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, 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 July 3, 1997
Common Stock, $2.50 par value 6,190,996 shares
Kansas City Life Insurance Company
Quarter ended June 30, 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 $3.05 for the six months, a 14 percent
decrease from last year. Second quarter operating earnings decreased 15 percent.
Net income per share decreased $0.10, or 3 percent, from $3.60 to $3.50 per
share for the six months and declined 2 percent in the second quarter.
Offsetting much of the decrease in operating income was a large increase in
realized gains, from $0.5 million to $4.3 million.
Sales
Consolidated new annualized premiums increased 7 percent in the second quarter,
reversing the 1 percent decline in the first quarter. In line with industry
experience, much of the growth in sales has come from variable products.
Annualized premiums for all group products excepting dental are up 62 percent.
Group dental is down 33 percent as dental products experienced triple-digit
growth through the first half of last year. Life insurance in-force totaled
$22.3 billion at period end, a slight improvement from last year end.
Insurance Revenues
Insurance revenues, in total, rose 4 percent for the six months and 9 percent
for the second quarter. Life premiums rose 4 percent for the quarter due to
growth in both individual and group life premiums, but remained down 2 percent
year-to-date. Accident and health premiums increased 30 percent for the second
quarter and 22 percent for the first half of the year principally due to the
group dental line. Contract charge revenues on interest sensitive products
increased 6 percent for the quarter and 5 percent for the six months.
Investment Revenues
Investment asset growth slowed due to the mix of business shifting towards
variable and group products. This, coupled with slightly lower portfolio yields,
caused net investment income to decline 1 percent for the quarter and for the
six months. Investment gains rose $1.9 million in the second quarter and $3.8
million for the first half of the year largely due to calls on the securities
portfolio.
Benefits
Total benefits grew 5 percent for the six months and 9 percent for the second
quarter. Mortality experience, which fluctuates period-to-period by its nature,
was adverse in the first half of this year as reflected in a 19 percent increase
in death benefits. Other benefits also increased both year-to-date and for the
quarter, 6 percent and 8 percent respectively. This increase stemmed mostly from
the group health lines of business.
Traditional life surrenders improved, down 9 percent year-to-date and 10
percent in the second quarter. Total policy benefits equaled 59.9 percent of
revenues thus far in 1997 compared to 59.6 percent in the first half of 1996.
Other Expenses
Insurance operating expenses include commissions, capitalized policy acquisition
costs and home office operating expenses. Departing from the Company's recent
history of flat or declining home office operating expenses, these expenses
increased 6 percent thus far in 1997. The increase is focused in the group and
individual marketing areas in support of an effort to increase revenues.
Liquidity and Capital Resources
Statements made in the Company's 1996 Annual Report to Stockholders remain
pertinent.
Cash provided from operating activities decreased 45 percent for the six months,
principally reflecting the changing product mix and increased benefit payments.
Funds from all sources totaled $363.5 million, up 7 percent versus last year due
to increased sales of investments.
Total assets of $3.0 billion at June 30 represents a small increase from year
end. Unrealized gains and losses on available-for-sale securities had little
impact on stockholders' equity and book value. Reported book value per share
equaled $77.42, a 7 percent annualized improvement since last year end.
<PAGE>
Part II: Other Information
Item 6.
(a) Exhibits: None
(b) Reports on 8-K: There were no reports on Form 8-K filed for the three months
ended
June 30, 1997.
<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 thereunto duly authorized.
