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, 1997
[ ] 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 27, 1998, 6,196,102 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
$181,044,401.
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, 1997.
Item 6: Selected Financial Data. Page 14 of Annual Report to
Shareholders for the year
ended December 31, 1997.
Item 7: Management's Discussion Pages 12 through 15 of Annual
and Analysis of Financial Report to Shareholders for
Condition and Results of the year ended December 31,
Operations. 1997.
Item 8: Financial Statements and Pages 16 through 29 of Annual
Supplementary Data. Report to Shareholders for
the year ended December 31,
997.
Part IV
Index to Exhibits Page 15
<PAGE>
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 86% 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 90% of new
statutory premiums in 1997. KCL introduced its first variable annuity in late
1995 and its first variable universal life product in January, 1996. Together
these products totaled 30% of new statutory premiums in 1997.
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 501 and 85 full time employees who are
located in KCL's home office. Sunset has 103 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, 1998, the Oklahoma Supreme Court refused to rehear its prior
decision which held that the Company was not liable for any portion of a
punitive and compensatory damage award against its agent. 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, a former agent. In January, 1996, a division of the
Oklahoma Appellate Court reduced a prior $10.7 million judgment against the
Company to $1.3 million which the Company has accrued. Subsequently, an Oklahoma
District Court judge ruled that the Company was also responsible for $2.5
million of a separate judgment rendered against the agent in the same case. The
Oklahoma Supreme Court reversed the $2.5 million judgment against the Company
and resolved all major issues in this matter.
In recent years, life insurance companies have been named as defendants in
lawsuits including class action lawsuits related to life insurance pricing and
sales practices. These so-called "vanishing premium" cases typically contain
allegations that an interest-sensitive policy was sold with a projection that
the policy would be paid up or become self-sustaining after a period of years.
In late December, 1997, the Company was served as a defendant in a lawsuit filed
in United States District Court for the Middle District of Florida, Tampa
Division. The case, Patricia A. Adams, Kevin J. Palamarchuck and Karolynne K.
Palamarchuck, On Behalf of Themselves and All Others Similarly Situated vs.
Kansas City Life Insurance Company, claims unspecified compensatory and punitive
damages as a result of an alleged nationwide fraudulent scheme by the Company
and its agents involving deceptive sales practices including "vanishing premium"
claims. The plaintiffs, former policyowners, purport to represent themselves and
all others who were induced by deceptive sales practices to purchase permanent
life insurance from the Company. Management denies the allegations, including
the existence of a legitimate class and believes that full and appropriate
disclosure was made as a matter of practice. Management intends to defend this
suit vigorously. The litigation is in early procedural stages and plaintiffs
have not yet moved for class certification. The amount of any liability which
may arise as a result of this case cannot be reasonably estimated, and no
provision for loss has been made in the Company's financial statements. However,
there can be no assurance that this case or any future litigation relating to
sales practices will not have a material effect on the Company.
In addition to the above, 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 where juries sometime 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. In the
opinion of management, the amounts that would ultimately be paid, if any, are
not expected to have a 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.
<PAGE>
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, 1997, is provided with
respect to each Director:
Term as
Director Served as
Expires Other Positions Director
Name of Director Age in April with the Company From
W. E. Bixby (1)(2)(3) 65 1998 Vice Chairman of the 1966
Board and President
Jack D. Hayes (1)(3) 57 1998 Senior Vice President, 1995
Marketing
Francis P. Lemery 58 1998 Senior Vice President 1985
(1)(2)(3) and Actuary
Michael J. Ross 56 1998 None 1972
(2)(3)(4)(5)(6)
Elizabeth T. Solberg 58 1998 None 1997
(3)(6)
W. E. Bixby, III (6) 39 1999 None 1996
Webb R. Gilmore 53 1999 None 1990
(2)(4)(5)(6)
Nancy Bixby Hudson (6) 45 1999 None 1996
Daryl D. Jensen (6) 58 1999 None 1978
C. John Malacarne 56 1999 Vice President, 1991
(1)(2) General Counsel
and Secretary
Term as
Director Served as
Expires Other Positions Director
Name of Director Age in April with the Company From
J. R. Bixby (1)(2) 72 2000 Chairman of the Board 1957
R. Philip Bixby 44 2000 Executive Vice President 1985
(1)(2)
Richard L. Finn 56 2000 Senior Vice President, 1983
(1)(2) Finance
Warren J. Hunzicker, M.D. 77 2000 None 1989
(6)
Larry Winn, Jr. 78 2000 None 1985
(2)(4)(5)(6)
(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 23, 1998, will be elected for a three
year term ending in 2001.
(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.
Mrs. Solberg is Executive Vice President and Senior Partner of
Fleishman-Hillard, Inc., a position she has held since 1984. 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, 72 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 and Old
American, subsidiaries.
W. E. Bixby, 65 Vice Chairman of the Board since 1974; elected
Vice Chairman of the Executive Vice President in January, 1987; and
Board President, President and CEO and CEO in
April, 1990. Primarily responsible for
the operation of the Company. Chairman of the Board
of Sunset Life and Old American, subsidiaries.
<PAGE>
Name, Age and Business Experience
Position During Past 5 Years
R. Philip Bixby, 44 Elected Assistant Secretary in 1979; Assistant Vice
Executive Vice President President in 1982; Vice President in 1984; Senior
Vice President, Operations in 1990; and to present
position in 1996. Director of Sunset Life and Old
American, subsidiaries.
Richard L. Finn, 56 Elected Vice President in 1976; Financial Vice
Senior Vice President, President in 1983; and to present position in 1984.
Finance Chief financial officer and responsible for
investment of the Company's funds, accounting and
taxes. Director and Treasurer of Sunset Life and
Director, Vice President and Chief Financial
Officer and Assistant Treasurer of Old American,
subsidiaries.
Jack D. Hayes, 57 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, 58 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, 51 Elected Assistant Auditor in 1972; Auditor in 1973;
Senior Vice President, Vice President and Auditor in 1987; and to present
Administrative Services position in 1991. Responsible for Human Resources
and Home Office building and maintenance.
Charles R. Duffy, Jr., 50 Elected Vice President, Computer Information
Senior Vice President, Services in 1989; Vice President, Insurance Admini-
Operations stration 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, 52 Elected Assistant Controller in 1975; and to
Vice President and present position in 1980. Chief accounting officer
Controller responsible for all corporate accounting reports.
Director of Old American, a subsidiary.
C. John Malacarne, 56 Elected Associate General Counsel in 1976; General
Vice President, General Counsel in 1980; Vice President and General Counsel
Counsel and Secretary 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; R. 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
proceedings 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, 1997 for the fiscal years ending December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
Long Term Other All
Annual Compensation Incentive Annual Other
Compensa- Compen- Compen-
Name and Salary Bonus tion Payouts sation sation
Principal Position Year $ $ $ $ $
W. E. Bixby, Vice 1997 445,800 400 374,976 7,000 61,575
Chairman of the 1996 416,640 58,042 0 7,000 55,586
Board, President and 1995 396,780 143,344 0 7,000 52,903
CEO, Kansas City Life;
Chairman of the Board
of Sunset Life and Old
American, subsidiaries.
R. L. Finn, Senior 1997 212,160 400 151,560 7,000 25,540
Vice President, 1996 202,080 28,336 0 5,500 24,305
Finance and Director, 1995 193,380 52,231 0 5,000 21,835
Kansas City Life;
Director of Sunset
Life and Old American,
subsidiaries.
F. P. Lemery, Senior 1997 212,160 400 151,560 7,000 25,540
Vice President and 1996 202,080 28,336 0 7,000 24,305
Actuary and Director, 1995 193,380 52,232 0 7,000 23,239
Kansas City Life;
Director of Sunset
Life and Old American,
subsidiaries.
