SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from to
Commission File Number 2-40764
KANSAS CITY LIFE INSURANCE COMPANY
(Exact Name of Registrant as Specified in its Charter)
Missouri 44-0308260
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3520 Broadway, Kansas City, Missouri 64111-2565
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 816-753-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether 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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of February 28, 1997, 6,191,562 shares of the Company's capital stock
par value $2.50 were outstanding, and the aggregate market value of the common
stock (based upon the average bid and asked price according to Company records)
of Kansas City Life Insurance Company held by non-affiliates was approximately
$138,113,597.
Part II
Documents Incorporated by Reference
Item 5: Market for Registrant's Common Page 33 of Annual Report to
Equity and Related Stockholder Shareholders for the year
Matters. ended December 31, 1996.
Item 6: Selected Financial Data. Page 12 of Annual Report to
Shareholders for the year
ended December 31, 1996.
Item 7: Management's Discussion Pages 10 through 12 of
and Analysis of Financial Annual to Shareholders for
Condition and Results of the year ended December 31,
Operations. 1996.
Item 8: Financial Statements and Pages 14 through 27 of
Supplementary Data. Annual Report to
Shareholders for year ended
December 31, 1996.
Part IV
Index to Exhibits Page 14
PART I
Item 1. BUSINESS
Kansas City Life Insurance Company (KCL) was incorporated under the
assessment laws of Missouri in 1895 as the Bankers Life Association. In 1900,
its present corporate title was adopted and it was reorganized as a legal
reserve company in 1903. The Company operates nationwide, being licensed in 48
states and the District of Columbia.
The Company primarily operates in a single business segment: individual
life insurance and annuity products. A general agency distribution system is
employed. Nearly 82% of statutory premiums are derived from individual life
insurance and annuities on a consolidated basis. Interest sensitive products,
universal life and flexible annuities, comprise the vast majority of these
premiums. Individual life insurance and annuities accounted for 81% of new
statutory premiums in 1996. KCL introduced its first variable annuity in late
1995 and its first variable universal life product in January, 1996. Together
these products totaled 13% of new statutory premiums in 1996.
KCL has two wholly owned life insurance subsidiaries, Sunset Life
Insurance Company of America (Sunset) and Old American Insurance Company
(OAIC). Sunset was acquired in 1974. Headquartered in Olympia, Washington,
Sunset operates in 21 states, principally west of the Mississippi. California
provides one-third of its statutory premiums. The Company offers products
similar to KCL's and sells through personal producing general agents. OAIC was
acquired in 1991 and its operations, excluding marketing, have been merged into
KCL's home office and administrative and accounting systems. OAIC operates in
46 states, primarily selling relatively small policies to the senior market to
cover funeral and other final expenses.
KCL and its subsidiaries are subject to state regulations in their states
of domicile and in the states in which they do business. Although the federal
government generally does not regulate the business of insurance, federal
initiatives often have an impact on the business in a variety of ways including
the taxation of insurance companies and the tax treatment of insurance
products.
KCL and OAIC respectively have 467 and 89 full time employees who are
located in KCL's home office. Sunset has 113 full time employees located in
Olympia, Washington.
The Company is engaged in a crowded, competitive industry, competing with
1,500 to 2,000 other life insurance companies in the United States. The
industry is highly competitive with respect to pricing, selection of products
and quality of service. No single competitor nor any small group of
competitors dominates any of the markets in which the Company operates.
Item 2. PROPERTIES
Kansas City Life's home office is located at 3520 Broadway in Kansas
City, Missouri. The Company owns and wholly occupies two five story buildings
on an eight acre site.
Sunset owns and wholly occupies a two story office building at 3200
Capitol Boulevard in Olympia, Washington. The building is situated on four
acres of land.
Kansas City Life owns various other properties held for investment.
Item 3. LEGAL PROCEEDINGS
In January, 1996, a division of the Oklahoma Appellate Court issued an
opinion reducing a prior $10.7 million judgment against the Company to $1.3
million which the Company has accrued. 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, Defendants, arose out of certain alleged actions by
Stearman, one of the Company's agents. In November, 1996, an Oklahoma District
Court judge ruled that the Company was also responsible for $2.5 million of a
judgment rendered against the agent in the same case. The Company believes
that the court's ruling violates the Company's rights and guarantees under the
Oklahoma and Federal Constitutions as well as Oklahoma common and statutory
law. The Oklahoma Supreme Court has agreed to hear the Company's appeal.
Management believes that damages, if any, related to this matter would not have
a material effect on the Company's consolidated results of operations and
financial position.
In addition to the above case, the Company and certain of its
subsidiaries are Defendants in lawsuits involving claims and disputes with
policyowners that may include claims seeking punitive damages. Some of these
lawsuits arise in jurisdictions such as Alabama where juries sometimes award
punitive damages grossly disproportionate to the actual damages. Although no
assurances can be given and no determinations can be made at this time as to
the outcome of any particular lawsuit or proceeding, the Company and its
subsidiaries believe that there are meritorious defenses for these claims and
are defending them vigorously. Management believes that the amounts that would
ultimately be paid, if any, would have no material effect on the Company's
consolidated results of operations and financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by Reference.
Item 6. SELECTED FINANCIAL DATA
Incorporated by Reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by Reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by Reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable. PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information, as of December 31, 1996, is provided with
respect to each Director:
Term as
Director Served as
Expires Other Positions Director
Director Age in April with the Company From
J. R. Bixby (1)(2)(3) 71 1997 Chairman of the Board 1957
Robert Philip Bixby 43 1997 Executive Vice President 1985
(1)(2)(3)
Richard L. Finn 55 1997 Senior Vice President, 1983
(1)(2)(3) Finance
Warren J. Hunzicker, M.D. 76 1997 None 1989
(3)(6)
Larry Winn, Jr. 77 1997 None 1985
(2)(3)(4)(5)(6)
W. E. Bixby (1)(2) 64 1998 Vice Chairman of the 1966
Board and President
Jack D. Hayes (1) 56 1998 Senior Vice President, 1995
Marketing
Francis P. Lemery 57 1998 Senior Vice President 1985
(1)(2) and Actuary
Michael J. Ross 55 1998 None 1972
(2)(4)(5)(6)
W. E. Bixby, III (6) 38 1999 None 1996
Webb R. Gilmore 52 1999 None 1990
(2)(4)(5)(6)
Nancy Bixby Hudson (6) 44 1999 None 1996
Daryl D. Jensen (6) 57 1999 None 1978
C. John Malacarne 55 1999 Vice President, 1991
(1)(2) General Counsel
and Secretary
(1) See below with respect to the business experience of executive officers
of the Company.
(2) Member of Executive Committee.
(3) Subject to the approval of the shareholders at the annual meeting of
shareholders to be held on April 24, 1997, will be elected for a three
year term ending in 2000.
(4) Member of Audit Committee.
(5) Member of Compensation Committee.
(6) W. E. Bixby, III was elected Assistant Vice President of the Company in
1985, Vice President, Marketing in 1990, Vice President, Marketing
Operations in 1992, and President of Old American, a subsidiary, in 1996.
He also serves as a Director of Sunset Life and Old American,
subsidiaries. Mr. Gilmore is a partner in the law firm of Gilmore &
Bell. Nancy Bixby Hudson has served as a Director of Sunset Life, a
subsidiary, since 1986. Dr. Hunzicker was elected by the Board of
Directors to an unexpired term in 1989. Dr. Hunzicker served as the
Company's Medical Director from 1987 to 1989; he formerly served as a
member of the Company's Board of Directors from 1977 to 1980. Mr. Jensen
has been President of Sunset Life Insurance Company of America, a
subsidiary of Registrant, since 1973. Mr. Ross has been President of
Jefferson Bank and Trust Company, St. Louis, Missouri, since 1971 and was
elected Chairman of the Board in 1983. Mr. Winn is retired as the Kansas
Third District Representative to the U.S. Congress.
Name, Age and Business Experience
Position During Past 5 Years
J. R. Bixby, 71 Chairman since 1972; President from 1964 until he
Chairman of the Board retired in April, 1990. Responsible for overall
corporate policy. Director of Sunset Life, a
subsidiary.
W. E. Bixby, 64 Vice Chairman of the Board since 1974; elected
Vice Chairman of the Executive Vice President in January, 1987; and
Board, President and CEO and CEO in April, 1990. Primarily responsible for
the operation of the Company. Chairman of the
of Sunset Life and Old American, subsidiaries.
Robert Philip Bixby, 43 Elected Assistant Secretary in 1979; Assistant
Executive Vice President President in 1982; Vice President in 1984; Senior
Vice President, Operations in 1990; and to present
position in 1996.
Richard L. Finn, 55 Elected Vice President in 1976; Financial Vice
Senior Vice President, President in 1983; and to present position in
Finance 1984. Chief financial officer and responsible for
investment of the Company's funds, accounting and
taxes. Director of Sunset Life and Director, Vice
President and Chief Financial Officer of Old
American, subsidiaries.
Jack D. Hayes, 56 Elected Senior Vice President, Marketing in
Senior Vice President, February 1994. Responsible for Marketing,
Marketing Marketing Administration, Communications and
Public Relations. Served as Executive Vice
President and Chief Marketing Officer of Fidelity
Union Life, Dallas, Texas, from June, 1981 to
January, 1994.
Francis P. Lemery, 57 Elected Vice President in 1979; Vice President and
Senior Vice President Actuary in 1980; and to present position in 1984.
Actuary Responsible for Group Insurance Department,
Actuarial Services, State Compliance, New Business
and underwriting. Director of Sunset Life and Old
American, subsidiaries.
Robert C. Miller, 50 Elected Assistant Auditor in 1972; Auditor in
Senior Vice President, 1973; Vice President and Auditor in 1987; and to
Administrative Services present position in 1991. Responsible for Human
Resources and Home Office building and
maintenance. Business Experience
Charles R. Duffy, Jr., 49 Elected Vice President, Computer Information
Senior Vice President, Services in 1989; Vice President, Insurance
Operations Administration in 1992; and to present position in
1996. Responsible for the Company's Computer
Operations, Customer Services, Claims, Premium
Collection and Agency Administration. Director of
Sunset Life and Old American, subsidiaries.
John K. Koetting, 51 Elected Assistant Controller in 1975; and to
Vice President and position in 1980. Chief accounting officer
Controller responsible for all corporate accounting reports.
Director of Old American, a subsidiary.
C. John Malacarne, 55 Elected Associate General Counsel in 1976; General
Vice President, General Counsel in 1980; Vice President and General
Counsel and Secretary Counsel in 1981; and to present position in 1991.
Responsible for Legal Department, Office of the
Secretary, Stock Transfer Department and Market
Compliance. Director and Secretary of Sunset Life
and Old American, subsidiaries.
(d) J. R. Bixby, Chairman of the Board, and W. E. Bixby, Vice Chairman
of the Board and President, are brothers. Nancy Bixby Hudson is the
daughter of J. R. Bixby; Robert Philip Bixby and W. E. Bixby, III
are the sons of W. E. Bixby.
(e) See Business Experience During Past 5 Years above.
(f) There have been no events under any bankruptcy act, no criminal pro-
ceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any Director, nominee or executive
officer during the past five years.
Item 11. EXECUTIVE COMPENSATION
(a) Compensation
The following table sets forth information concerning cash compensation
paid or accrued by the Company and its subsidiaries to the Chief Executive
Officer and the other four most highly paid executive officers as of December
31, 1996 for the fiscal years ending December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
Annual Compensation
<CAPTION>
Other All
Annual Other
Compen- Compen-
sation sation
Name and Principal Position Year Salary($) Bonus($) $ $
<S> <C> <C> <C> <C> <C>
W. E. Bixby, Vice Chairman of the 1996 416,640 58,042 7,000 55,586
Board, President and CEO, Kansas 1995 396,780 143,344 7,000 52,903
City Life; Chairman of the Board 1994 377,880 121,921 7,000 50,350
of Sunset Life and Old American,
subsidiaries.
R. L. Finn, Senior Vice President, 1996 202,080 28,336 5,500 24,305
Finance and Director, Kansas City 1995 193,380 52,231 5,000 21,835
Life; Director of Sunset Life and 1994 184,140 43,672 5,000 20,778
Old American, subsidiaries.
F. P. Lemery, Senior Vice Presi- 1996 202,080 28,336 7,000 24,305
dent and Actuary and Director, 1995 193,380 52,232 7,000 23,239
Kansas City Life; Director of 1994 184,140 40,449 7,000 22,452
Sunset Life and Old American,
subsidiaries.
