 billion at quarter
end, down slightly from the beginning of the year.
Investment earnings were down 1 percent from a year ago though
investment assets rose 3 percent over this period. The
investment portfolio's yield declined 16 basis points as
high-coupon securities matured and new yields available in the
marketplace were below the portfolio's yield. Realized
investment gains rose from $0.9 million last year to $2.8
million this quarter due primarily to calls and maturities.
Home office expenses rose 5 percent compared with the prior
year. Most of this growth was in the group and individual
marketing areas and was directed toward boosting sales results.
Book value per share equaled $72.74 compared to $74.79 at the
end of last year. Excluding the $22.0 million decrease in
unrealized gains and losses during the quarter on the portion of
our securities portfolio classified as available for sale, book
value rose at an 8 percent annualized rate to $75.82.
I am most pleased to welcome Elizabeth T. Solberg to our Board
of Directors. Betsey is Executive Vice President and Senior
Partner of Fleishman-Hillard, Inc., a leading public relations
firm. She has been a longtime community leader. Her extensive
involvement includes having served as the chairperson of the
Greater Kansas City Chamber of Commerce and as co-chairperson of
the Kansas City Area Development Council.
At its recent meeting, the Board approved a $.44 a share
quarterly dividend. The dividend will be paid on May 27 to
stockholders of record on May 12.
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<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 1,756,730<F1>
<DEBT-CARRYING-VALUE> 218,076<F2>
<DEBT-MARKET-VALUE> 220,964<F2>
<EQUITIES> 85,583<F3>
<MORTGAGE> 236,377
<REAL-ESTATE> 84,282<F4>
<TOTAL-INVEST> 2,474,555
<CASH> 36,089
<RECOVER-REINSURE> 94,958
<DEFERRED-ACQUISITION> 207,585
<TOTAL-ASSETS> 2,944,511
<POLICY-LOSSES> 702,582
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 38,942
<POLICY-HOLDER-FUNDS> 1,654,104<F5>
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23,121
0
<COMMON> 0
<OTHER-SE> 427,055
<TOTAL-LIABILITY-AND-EQUITY> 2,944,511
35,379
<INVESTMENT-INCOME> 46,669
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<OTHER-INCOME> 23,133
<BENEFITS> 62,895
<UNDERWRITING-AMORTIZATION> 8,666
<UNDERWRITING-OTHER> 671<F6>
<INCOME-PRETAX> 16,372
<INCOME-TAX> 4,238
<INCOME-CONTINUING> 12,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,134
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.96
<RESERVE-OPEN> 0
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<FN>
<F1>Debt securities held for sale represent FASB 115 available for sale
fixed maturity securities reported on a current value basis, and do not
include trading securities or securities held to maturity.
<F2>Debt securities represent FASB 115 held to maturity fixed maturity
securities, and do not include trading securities or securities available
for sale.
<F3>Equity securities include equity securities that are available for sale,
under FASB 115.
<F4>Real estate includes real estate joint ventures.
<F5>Policyholder funds include accumulated contract values as defined by FASB
97, dividend and coupon accumulations and other policyowner funds.
<F6>Underwriting expenses represent amortization of the value of purchased
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</FN>
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