D. D. Jensen, Director,1997 193,200 18,097 138,000 6,000 23,217
Kansas City Life; Vice 1996 184,000 29,515 0 6,000 22,090
Chairman of the Board 1995 176,190 35,275 0 6,000 21,133
and President, Sunset
Life, subsidiary.
R. P. Bixby, Execu- 1997 284,700 400 132,660 4,750 29,820
tive Vice President 1996 176,880 12,081 0 4,000 18,488
and Director, Kansas 1995 169,260 34,400 0 4,000 17,687
City Life; Director of
Sunset Life and Old
American, subsidiaries.
LONG TERM INCENTIVE PLAN
The amounts shown above reflect payouts in 1997 under the Company's Long
Term Incentive Plan for the performance period of January 1, 1994 through
December 31, 1996. The plan covers eight senior executives, including those
named above. For plan participants to receive an award, Kansas City Life
statutory capital and surplus had to be maintained at a minimum of 9% of assets
over the three year period. The award is a percent of salary based on achieving
specified levels of return on equity with certain adjustments over the three
year period.
ALL OTHER COMPENSATION INCLUDES THE FOLLOWING:
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 accounts of the named individuals in 1995 and 1996 and $9,500 in 1997.
The Company has adopted a nonqualified deferred compensation plan for
approximately 58 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 1995, 1996 and 1997 respectively for the accounts of
the named individuals are as follows: W. E. Bixby, $30,678, $32,664, $35,080;
R. L. Finn, $10,338, $11,208, $11,716; F. P. Lemery, $10,338, $11,208, $11,716;
D. D. Jensen, $8,619, $9,400, $9,820; R. P. Bixby, $7,926, $8,688, $18,970.
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 1995, 1996
and 1997 respectively are as follows: W. E. Bixby, $13,225, $13,922, $16,995;
R. L. Finn, $2,497, $4,097, $4,324; F. P. Lemery, $3,901, $4,097, $4,324; D. D.
Jensen, $3,514, $3,690, $3,897; R. P. Bixby, $761, $800, $1,350.
(f) Defined Benefit or Actuarial Plan Disclosure
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.
PENSION PLAN TABLE
Compensation Years of Service SS**
10 20 30 40
$ 75,000 $ 18,750 $ 37,500 $ 51,948* $ 51,948* $16,104
100,000 25,000 50,000 70,000 71,948* 16,104
125,000 31,250 62,500 87,500 91,948* 16,104
150,000 37,500 75,000 105,000 111,948* 16,104
200,000 50,000 100,000 140,000 151,948* 16,104
250,000 62,500 125,000 175,000 191,948* 16,104
300,000 75,000 150,000 210,000 231,948* 16,104
350,000 87,500 175,000 245,000 271,948* 16,104
400,000 100,000 200,000 280,000 311,948* 16,104
450,000 112,500 225,000 315,000 351,948* 16,104
500,000 125,000 250,000 350,000 391,948* 16,104
*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.
Effective January 1, 1998, the pension plan was converted to a cash
balance plan. Benefits under the plan will no longer be determined primarily by
final average compensation and years of service. Participants who were age 55 or
older with 15 or more years of service on December 31, 1997 can receive the
greater of the cash balance benefit or the benefit the participant would have
accrued had the prior plan remained in effect.
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, 1997, were: W. E.
Bixby, 40 years; R. L. Finn, 23 years; F. P. Lemery, 37 years; D. D. Jensen, 31
years; R. P. Bixby, 20 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 maximum
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: Webb R. Gilmore, Michael J.
Ross and Larry Winn, Jr.
<PAGE>
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 27, 1998, 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
446,892 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
38,342 shares .6
*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
351,224 shares 5.7
**Includes 174,500 shares in the Walter E. Bixby Descendants Trust.
Angeline I. O'Connor, R. 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; R. Philip Bixby; W. E.
Bixby, III; James R. Gammon as Trustee of the Walter E. Bixby Family Trust; R.
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 23, 1998 are set forth as
follows:
Served Shares of
as a Record and
Principal Director Beneficially Percent
Nominee Occupation Since Owned of Class
W. E. Bixby Vice Chairman of 1966 1,153,909 19.0
3520 Broadway the Board and 26,373(2)
Kansas City, MO President
Jack D. Hayes Senior Vice Presi- 1995 600 *
3520 Broadway dent, Marketing 521(2)
Kansas City, MO
Francis P. Lemery Senior Vice Presi- 1985 1,713 *
3520 Broadway dent and Actuary 7,688(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
Elizabeth T. Solberg Executive Vice 1997 100 *
850 W. 52nd St. President and Senior
Kansas City, MO Partner, Fleishman-
Hillard, Inc.,
Kansas City, MO
The following Directors were elected April 18, 1996 for a three year term:
W. E. Bixby, III President, Old 1996 176,124 5.7
3520 Broadway American Insur- 2,217(2)
Kansas City, MO ance Company, 174,500(3)
Kansas City, MO 4,376(4)
Webb R. Gilmore Partner - 1990 500 *
Attorney at Law Gilmore & Bell,
833 Westover Rd. Kansas City, MO
Kansas City, MO
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, 7,361(2) *
Olympia, WA Sunset Life Insurance
Company of America,
Olympia, WA
C. John Malacarne Vice President, 1991 10
3520 Broadway General Counsel 6,085(2) *
Kansas City, MO and Secretary
Served Shares of
as a Record and
Principal Director Beneficially Percent
Nominee Occupation Since Owned of Class
The following Directors were elected April 24, 1997 for a three year term:
J. R. Bixby Chairman of the 1957 1,484,056(1) 24.0
3520 Broadway Board
Kansas City, MO
R. Philip Bixby Executive Vice 1985 174,599 5.9
3520 Broadway President 6,391(2)
Kansas City, MO 174,500(3)
9,882(5)
Richard L. Finn Senior Vice Presi- 1983 12
3520 Broadway dent, Finance 6,664(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
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) 4,205,181 67.9
*Less than 1%.
(1) Includes 900 shares owned by the spouse of J. R. Bixby.
Beneficial ownership of these shares is disclaimed.
(2) Approximate 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. R. 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 R. 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.
<PAGE>
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, 1997 at the following pages:
Page
Consolidated Income Statement - Years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . 16
Consolidated Balance Sheet -
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . 17
Consolidated Statement of Stockholders' Equity -
Years ended December 31, 1997, 1996 and 1995 . . . . . . . . . 18
Consolidated Statement of Cash Flows -
Years ended December 31, 1997, 1996 and 1995 . . . . . . . . . 19
Notes to Consolidated Financial Statements . . . . . . . . . . . 20-28
Report of Independent Auditors . . . . . . . . . . . . . . . . . 29
(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, 1997 . . . . . . . . . 17
II - Condensed Financial Information of Registrant,
Years ended December 31, 1997, 1996 and 1995 . . . . . . 18-20
III - Supplementary Insurance Information, Years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . 21
V - Valuation and Qualifying Accounts, Years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . 21
<PAGE>
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]
10(e) Kansas City Life Insurance Company Long-Term Incentive
Plan for 1994-1996.
13 Annual Report to Shareholders for the year ended December
31, 1997.