D. D. Jensen, Director, Kansas 1996 184,000 29,515 6,000 22,090
City Life; Vice Chairman of 1995 176,190 35,275 6,000 21,133
the Board and President, Sunset 1994 168,750 39,020 6,000 19,944
Life, a subsidiary.
J. D. Hayes, Senior Vice Presi- 1996 177,240 45,713 4,000 21,442
dent, Marketing and Director, 1995 169,620 89,131 3,000 19,215
Kansas City Life. 1994 148,060 35 3,000 55,910
</TABLE>
ALL OTHER COMPENSATION INCLUDES THE FOLLOWING:
J. D. Hayes began employment with the Company on February 1, 1994. Per-
quisites and other personal benefits including $49,895 for moving expenses are
included in all other compensation for 1994.
The Company has a contributory Internal Revenue Code Section 401(k)
savings and investment plan. Directors and officers who are full time
employees of the Registrant or its subsidiaries participate in the plan on the
same basis as all other employees. Employees may contribute from 1% to 10% of
their monthly base salary. Highly compensated employees are limited to
contributions of 6%. The Company contributes an amount equal to the employee
contributions in the form of capital stock of the Company. The Company
contributed $9,000 to the plan for the account of J. D. Hayes in 1995 and 1996,
and $9,000 for the accounts of the named individuals in 1994, 1995 and 1996.
The Company has adopted a nonqualified deferred compensation plan for
approximately 62 highly compensated officers and employees. It is similar to
the Company's 401(k) plan. Participants contribute amounts to this plan that
they cannot contribute to the 401(k) plan up to a total of 10% of their monthly
salary and the Company contributes an equal amount. The amount contributed to
the plan for fiscal years 1994, 1995 and 1996 respectively for the accounts of
the named individuals are as follows: W. E. Bixby, $28,788, $30,678, $32,664;
R. L. Finn, $9,414, $10,338, $11,208; F. P. Lemery, $9,414, $10,338, $11,208;
D. D. Jensen, $7,875, $8,619, $9,400; J. D. Hayes, $0, $6,549, $8,724.
The Company provides yearly renewable term insurance to its employees in
the amount of 2 1/2 times their annual salary. Directors and officers who are
full time employees participate in the program on the same basis as all other
employees. Premiums paid for the named individuals for fiscal years 1994, 1995
and 1996 respectively are as follows: W. E. Bixby, $12,562, $13,225, $13,922;
R. L. Finn, $2,364, $2,497, $4,097; F. P. Lemery, $4,038, $3,901, $4,097; D. D.
Jensen, $3,069, $3,514, $3,690; J. D. Hayes, $2,046, $3,666, $3,718.
(f) Defined Benefit or Actuarial Plan Disclosure
PENSION PLAN TABLE
The following table illustrates the possible annual pension benefits upon
completion of the indicated years of service with the five year average salary
for all officers and employees. Benefits are calculated on a straight life
annuity basis. The Social Security offset and benefit has been estimated.
<TABLE>
<CAPTION>
Compensation Years of Service SS**
10 20 30 40
<C> <C> <C> <C> <C> <C>
$ 75,000 $ 18,750 $ 37,500 $ 52,044* $ 52,044* $15,912
100,000 25,000 50,000 70,000 72,044* 15,912
125,000 31,250 62,500 87,500 92,044* 15,912
150,000 37,500 75,000 105,000 112,044* 15,912
200,000 50,000 100,000 140,000 152,044* 15,912
250,000 62,500 125,000 175,000 192,044* 15,912
300,000 75,000 150,000 210,000 232,044* 15,912
350,000 87,500 175,000 245,000 272,044* 15,912
400,000 100,000 200,000 280,000 312,044* 15,912
450,000 112,500 225,000 315,000 352,044* 15,912
500,000 125,000 250,000 350,000 392,044* 15,912
</TABLE>
*Maximum pension based on an estimate of Social Security.
**Estimated annual Social Security benefit at age 65.
The Company has a noncontributory defined benefit pension plan which
covers all full time employees age 21 and over. A participant's retirement
benefit is determined by multiplying his or her highest average annual salary
for five consecutive years, from the last ten years of his or her employment,
by a percentage determined from the participant's total years of service from
that participant's 21st birthdate. The participant's percentage is determined
by multiplying 2 1/2% for each of the participant's years of service up to the
first twenty years, 2% for each year of service for the next ten years, and 1%
for each year of the next ten. A participant's benefit may not exceed 80% of
such average salary reduced by 1/2 of his or her Social Security benefit.
Early retirement benefits are available after age 55, depending upon years of
service and age. Benefits are fully vested after five years of service
following a participant's 18th birthdate.
A participant's base salary not to exceed $150,000 (as adjusted for cost
of living) commencing January 1, 1994, was used to determine compensation under
the plan. For the individuals named in the Cash Compensation Table, the years
of service covered by the plan for the year ended December 31, 1996, were: W.
E. Bixby, 39 years; R. L. Finn, 22 years; F. P. Lemery, 36 years; D. D.
Jensen, 30 years; J. D. Hayes, 3 years.
The Company has adopted an unfunded excess benefit plan which covers any
employee who is an active participant in the noncontributory defined benefit
pension plan and whose pension benefit under that plan would exceed the maximum
benefit limited under Internal Revenue Code Section 415. A participant under
this plan is entitled to a monthly benefit of the difference between the maxi-
mum monthly normal, early, or deferred vested retirement benefit determined
without regard to the Internal Revenue Code Section 415 limitation and the
monthly equivalent of the maximum benefit permitted by Internal Revenue Code
Section 415.
(g) Compensation of Directors
Outside Directors are paid $4,000 quarterly; $2,000 if they attend
Special Board Meetings; $1,000 if they attend Executive Committee Meetings;
$500 if they attend all other Committee Meetings. Inside Directors are paid
$1,000 quarterly and $400 if they attend Special Board Meetings. J. R. Bixby,
Chairman of the Board, is paid $30,000 quarterly. Directors of Sunset Life, a
subsidiary, are paid $500 quarterly and Directors of Old American are paid $250
quarterly. Director fees are included in the Compensation Table.
(h) Employment Contracts and Termination of Employment and Change in
Control Arrangements
There are no employment contracts between the Company and its executive
officers. The Company's benefit plans contain typical provisions applicable to
all employees for termination of employment.
(j) Additional Information with Respect to Compensation Committee
The members of the Compensation Committee: Ilus W. Davis (January 1,
1996 to April 22, 1996), Webb R. Gilmore (from April 22, 1996), Michael J. Ross
and Larry Winn, Jr.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following sets forth information as of February 28, 1997, concerning
holding of voting securities of the Company's $2.50 par value capital stock,
which is the Company's only class of voting stock.
Name and Address of Beneficial Owners:
John K. Koetting, Robert C. Miller
and Ronald E. Hiatt, Trustees of the
Kansas City Life Insurance Company
Savings and Investment Plan
3520 Broadway, Kansas City, MO 64111-2565
Amount and Nature of Ownership* Percent of Class
443,991 shares 7.2
John K. Koetting, Robert C. Miller
and Ronald E. Hiatt, Trustees of the
Kansas City Life Employee Stock Plan
3520 Broadway, Kansas City, MO 64111-2565
Amount and Nature of Ownership* Percent of Class
41,748 shares .7
*Trustees have the power to sell plan assets. Participants may instruct
the Trustees how to vote their shares.
Angeline I. O'Connor
c/o William A. Hirsch, Esq.
Morrison & Hecker
2600 Grand Avenue, Kansas City, MO 64108
Amount and Nature of Ownership** Percent of Class
347,649 shares 5.6
**Includes 171,035 shares in the Walter E. Bixby Descendants Trust.
Angeline I. O'Connor, Robert Philip Bixby and W. E. Bixby, III are Co-
Trustees. The Trustees share voting and investment power. The terms of
the Trust restrict the transfer of the shares.
Angeline I. O'Connor (then known as Angeline I. Oxler); J. R. Bixby;
Margie Morris Bixby; Kathryn A. Bixby-Haddad; Kathryn A. Bixby-Haddad as
Custodian for Kellie S. Curtis; Sorouch Haddad; Nancy Bixby Hudson;
Robert Philip Bixby; W. E. Bixby, III; James R. Gammon as Trustee of
the Walter E. Bixby Family Trust;
Robert Philip Bixby, Angeline I. O'Connor and W. E. Bixby, III as Co-
Trustees of the Walter E. Bixby Descendants Trust; W. E. Bixby; W. E.
Bixby as Trustee for Trust B created pursuant to the Will of Edwin Bixby
and Trust B created pursuant to the Will of Angeline Reynolds Bixby were
members of a group that agreed to act together for the purpose of holding
common stock, and the common stock ownership of such group was reflected
in a Schedule 13D filed with the Commission on November 23, 1988 and
subsequently amended. The agreement that documented the various rights
and obligations among all of the members of that group expired
May 20, 1990.
Nonetheless, Mrs. O'Connor and other former members of the Bixby Group in
subsequent filings with the Commission have indicated that they currently
share the expectation of many members of their extended family that a
majority of the common stock will continue to be beneficially owned by
such individuals or be under the control of Trustees under certain
testamentary or inter vivos Trusts for the benefit of such individuals.
(b) Security Ownership of Management
The names of the nominees proposed by management for election to three
year terms at the annual meeting to be held April 24, 1997 are set forth
as follows:
<TABLE>
<CAPTION>
Served Shares of
as a Record and
Principal Director Beneficially Percent
Nominee Occupation Since Owned of Class
<S> <C> <C> <C> <C>
J. R. Bixby Chairman of the 1957 1,484,281(1) 24.0
3520 Broadway Board
Kansas City, MO
Robert Philip Bixby Executive Vice 1985 175,164
3520 Broadway President 5,964(2) 5.7
Kansas City, MO 171,035(3)
9,222(5)
Richard L. Finn Senior Vice Presi- 1983 12
3520 Broadway dent, Finance 6,357(2) *
Kansas City, MO
Warren J. Hunzicker, M.D. Director 1989 150 *
1248 Stratford Rd.
Kansas City, MO
Larry Winn, Jr. Retired Represent- 1985 166 *
8420 Roe Ave. ative, U.S. Congress
Prairie Village, KS
</TABLE>
The following Directors were elected April 20, 1995 for a three year
term:
<TABLE>
<S> <S> <C> <C> <C>
W. E. Bixby Chairman of 1,155,009 19.0
3520 Broadway the Board and 25,398(2)
Kansas City, MO President
Jack D. Hayes Senior Vice Presi- 1995 1,000 *
3520 Broadway dent, Marketing 397(2)
Kansas City, MO
Francis P. Lemery Senior Vice Presi- 1985 708 *
3520 Broadway dent and Actuary 7,346(2)
Kansas City, MO
Michael J. Ross Chairman of the 1972 300 *
12826 Dubon Lane Board and President,
St. Louis, MO Jefferson Bank and
Trust Company,
St. Louis, MO
</TABLE>
The following Directors were elected April 18, 1996 for a three year
term:
<TABLE>
<S> <C> <C> <C> <C>
W. E. Bixby, III President, Old 1996 176,234 5.7
3520 Broadway American Insur- 1,963(2)
Kansas City, MO ance Company, 171,035(3)
Kansas City, MO 3,371(4)
Webb R. Gilmore Partner - 1990 500 *
Attorney at Law Gilmore & Bell
833 Westover Rd.
Nancy Bixby Hudson Investor 1996 165,783 2.7
425 Baldwin Creek Rd.
Lander, WY
Daryl D. Jensen Vice Chairman of the 1978 24
2143 Old Port Dr. Board and President, 7,035(2) *
Olympia, WA Sunset Life Insurance
Company of America,
Olympia, WA
C. John Malacarne Vice President, 1991 10
3520 Broadway General Counsel 5,791(2) *
Kansas City, MO and Secretary
All Directors, executive officers
and their spouses (also includes all
shares held by Trustees of Company
benefit plans and shares held by the
Bixby Family and related Trusts) 4,204,316 68.0
</TABLE>
*Less than 1%.
(1) Includes 900 shares owned by the spouse of J. R. Bixby. Beneficial
ownership of these shares is disclaimed.
(2) Approximate vested beneficial interest in shares held by the Trustees of
Kansas City Life Insurance Company employee benefit plans. Participants
in the plans may instruct the Trustees how to vote those shares held in
their account.
(3) Shares in the Walter E. Bixby Descendants Trust. Robert Philip Bixby, W.
E. Bixby, III and Angeline I. O'Connor are Co-Trustees. The Trustees
share voting and investment power. The terms of the Trust restrict
transferring shares.
(4) Shares as to which W. E. Bixby, III is Custodian for his minor niece and
nephews under the Missouri Uniform Gifts to Minors law.