KANSAS CITY LIFE INSURANCE COMPANY
- ---------------------------
Richard L. Finn
Senior Vice President, Finance
- ---------------------------
John K. Koetting
Vice President and Controller
- ---------------------------
C. John Malacarne
Vice President, General Counsel and Secretary
Date: August 8, 1997
KANSAS CITY LIFE INSURANCE COMPANY
Quarter ended June 30, 1997
EXHIBIT
Quarterly Report to Stockholders
Consolidated
Balance Sheet
(in thousands)
June 30 December 31
1997 1996
------------- -------------
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 1,799,516 1,759,153
Securities held to maturity,
at amortized cost 197,148 248,433
Equity securities available
for sale, at market 87,152 79,018
Mortgage loans 248,724 246,493
Real estate, net 43,327 43,750
Real estate joint ventures 42,000 28,356
Policy loans 93,608 94,412
Short-term 25,124 19,642
Other 5,500 0
------------- -------------
2,542,099 2,519,257
Deferred acquisition costs 209,676 207,020
Other assets 212,284 214,517
Separate account assets 25,838 13,916
------------- -------------
$ 2,989,897 2,954,710
============= =============
Liabilities and equity
Future policy benefits $ 705,176 701,560
Accumulated contract values 1,549,494 1,544,714
Other liabilities 230,132 231,656
Separate account liabilities 25,838 13,916
------------- -------------
Total liabilities 2,510,640 2,491,846
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 15,481 14,761
Unrealized gains (losses) on
securities available for sale 3,139 2,963
Retained earnings 525,941 509,748
Less treasury stock (88,425) (87,729)
------------- -------------
479,257 462,864
------------- -------------
$ 2,989,897 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 quarter, 6,189,331 shares (6,185,168 shares - 1996).
* These interim financial statements should be read in conjunction with the
Company's 1996 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 Six Months ended
June 30 June 30
1997 1996 1997 1996
------- ------- ------- -------
Revenues
Insurance revenues:
Premiums:
Life insurance $ 25,990 25,076 50,637 51,856
Accident and health 11,022 8,449 21,754 17,857
Contract charges 20,429 19,362 40,885 39,017
Investment revenues:
Investment income, net 45,858 46,435 92,527 93,362
Realized gains 1,472 (474) 4,295 470
Other 3,690 2,415 6,367 5,136
------- ------- ------- -------
Total revenues 108,461 101,263 216,465 207,698
------- ------- ------- -------
Benefits and expenses
Policy benefits:
Death benefits 27,012 21,766 50,817 42,580
Surrenders of life insurance 3,420 3,815 7,063 7,755
Other benefits 16,537 15,284 32,566 30,762
Increase in benefit and contract reserve 19,831 20,615 39,249 42,596
Amortization of policy acquisition costs 7,966 7,408 16,632 14,965
Insurance operating expenses 21,367 18,697 41,438 37,319
------- ------- ------- -------
Total benefits and expenses 96,133 87,585 187,765 175,977
------- ------- ------- -------
Pretax income 12,328 13,678 28,700 31,721
------- ------- ------- -------
Federal income taxes:
Current 4,427 5,890 11,667 13,542
Deferred (1,604) (1,906) (4,606) (4,063)
------- ------- ------- -------
2,823 3,984 7,061 9,479
------- ------- ------- -------
Net income $ 9,505 9,694 21,639 22,242
======= ======= ======= =======
Per common share
Operating income $ 1.39 1.62 3.05 3.55
Realized gains, net 0.15 (0.05) 0.45 0.05
------- ------- ------- -------
Net income $ 1.54 1.57 3.50 3.60
======= ======= ======= =======
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands)
Quarter ended
June 30
1997 1996
Operating activities
Net cash provided $11,698 21,371
Investing activities Investments called or matured:
Fixed maturities available for sale 60,592 94,660
Fixed maturities held to maturity 53,714 45,252
Equity securities available for sale 12,738 2,501
Mortgage loans 26,148 19,525
Other 1,298 930
Investments sold:
Fixed maturities available for sale 101,935 53,628
Real estate joint ventures 0 12,325
Other 2,608 2,237
Investments made:
Fixed maturities available for sale (202,342) (270,169)
Equity securities available for sale (19,526) (6,297)
Mortgage loans (29,386) (19,705)
Real estate joint ventures (14,521) (1,221)
Decrease (increase) in short-term investments, net (5,493) 29,967
Other (6,815) (1,340)
Other, net (1,798) 1,289
Net cash used (20,848) (36,418)
Financing activities
Policyowner contract deposits 92,765 87,176
Withdrawals of policyowner
contract deposits (79,079) (71,447)
Dividends paid to stockholders (5,445) (5,194)
Other, net 126 403
Net cash provided 8,367 10,938
Decrease in cash (783) (4,109)
Cash at beginning of year 4,577 9,612
Cash at end of period $3,794 5,503
Message from the President
Earnings continued to trail last year's record performance as mortality
experience dampened year-to-year comparisons. Operating earnings declined 14
percent for the six months to $3.05 a share. For the second quarter, operating
earnings decreased 15 percent. Net income, which includes realized investment
gains and losses, declined 3 percent in the first half of the year to $3.50 a
share. Second quarter's net income declined 2 percent to $1.54 a share.