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 1997 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]
<PAGE>
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 25, 1998
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
Registrant 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 25, 1998 Date: March 25, 1998
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 25, 1998 Date: March 25, 1998
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 25, 1998 Date: March 25, 1998
By: /s/ Warren J. Hunzicker By: /s/ Daryl D. Jensen
Warren J. Hunzicker, M.D. Daryl D.Jensen
Director Director
Date: March 25, 1998 Date: March 25, 1998
<PAGE>
Schedule I
KANSAS CITY LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS - OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1997
Amount at
Which Shown
Fair in Balance
Type of Investment Cost Value Sheet
(in thousands)
Fixed maturity securities, available for sale:
Bonds:
United States government and government
agencies and authorities $ 135,182 138,051 138,051
Mortgage-backed securities 315,621 324,662 324,662
States, municipalities and political
subdivisions 74,693 76,915 76,915
Public utilities 281,781 288,075 288,075
All other bonds 1,137,714 1,168,839 1,168,839
Redeemable preferred stocks 7,750 7,974 7,974
Total 1,952,741 2,004,516 2,004,516
Equity securities, available for sale:
Common stocks 20,187 20,085 20,085
Perpetual preferred stocks 86,847 94,901 94,901
Total 107,034 114,986 114,986
Fixed maturity securities, held to maturity:
Bonds:
States, municipalities and political
subdivisions 1,549 1,696 1,549
Public utilities 50,291 52,729 50,291
All other bonds 93,821 97,070 93,821
Total 145,661 151,495 145,661
Mortgage loans on real estate, net 270,054 270,054
Real estate, net 36,764 36,764
Real estate joint ventures 43,347 43,347
Policy loans 123,186 123,186
Short-term 74,341 74,341
Other 7,500 7,500
Total investments $2,760,628 2,820,355
<PAGE>
Schedule II
KANSAS CITY LIFE INSURANCE COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
December 31
1997 1996
(in thousands)
Assets
Investments:
Fixed maturity securities:
Available for sale, at fair value $1,546,655 1,322,965
Held to maturity, at amortized cost 90,688 162,502
Equity securities available for sale, at fair value:
Investments in affiliates 218,128 197,424
Other 86,803 61,783
Mortgage loans on real estate, net 221,323 222,548
Real estate, net 36,163 42,658
Real estate joint ventures 34,666 24,025
Policy loans 102,106 74,070
Short-term 46,203 10,912
Total investments 2,382,735 2,118,887
Deferred acquisition costs 95,638 94,095
Value of purchased insurance in force 73,217 -
Other 157,686 85,385
Separate account assets 57,980 13,916
Total assets $2,767,256 2,312,283
Liabilities and stockholders' equity
Future policy benefits $ 538,361 452,126
Accumulated contract values 1,427,769 1,224,377
Other 212,552 159,000
Separate account liabilities 57,980 13,916
Total liabilities 2,236,662 1,849,419
Stockholders' equity:
Common stock 23,121 23,121
Paid-in capital 16,256 14,761
Unrealized gains on securities
available for sale, net 36,448 2,963
Retained earnings including $107,260,000 undis-
tributed earnings of affiliates ($95,307,000 - 1996) 543,715 509,748
Less treasury stock, at cost (88,946) (87,729)
Total stockholders' equity 530,594 462,864
Total liabilities and stockholders' equity $2,767,256 2,312,283
The above condensed financial statement should be read in conjunction with the
consolidated financial statements and notes thereto of Kansas City Life
Insurance Company.
<PAGE>
Schedule II
(continued)
KANSAS CITY LIFE INSURANCE COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENT
Years ended December 31
1997 1996 1995
(in thousands)
Revenues
Insurance revenues:
Premiums:
Life insurance $ 28,145 26,186 23,927
Accident and health 39,435 31,264 22,324
Contract charges 68,431 55,123 52,932
Investment revenues:
Investment income, net 148,291 142,119 144,502
Dividends from affiliates 150 5,000 6,400
Realized investment gains, net 13,175 3,089 4,581
Other 5,786 7,877 6,906
Total revenues 303,413 270,658 261,572
Benefits and expenses
Policy benefits:
Death benefits 51,762 46,033 42,217
Surrenders of life insurance 11,280 11,737 12,491
Other benefits 62,997 56,239 44,066
Increase in benefit and contract reserves 56,126 52,348 54,348
Amortization of policy acquisition costs 15,138 14,619 13,693
Insurance operating expenses 66,891 53,338 52,328
Management fees from affiliates (6,291) (5,721) (5,995)
Total benefits and expenses 257,903 228,593 213,148
Income before federal income taxes 45,510 42,065 48,424
Federal income taxes 12,602 9,844 12,404
Income before equity in undistributed
net income of affiliates 32,908 32,221 36,020
Equity in undistributed net income
of affiliates 11,953 10,094 5,718
Net income $ 44,861 42,315 41,738
The above condensed financial statement should be read in conjunction with the
consolidated financial statements and notes thereto of Kansas City Life
Insurance Company.
<PAGE>
Schedule II
(continued)
KANSAS CITY LIFE INSURANCE COMPANY
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CASH FLOW STATEMENT
Years ended December 31
1997 1996 1995
(in thousands)
Net cash provided by operating activities $ 14,081 38,020 32,553
Investing activities
Investments called, matured or repaid 215,239 225,957 232,966
Decrease (increase) in short-term
investments, net (35,291) 16,053 10,482
Investments sold 492,920 102,733 141,990
Investments purchased or originated (840,802) (387,849) (445,236)
Other 3,685 1,056 (538)
Acquisition of life block:
Cash received net of purchase price paid213,092 - -
Net cash provided (used) 48,843 (42,050) (60,336)
Financing activities
Proceeds from borrowings 245,050 1,650 22,730
Repayment of borrowings (245,050) (1,650) (22,730)
Policyowner contract deposits 119,639 115,493 132,408
Withdrawals of policyowner
contract deposits (127,341) (107,073) (94,150)
Cash dividends to stockholders (10,894) (10,393) (10,061)
Other 278 592 670
Net cash provided (used) (18,318) (1,381) 28,867
Increase (decrease) in cash 44,606 (5,411) 1,084
Cash at beginning of year (87) 5,324 4,240
Cash at end of year $ 44,519 (87) 5,324
The above condensed financial statement should be read in conjunction with the
consolidated financial statements and notes thereto of Kansas City Life
Insurance Company.
<PAGE>
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
1997 1996
(in thousands)
Unearned premiums (included in $949 909
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
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31
1997 1996 1995
(in thousands)
Real estate valuation account
Beginning of year $ 5,227 7,378 9,942
Deductions (1,541) (2,151) (2,564)
End of year $ 3,686 5,227 7,378
Mortgage loan valuation account
Beginning of year $ 8,500 10,500 10,500
Deductions - (2,000) -
End of year $ 8,500 8,500 10,500
Allowance for uncollectible accounts
Beginning of year $ 1,160 1,123 2,732
Additions 230 845 1,258
Deductions (181) (808) (2,867)
End of year $ 1,209 1,160 1,123
<PAGE>
Exhibit 10(e), Form 10-K
Kansas City Life
Insurance Company
KANSAS CITY LIFE INSURANCE COMPANY
LONG-TERM INCENTIVE PLAN
DESCRIPTION OF PLAN FOR 1994-1996
JANUARY 19, 1994
<PAGE>
KANSAS CITY LIFE 1994-1996 LONG-TERM INCENTIVE PLAN
GENERAL CONSIDERATIONS
ELIGIBLE EMPLOYEES
The Long-Term Incentive (LTI) Plan is a cash based incentive program designed to
cover a performance period from January 1, 1994 through December 31, 1996.
The Plan covers the following positions:
President
Senior Vice Presidents
(exception of SVP Market Research)
Vice President/General Counsel
President, Sunset Life
AWARDS
It is the objective of the Plan to pay awards in January, 1997.
The following describes the awards as a percent of salary of the participants as
of December 31, 1996:
Threshold Target Maximum
President (KCL) 36% 54% 90%
SVPs, VP/Gen Counsel
and President (SSL) 30% 45% 75%
Awards earned between threshold and maximum will be prorated between award
levels.
PAYOUTS
The estimated payouts under the LTI Plan are as follows:
Minimum Threshold Target Maximum
President (KCL) 0 149,981 224,972 374,954
SVPs, VP/Gen Counsel
and President (SSL) 0 373,640 560,459 934,099
Total 0 523,621 785,431 1,309,053
STOCKHOLDER PROTECTION
Kansas City Life's statutory capital and surplus as a percent of assets must be
maintained at a minimum of 9% over the three year period in order for the Plan
participants to receive an award. For this calculation, the asset valuation
reserve is included with statutory capital and surplus and is then calculated as
a percent of assets.