(5) Shares as to which Robert Philip Bixby is Custodian for his minor niece
and nephews under the Missouri Uniform Gifts to Minors law.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of Kansas City Life Insurance Company
are incorporated by reference from the Company's Annual Report to Shareholders
for the year ended December 31, 1996 at the following pages:
Page
Consolidated Income Statement - Years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . 14
Consolidated Balance Sheet -
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . 15
Consolidated Statement of Stockholder Equity -
Years ended December 31, 1996, 1995 and 1994 . . . . . . . . . 16
Consolidated Statement of Cash Flows -
Years ended December 31, 1996, 1995 and 1994 . . . . . . . . . 17
Notes to Consolidated Financial Statements . . . . . . . . . . . 18-26
Report of Independent Auditors . . . . . . . . . . . . . . . . . 27
(a)(2) Supplementary Data and Financial Statement Schedules
Schedules are attached hereto at the following pages:
Page
I - Summary of Investments - Other than Investments
in Related Parties, December 31, 1996 . . . . . . . . . 16
II - Condensed Financial Information of Registrant,
Years ended December 31, 1996, 1995 and 1994 . . . . . . 17-19
III - Supplementary Insurance Information, Years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 20
V - Valuation and Qualifying Accounts, Years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 20 All
other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
(b) Reports on Form 8-K
None.
(c) Exhibits
Exhibit
Number: Basic Documents:
3(a) 1986 Restatement of Articles of Incorporation. [Filed as
Exhibit 3(a) to the Company's 10-K Report for 1986 and
incorporated herein by reference]
3(b) Bylaws as amended October 26, 1986. [Filed as Exhibit
3(b)to the Company's 10-K Report for 1986 and
incorporated herein by reference]
3(c) Specimen copies of Capital Stock Certificates, (a) less
than 100 shares; (b) 100 shares; and (c) unlimited.
[Filed as Exhibit 3(d) to the Company's 10-K Report for
1985 and incorporated herein by reference]
10(a) Fourth Amendment, Kansas City Life Deferred Compensation
Plan. [Filed as Exhibit 10(a) to the Company's 10-K
Report for 1993 and incorporated herein by reference]
10(b) Twenty-first Amendment, Kansas City Life Insurance
Company Savings and Investment Plan. [Filed as Exhibit
10(b) to the Company's 10-K Report for 1994 and
incorporated herein by reference]
10(c) Ninth Amendment, Kansas City Life Employee Stock Plan.
[Filed as Exhibit 10(c) to the Company's 10-K Report for
1994 and incorporated herein by reference]
10(d) Kansas City Life Excess Benefit Plan. [Filed as Exhibit
10(e) to the Company's 10-K Report for 1990 and
incorporated herein by reference]
11 Computation of Per Share Earnings.
13 Annual Report to Shareholders for the year ended December
31, 1996.
21 Subsidiaries.
23(a) Consent of Independent Auditors.
23(b) Consent of Independent Auditors.
27 Financial Data Schedule.
99(a) Form 11-K for the Kansas City Life Insurance Company
Savings and Investment Plan for the year 1996 and filed
as a part hereof and incorporated herein by reference.
99(b) Prospectus for Kansas City Life Insurance Company Savings
and Investment Plan. [Filed as Exhibit 99(b) to the
Company's 10-K Report for 1995 and incorporated herein by
reference]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ John K. Koetting
John K. Koetting
Vice President and Controller
(Principal Accounting Officer)
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Regis-
trant and in the capacities and on the dates indicated.
By: /s/ W. E. Bixby By: /s/ Richard L. Finn
W. E. Bixby Richard L. Finn
Director; Vice Chairman of the Director; Senior Vice
Board and President President, Finance
(Principal Executive Officer) (Principal Financial Officer)
Date: March 26, 1997 Date: March 26, 1997
By: /s/ J. R. Bixby By: /s/ Francis P. Lemery
J. R. Bixby Francis P. Lemery
Director; Chairman of Director; Senior Vice
the Board President and Actuary
Date: March 26, 1997 Date: March 26, 1997
By: /s/ R. Philip Bixby By: /s/ C. John Malacarne
R. Philip Bixby C. John Malacarne
Director; Executive Director; Vice President,
Vice President General Counsel and Secretary
Date: March 26, 1997 Date: March 26, 1997
By: /s/ Warren J. Hunzicker By: /s/ Daryl D. Jensen
Warren J. Hunzicker, M.D. Daryl D.Jensen
Director Director
Date: March 26, 1997 Date: March 26, 1997
Schedule I
<TABLE>
KANSAS CITY LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
<CAPTION>
Amount at
Which Shown
Fair in Balance
Type of Investment Cost Value Sheet
(in thousands)
<S> <C> <C> <C>
Fixed maturity securities,
available-for-sale:
Bonds:
United States government and government
agencies and authorities $ 144,299 145,414 145,414
Mortgage-backed securities 253,810 258,751 258,751
States, municipalities and political
subdivisions 101,456 97,513 97,513
Public utilities 254,875 253,999 253,999
All other bonds 994,240 989,756 989,756
Redeemable preferred stocks 13,411 13,720 13,720
Total 1,762,091 1,759,153 1,759,153
Equity securities, available-for-sale:
Common stocks 187 78 78
Perpetual preferred stocks 71,335 78,940 78,940
Total 71,522 79,018 79,018
Fixed maturity securities,
held-to-maturity:
Bonds:
States, municipalities and political
subdivisions 3,527 3,701 3,527
Public utilities 138,592 143,905 138,592
All other bonds 106,314 108,436 106,314
Total 248,433 256,042 248,433
Mortgage loans on real estate, net 246,493 246,493
Real estate, net 43,750 43,750
Real estate joint ventures 28,356 28,356
Policy loans 94,412 94,412
Short-term 19,642 19,642
Total investments $2,514,699 2,519,257
</TABLE>
Schedule II
<TABLE>
KANSAS CITY LIFE INSURANCE COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
<CAPTION>
December 31
1996 1995
(in thousands)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities:
Available for sale, at fair value $1,322,965 1,246,684
Held to maturity, at amortized cost 162,502 218,166
Equity securities available for sale, at fair value:
Investments in affiliates 197,424 190,083
Other 61,783 56,807
Mortgage loans on real estate, net 222,548 207,465
Real estate, net 42,658 47,976
Real estate joint ventures 24,025 32,272
Policy loans 74,070 75,305
Short-term 10,912 26,966
Total investments 2,118,887 2,101,724
Deferred acquisition costs 94,095 90,296
Other assets 85,385 88,650
Separate account assets 13,916 1,264
Total assets $2,312,283 2,281,934
Liabilities and stockholders' equity
Future policy benefits $ 452,126 452,332
Accumulated contract values 1,224,377 1,206,233
Other liabilities 159,000 164,978
Separate account liabilities 13,916 1,264
Total liabilities 1,849,419 1,824,807
Stockholders' equity:
Common stock 23,121 23,121
Paid in capital 14,761 13,039
Unrealized gains (losses) on securities
available for sale and equity securities, net 2,963 29,740
Retained earnings including $95,307,000 undis-
tributed earnings of affiliates ($85,213,000 - 1995) 509,748 477,826
Less treasury stock, at cost (87,729) (86,599)
Total stockholders' equity 462,864 457,127
Total liabilities and stockholders' equity $2,312,283 2,281,934
</TABLE>
The above condensed financial statement should be read in conjunction with the
consolidated financial statements and notes thereto of Kansas City Life
Insurance Company.
Schedule II
<TABLE>
(continued)
KANSAS CITY LIFE INSURANCE COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENT
<CAPTION>
Years ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Revenues
Insurance revenues:
Premiums:
Life insurance $ 26,186 23,927 28,187
Accident and health 31,264 22,324 22,580
Contract charges 55,123 52,932 49,600
Investment revenues:
Investment income, net 142,119 144,502 133,006
Dividends from affiliates 5,000 6,400 4,000
Realized gains, net 3,089 4,581 5,492
Other 7,877 6,906 8,892
Total revenues 270,658 261,572 251,757
Benefits and expenses
Policy benefits:
Death benefits 46,033 42,217 41,400
Surrenders of life insurance 11,737 12,491 12,965
Other benefits 56,239 44,066 44,928
Increase in benefit and contract reserves 52,348 54,348 47,506
Amortization of policy acquisition costs 14,619 13,693 15,554
Insurance operating expenses 53,338 52,328 48,457
Management fees from affiliates (5,721) (5,995) (4,744)
Total benefits and expenses 228,593 213,148 206,066
Income before federal income taxes 42,065 48,424 45,691
Federal income taxes 9,844 12,404 12,722
Income before equity in undistributed net
income of affiliates and nonrecurring item 32,221 36,020 32,969
Equity in undistributed net income
of affiliates 10,094 5,718 5,889
Income before nonrecurring item 42,315 41,738 38,858
Postemployment benefits, net - - 1,481
Net income $ 42,315 41,738 37,377
</TABLE>
The above condensed financial statement should be read in conjunction with the
consolidated financial statements and notes thereto of Kansas City Life
Insurance Company.
Schedule II
(continued)
<TABLE>
KANSAS CITY LIFE INSURANCE COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CASH FLOW STATEMENT
<CAPTION>
Years ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Net cash from operating activities $ 54,073 43,035 29,081
Investing activities
Investments called, matured or repaid 225,957 232,966 260,836
Investments sold 102,733 141,990 43,649
Investments purchased or originated (387,849) (445,236) (378,958)
Other 1,056 (538) 477
Net cash used in investing activities (58,103) (70,818) (73,996)
Financing activities
Repayment of short-term debt - - (10,555)
Policyowner contract deposits 115,493 132,408 133,648
Withdrawals of policyowner
contract deposits (107,073) (94,150) (74,650)
Cash dividends to stockholders (10,393) (10,061) (8,609)
Other 592 670 816
Net cash from financing activities (1,381) 28,867 40,650
Increase (decrease) in cash (5,411) 1,084 (4,265)
Cash at beginning of year 5,324 4,240 8,505
Cash (overdraft) at end of year $ (87) 5,324 4,240
</TABLE>
The above condensed financial statement should be read in conjunction with the
consolidated financial statements and notes thereto of Kansas City Life
Insurance Company.
Schedule III
KANSAS CITY LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
The Company believes it operates in a single industry segment, that of
providing life and accident and health insurance coverage. Therefore,
supplementary information for this segment is limited to the following:
December 31
1996 1995
(in thousands)
Unearned premiums (included in $909 925
other policyowners' funds in the
accompanying Consolidated Balance
Sheet)
All other information required by this Schedule is shown in the accompanying
Consolidated Income Statement and Consolidated Balance Sheet.
Schedule V
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Years ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Real estate valuation account
Beginning of year $ 7,378 9,942 11,113
Deductions (2,151) (2,564) (1,171)
End of year $ 5,227 7,378 9,942
Mortgage loan valuation account
Beginning of year $10,500 10,500 10,500
Deductions (2,000) - -
End of year $ 8,500 10,500 10,500
Allowance for uncollectible accounts
Beginning of year $ 1,123 2,732 2,642
Additions 845 1,258 464
Deductions (808) (2,867) (374)
End of year $ 1,160 1,123 2,732
</TABLE>
Exhibit 11, Form 10-K
Kansas City Life
Insurance Company
KANSAS CITY LIFE INSURANCE COMPANY
COMPUTATION OF PER SHARE EARNINGS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Shares outstanding
at the end of:
January 6,181,054 6,163,293 6,146,912
February 6,184,705 6,167,341 6,149,595
March 6,182,989 6,169,609 6,152,038
April 6,184,937 6,167,726 6,148,472
May 6,191,114 6,176,567 6,153,712
June 6,193,470 6,179,444 6,154,480
July 6,190,338 6,178,783 6,150,730
August 6,194,308 6,178,894 6,146,180
September 6,195,952 6,177,911 6,154,427
October 6,192,890 6,175,032 6,154,517
November 6,191,226 6,177,879 6,160,637
December 6,189,469 6,177,905 6,162,436
Weighted average
number of shares
outstanding for
the year 6,188,489 6,173,294 6,152,155
Income before
nonrecurring item $42,315,000 41,738,000 38,858,000
Postemployment
benefits, net - - 1,481,000
Net income $42,315,000 41,738,000 37,377,000
Per common share:
Income before
nonrecurring item $ 6.84 6.76 6.32
Postemployment
benefits, net - - .24
Net income $ 6.84 6.76 6.08
</TABLE>
Exhibit 13, Form 10-K
Kansas City Life
Insurance Company
Management's Discussion
and analysis of financial condition and results of operations
Operating earnings progressed over the past three years from $5.68 a share in
1994, to $6.24 a share in 1995, to $6.52 a share in 1996. Operating earnings
therefore improved 10 percent in 1995 and 5 percent in 1996. Each of the three
years' earnings was a record. Pretax operating margins averaged 13.4 percent
over the three years. Over this period net income per share, which includes
realized investment gains and a $.24 a share nonrecurring expense in 1994,
rose from $6.08 in 1994, to $6.76 in 1995, to $6.84 in 1996. Return on equity
averaged 9.84 percent for the three-year period.