Mortality experience, which fluctuates from period-to-period by its nature,
declined at all three of our operating companies in the first half of the year,
thus having a significant negative impact on the first half's earnings results.
However, its impact was partially offset by a reduced effective income tax rate
due to the Company's investment in real estate projects producing low-income
housing tax credits.
Insurance sales, in terms of new annualized premiums, rose 7 percent in the
second quarter, reversing the 1 percent decline in the first quarter.
Substantial new premiums have been generated by newly recruited agents thus far
in 1997, attesting to our success in recruiting seasoned agencies of a size
sufficient to immediately impact insurance sales. In line with industry
experience, much of the growth in sales has come from our recently introduced
variable universal life and variable annuity products. Insurance revenues in the
attached earnings statement rose 9 percent in the second quarter and 4 percent
for the six months. Contract charges arising from interest sensitive products
rose 6 percent for the quarter and 5 percent for the six months. Accident and
health premiums increased 30 percent in the second quarter and 22 percent in the
first half principally due to the group dental line. Life premiums, arising from
the traditional individual and group lines, rose 4 percent in the second quarter
but remain down 2 percent year-to-date. The Company has $22.3 billion of
insurance in force, a slight improvement from last year end.
Investment income declined 1 percent in the quarter and for the six months
reflecting slightly lower portfolio yields and reduced investment asset growth
due to the shifting mix of business towards variable and group products.
Investment gains rose $1.9 million in the quarter and $3.8 million for the six
months largely due to calls on our securities portfolio.
In a departure from our history of flat to declining home office operating
expenses, these expenses rose 6 percent thus far in 1997. This increase is
focused in the group and individual marketing areas in support of an effort to
increase revenues.
Stockholder equity per share, or book value, stands at $77.42 a share, a 7
percent annualized growth rate since last year end.
The Board of Directors approved a quarterly dividend of $.44 a share. Trailing
twelve-month dividends equal $1.72 a share. This quarterly dividend is payable
August 25 to stockholders of record on August 11.
/s/W. E. Bixy
W. E. Bixby
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,799,516<F1>
<DEBT-CARRYING-VALUE> 197,148<F2>
<DEBT-MARKET-VALUE> 201,665<F2>
<EQUITIES> 87,152<F3>
<MORTGAGE> 248,724
<REAL-ESTATE> 85,327<F4>
<TOTAL-INVEST> 2,516,975
<CASH> 28,918
<RECOVER-REINSURE> 94,424
<DEFERRED-ACQUISITION> 209,676
<TOTAL-ASSETS> 2,989,897
<POLICY-LOSSES> 705,176
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 34,289
<POLICY-HOLDER-FUNDS> 1,658,749<F5>
<NOTES-PAYABLE> 0
23,121
0
<COMMON> 0
<OTHER-SE> 456,136
<TOTAL-LIABILITY-AND-EQUITY> 2,989,897
72,391
<INVESTMENT-INCOME> 92,527
<INVESTMENT-GAINS> 4,295
<OTHER-INCOME> 47,252
<BENEFITS> 129,695
<UNDERWRITING-AMORTIZATION> 16,632
<UNDERWRITING-OTHER> 1,341<F6>
<INCOME-PRETAX> 28,700
<INCOME-TAX> 7,061
<INCOME-CONTINUING> 21,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,639
<EPS-PRIMARY> 3.50
<EPS-DILUTED> 3.50
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 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
insurance in force.
</FN>
</TABLE>