This calculation has yielded the following results for prior years:
1991 9.25%
1992 10.14%
1993 9.53%
GOALS
The LTI Plan award is based on the achievement of an average three year GAAP
Return on Equity. A target goal of 8% has been established for this Plan.
The income figures that will be used in this ROE calculation will exclude
capital gains and losses, nonrecurring items and will be adjusted to eliminate
the effects of FAS 115 adjustments. The ROE calculation will be made by dividing
income by the "beginning of year" equity.
The ROE calculation for prior years is as follows:
1991 8.8%
1992 9.6%
1993 7.4%
The following matrix describes the award level for various returns on equity:
Award Level Threshold Target Maximum
Average
3 year ROE 7.5% 8% 9%
1994-1996
The actual average ROE earned between 7.5% and 9% will be used to prorate the
awards.
PLAN ADMINISTRATION GUIDELINES
NEW HIRE
A senior executive hired during the first two years of the Plan will be eligible
to participate in the Plan effective with his/her date of hire. The executive
will receive a prorata award from the Plan for the period in which he/she
participated. An executive hired in the last year of the Plan will not
participate until the next Plan cycle.
PROMOTION FROM NON-INCENTIVE ELIGIBLE POSITION
TO INCENTIVE ELIGIBLE POSITION
An executive promoted in these circumstances during the first two years of the
Plan will be eligible to participate in the Plan effective with his/her date of
promotion. The executive will receive a prorata award from the Plan for the
period in which he/she participated. An executive promoted in the final year of
the Plan cycle will not participate until the next Plan cycle.
TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT
The executive will receive a prorata award from the Plan for the cycle in which
the event occurred.
TERMINATION FOR ANY OTHER REASON
No award will be made from the Plan for the cycle in which the termination
occurred.
Award determination for any other change in status (e.g., demotion, layoff,
etc.) will be made on a case-by-case basis by the President and the Compensation
Committee of the Board.
LONG-TERM INCENTIVE PLAN
ROE FOR 1994, 1995 AND 1996
Adjusted Earnings Without
Net Earnings Capital Gains/Losses
5 Year Average 9.8 8.0
10 Year Average 9.5 7.9
14 Year Average 9.9 8.9
MANAGEMENT'S DISCUSSION
and analysis of financial condition and results of operations
Operating Results
Operating income per share rose 5 percent in 1996 to $6.52 but declined 12
percent during 1997 to $5.72 a share. Operating income excludes realized
investment gains. These gains declined in 1996 to $3.0 million but rose to $14.5
million in 1997 due to portfolio strategy decisions made by management in order
to maximize the investment portfolio's total return. Including these gains, net
income increased 1 percent in 1996 to $6.84 a share and rose 6 percent to $7.25
a share during 1997. Pretax operating margins averaged 12.6 percent from 1995
through 1997 while return on equity averaged 9.70 percent annually.
The Company acquired a block of traditional and interest sensitive life
insurance during the third quarter of 1997 for $51.4 million, net of related
income tax benefits. This block adds $27 million in insurance revenues annually,
$3.8 billion of insurance in force and $330 million of assets and liabilities.
The block provided $13.1 million of insurance revenues for the portion of 1997
that Kansas City Life owned the block. Comparisons offered throughout the
following discussion exclude the purchase in order to provide more valid
comparisons.
The following discusses Kansas City Life's performance over the past three years
in generating insurance revenues and how profitability from revenues emerged and
changed year-to-year by assessing each of the four sources of earnings for the
Company.
Insurance Revenues
Total insurance revenues rose 7 percent in 1996 and 5 percent in 1997. Contract
charges arising from the interest sensitive and variable lines rose 6 percent in
both 1996 and 1997. Life insurance premiums rose slightly in 1996 and were
unchanged in 1997. Accident and health premiums rose 27 percent and 20 percent
in 1996 and 1997, respectively, largely due to growth in group dental premiums.
Universal life accounted for 29 percent of total statutory premiums in 1997,
flexible annuities 13 percent, variable products 10 percent, group coverages 16
percent and traditional lines 32 percent.
Sales, in terms of new annualized premiums, rose slightly in 1996 and the
foundation was laid that year for significant sales growth the following year. A
variable annuity product was introduced in late 1995 and a variable universal
life product was added during 1996. These products allowed the Company to more
effectively recruit seasoned, sizable agencies. Agencies recruited during 1997,
combined with strong efforts from existing core agencies, resulted in 20 percent
sales growth for the year. New variable premiums equaled $34.2 million in 1997,
providing nearly one-third of total sales. The variable products generated all
of the year's sales growth. The sales outlook for the coming year is encouraging
since recruiting results are expected to remain strong throughout 1998.
Sources of Earnings
A life insurance company's profits generally evolve from the following four
sources.
Investment Margin - Interest spreads on the interest sensitive products were
maintained in 1996 and 1997. Traditional-type products, however, were
impacted negatively by declining interest rates and market yields on new
money which were below portfolio yields. This lowered portfolio yields, thus
dampening these lines' investment results.
Overall investment income declined 1 percent in 1996 and 2 percent in 1997.
Earnings comparisons in 1996 were impacted by a $4.0 million one-time receipt
of mortgage income in 1995. Excluding this item, investment earnings rose 1
percent in 1996. Investment income was impacted by market yields which were
below portfolio yields and declining investment assets in 1997. This decline
was principally due to the shift in product mix towards variable products.
Funds provided by variable products are invested in separate account assets,
not in the Company's general investments. The portfolio's total return was
bolstered each year by gains realized largely in the securities and real
estate portfolios.
The quality of the Company's investment portfolio remains high. Nearly 96
percent of the securities portfolio is investment grade. Past concerns over
Argentinean and Mexican securities have waned. Such investments currently
total $35.3 million with an unrealized gain of $158,000. The Company has
little exposure to the Asian woes. There were two securities defaults
totaling $7.0 million. Mortgage loans in delinquency or in the process of
foreclosure represent just 0.3 percent of the portfolio, half of the industry
average. Restructured mortgage loans represent 2.6 percent of the mortgage
portfolio. Three mortgage loans, carried at $3.2 million, were acquired
during 1997 and transferred to real estate. The estimated fair value of the
mortgage portfolio exceeds its carrying value by $7 million. The estimated
fair value of the real estate and joint venture investments currently exceed
their carrying value by $30 million. Eleven foreclosed properties were sold
during the year at a $359,000 gain, net of tax. The Company currently holds
14 properties, valued at $13.4 million, which were acquired through
foreclosure.
Mortality Margin - Mortality experience was favorable all three years for the
parent company, Kansas City Life. However, mortality experience deteriorated
at the two insurance subsidiaries in 1997. Mortality experience, by its
nature, varies year-to-year. However, after a careful review of Old
American's mortality experience, steps were initiated in early 1998 to
strengthen its underwriting process. Also, Old American's home health care
line experienced adverse claims experience the past several years. Additional
reserves totaling $2.9 million were established in 1997 with the intent of
preventing future earnings erosion in this block. Finally, claims experience
is also crucial to the group line of business. Group claim ratios were
historically low in 1995, but were considerably higher the past two years due
to the group dental line. In response, premium increases are being enacted
where possible and certain dental coverages will no longer be offered in a
few specific states.
Operating Expenses - Home office expenses rose just 1 percent a year, on
average, over the eight-year period from 1989 through 1996. A concerted
effort was made in 1997 to achieve significant sales growth and, partially as
a result, these expenses rose 7 percent in 1997. Excluding increased
marketing costs, these expenses rose 2 percent. The revenue growth achieved
as a result of this effort, combined with the purchase of a sizable block of
business, allowed the Company to make continued progress in lowering its unit
costs and improving efficiency.