Insurance revenues increased 1 percent in 1995 and 7 percent in 1996. These
revenues include policy charges on the interest sensitive products which rose
6 percent in 1995 and 7 percent in 1996. These charges principally arise from
universal life products for the cost of insurance and expense loads.
Insurance revenues also include premiums on traditional types of insurance
which declined 3 percent in 1995, but rose 8 percent in 1996. Premiums from a
closed block of home health care business and single premium annuity receipts
declined in both years. However, double-digit growth in group life and group
dental premiums provided overall premium growth in 1996. Insurance in force
exceeded $22 billion in 1996 for the first time and grew 6 percent for the
year.
Sales, in terms of new annualized premiums, rose 3 percent in 1996 due to
double-digit growth in both group dental premiums and Sunset Life's individual
life premiums, and 5 percent growth in Old American's sales of whole life
final expense policies to seniors. These increases were partially offset by a
12 percent decrease in sales of individual life insurance at Kansas City Life.
In 1995 consolidated sales declined 3 percent as triple-digit growth in group
dental premiums was offset by double-digit declines in Old American and Kansas
City Life's individual insurance sales. As part of an ongoing program to
reverse sales trends in its core individual insurance business, the Company
revised and improved its individual product portfolio for 1997 and is actively
recruiting sizable, seasoned sales agencies capable of impacting sales
performance in the coming year.
Investment income improved 8 percent in 1995 and then declined 1 percent in
1996. These comparisons were impacted by a $4.0 million one-time receipt of
mortgage income in 1995. Excluding this item, investment earnings increased 6
percent in 1995 and 1 percent in 1996. The net investment yield on the
portfolio declined 35 basis points during 1996 to 7.68 percent. The portfolio
yield had risen the two preceding years. Half of the yield decline in 1996
resulted from the $4.0 million receipt noted above. Additionally, yields
available in the marketplace were generally below the average yield of the
portfolio. Investment spreads widened in 1994 and 1995 but narrowed slightly
in 1996 due to market conditions. Realized investment gains declined the past
two years due to decisions made in managing the portfolio's total return.
Benefits experience was mixed the past three years. Mortality experience in
the individual lines was largely unchanged from 1994 to 1995, but improved in
1996. However, group claims experience was considerably more volatile. This
experience was in line with historical averages in 1994, better than these
averages in 1995 and then considerably worse in 1996. This deterioration
occurred principally in the group dental line and premium increases will be
applied as rapidly as possible. Additionally, claims experience in the
individual home health line, which has not been offered since early 1993, was
decidedly adverse in all three years. Rate increases are being pursued on
this block of business. Lastly, the Company's flexible annuity surrenders rose
as a percent of funds available to be surrendered; from 9.3 percent in 1994,
to 10.9 percent in 1995, to 12.1 percent in 1996. This experience largely
reflects changing consumer preferences towards variable annuities. As noted
above, Kansas City Life began offering variable annuities in late 1995. While
these surrenders truncate future earnings streams, they have little current
earnings impact.
Kansas City Life has focused on expense reductions and operating efficiencies
for the past eight years. As a result, home office operating expenses declined
in five of those years and were held level in 1996. Expenses declined, on
average, 1 percent a year over the eight-year period. This record is a
considerable accomplishment considering that salaries and benefits comprise
the bulk of the Company's expenses and that an individual's salary increased
three to five percent annually over this period. This degree of cost restraint
will be difficult to match in coming years, so future gains in efficiency will
require accelerated revenue growth, whether by internally generated sales
growth, or through acquisitions of business, or a combination of both.
Amortization of deferred acquisition costs fluctuated year-to-year as interest
sensitive products' amortization schedules were reassessed quarterly based
upon the profit margins realized each quarter. However, assumptions were not
unlocked since assumed total gross margins over the life of the business were
unchanged.
The Company's effective Federal income tax rate declined from 32 percent in
1994, to 30 percent in 1995, to 29 percent in 1996. Much of this improvement
resulted from investments which generated affordable housing tax credits.
These investments currently total $25.3 million.
A key measure of investment performance is the ability to assess risk,
recognize the extent of the risk assumed, and then receive a proper return
commensurate with the risk. Kansas City Life prides itself on the quality of
its investment portfolio and its ability to assess risk. The Company takes its
role as a provider of financial security for its insureds very seriously. The
following highlights the solidity underlying each portion of Kansas City
Life's portfolio.
Securities comprise the vast majority of the Company's investments. Over
73 percent of the securities are "A" rated or better. Less than 5 percent are
considered below investment grade and these securities are held in the belief
that they are strong candidates for rating upgrades. No securities are in
default as to principal or interest. The entire security portfolio's fair
value exceeds its amortized cost by $12.2 million. The Company's Argentinean
and Mexican securities were of some concern the past two years and have been
closely monitored. These securities, totaling $49.9 million, had an unrealized
loss of $180,000 at year end, net of tax. The fair values of these securities
generally rebounded during 1996, but one security was written down $1.1
million or $.18 a share, net of tax, to its fair value. None of the other
Argentinean and Mexican securities had an appreciable unrealized loss at year
end.
Mortgages comprise 10 percent of investments, down from 13 percent three years
ago. New mortgages represented 11 percent of the total new investments made by
the Company in 1996. The mortgage loan portfolio is broadly distributed
geographically, except there are no mortgage loans in the Northeast. Over half
of the underlying credits are industrial properties. Delinquent loans and
those in foreclosure represent 2.2 percent of the portfolio, below the
industry average of 2.6 percent. Restructured loans equal 4.0 percent of the
portfolio. A valuation reserve of $8.5 million, established to cover potential
future problems in the portfolio, equals 3.3 percent of the portfolio. This
reserve was reduced $2.0 million during 1996, generating a $1.3 million
realized gain, net of tax. Two loans, with a value of $3.0 million, were
foreclosed upon in 1996 and transferred to real estate investments. The
portfolio's fair value is estimated to exceed its carrying value by
$3.5 million.
Real estate and joint ventures equal 3 percent of total investments, and
represented 1 percent of the total investments made in 1996. Real estate
acquired through foreclosure represents one-fourth of the real estate
investments. As noted above, two properties were added in 1996. Ten of these
properties were sold during the year generating a $749,000 gain, net of tax.
Nineteen foreclosed properties with a value of $18.2 million were held at year
end. These properties are carried at estimated net realizable value. Joint
ventures, representing 39 percent of these investments, largely consist of
real estate investments which generate the affordable housing tax credits
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash flows each year as evidenced by the
investable funds generated in each of the past three years: $612.9 million in
1994, $568.8 million in 1995 and $507.8 million in 1996. Therefore the
Company normally has few liquidity concerns. Borrowings were minor in each of
the three years and were only used in support of investment strategies. The
Company maintains a $60.0 million bank line of credit for this purpose. No
long-term borrowing needs are foreseen for the coming year. The Company
performs cash flow testing and matches its assets and liabilities in order to
ensure that its obligations will be met. The only commitments outstanding at
year end are to fund seven mortgage loans for $7.3 million.
The Company's capital position remains sound. Its statutory equity is four to
five times the minimum capital required to support its business, as determined
by calculations and guidelines established by the National Association of
Insurance Commissioners.
Kansas City Life was named by the Ward Financial Group in 1996 to be among the
fifty best life insurance companies in terms of safety and financial
performance. This was the third consecutive year for the Company to receive
this honor. The Ward Financial Group is a management consulting firm
specializing in financial performance information.
<TABLE>
SELECTED FINANCIAL DATA
(Thousands, except per share data)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues:
Insurance $ 219,593 205,458 203,827 196,829 188,492
Investment income,
net 186,743 188,087 173,388 163,237 171,581
Other 12,662 10,290 10,179 9,609 9,742
Operating revenues 418,998 403,835 387,394 369,675 369,815
Realized investment
gains 3,013 4,950 6,060 24,648 8,273
$ 422,011 408,785 393,454 394,323 378,088
Operating income $ 40,357 38,521 34,919 26,033 31,190
Realized investment
gains, net 1,958 3,217 3,939 16,021 5,460
Income before
nonrecurring items 42,315 41,738 38,858 42,054 36,650
Nonrecurring expenses, net - - 1,481 - 5,592
Net income $ 42,315 41,738 37,377 42,054 31,058
Per common share:
Operating income $ 6.52 6.24 5.68 4.24 5.09
Realized investment
gains, net .32 .52 .64 2.60 .89
Income before
nonrecurring items 6.84 6.76 6.32 6.84 5.98
Nonrecurring expenses, net - - .24 - .91
Net income $ 6.84 6.76 6.08 6.84 5.07
Cash dividends $ 1.68 1.63 1.40 1.36 1.28
Stockholders' equity:
As reported $ 74.79 73.99 55.78 61.68 56.49
Excluding unrealized
gains and losses 74.31 69.18 64.11 59.48 54.00
Assets $ 2,954,710 2,903,768 2,663,753 2,651,430 2,510,662
Net return on
invested assets 7.68% 8.03 7.71 7.65 8.54
Life insurance
in force $22,207,697 21,023,702 20,023,820 19,028,772 18,862,336
</TABLE>
(The above is not covered by the report of independent auditors)
<TABLE>
Consolidated Income Statement
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES
Insurance revenues:
Premiums:
Life insurance $103,263 101,341 103,324
Accident and health 37,575 29,475 30,896
Contract charges 78,755 74,642 69,607
Investment revenues:
Investment income, net 186,743 188,087 173,388
Realized investment gains, net 3,013 4,950 6,060
Other 12,662 10,290 10,179
TOTAL REVENUES 422,011 408,785 393,454
BENEFITS AND EXPENSES
Policy benefits:
Death benefits 87,940 85,388 79,829
Surrenders of life insurance 15,488 16,345 16,490
Other benefits 65,437 53,441 54,146
Increase in benefit and contract reserves 85,614 89,139 83,158
Amortization of policy acquisition costs 30,086 27,992 29,370
Insurance operating expenses 78,121 76,557 73,487
TOTAL BENEFITS AND EXPENSES 362,686 348,862 336,480
Income before Federal income taxes 59,325 59,923 56,974
Federal income taxes:
Current 26,073 22,038 22,845
Deferred (9,063) (3,853) (4,729)
17,010 18,185 18,116
Income before nonrecurring item 42,315 41,738 38,858
Postemployment benefits, net - - 1,481
NET INCOME $ 42,315 41,738 37,377
PER COMMON SHARE
Income before nonrecurring item $6.84 6.76 6.32
Postemployment benefits, net - - .24
NET INCOME $6.84 6.76 6.08
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Balance Sheet
<CAPTION>
<S> <C> <C>
1996 1995
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost $1,762,091,000;
$1,604,415,000 -1995) $1,759,153 1,647,674
Held to maturity, at amortized cost
(fair value $256,042,000;
$339,911,000 - 1995) 248,433 320,394
Equity securities available for sale,
at fair value (amortized cost
$71,522,000; $62,352,000 -1995) 79,018 70,837
Mortgage loans on real estate, net 246,493 235,213
Real estate, net 43,750 48,542
Real estate joint ventures 28,356 36,103
Policy loans 94,412 94,312
Short-term 19,642 36,898
TOTAL INVESTMENTS 2,519,257 2,489,973
Cash 4,577 9,612
Accrued investment income 41,847 40,923
Receivables, net 6,854 7,228
Property and equipment, net 24,791 27,866
Deferred acquisition costs 207,020 192,476
Value of purchased insurance in force 38,031 39,084
Reinsurance assets 93,328 89,983
Other 5,089 5,359
Separate account assets 13,916 1,264
$2,954,710 2,903,768
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits:
Life insurance $ 671,204 658,350
Accident and health 30,356 27,379
Accumulated contract values 1,544,714 1,518,968
Policy and contract claims 35,223 31,919
Other policyholders' funds:
Dividend and coupon accumulations 43,141 42,610
Other 60,970 56,206
Income taxes:
Current 3,537 2,796
Deferred 19,748 43,230
Other 69,037 63,919
Separate account liabilities 13,916 1,264
TOTAL LIABILITIES 2,491,846 2,446,641
Stockholders' equity:
Common stock, par value $2.50 per share
Authorized 18,000,000 shares,
issued 9,248,340 shares 23,121 23,121
Paid-in capital 14,761 13,039
Unrealized gains (losses) on securities
available for sale, net 2,963 29,740
Retained earnings 509,748 477,826
Less treasury stock, at cost
(3,058,871 shares; 3,070,435 shares -1995) (87,729) (86,599)