Kansas City Life is making good progress on converting its computer systems
to be year 2000 compliant. It is anticipated that this conversion will be
completed by the first quarter of 1999 at the latest. These conversion costs
are expensed as incurred. Incremental costs related to this endeavor have
been, and are expected to remain, quite minor.
The amortization of deferred acquisition costs fluctuated year-to-year as
interest sensitive products' amortization schedules were reassessed quarterly
based upon the profit margins realized quarterly. However, assumptions were
not unlocked since the assumed total gross margins over the life of the
business were unchanged.
Surrender Margin - Policy surrenders have a minor, but beneficial, earnings
impact in the year they occur due to surrender charges levied against most
surrenders. However policy surrenders truncate future earnings streams.
Surrenders of universal and traditional life business, as a percentage of
values available to be surrendered, were largely unchanged over the
three-year period. Surrenders of flexible annuities rose over the three-year
period principally due to shifting consumer preferences towards variable
annuities, a product Kansas City Life introduced in late 1995.
The Company's effective Federal income tax rate declined from 30 percent in 1995
to 28 percent in 1997. This decline is largely due to investments in real estate
ventures which generate affordable housing tax credits. Such investments
currently total $40.3 million.
Changes in Reporting Regulations
A new accounting guideline, which became effective for 1997, Financial
Accounting Standard No. 128, "Earnings Per Share", did not impact the Company's
computation of earnings per share. Two new guidelines will become effective in
1998 which will impact certain reporting disclosures. Standard No. 130,
"Reporting Comprehensive Income", requires that all components of comprehensive
income, including the change in unrealized investment gains and losses, be
displayed prominently as well as report an amount representing total
comprehensive income for the period. Kansas City Life will adopt this standard
for the first quarter of 1998 and reclassify comparative financial statements.
Standard No. 131, "Disclosures About Segments of an Enterprise and Related
Information", establishes requirements for annual and interim reporting of
segment information including products and services, geographic areas and major
customers. Kansas City Life is studying these requirements and will adopt this
standard by year end 1998.
Liquidity and Capital Resources
Kansas City Life plays a key role in the economy as a provider of capital. New
investments in securities, mortgage loans and real estate projects averaged
$717.9 million annually the past three years. Liquidity is normally not a
concern. Borrowing has been minor and limited to supporting investment
strategies. Future investment commitments are minimal. Kansas City Life performs
cash flow testing and asset liability matching to ensure future cash flows will
be sufficient to meet future cash needs for benefits payments.
Cash provided by operating activities, combined with financing activities
associated with contract deposits, averaged $77.1 million annually the past
three years. However, this amount declined to $49.2 million in 1997 from $76.1
million a year earlier. This reflects increased surrenders of flexible annuities
as discussed earlier and the increasing importance of variable products to the
product mix and to revenue growth. Investable cash generated by variable
products is segregated in separate accounts and is not available for general
investing by the Company.
The Company's statutory equity is over five times the minimum capital required
to support its book of business, as determined by calculations and guidelines
established by the National Association of Insurance Commissioners.
Kansas City Life was honored for the fourth consecutive year by the Ward
Financial Group as being among the fifty best life insurance companies in terms
of financial safety and performance.
SELECTED FINANCIAL DATA
(Thousands, except per share data)
1997 1996 1995 1994 1993
Revenues:
Insurance $ 244 695 219 593 205 458 203 827 196 829
Investment
income, net 193 696 186 743 188 087 173 388 163 237
Other 9 998 9 768 8 882 9 066 8 741
Operating
revenues 448 389 416 104 402 427 386 281 368 807
Realized
investment gains 14 505 3 013 4 950 6 060 24 648
$ 462 894 419 117 407 377 392 341 393 455
Operating income $ 35 433 40 357 38 521 34 919 26 033
Realized investment
gains, net 9 428 1 958 3 217 3 939 16 021
Income before
nonrecurring items 44 861 42 315 41 738 38 858 42 054
Nonrecurring
expenses, net - - - 1 481 -
Net income $ 44 861 42 315 41 738 37 377 42 054
Per common share:
Operating income $ 5.72 6.52 6.24 5.68 4.24
Realized investment
gains, net 1.53 .32 .52 .64 2.60
Income before
nonrecurring items $ 7.25 6.84 6.76 6.32 6.84
Nonrecurring
expenses, net - - - .24 -
Net income $ 7.25 6.84 6.76 6.08 6.84
Cash dividends $ 1.76 1.68 1.63 1.40 1.36
Stockholders'
equity:
As reported $ 85.68 74.79 73.99 55.78 61.68
Excluding
unrealized
gains and losses 79.79 74.31 69.18 64.11 59.48
Assets $ 3 439 452 2 954 710 2 903 768 2 663 753 2 651 430
Net return on
invested assets 7.40% 7.68 8.03 7.71 7.65
Life insurance
in force $26 595 709 22 148 738 21 023 702 20 023 820 19 028 772
The above is not covered by the report of independent auditors. Per common share
earnings information represents both basic and diluted earnings per common
share.
CONSOLIDATED INCOME STATEMENT
1997 1996 1995
REVENUE
Insurance revenues:
Premiums:
Life insurance $106 051 103 263 101 341
Accident and health 44 931 37 575 29 475
Contract charges 93 713 78 755 74 642
Investment revenues:
Investment income, net 193 696 186 743 188 087
Realized investment gains, net 14 505 3 013 4 950
Other 9 998 9 768 10 290
TOTAL REVENUES 462 894 419 117 408 785
BENEFITS AND EXPENSES
Policy benefits:
Death benefits 100 037 87 940 85 388
Surrenders of life insurance 14 999 15 488 16 345
Other benefits 71 338 65 437 53 441
Increase in benefit and contract reserves 86 804 85 614 89 139
Amortization of policy acquisition costs 35 712 30 086 27 992
Insurance operating expenses 91 381 75 227 76 557
TOTAL BENEFITS AND EXPENSES 400 271 359 792 348 862
Income before Federal income taxes 62 623 59 325 59 923
Federal income taxes:
Current 15 073 26 073 22 038
Deferred 2 689 (9 063) (3 853)
17 762 17 010 18 185
NET INCOME $ 44 861 42 315 41 738
Basic and diluted earnings per share $7.25 6.84 6.76
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
1997 1996
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost $1,952,741,000;
$1,762,091,000 - 1996) $2 004 516 1 759 153
Held to maturity, at amortized cost
(fair value $151,495,000;
$256,042,000 - 1996) 145 661 248 433
Equity securities available for sale,
at fair value (cost $107,034,000;
$71,522,000 - 1996) 114 986 79 018
Mortgage loans on real estate, net 270 054 246 493
Real estate, net 36 764 43 750
Real estate joint ventures 43 347 28 356
Policy loans 123 186 94 412
Short-term 74 341 19 642
Other 7 500 -
TOTAL INVESTMENTS 2 820 355 2 519 257
Cash 50 927 4 577
Accrued investment income 42 385 41 847
Receivables, net 10 204 6 854
Property and equipment, net 23 628 24 791
Deferred acquisition costs 209 826 207 020
Value of purchased insurance in force 108 458 38 031
Reinsurance assets 99 593 93 328
Other 16 096 5 089
Separate account assets 57 980 13 916
$3 439 452 2 954 710
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits:
Life insurance $ 766 583 671 204
Accident and health 37 155 30 356
Accumulated contract values 1 755 133 1 544 714
Policy and contract claims 37 569 35 223
Other policyholders' funds:
Dividend and coupon accumulations 62 056 43 141
Other 68 861 60 970
Income taxes:
Current 16 113 3 537
Deferred 39 917 19 748
Other 67 491 69 037
Separate account liabilities 57 980 13 916
TOTAL LIABILITIES 2 908 858 2 491 846
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 16 256 14 761
Unrealized gains on securities
available for sale, net 36 448 2 963
Retained earnings 543 715 509 748
Less treasury stock, at cost
(3,055,275 shares; 3,058,871 shares -1996) (88 946) (87 729)
TOTAL STOCKHOLDERS' EQUITY 530 594 462 864
$3 439 452 2 954 710
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
1997 1996 1995
COMMON STOCK, beginning and end of year $ 23 121 23 121 23 121
PAID IN CAPITAL:
Beginning of year 14 761 13 039 11 847
Excess of proceeds over
cost of treasury stock sold 1 495 1 722 1 192
End of year 16 256 14 761 13 039
UNREALIZED GAINS (LOSSES ON SECURITIES
AVAILABLE FOR SALE:
Beginning of year 2 963 29 740 (51 345)
Unrealized appreciation (depreciation)
on securities available for sale, net 33 485 (26 777) 81 085
End of year 36 448 2 963 29 740
RETAINED EARNINGS:
Beginning of year 509 748 477 826 446 149
Net income 44 861 42 315 41 738
Stockholder dividends of $1.76 per share
($1.68 - 1996 and $1.63 - 1995) (10 894) (10 393) (10 061)
End of year 543 715 509 748 477 826
TREASURY STOCK, at cost:
Beginning of year (87 729) (86 599) (86 077)
Cost of 20,090 shares acquired
(27,876 shares - 1996 and
17,240 shares - 1995) (1 440) (1 501) (829)
Cost of 23,686 shares sold
(39,440 shares - 1996 and
32,709 shares - 1995) 223 371 307
End of year (88 946) (87 729) (86 599)
TOTAL STOCKHOLDERS' EQUITY $530 594 462 864 457 127
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
1997 1996 1995
OPERATING ACTIVITIES
Net income $ 44 861 42 315 41 738
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment discount, net (1 290) (4 071) (5 215)
Depreciation 5 379 4 995 5 265
Policy acquisition costs capitalized (42 170) (38 639) (40 388)
Amortization of deferred
policy acquisition costs 35 712 30 086 27 992
Realized investment gains (14 505) (3 013) (4 950)
Changes in assets and liabilities:
Future policy benefits 16 227 15 831 15 071
Accumulated contract values (9 933) 3 183 8 135
Other policy liabilities 7 137 5 294 3 852
Income taxes payable and deferred 4 768 (8 322) (1 595)
Other, net (3 685) 5 886 4 318
NET CASH PROVIDED 42 501 53 545 54 223
INVESTING ACTIVITIES Investments called, matured or repaid:
Fixed maturities available for sale 163 867 131 545 136 574
Fixed maturities held to maturity 106 188 79 017 63 433
Equity securities available for sale 31 473 8 899 13 727
Mortgage loans on real estate 47 048 53 430 67 722
Other 278 (100) 1 542
Investments sold:
Fixed maturities available for sale 503 351 140 372 165 563
Fixed maturities held to maturity - - 4 207
Other 19 969 11 503 22 326
Investments purchased or originated:
Fixed maturities available for sale (855 980) (431 916) (495 766)
Equity securities available for sale (69 434) (18 071) (12 896)
Real estate joint ventures (16 731) (6 439) (8 093)
Mortgage loans on real estate (68 599) (54 161) (31 053)
Decrease (increase) in
short-term investments, net (54 699) 17 256 (17 558)
Other (9 144) (2 150) (1 068)
Acquisition of life block:
Cash received net of purchase price paid 213 092 - -
Net additions to property and equipment (2 872) (527) (2 918)
NET CASH PROVIDED (USED) 7 807 (71 342) (94 258)
FINANCING ACTIVITIES
Proceeds from borrowings 245 050 1 650 22 730
Repayment of borrowings (245 050) (1 650) (22 730)
Policyowner contract deposits 169 699 164 677 179 135
Withdrawals of policyowner
contract deposits (163 041) (142 114) (127 347)
Cash dividends to stockholders (10 894) (10 393) (10 061)
Disposition of treasury stock, net 278 592 670
NET CASH PROVIDED (USED) (3 958) 12 762 42 397
Increase (decrease) in cash 46 350 (5 035) 2 362
Cash at beginning of year 4 577 9 612 7 250
CASH AT END OF YEAR $ 50 927 4 577 9 612
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 and variable 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.
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 6.50 percent during 1997
(4.75 percent to 6.75 percent during 1996 and 4.79 percent to 7.00 percent
during 1995).
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.
Value of Purchased Insurance in Force
The value of purchased insurance in force arising from the acquisition of a life
insurance subsidiary and, in 1997, the acquisition of a life insurance block of
business is being amortized in proportion to projected future gross profits.
This asset was increased $76,533,000 for the acquisition of the life insurance
block of business and $8,856,000 ($5,030,000 -1996 and $5,157,000 - 1995) for
accrual of interest and reduced $14,962,000 ($6,082,000 - 1996 and $6,088,000 -
1995) for amortization. The increase for accrual of interest was calculated
using a 13.0 percent interest rate for the life insurance subsidiary and, on the
acquired block, a 7.0 percent interest rate on the traditional life portion and
a 5.4 percent rate on the interest sensitive portion. Through 1997, total
accumulated accrual of interest and amortization equal $35,496,000 and
$47,071,000, respectively. The percentage of the asset's current carrying amount
which will be amortized in each of the next five years is 6.9 percent - 1998,
6.8 percent - 1999, 6.7 percent - 2000, 6.5 percent - 2001 and 6.1 percent -
2002.
Participating Policies
Participating business at year end approximates 15 percent of the consolidated
life insurance in force. The amount of dividends to be paid is determined
annually by the Board of Directors. Provision has been made in the liability for
future policy benefits to allocate amounts to participating policyholders on the
basis of dividend scales contemplated at the time the policies were issued.
Additional provisions have been made for policyholder dividends in excess of the
original scale which have been declared by the Board of Directors.
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 Share
In 1997 the Company adopted Financial Accounting Standard No. 128, "Earnings per
Share". Due to the Company's capital structure and lack of other potentially
dilutive securities, there is no difference between basic and diluted earnings
per common share for any of the years or periods reported. The weighted average
number of shares outstanding during the year was 6,190,793 shares (6,188,489
shares - 1996 and 6,173,294 shares - 1995).
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.
1997 1996 1995
Net gain (loss) from operations for the year $(21 214) 27 345 29 307
Net income (loss) for the year (18 681) 25 574 29 484
Unassigned surplus at December 31 246 717 284 417 268 239
Stockholders' equity at December 31 197 147 234 570 217 801
The statutory loss reported in 1997 arose from the acquisition of a block of
business as discussed in a following Note. In accordance with statutory
accounting guidelines for coinsurance transactions, the acquisition reduced
statutory earnings and stockholders' equity at the date of acquisition $51.4
million, the purchase price paid less related tax benefits.
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 1998 without prior approval is $19,715,000. 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 ($36,000,000 - 1996 and $100,000,000 - 1995).
INVESTMENTS
Investment Revenues Major categories of investment revenues are summarized as
follows.
1997 1996 1995
Investment income:
Fixed maturities $154 393 150 421 144 242
Equity securities 7 288 5 503 6 259
Mortgage loans 23 984 23 127 31 378
Real estate 10 350 13 237 12 342
Policy loans 7 296 6 372 6 174
Short-term 3 612 2 353 2 753
Other 3 132 2 222 2 533
210 055 203 235 205 681
Less investment expenses (16 359) (16 492) (17 594)
$193 696 186 743 188 087
Realized gains (losses:
Fixed maturities $ 4 778 (1 862) (1 718)
Equity securities 3 702 961 4 634
Mortgage loans - 2 000 (108)
Real estate 6 025 1 894 2 172
Other - 20 (30)
$ 14 505 3 013 4 950
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow.