TOTAL STOCKHOLDERS' EQUITY 462,864 457,127
$2,954,710 2,903,768
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Statement of Stockholders' Equity
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
COMMON STOCK, beginning and end of year $ 23,121 23,121 23,121
PAID-IN-CAPITAL:
Beginning of year 13,039 11,847 10,597
Excess of proceeds over cost of
treasury stock sold 1,722 1,192 1,250
End of year 14,761 13,039 11,847
UNREALIZED GAINS (LOSSES) ON SECURITIES
AVAILABLE FOR SALE:
Beginning of year 29,740 (51,345) 13,501
Unrealized appreciation on cumulative effect
of accounting change, net - - 14,627
Unrealized appreciation (depreciation)
on securities available for sale, net (26,777) 81,085 (79,473)
End of year 2,963 29,740 (51,345)
RETAINED EARNINGS:
Beginning of year 477,826 446,149 417,381
Net income 42,315 41,738 37,377
Stockholder dividends of $1.68 per share
($1.63 - 1995 and $1.40 - 1994) (10,393) (10,061) (8,609)
End of year 509,748 477,826 446,149
TREASURY STOCK, at cost:
Beginning of year (86,599) (86,077) (85,643)
Cost of 27,876 shares acquired
(17,240 shares - 1995 and
17,329 shares - 1994) (1,501) (829) (771)
Cost of 39,440 shares sold
(32,709 shares - 1995
and 35,890 shares - 1994) 371 307 337
End of year (87,729) (86,599) (86,077)
TOTAL STOCKHOLDERS' EQUITY $462,864 457,127 343,695
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 42,315 41,738 37,377
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment discount, net (4,071) (5,215) (3,882)
Depreciation 4,995 5,265 5,165
Policy acquisition costs capitalized (38,639) (40,388) (43,952)
Amortization of deferred policy
acquisition costs 30,086 27,992 29,370
Realized investment gains (3,013) (4,950) (6,060)
Changes in assets and liabilities:
Future policy benefits 15,831 15,071 15,747
Accumulated contract values 3,183 8,135 8,445
Other policy liabilities 5,294 3,852 414
Income taxes payable and deferred (8,322) (1,595) (4,784)
Postemployment benefits, net - - 1,481
Other, net 5,886 4,318 2,431
NET CASH FROM OPERATING ACTIVITIES 53,545 54,223 41,752
INVESTING ACTIVITIES
Investments called, matured or repaid:
Fixed maturities available for sale 131,545 136,574 203,640
Fixed maturities held to maturity 79,017 63,433 75,060
Equity securities available for sale 8,899 13,727 27,876
Mortgage loans on real estate 53,430 67,722 35,311
Decrease (increase) in
short-term investments, net 17,256 (17,558) 120,142
Other 10,440 4,884 2,469
Investments sold:
Fixed maturities available for sale 140,372 165,563 51,124
Fixed maturities held to maturity - 4,207 -
Equity securities available for sale 963 18,984 3,488
Investments purchased or originated:
Fixed maturities available for sale (431,916)(495,766)(574,667)
Fixed maturities held to maturity - - (21,533)
Equity securities available for sale (18,071) (12,896) (5,566)
Real estate joint ventures (6,439) (8,093) (5,707)
Mortgage loans on real estate (54,161) (31,053) (8,192)
Other (2,150) (1,068) (1,789)
Net additions to property and equipment (527) (2,918) (1,640)
NET CASH USED IN INVESTING ACTIVITIES (71,342) (94,258) (99,984)
FINANCING ACTIVITIES
Proceeds from borrowings 1,650 22,730 891
Repayment of borrowings (1,650) (22,730) (11,446)
Policyowner contract deposits 164,677 179,135 179,411
Withdrawals of policyowner contract deposits (142,114)(127,347)(107,354)
Cash dividends to stockholders (10,393) (10,061) (8,609)
Disposition of treasury stock, net 592 670 816
NET CASH FROM FINANCING ACTIVITIES 12,762 42,397 53,709
Increase (decrease) in cash (5,035) 2,362 (4,523)
Cash at beginning of year 9,612 7,250 11,773
CASH AT END OF YEAR $ 4,577 9,612 7,250
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(Amounts in tables are generally stated in thousands, except per share data)
SIGNIFICANT ACCOUNTING POLICIES
Organization
Kansas City Life Insurance Company is a Missouri-domiciled stock life
insurance company which, with its affiliates, is licensed to sell insurance
products in 48 states and the District of Columbia. The Company offers a
diversified portfolio of individual insurance, annuity and group products
distributed through numerous general agencies. In recent years, the Company's
new business activities have been concentrated in interest sensitive products.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP) and include the
accounts of Kansas City Life Insurance Company and its subsidiaries.
Significant intercompany transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior year results to conform with
the current year's presentation. GAAP requires management to make certain
estimates and assumptions which affect amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Financial Accounting Standards Board (FASB) Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," was adopted in January 1996, with no impact to the financial statements.
Recognition of Revenues
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these products are recognized as
revenues when due. Accident and health insurance premiums are recognized as
revenues over the terms of the policies. Universal life-type products include
universal life insurance and flexible annuities. Revenues for these products
are amounts assessed against contract values for cost of insurance, policy
administration and surrenders, as well as amortization of deferred front-end
contract charges.
Future Policy Benefits
For traditional life insurance products, reserves have been computed by a net
level premium method based upon estimates at the time of issue for investment
yields, mortality and withdrawals. These estimates include provisions for
experience less favorable than actually expected. Investment yield
assumptions for new issues are graded and range from 5.75 percent to 7.75
percent. Mortality assumptions are based on standard mortality tables. The
1965-70 Select and Ultimate Basic Table is used for business issued since
1977.
Reserves and claim liabilities for accident and health insurance include
estimated unpaid claims and claims incurred but not reported. For traditional
life and accident and health insurance, benefits and claims are charged to
expense in the period incurred.
Liabilities for universal life-type products represent accumulated contract
values, without reduction for potential surrender charges, and deferred front-
end contract charges which are amortized over the term of the policies.
Benefits and claims are charged to expense in the period incurred net of
related accumulated contract values. Interest on accumulated contract values
is credited to contracts as earned. Crediting rates for universal life
insurance and flexible annuity products ranged from 4 .75 percent to 6.75
percent during 1996 (4.79 percent to 7.00 percent during 1995 and 4.50 percent
to 7.50 percent during 1994).
Withdrawal assumptions for all products are based on corporate experience.
Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain policy
issue and underwriting expenses and certain variable agency expenses, are
deferred. For traditional life products, deferred acquisition costs are
amortized in proportion to premium revenues over the premium-paying period of
related policies, using assumptions consistent with those used in computing
benefit reserves. Acquisition costs for universal life-type products are
amortized over a period not exceeding 30 years in proportion to estimated
gross profits arising from interest spreads and mortality, expense and
surrender charges expected to be realized over the term of the contracts.
Calls in the securities portfolio resulted in realized gains in 1994 which
increased gross profits above those originally estimated. Calls and realized
gains related to them were negligible in 1995 and 1996. In accordance with
FASB Statement No. 97, these higher than expected gross profits required the
Company to recompute its amortization of deferred acquisition costs
retrospectively to the date the amortization was originally determined. This
increased the amortization of deferred acquisition costs $804,000 in 1994, or
$.08 a share after taxes. This increased amortization was netted against
realized investment gains in the accompanying income statement.
Value of Purchased Insurance in Force
The value of Old American's purchased insurance in force was capitalized and
is being amortized in proportion to projected future gross profits. This asset
was increased $5,030,000 ($5,157,000 - 1995 and $5,310,000 - 1994) for accrual
of interest and reduced $6,082,000 ($6,088,000 - 1995 and $6,636,000 - 1994)
for amortization. A 13 percent interest rate was used. Through 1996, total
accumulated accrual of interest and amortization equal $27,583,000 and
$33,052,000, respectively. The percentage of the asset's current carrying
amount which will be amortized in each of the next five years is 7.3 percent
- - 1997 and 1998, 7.4 percent - 1999, 7.6 percent - 2000 and 7.5 percent -
2001. This percentage was 2.7 percent in 1996.
Investments
Securities held to maturity and short-term investments are stated at cost
adjusted for amortization of premium and accrual of discount. Securities
available for sale are stated at fair value. Unrealized gains and losses on
securities available for sale are reduced by deferred income taxes and related
adjustments in deferred acquisition costs, and are included in a separate
stockholders' equity account.
Mortgage loans are stated at cost adjusted for amortization of premium and
accrual of discount less an allowance for possible losses. Foreclosed real
estate is stated at fair value at the date of foreclosure (cost) or net
realizable value, whichever is lower. Other real estate investments are
carried at depreciated cost. Real estate joint ventures are valued at cost
adjusted for the Company's equity in earnings since acquisition. Policy loans
are carried at cost less payments received. Realized gains and losses on
disposals of investments, determined by the specific identification method,
are included in investment revenues.
Federal Income Taxes
Income taxes have been provided using the liability method. Under that method,
deferred tax assets and liabilities are determined based on the differences
between their financial reporting and their tax bases and are measured using
the enacted tax rates.
Income Per Common Share
Income per common share is based upon the weighted average number of shares
outstanding during the year, 6,188,489 shares (6,173,294 shares - 1995 and
6,152,155 shares - 1994).
Statutory Information and Stockholder Dividends Restriction
The Company's earnings, unassigned surplus (retained earnings) and
stockholders' equity, on the statutory basis used to report to regulatory
authorities, follow.
1996 1995 1994
Net gain from operations for the year $ 27,345 29,307 29,151
Net income for the year 25,574 29,484 28,324
Unassigned surplus at December 31 284,417 268,239 235,226
Stockholders' equity at December 31 234,570 217,801 184,117
Stockholder dividends may not exceed statutory unassigned surplus.
Additionally, under Missouri law, the Company must have the prior approval of
the Missouri Director of Insurance in order to pay a dividend exceeding the
greater of statutory net gain from operations for the preceding year or 10
percent of statutory stockholders' equity at the end of the preceding year.
The maximum payable in 1997 without prior approval is $27,345,000. The Company
believes these statutory limitations impose no practical restrictions on its
dividend payment plans.
The Company is required to deposit a defined amount of assets with state
regulatory authorities. Such assets had an aggregate carrying value of
approximately $36,000,000 in 1996 and $100,000,000 in 1995 and 1994.
INVESTMENTS
Accounting Change
Kansas City Life adopted FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," on January 1, 1994. On that date,
the value of securities available for sale at fair value increased
stockholders' equity $14,627,000, net of related deferred acquisition costs of
$5,068,000 and taxes of $7,876,000. Late in 1995, the FASB issued a special
report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." This report provided companies
with an opportunity for a one-time reassessment and reclassification of
securities as of a single measurement date without tainting the held to
maturity debt securities classification. On December 31, 1995, the Company
reclassified securities with an amortized cost of $14,737,000 from held to
maturity to available for sale which increased unrealized gains on securities
by approximately $185,000, net of related deferred acquisition costs and
taxes.
At December 31, 1996, 88 percent of the Company's securities are categorized
as available for sale and are stated at fair value. The resulting adjustment
causes significant volatility in these securities' carrying values which
affects various calculations that are dependent on stockholders' equity, such
as return on equity.
Kansas City Life employs no derivative financial instruments.
<TABLE>
Investment Revenues
Major categories of investment revenues are summarized as follows.
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Investment income:
Fixed maturities $150,421 144,242 127,806
Equity securities 5,503 6,259 7,563
Mortgage loans 23,127 31,378 29,118
Real estate 13,237 12,342 11,732
Policy loans 6,372 6,174 6,295
Short-term 2,353 2,753 4,437
Other 2,222 2,533 2,433
203,235 205,681 189,384
Less investment expenses (16,492) (17,594) (15,996)
$186,743 188,087 173,388
Realized gains (losses):
Fixed maturities $ (1,862) (1,718) 1,995
Equity securities 961 4,634 4,568
Mortgage loans 2,000 (108) -
Real estate 1,894 2,172 300
Other 20 (30) 1
Deferred acquisition cost amortization for
realized investment gains - - (804)
$ 3,013 4,950 6,060
</TABLE>
<TABLE>
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow.