1997 1996 1995
Available for sale:
End of year $ 59 727 4 558 51 744
Deferred income taxes (19 627) (1 595) (16 013)
Effect on deferred acquisition costs (3 652) - (5 991)
$ 36 448 2 963 29 740
Increase (decrease) in net unrealized gains during the year:
Fixed maturities $ 33 209 (26 216) 78 876
Equity securities 276 (561) 2 209
$ 33 485 (26 777) 81 085
Held to maturity:
End of year $ 5 834 7 609 19 517
Increase (decrease) in
net unrealized gains during the year $ (1 775) (11 908) 16 667
The Company's securities categorized as available for sale are stated at fair
value. The resulting adjustment to fair value results in significant volatility
on stockholders' equity and the various calculations that are dependent on
stockholders' equity, such as return on equity.
Securities
The amortized cost and fair value of investments in securities at December 31,
1997, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 135 182 3 166 297 138 051
Public utility bonds 281 781 6 956 662 288 075
Corporate bonds 1 130 938 34 827 3 315 1 162 450
Mortgage-backed bonds 315 621 9 416 375 324 662
Other bonds 81 469 2 260 425 83 304
Redeemable preferred stocks 7 750 261 38 7 974
Total fixed maturities 1 952 741 56 886 5 112 2 004 516
Equity securities 107 034 8 709 757 114 986
2 059 775 65 595 5 869 2 119 502
Held to maturity:
Public utility bonds 50 291 2 494 56 52 729
Corporate bonds 92 350 3 727 641 95 436
Other bonds 3 020 310 - 3 330
145 661 6 531 697 151 495
$2 205 436 72 126 6 566 2 270 997
The amortized cost and fair value of investments in securities at December 31,
1996, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
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
All fixed maturity securities produced income in 1997.
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.
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 60 259 60 510
Due after one year through five years 290 534 295 928
Due after five years through ten years 706 504 717 050
Due after ten years 579 823 606 366
Mortgage-backed bonds 315 621 324 662
$1 952 741 2 004 516
Held to maturity:
Due in one year or less $ 27 043 27 342
Due after one year through five years 50 554 53 023
Due after five years through ten years 28 944 30 892
Due after ten years 39 120 40 238
$ 145 661 151 495
Sales of investments in securities available for sale, excluding normal
maturities and calls, follow.
1997 1996 1995
Proceeds $509 502 141 335 184 547
Gross realized gains 11 597 1 400 6 416
Gross realized losses 2 349 1 420 6 527
At December 31, 1997, the Company did not hold securities of any corporation and
its affiliates which exceeded 10 percent of stockholders' equity.
Kansas City Life employs no derivative financial instruments.
The Company maintains a $60 million bank line of credit which may be used to
support investment strategies. This line is unused at December 31, 1997, and
will expire in April 1998.
Mortgage Loans
The Company holds non-income producing mortgage loans equaling $327,000
($2,077,000 - 1996). Mortgage loans are carried net of a valuation reserve of
$8,500,000 ($8,500,000 - 1996).
At December 31, 1997 and 1996, the mortgage portfolio is diversified
geographically and by property type as follows.
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Geographic region:
East north central $ 26 937 27 421 21 890 22 162
Mountain 64 602 66 321 75 058 76 163
Pacific 91 963 94 366 81 955 82 599
West south central 32 997 33 961 36 155 36 940
West north central 55 320 56 485 35 463 36 003
Other 6 735 7 017 4 472 4 662
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$270 054 277 071 246 493 250 029
Property type:
Industrial $170 199 174 278 136 266 137 633
Retail 29 532 30 531 45 555 46 681
Office 58 658 60 267 54 332 55 280
Other 20 165 20 495 18 840 18 935
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$270 054 277 071 246 493 250 029
As of December 31, 1997, the Company has commitments which expire in 1998 to
originate mortgage loans of $13,794,000 and to advance $10,454,000 on an
existing short-term line of credit.
Mortgage loans foreclosed upon and transferred to real estate investments during
the year equaled $3,189,000 ($2,977,000 - 1996 and $4,322,000 - 1995).
Mortgage loans acquired in the sale of real estate assets during the year
totaled $4,299,000 ($6,579,000 - 1996 and $9,571,000 - 1995).
Real Estate
Detail concerning the Company's real estate investments follows.
1997 1996
Penntower office building, at cost:
Land $ 1 106 1 106
Building 18 068 17 644
Less accumulated depreciation (9 809) (9 303)
Foreclosed real estate, at lower of
cost or net realizable value 13 362 18 218
Other investment properties, at cost:
Land 3 214 3 370
Buildings 24 216 25 907
Less accumulated depreciation (13 393) (13 192)
$ 36 764 43 750
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 $3,686,000 ($5,227,000 - 1996) to reflect net
realizable value.
The Company held non-income producing real estate equaling $820,000 ($758,000 -
1996).
PROPERTY AND EQUIPMENT
1997 1996
Land $ 1 029 1 029
Home office buildings 23 149 23 131
Furniture and equipment 27 502 24 760
51 680 48 920
Less accumulated depreciation (28 052) (24 129)
$23 628 24 791
Property and equipment are stated at cost and depreciated 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.
1997 1996
Accumulated postretirement benefit obligation:
Retirees $ 6 516 7 750
Fully eligible active plan participants 2 914 1 904
Other active plan participants 8 242 5 803
17 672 15 457
Unrecognized net loss (1 735) (590)
$15 937 14 867
The net periodic postretirement benefit cost included the following components.
1997 1996 1995
Service cost $ 560 536 314
Interest cost 930 794 669
Net amortization of experience gains (6) - (93)
$1 484 1 330 890
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits for the medical plans is 10 percent for 1998, and is assumed to
decrease gradually to 6 percent in 2004. Increasing the assumed health care cost
growth rates by one percentage point increases the accrued postretirement
benefit costs $2,207,000 and $2,040,000 as of December 31, 1997 and 1996,
respectively. The aggregate service and interest cost components of the net
periodic postretirement benefit cost for 1997 would increase $312,000. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent and 7.75 percent at December
31, 1997 and 1996, 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 outlines the plan's funded status and
those amounts recognized in the Company's financial statements.
1997 1996
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$94,698,000 ($79,913,000 - 1996) $102 846 86 635
Projected benefit obligation for service
rendered to date $119 651 100 571
Plan assets at fair value, primarily
listed corporate and U.S. bonds 95 899 85 241
Plan assets less than projected benefit obligation (23 752) (15 330)
Items not yet recognized in earnings:
Net loss from past experience 25 452 15 571
Prior service costs 12 14
Net asset at January 1, 1987, being recognized
over 16 years (1 030) (1 236)
Net prepaid (unfunded) pension costs $ 682 (981)
1997 1996 1995
Net pension cost includes:
Service costs - benefits earned
during the period $ 3 150 3 369 2 403
Interest cost on projected benefit obligation 7 823 6 647 6 156
Actual return on plan assets (9 752) (2 951)(14 139)
Net amortization and deferral 2 354 (4 547) 7 412
Net periodic pension cost $ 3 575 2 518 1 832
Assumptions were as follows:
Weighted average discount rate 7.25 % 7.75 7.00
Weighted average compensation increase 4.50 4.50 5.50
Weighted average expected
long-term return on plan assets 9.00 9.00 9.00
At December 31, 1996, the Company utilized more recent mortality experience
which caused some increase in the benefit obligations.
The 1997 contribution to the pension plan was $4,967,000 (none - 1996 and
$992,000 - 1995).
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 $133,000 ($174,000 -1996 and $287,000 - 1995). The Company
also sponsors a non-contributory deferred compensation plan for eligible agents
based upon earned first-year commissions. Contributions to this plan were
$226,000 ($318,000 - 1996 and $405,000 - 1995).
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 $2,102,000 ($2,082,000 -1996 and $1,826,000 - 1995). The
employees' plan will change for 1998 in that the Company will match employee
contributions up to 6 percent of salary and the Company may contribute a profit
sharing amount up to 4 percent of salary depending upon the Company's profit
performance.