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Available for sale:
End of year $ 4,558 51,744 (86,601)
Deferred income taxes (1,595) (16,013) 27,661
Effect on deferred acquisition costs - (5,991) 7,595
$ 2,963 29,740 (51,345)
Increase (decrease) in net unrealized gains
during the year:
Fixed maturities $(26,216) 78,876 (55,150)
Equity securities (561) 2,209 (9,696)
$(26,777) 81,085 (64,846)
Held to maturity:
End of year $ 7,609 19,517 2,850
Increase (decrease) in net unrealized gains
during the year $(11,908) 16,667 (65,820)
</TABLE>
<TABLE>
Securities
The amortized cost and fair value of investments in securities at December 31,
1996, follow.
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U.S. government bonds $ 144,299 1,633 518 145,414
Public utility bonds 254,875 2,755 3,631 253,999
Corporate bonds 981,157 10,122 17,161 974,118
Mortgage-backed bonds 253,810 6,473 1,532 258,751
Other bonds 114,539 850 2,238 113,151
Redeemable preferred stocks 13,411 419 110 13,720
Total fixed maturities 1,762,091 22,252 25,190 1,759,153
Equity securities 71,522 8,340 844 79,018
$1,833,613 30,592 26,034 1,838,171
Held to maturity:
Public utility bonds $ 138,592 5,619 306 143,905
Corporate bonds 104,713 3,387 1,416 106,684
Other bonds 5,128 325 - 5,453
248,433 9,331 1,722 256,042
$2,082,046 39,923 27,756 2,094,213
</TABLE>
The amortized cost and fair value of investments in securities at December 31,
1995, follow.
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U.S. government bonds $ 138,372 3,479 253 141,599
Public utility bonds 279,156 7,641 1,612 285,185
Corporate bonds 865,960 29,744 3,609 892,094
Mortgage-backed bonds 242,187 9,350 261 251,276
Other bonds 65,230 609 1,672 64,168
Redeemable preferred stocks 13,510 632 790 13,352
Total fixed maturities 1,604,415 51,455 8,197 1,647,674
Equity securities 62,352 9,345 859 70,837
1,666,767 60,800 9,056 1,718,511
Held to maturity:
Public utility bonds 175,700 13,023 114 188,608
Corporate bonds 138,727 6,969 863 144,834
Other bonds 5,967 511 9 6,469
320,394 20,503 986 339,911
$1,987,161 81,303 10,042 2,058 422
</TABLE>
All fixed maturity securities produced income in 1996.
The distribution of the fixed maturity securities' contractual maturities
follows. However, expected maturities may differ from these contractual
maturities since borrowers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Available for sale:
Due in one year or less $ 39,749 40,037
Due after one year through five years 286,030 290,506
Due after five years through ten years 731,349 722,058
Due after ten years 451,153 447,801
Mortgage-backed bonds 253,810 258,751
$1,762,091 1,759,153
Held to maturity:
Due in one year or less $ 92,171 94,186
Due after one year through five years 68,567 71,624
Due after five years through ten years 37,613 39,314
Due after ten years 50,082 50,918
$ 248,433 256,042
</TABLE>
Sales of investments in securities available for sale in 1996, excluding
normal maturities and calls, follow.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Proceeds $141,336 184,547 54,612
Gross realized gains 1,400 6,416 1,065
Gross realized losses 1,420 6,527 377
</TABLE>
During 1995, the Company sold a held to maturity security with an amortized
cost of $4,284,000, resulting in a realized investment loss of $77,000, due to
a perceived significant deterioration in the issuer's credit worthiness.
At December 31, 1996, the Company did not hold securities of any corporation
and its affiliates which exceeded 10 percent of stockholders' equity.
Mortgage Loans
The Company holds non-income producing mortgage loans equaling $2,077,000
($2,862,000 - 1995). Mortgage loans are carried net of a valuation reserve of
$8,500,000 ($10,500,000 in 1995).
At December 31, 1996 and 1995, the mortgage portfolio is diversified
geographically and by property type as follows.
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Geographic region:
Mountain $ 75,058 76,163 78,843 82,753
Pacific 81,955 82,599 80,334 82,802
West south central 36,155 36,940 35,541 37,483
West north central 35,463 36,003 28,172 29,717
Other 26,362 26,824 22,823 24,233
Valuation reserve (8,500) (8,500) (10,500) (10,500)
$246,493 250,029 235,213 246,488
Property type:
Industrial $136,266 137,633 104,728 109,247
Retail 45,555 46,681 57,246 60,114
Office 54,332 55,280 66,404 69,656
Other 18,840 18,935 17,335 17,971
Valuation reserve (8,500) (8,500) (10,500) (10,500)
$246,493 250,029 235,213 246,488
</TABLE>
As of December 31, 1996, the Company has commitments which expire in 1997 to
originate mortgage loans of $7,253,000.
Mortgage loans foreclosed upon and transferred to real estate investments
during the year equaled $2,977,000 ($4,322,000 - 1995 and $3,391,000 - 1994).
Mortgage loans acquired in the sale of real estate assets during the year
totaled $6,579,000 ($9,571,000 - 1995 and $877,000 - 1994).
Real Estate
Detail concerning the Company's real estate investments follows.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Penntower office building, at cost:
Land $ 1,106 1,106
Building 17,644 17,543
Less accumulated depreciation (9,303) (8,721)
Foreclosed real estate, at lower of
cost or net realizable value 18,218 22,736
Other investment properties, at cost:
Land 3,370 3,370
Buildings 25,907 24,890
Less accumulated depreciation (13,192) (12,382)
$ 43,750 48,542
</TABLE>
Investment real estate, other than foreclosed properties, is depreciated on a
straight-line basis. Penntower office building is depreciated over 60 years
and all other properties from 10 to 35 years. Foreclosed real estate is
carried net of a valuation allowance of $5,227,000 ($7,378,000 - 1995) to
reflect net realizable value.
The Company held non-income producing real estate equaling $758,000 ($931,000
- - 1995).
<TABLE>
PROPERTY AND EQUIPMENT
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 1,029 1,029
Home office buildings 23,131 23,122
Furniture and equipment 24,760 26,382
48,920 50,533
Less accumulated depreciation (24,129) (22,667)
$24,791 27,866
</TABLE>
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method. Home office buildings are depreciated over 25 to 50
years and furniture and equipment over 3 to 10 years, their estimated useful
lives.
POSTRETIREMENT BENEFIT PLANS
The Company has defined benefit postretirement plans providing medical
benefits for substantially all its employees, full-time agents, and their
dependents, and life insurance coverage for its employees. The Company and
retirees share the cost of the postretirement medical plan which incorporates
cost-sharing features such as annually adjusted contributions, deductibles and
coinsurance. The medical benefits for agents are contributory, incorporating
cost-sharing features similar to the retired employees' medical plan. The life
insurance benefit is non-contributory. The Company pays the cost of the
postretirement health care benefits as they occur. The Company makes level
annual contributions to its life insurance plan over the plan participants'
expected service periods.
The plans' funded status, reconciled with the amounts recognized in the
Company's balance sheet, follows.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 7,750 7,233
Fully eligible active plan participants 1,904 1,780
Other active plan participants 5,803 5,844
15,457 14,857
Unrecognized net loss (590) (722)
$14,867 14,135
</TABLE>
The net periodic postretirement benefit cost included the following
components.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 536 314 379
Interest cost 794 669 535
Net amortization of experience gains - (93) (87)
$1,330 890 827
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits for the medical plans is 12 percent for 1997, the same as for
1996, and is assumed to decrease gradually to 6 percent in 2005. Increasing
the assumed health care cost growth rates by one percentage point increases
the accrued postretirement benefit costs $2,040,000 and $1,931,000 as of
December 31, 1996 and 1995, respectively. The aggregate service and interest
cost components of the net periodic postretirement benefit cost for 1996 would
increase $268,000. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75 percent and 7.00
percent at December 31, 1996 and 1995, respectively.
EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all its
employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. The Company annually
funds an amount greater than the minimum required by ERISA but no more than
the maximum deductible for Federal income tax purposes. Contributions provide
not only for benefits attributed to service to date, but also for those
expected to be earned in the future. The table below states the plan's funded
status and those amounts recognized in the Company's financial statements.
1996 1995
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$79,913,000 ($80,212,000 - 1995) $ 86,635 81,769
Projected benefit obligation for service
rendered to date $100,571 96,771
Plan assets at fair value, primarily listed
corporate and U.S. bonds 85,241 85,710
Plan assets less than projected benefit obligation (15,330) (11,061)
Items not yet recognized in earnings:
Net loss from past experience 15,571 13,885
Prior service costs 14 16
Net asset at January 1, 1987,
being recognized over 16 years (1,236) (1,442)
Net prepaid (unfunded) pension costs $ (981) 1,398
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net pension cost includes:
Service costs - benefits earned during the period $ 3,369 2,403 3,178
Interest cost on projected benefit obligation 6,647 6,156 5,835
Actual return on plan assets (2,951) (14,139) 1,907
Net amortization and deferral (4,547) 7,412 (8,923)
Net periodic pension cost $ 2,518 1,832 1,997
Assumptions were as follows:
Weighted average discount rate 7.75% 7.00 8.50
Weighted average compensation increase 4.50 5.50 5.50
Weighted average expected
long-term return on plan assets 9.00 9.00 9.00
</TABLE>
At December 31, 1996, the Company utilized more recent mortality experience
which caused some increase in the benefit obligations.
No contribution was made to the pension plan in 1996 ($992,000 - 1995 and none
- - 1994).
Non-contributory defined contribution retirement plans are offered for general
agents and eligible sales agents which provide supplemental payments based
upon earned agency first-year individual life and annuity commissions.
Contributions to these plans were $174,000 ($287,000 -1995 and $111,000 -
1994). The Company also sponsors a non-contributory deferred compensation plan
for eligible agents based upon earned first-year commissions. Contributions
to this plan were $318,000 ($405,000 -1995 and $377,000 - 1994).
Savings plans for eligible employees and agents are sponsored in which the
Company matches employee contributions up to 10 percent of salary and agent
contributions up to 2.5 percent of prior year paid commissions. Contributions
to the plans were $2,082,000 ($1,826,000 - 1995 and $1,898,000 - 1994).
The Company also has a non-contributory trusteed employee stock ownership plan
covering substantially all salaried employees. The Company made no
contributions to this plan between 1994 and 1996.
The Company adopted FASB Statement No. 112, "Employers' Accounting for
Postemployment Benefits," on January 1, 1994. This statement generally
requires the accrual of liabilities for providing benefits, such as severance
and disability, to former or inactive employees whose employment ended before
becoming eligible for retirement. This accounting change resulted in the
immediate recognition of a $1,481,000 transition liability, net of applicable
income taxes, reported as a 1994 nonrecurring expense. Statement No. 112 has
not materially aff ected operating expenses in any year since then.
FEDERAL INCOME TAXES
A reconciliation of the Federal income tax rate and the actual tax rate
experienced is shown below.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal income tax rate 35% 35 35
Special tax credits (5) (4) (2)
Other permanent differences (1) (1) (1)
Actual income tax rate 29% 30 32
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 46,518 43,906
Employee retirement benefits 13,055 11,598
Other 5,176 3,073
Gross deferred tax assets 64,749 58,577
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 49,175 47,321
Basis differences between tax and
GAAP accounting for investments 20,093 38,933
Property and equipment, net 1,770 2,073
Value of insurance in force 11,790 12,116
Other 1,669 1,364
Gross deferred tax liabilities 84,497 101,807
Net deferred tax liability $ 19,748 43,230
</TABLE>
Federal income taxes paid for the year were $25,332,000 ($19,981,000 - 1995
and $22,684,000 - 1994).
Policyholders' surplus, which is frozen under the Deficit Reduction Act of
1984, is $40,500,000 for Kansas City Life, $2,800,000 for Sunset Life and
$13,700,000 for Old American. The Companies do not plan to distribute their
policyholders' surplus. Consequently, the possibility of such surplus becoming
subject to tax is remote, and no provision has been made in the financial
statements for taxes thereon. Should the balance in policyholders' surplus
become taxable, the tax computed at current rates would approximate
$19,950,000.
Income taxed on a current basis is accumulated in "shareholders' surplus" and
can be distributed to stockholders without tax to the Company. At year-end
1996 this shareholders' surplus was $340,549,000 for Kansas City Life,
$62,740,000 for Sunset Life and $38,544,000 for Old American.
SEPARATE ACCOUNTS
These accounts arise from the variable line of business. Their assets are
legally segregated and are not subject to the claims which may arise from any
other business of the Company. These assets are reported at fair value since
the underlying invest ment risks are assumed by the policyholders. Therefore
the related liabilities are recorded at amounts equal to the underlying
assets. Investment income and gains or losses arising from separate accounts
accrue directly to the policyholders and are, therefore, not included in
investment earnings in the accompanying income statement. Revenues to the
Company from separate accounts consist principally of contract maintenance
charges, administrative fees and mortality and risk charges.
<TABLE>
REINSURANCE
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Life insurance in force (in millions):
Direct $ 22,180 20 991 19 988
Ceded (2,742) (2 442) (2 073)
Assumed 28 33 36
Net $ 19,466 18 582 17 951
Premiums:
Life insurance:
Direct $127,150 124,504 126,652
Ceded (24,380) (23,292) (23,538)
Assumed 493 129 210
Net $103,263 101,341 103,324
Accident and health:
Direct $ 48,694 42,971 42,709
Ceded (11,370) (13,496) (11,956)
Assumed 251 - 143
Net $ 37,575 29,475 30,896
</TABLE>
Contract charges arise generally from directly issued business. Ceded benefit
recoveries were $37,829,000 ($27,613,000 - 1995 and $27,365,000 - 1994).
Old American has a coinsurance agreement with Employers Reassurance
Corporation which reinsures certain whole life policies issued by Old American
prior to December 1, 1986. As of December 31, 1996, these policies had a face
value of $148,430,000. The reserve for future policy benefits ceded under this
agreement was $52,556,000 ($53,649,000 - 1995).
The maximum retention on any one life is $350,000. A contingent liability
exists with respect to reinsurance, which may become a liability of the
Company in the unlikely event that the reinsurers should be unable to meet
obligations assumed under reinsurance contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values. The
fair values for securities are based on quoted market prices, where available.
For those securities not actively traded, fair values are estimated using
values obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of
the investments. Fair values for mortgage loans are based upon discounted cash
flow analyses using an interest rate assumption 2 percent above the comparable
U.S. Treasury rate.
Fair values for the Company's liabilities under investment-type insurance
contracts, included with accumulated contract values for flexible annuities
and with other policyholder funds for supplementary contracts without life
contingencies, are estimated to be their cash surrender values.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The carrying amounts and fair values of the financial instruments follow.
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Investments:
Securities available for sale $1,838,171 1 838,171 1,718,511 1 718,511
Securities held to maturity 248,433 256,042 320,394 339,911
Mortgage loans 246,493 250,029 235,213 246,488
Liabilities:
Individual and group annuities 862,605 829,261 871,340 842,809
Supplementary contracts without
life contingencies 21,835 21,835 23,343 23,343
</TABLE>
The Investments Note provides further details regarding the investments above.
QUARTERLY CONSOLIDATED FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
1996:
Total revenues $106,868 102,088 105,677 107,377
Operating income $ 11,933 10,002 8,643 9,777
Realized gains, net 614 (308) 671 982
Net income $ 12,547 9,694 9,314 10,759
Per common share:
Operating income $ 1.93 1.62 1.39 1.58
Realized gains, net .10 (.05) .11 .16
Net income $ 2.03 1.57 1.50 1.74
1995:
Total revenues $ 98,733 100,356 103,041 106,656
Operating income $ 10,960 9,255 8,166 10,140
Realized gains, net 68 27 2,278 844
Net income $ 11,028 9,282 10,444 10,984
Per common share:
Operating income $ 1.78 1.50 1.32 1.64
Realized gains, net .01 - .37 .14
Net income $ 1.79 1.50 1.69 1.78
</TABLE>
CONTINGENT LIABILITY
In January 1996, a division of the Oklahoma Appellate Court issued an opinion
reducing a prior $10,700,000 judgment against the Company to $1,300,000 which
the Company has accrued. The case arose out of certain actions by one of the
Company's agents. In November 1996, an Oklahoma District Court Judge ruled
that the Company was also responsible for $2,500,000 of a judgment rendered
against the agent in the same case. The Company believes that the court's
ruling violates the Company's rights and guarantees under the Oklahoma and
Federal Constitutions as well as Oklahoma common and statutory law. The
Oklahoma Supreme Court has agreed to hear the Company's appeal. Management
believes that damages, if any, related to this matter would not have a
material effect on the Company's consolidated results of operations and
financial position.
In addition to the above case, the Company and certain of its subsidiaries are
defendants in lawsuits involving claims and disputes with policyholders that
may include claims seeking punitive damages. Some of these lawsuits arise in
jurisdictions such as Alabama where juries sometimes award punitive damages
grossly disproportionate to the actual damages alleged. Although no assurances
can be given and no determinations can be made at this time as to the outcome
of any particular lawsuit or proceeding, the Company and its subsidiaries
believe that there are meritorious defenses for these claims and are defending
them vigorously. Management believes that the amounts that would ultimately be
paid, if any, would have no material effect on the Company's consolidated
results of operations and financial position.
Report of Independent Auditors
To the Board of Directors and Stockholders
of Kansas City Life Insurance Company
We have audited the accompanying consolidated balance sheet of Kansas City
Life Insurance Company (the Company) as of December 31, 1996 and 1995 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Kansas City Life Insurance Company at December 31, 1996 and 1995 and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in the Notes to the consolidated financial statements, the
Company changed its method of accounting for investments and postemployment
benefits in 1994.
Kansas City, Missouri
January 27, 1997
Stckholder Information
CORPORATE HEADQUARTERS
Kansas City Life Insurance Company
3520 Broadway
Post Office Box 419139
Kansas City, Missouri 64141-6139
Telephone: (816) 753-7000
Fax: (816) 753-4902
Internet: http://www.kclife.com
E-Mail: Kclife @ Kclife.com
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders will be held at 9 a.m. Thursday, April 24,
1997, at Kansas City Life's corporate headquarters.
TRANSFER AGENT
Sherri Morehead, Assistant Secretary
Kansas City Life Insurance Company
Post Office Box 419139
Kansas City, Missouri 64141-6139
10-K REQUEST
Stockholders may request a free copy of Kansas City Life's Form 10-K, as filed
with the Securities and Exchange Commission, by writing to Secretary, Kansas
City Life Insurance Company.
SECURITY HOLDERS
As of February 10, 1997, Kansas City Life had approximately 855 security
holders, including individual participants in security position listings.
STOCK AND DIVIDEND INFORMATION
Stock Quotation Symbol
Over-the-Counter_KCLI
Dividend
Bid Paid
High Low (per share)
1996:
First Quarter $58.25 51.00 $ .42
Second Quarter 57.50 52.50 .42
Third Quarter 56.50 52.00 .42
Fourth Quarter 63.50 53.50 .42
$1.68
1995:
First Quarter $44.50 42.00 $ .36
Second Quarter 48.00 41.00 .49
Third Quarter 50.50 48.00 .39
Fourth Quarter 52.00 51.00 .39
$1.63
The above includes a special $.10 per share dividend in the second quarter,
1995 commemorating the Company's Centennial.
A quarterly dividend of $.44 per share was paid February 24, 1997.
Over-the-counter market quotations are compiled according to Company records
and may reflect inter-dealer prices, without mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Dividend Restrictions
Refer to the Significant Accounting Policies Note to the Consolidated
Financial Statements.
Exhibit 21, Form 10-K
Kansas City Life
Insurance Company
SUBSIDIARIES
Kansas City Life Insurance Company's significant insurance
subsidiaries are:
1. Sunset Life Insurance Company of America, a corporation
organized under the laws of the State of Washington.
2. Old American Insurance Company, a corporation organized
under the laws of the State of Missouri.
The Company's non-insurance subsidiaries are not significant
individually or in the aggregate.
Exhibit 23(a), Form 10-K
Kansas City Life
Insurance Company
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Kansas City Life Insurance Company (the Company) of our report dated January
27, 1997, included in the 1996 Annual Report to Shareholders of Kansas City
Life Insurance Company.
Our audits also included the financial statement schedules of Kansas City Life
Insurance Company listed in Item 14(a). These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-97351) pertaining to the Savings and Investment Plan of Kansas
City Life Insurance Company of our report dated January 27, 1997, with respect
to the consolidated financial statements incorporated by reference, and
schedules of Kansas City Life Insurance Company included in the Annual Report
(Form 10-K) for the year ended December 31, 1996.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
March 24, 1997
Exhibit 23(b), Form 10-K
Kansas City Life
Insurance Company
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-97351) pertaining to the Savings and Investment Plan of Kansas
City Life Insurance Company of our report dated February 21, 1997, with respect
to the financial statements and schedules of the Kansas City Life Insurance
Company Savings and Investment Plan included in this Annual Report (Form 11-K)
for the year ended December 31, 1996.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
March 24, 1997
Exhibit 27, Form 10-K
Kansas City Life
Insurance Company
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 1,759,153<F1>
<DEBT-CARRYING-VALUE> 248,433<F2>
<DEBT-MARKET-VALUE> 256,042<F2>
<EQUITIES> 79,018<F3>
<MORTGAGE> 246,493
<REAL-ESTATE> 72,106<F4>
<TOTAL-INVEST> 2,499,615
<CASH> 24,219
<RECOVER-REINSURE> 93,328
<DEFERRED-ACQUISITION> 207,020
<TOTAL-ASSETS> 2,954,710
<POLICY-LOSSES> 701,560
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 35,223
<POLICY-HOLDER-FUNDS> 1,648,825<F5>
<NOTES-PAYABLE> 0
23,121
0
<COMMON> 0
<OTHER-SE> 439,743
<TOTAL-LIABILITY-AND-EQUITY> 2,954,710
140,838
<INVESTMENT-INCOME> 186,743
<INVESTMENT-GAINS> 3,013
<OTHER-INCOME> 91,417
<BENEFITS> 254,479
<UNDERWRITING-AMORTIZATION> 30,086
<UNDERWRITING-OTHER> 1,052<F6>
<INCOME-PRETAX> 59,325
<INCOME-TAX> 17,010
<INCOME-CONTINUING> 42,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,315
<EPS-PRIMARY> 6.84
<EPS-DILUTED> 6.84
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<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
securites, 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 defind 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>
Exhibit 99(a) Form 10-K
Kansas City Life
Insurance Company
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ___________
Commission File Number 2-40764
A. Kansas City Life Insurance Company Savings and Investment Plan
3520 Broadway
Kansas City, Missouri 64111-2565
B. Kansas City Life Insurance Company
3520 Broadway
Kansas City, Missouri 64111-2565
Kansas City Life
Insurance Company
Savings and Investment Plan
Financial Statements
1996
Statement of Net Assets
Available for Plan Benefits 1-2
Statement of Changes in Net Assets
Available for Plan Benefits 3-4
Notes to Financial Statements 5-8
Supplemental Schedules
Assets Held for Investment 9
Transactions in Excess of Five
Percent of the Current Value
of the Plan Assets 10
Report of Independent Auditors
Kansas City Life Insurance Company
Savings and Investment Plan
Statement of Net Assets Available for Plan Benefits
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Fund Fund Fund Fund Fund Fund Fund Fund Fund Loan
I II III IV V VI VII VIII IX Fund Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments, at fair value:
20th Century Growth 2567 - - - - - - - - - 2567
Kansas City Life common stock - 4398 22516 - - - - - - - 26914
Met Life Guar. Interest Contract - - - 4497 - - - - - - 4497
Vanguard Bond Index Fund - - - - 661 - - - - - 661
Templeton Foreign Fund - - - - - 2447 - - - - 2447
Vanguard Balanced Index Fund - - - - - - 391 - - - 391
Fidelity Value Fund - - - - - - - 2405 - - 2405
Vanguard Extended Market Fund - - - - - - - - 638 - 638
Loans to participants - - - - - - - - - 1030 1030
Total investments 2567 4398 22516 4497 661 2447 391 2405 638 1030 41550
Cash -15 -171 62 196 -17 -139 -4 100 61 - 73
Interest receivable - - - 22 - - - - - - 22
Net assets available
for plan benefits 2552 4227 22578 4715 644 2308 387 2505 699 1030 41645
</TABLE>
See accompanying Notes to Financial Statements.
1
Kansas City Life Insurance Company
Savings and Investment Plan
Statement of Net Assets Available for Plan Benefits
December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Fund Fund Fund Fund Fund Fund Fund Fund Fund Loan
I II III IV V VI VII VIII IX Fund Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments, at fair value:
Twentieth Century Growth 2330 - - - - - - - - - 2330
Kansas City Life common stock - 3917 18864 - - - - - - - 22781
Met Life Guar. Interest Contract - - - 3896 - - - - - - 3896
Vanguard Bond Index Fund - - - - 645 - - - - - 645
Templeton Foreign Fund - - - - - 1919 - - - - 1919
Vanguard Balanced Index Fund - - - - - - 424 - - - 424
Fidelity Value Fund - - - - - - - 2324 - - 2324
Vanguard Extended Market Fund - - - - - - - - 511 - 511
Loans to participants - - - - - - - - - 872 872
Total investments 2330 3917 18864 3896 645 1919 424 2324 511 872 35702
Restricted cash and investments - - 2 - - - - - - - 2
Cash -25 18 128 37 5 44 -1 16 21 - 243
Interest receivable - - - 19 - - - - - - 19
Other receivable - - 14 - - - - - - - 14
2305 3935 19008 3952 650 1963 423 2340 532 872 35980
Liabilities
Forfeitures escrowed - - 2 - - - - - - - 2
Net assets available
for plan benefits 2305 3935 19006 3952 650 1963 423 2340 532 872 35978
</TABLE>
See accompanying Notes to Financial Statements.
2
Kansas City Life Insurance Company
Savings and Investment Plan
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Fund Fund Fund Fund Fund Fund Fund Fund Fund Loan
I II III IV V VI VII VIII IX Fund Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ - - 1703 - - - - - - - 1703
Employee 306 211 - 272 74 286 74 361 119 - 1703
306 211 1703 272 74 286 74 361 119 - 3406
Investment income, net:
Interest - - 1 238 - - - - - - 239
Interest on participant loans 16 8 - 12 2 11 3 15 5 - 72
Dividends 49 123 621 - 43 105 18 266 48 - 1273
Net appreciation (depreciation)
on investments 304 665 3344 - -18 265 38 121 58 - 4777
Net investment income 369 796 3966 250 27 381 59 402 111 - 6361
Employee withdrawals -168 -222 -2046 -880 -45 -220 -125 -258 -85 - -4049
Forfeitures - - -51 - - - - - - - -51
Participant loans: Made -107 -94 - -158 -13 -52 -12 -100 -13 549 -
Repaid 86 33 - 108 12 42 12 76 22 -391 -
Transfer from (to) other funds -239 -432 - 1171 -61 -92 -44 -316 13 - -
Net assets available for
plan benefits:
Net increase (decrease) 247 292 3572 763 -6 345 -36 165 167 158 5667
Beginning of year 2305 3935 19006 3952 650 1963 423 2340 532 872 35978
End of year 2552 4227 22578 4715 644 2308 387 2505 699 1030 41645
</TABLE>
See accompanying Notes to Financial Statements.
3
Kansas City Life Insurance Company
Savings and Investment Plan
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Fund Fund Fund Fund Fund Fund Fund Fund Fund Loan
I II III IV V VI VII VIII IX Fund Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contributions:
Employer $ - - 1637 - - - - - - - 1637
Employee 272 239 - 310 76 294 58 310 78 - 1637
272 239 1637 310 76 294 58 310 78 - 3274
Investment income, net:
Interest - - 3 216 - - - - - - 219
Interest on participant loans 12 7 - 12 2 8 2 11 2 - 56
Dividends 7 126 580 - 36 49 13 21 6 - 838
Net appreciation on
investments 380 819 3764 - 54 140 66 427 90 - 5740
Net investment income 399 952 4347 228 92 197 81 459 98 - 6853
Employee withdrawals -116 -169 -1251 -638 -71 -148 -3 -98 -5 - -2499
Forfeitures - - -48 - - - - - - - -48
Participant loans: Made -106 -49 - -181 -13 -62 -6 -79 -12 508 -
Repaid 79 66 - 83 16 52 14 63 14 -387 -
Transfer from (to) other funds -99 -340 - 31 58 37 31 173 109 - -
Net assets available for
plan benefits:
Net increase (decrease) 429 699 4685 -167 158 370 175 828 282 121 7580
Beginning of year 1876 3236 14321 4119 492 1593 248 1512 250 751 28398
End of year 2305 3935 19006 3952 650 1963 423 2340 532 872 35978
</TABLE>
See accompanying Notes to Financial Statements.
4
Kansas City Life Insurance Company
Savings and Investment Plan
Notes To Financial Statements
ORGANIZATION
The Kansas City Life Insurance Company Savings and Investment Plan (the Plan)
is a defined contribution benefit plan sponsored by Kansas City Life Insurance
Company (the Company) and is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). The Plan is administered by
a committee appointed by the Executive Committee of the Company. On January
1, 1988, the original plan was revised to incorporate the provisions of Section
401(k) of the Internal Revenue Code. The cash and investments of the Plan are
in the custody of three trustees who are also officers of the Company. The
Plan
consists of nine funds. Fund I invests in a growth stock fund. Funds II and
III invest in the Company's common stock. All Company contributions and
earnings thereon are included in Fund III. Fund IV invests in a guaranteed
interest contract. Fund V invests in an investment grade bond fund. Fund VI
invests in a managed global common stock fund. Fund VII invests in a balanced
index fund. Fund VIII invests in a capital appreciation stock fund. Fund IX
invests in a small capitalization stock index fund.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Plan have been prepared on the
basis of generally accepted accounting principles.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual resu lts could differ from those estimates.
Valuation of Investments
The investments of the Plan in Funds I and V through IX are reported at fair
value based upon quoted market prices. The investments in Funds II and III
are reported at fair value based upon December's average bid price.
Investments in Fund IV are r eported at the contract value as stated in
the guaranteed interest contract, which approximates fair value. The cost
of investments sold is determined on the average cost basis.
5
NOTES TO FINANCIAL STATEMENTS (continued)
Expenses
With the exception of mutual fund administrative fees, costs associated
with the administration of the Plan are borne by the Company.
ELIGIBILITY
Each employee, who is at least 21 years of age and has completed one year
of employment, with a minimum of 1,000 hours of employment from date of hire
is qualified to participate in the Plan.
CONTRIBUTIONS
The participant may elect to enter into a compensation reduction agreement
with the Company by which a contribution will be made in an amount equal to
one to ten percent of his or her unreduced monthly base salary. The maximum
participant contribution for 1996 could not exceed $9,500, with cost of
living increases in future years. The maximum contribution made for any
participant who is classified as highly compensated is six percent. The
contribution rate can be changed only once in any six month period.
The Company, with respect to each participant, contributes to the Plan as
soon as practicable after the end of each month, out of its current or
accumulated earnings and profits, an amount equal to 100 percent of such
participant's contribution to the Plan. The Company's contributions are
made in common stock of the Company, which is valued at the average of
its bid price on the over-the-counter market for all business days following
the previous monthly valuation date.
WITHDRAWALS AND LOANS
The Plan allows a participant to withdraw all or a part of the value of his
or her account which was contributed prior to January 1, 1988. The value
of a participant account attributable to contributions after that date may
not be withdrawn except i n cases of extreme financial hardship. Hardship
withdrawals are subject to the approval of the Administrative Committee, and
any such withdrawal will be limited to the amount of actual contributions
made to the Plan. Gains associated with the contributions or any of the
matching Fund III amounts may not be withdrawn for any reason.
Participants may request a loan from the 401(k) portion of their elective
accounts under the terms and conditions established by the Administrative
Committee. The amount that may be borrowed is limited in accordance with
the Internal Revenue Code Se ction 72(p). Loans will be made for a period
no longer than five years, except for a loan used to acquire a primary
residence, which may be for up to ten years.
6
NOTES TO FINANCIAL STATEMENTS (continued)
INVESTMENTS
The guaranteed interest contract held by the Plan provided an average yield
of 6.0% and 5.4% during 1996 and 1995, respectively. Crediting rates were
6.25% and 5.8% at December 31, 1996 and 1995, respectively. These rates
are reset every three months.
The fair value of individual investments that represent 5 percent or more
of the Plan's participating employees' net assets available for plan
benefits follows.
1996 1995
(in thousands)
Twentieth Century Growth Stock Fund,
117,323 shares - 1996, and 120,169 shares - 1995. 2567 2330
Kansas City Life Insurance Company common stock,
441,496 shares - 1996, and 439,019 shares - 1995. 26914 22781
Met Life Managed Guaranteed Interest Contract 4497 3896
Templeton Foreign Fund
236,154 shares - 1996, and 209,088 shares - 1995. 2447 1919
Fidelity Value Fund
46,657 shares - 1996, and 46,820 shares - 1995. 2405 2324
The fair value of the Plan's investments has changed as follows.
<TABLE>
<CAPTION>
1996 1995
Net
Appreciation Net
(Depreciation) Appreciation
Fair Value In Fair Value Fair Value In Fair Value
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Fund I 2567 304 2330 380
II 4398 665 3917 819
III 22516 3344 18864 3764
IV 4497 - 3896 -
V 661 (18) 645 54
VI 2447 265 1919 140
VII 391 38 424 66
VIII 2405 121 2324 427
IX 638 58 511 90
Total 40520 4777 34830 5740
</TABLE>
7
NOTES TO FINANCIAL STATEMENTS (continued)
VESTING
Company contributions vest to the participant 30 percent after three years
of employment,40 percent after four years and an additional 20 percent each
year thereafter until the participant is fully vested in Company contributions
after seven years.
TAX STATUS
The Internal Revenue Service has issued a determination letter dated October
3, 1995 that, in form, the Plan and Trust forming a part thereof, meet the
requirements of the Internal Revenue Code Section 401(a) as a qualified plan
and trust. If the P lan qualifies in operation, the Trust's earnings will
be exempt from taxation, the Company's contributions will be deductible,
and each participant will incur no current tax liability on either the
Company's contributions or any earnings of the trust credited to the
participant's account prior to the time that such contributions or earnings
are withdrawn or made available to the participant. At the time a distribution
occurs, whether because of retirement, termination, death, disability or
voluntary withdrawal of funds, any amounts distributed comprised of Company
contributions, employee pretax contributions, and earnings on contributions
of the Company or the participant shall be taxed to the participant at the
tax rate then in effect. The Plan administrator is not aware of any series
of events or course of actions that could adversely affect the Plan's
qualified status.
8
Kansas City Life Insurance Company
Savings and Investment Plan
Assets Held for Investment
December 31, 1996
(in thousands, except shares)
<TABLE>
<CAPTION>
Number of
Shares or
Description of Investments Par Value Cost Fair Value
<S> <C> <C> <C>
Common stock:
Kansas City Life Insurance Company * 441,496 shares 14853 26914
Mutual funds:
Twentieth Century Growth Stock Fund 117,323 shares 1541 2567
Met Life Managed GIC $4,496,641 4497 4497
Vanguard Bond Index Fund 67,176 shares 662 661
Templeton Foreign Fund 236,154 shares 2020 2447
Vanguard Balanced Index Fund 28,114 shares 324 391
Fidelity Value Fund 46,657 shares 1907 2405
Vanguard Index Trust-Ext Market Fund 24,371 shares 536 638
Total mutual funds 11487 13606
Loans:
Loans to participants (interest rates range from
6.5% to 10.0%) - 1030 1030
27370 41550
</TABLE>
* Party-in-interest to the Plan.
9
Kansas City Life Insurance Company
Savings and Investment Plan
Transactions in Excess of
Five Percent of the Current Value of the Plan Assets
Year ended December 31, 1996
(in thousands, except shares)
<TABLE>
<CAPTION>
Party Involved and
Description of Asset Transactions Shares Cost Consideration Net Gain
Category (iii)--series of transactions in excess of 5 percent of plan assets:
<S> <C> <C> <C> <C> <C>
Kansas City Life
common stock * 14 buys 28,258 $1,510 - -
Kansas City Life
common stock * 9 sells 25,781 848 1,387 539
</TABLE>
There were no category (i), (ii), or (iv) reportable transactions during 1996.
* Party-in-interest to the Plan.
10
Report of Independent Auditors
The Board of Trustees
Kansas City Life Insurance Company
Savings and Investment Plan
We have audited the accompanying statements of net assets available for plan
benefits of the Kansas City Life Insurance Company Savings and Investment
Plan (the Plan) as of December 31, 1996 and 1995, and the related statements
of changes in net assets available for plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for plan benefits of the
Plan at December 31, 1996 and 1995, and the changes in its net assets available
for plan benefits for the years then ended in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental
schedules of assets held for investment as of December 31, 1996 and
transactions in excess of 5% of the current value of plan assets for the year
then ended are presented for purposes of complying with the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 and are not a required part of the
basic financial statements. The Fund Information in the statements of net
assets available for plan benefits and the statements of changes in net assets
available for plan benefits is presented for purposes of additional analysis
rather than to present the net assets available for plan benefits and changes
in net assets available for plan benefits of each fund. The supplemental
schedules and Fund Information have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
are fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
February 21, 1997