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 1995 and 1997.
Effective January 1, 1998, the Company amended the defined benefit plan for all
employees other than those who are age 55 or over with at least 15 years of
vested service. For these employees the defined benefit pension plan is
converted to a cash balance plan whereby each employee will have a cash balance
account. Generally, the cash balance account consists of credits to the account
based on an employee's years of service and compensation, and interest credits,
which for 1998 will be 7 percent.
FEDERAL INCOME TAXES
A reconciliation of the Federal income tax rate and the actual tax rate
experienced is shown below.
1997 1996 1995
Federal income tax rate 35% 35 35
Special tax credits (6) (5) (4)
Other permanent differences (1) (1) (1)
Actual income tax rate 28% 29 30
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below.
1997 1996
Deferred tax assets:
Future policy benefits $ 53 923 46 518
Employee retirement benefits 13 104 13 055
Other 2 882 5 176
Gross deferred tax assets 69 909 64 749
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 40 844 49 175
Basis differences between tax and GAAP
accounting for investments 28 080 20 093
Property and equipment, net 1 704 1 770
Value of insurance in force 36 551 11 790
Other 2 647 1 669
Gross deferred tax liabilities 109 826 84 497
Net deferred tax liability $ 39 917 (19 748)
Federal income taxes paid for the year were $14,335,000 ($25,332,000 - 1996 and
$19,981,000 - 1995).
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 Insurance
Company of America (Sunset Life) and $13,700,000 for Old American Insurance
Company (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 December 31,
1997, this shareholders' surplus was $348,057,000 for Kansas City Life,
$73,170,000 for Sunset Life and $44,703,000 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 investment 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 consolidated income statement. Revenues to the
Company from separate accounts consist principally of contract maintenance
charges, administrative fees and mortality and risk charges.
REINSURANCE
1997 1996 1995
Life insurance in force (in millions):
Direct $ 22 800 22 121 20 991
Ceded (3 375) (2 742) (2 442)
Assumed 3 796 28 33
Net $ 23 221 19 407 18 582
Premiums:
Life insurance:
Direct $128 491 127 150 124 504
Ceded (26 262) (24 380) (23 292)
Assumed 3 822 493 129
Net $106 051 103 263 101 341
Accident and health:
Direct $ 55 022 48 694 42 971
Ceded (10 091) (11 370) (13 496)
Assumed - 251 -
Net $ 44 931 37 575 29 475
Contract charges arise generally from directly issued business. However contract
charges also arise from a block of business assumed during 1997 as described
below. Ceded benefit recoveries were $39,483,000 ($37,829,000 - 1996 and
$27,613,000 - 1995).
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, 1997, these policies had a face value of
$136,519,000. The reserve for future policy benefits ceded under this agreement
was $51,003,000 ($52,556,000 - 1996).
As discussed in a following Note, the Company acquired a block of life insurance
business through a reinsurance treaty during 1997. At December 31, 1997, the
block had $3.8 billion of insurance in force, future policy benefits of
$88,476,000 and accumulated contract values of $213,300,000. During 1997, life
insurance premiums of $3,096,000 and contract charges of $9,997,000 were
recognized related to this block.
The maximum retention on any one life is $350,000 for ordinary life plans and
$100,000 for group coverage. 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.
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Investments:
Securities available
for sale $2 119 502 2 119 502 1 838 171 1 838 171
Securities held
to maturity 145 661 151 495 248 433 256 042
Mortgage loans 270 054 277 071 246 493 250 029
Liabilities:
Individual and
group annuities 830 495 802 461 862 605 829 261
Supplementary contracts
without life contingencies 21 526 21 526 21 835 21 835
The Investments Note provides further details regarding the investments above.
QUARTERLY CONSOLIDATED FINANCIAL DATA
(unaudited)
First Second Third Fourth
1997:
Total revenues $108 379 108 836 124 932 120 747
Operating income $ 10 299 8 548 7 639 8 946
Realized gains, net 1 835 957 4 119 2 517
Net income $ 12 134 9 505 11 758 11 463
Per common share:
Operating income $ 1.66 1.39 1.23 1.44
Realized gains, net .30 .15 .67 .41
Net income $ 1.96 1.54 1.90 1.85
1996:
Total revenues $106 434 101 263 104 924 106 497
Operating income $ 11 933 10 002 8 643 9 777
Realized gains (losses), 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 (losses), net .10 (.05) .11 .16
Net income $ 2.03 1.57 1.50 1.74
CONTINGENT LIABILITIES
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 that permit punitive
damages 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.
ACQUISITION OF A BLOCK OF BUSINESS
In September 1997, the Company acquired a block of traditional life and
universal life-type products through a reinsurance treaty. The ceding company
transferred $331,434,000 in liabilities and $254,901,000 in assets, principally
cash. The difference was recorded as value of purchased insurance inforce and is
being amortized in proportion to projected future gross profits over 30 years,
the estimated life of the business.
MANAGEMENT'S REPORT
To Our Stockholders
Management prepared the preceding consolidated financial statements and all
other financial information included in this Annual Report and is responsible
for its integrity, consistency and objectivity. In preparing these statements,
management necessarily made certain estimates and judgments and selected
accounting principles in conformity with generally accepted accounting
principles appropriate in the circumstances.
The Company maintains a system of internal accounting controls and procedures to
provide reasonable assurance, at an appropriate cost, that its assets are
protected and that its financial transactions are properly authorized and
recorded. Qualified personnel in the Company maintain and monitor these internal
controls on an ongoing basis.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets annually and, as required, with the independent auditors,
management and the internal auditors. Each has free and separate access to the
committee. The committee reviews audit procedures, scope and findings, and the
adequacy of the Company's financial reporting.
The independent auditors, Ernst & Young LLP, are elected by the Board of
Directors to audit the financial statements and render an opinion thereon.
Richard L. Finn
Senior Vice President, Finance
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, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Kansas City, Missouri
January 26, 1998
STOCKHOLDER 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 23, 1998, at Kansas City Life's
corporate headquarters.
TRANSFER AGENT
Cheryl Keefer
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, 1998, Kansas City Life had approximately 795 security
holders, including individual participants in security position listings.
STOCK AND DIVIDEND INFORMATION
Stock Quotation Symbol
Over-the-Counter_KCLI
Bid Dividend
High Low Paid
(per share)
1997:
First Quarter $68.25 63.50 $ .44
Second Quarter 79.75 66.00 .44
Third Quarter 84.00 74.00 .44
Fourth Quarter 96.50 80.25 .44
$1.76
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
A quarterly dividend of $.45 per share was paid February 23, 1998.
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.
<PAGE>
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.
<PAGE>
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
26, 1998 included in the 1997 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 26, 1998 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, 1997.
/s/ Ernst & Young LLP
Kansas City, Missouri
March 23, 1998
<PAGE>
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 27, 1998 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, 1997.
/s/ Ernst & Young LLP
Kansas City, Missouri
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000054473
<NAME>Kansas City Life Insurance Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 2,004,516<F1>
<DEBT-CARRYING-VALUE> 145,661<F2>
<DEBT-MARKET-VALUE> 151,661<F2>
<EQUITIES> 114,986<F3>
<MORTGAGE> 270,054
<REAL-ESTATE> 80,111<F4>
<TOTAL-INVEST> 2,746,014
<CASH> 125,268
<RECOVER-REINSURE> 99,593
<DEFERRED-ACQUISITION> 209,826
<TOTAL-ASSETS> 3,439,452
<POLICY-LOSSES> 803,738
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 37,569
<POLICY-HOLDER-FUNDS> 1,886,050<F5>
<NOTES-PAYABLE> 0
0
0
<COMMON> 23,121
<OTHER-SE> 507,473
<TOTAL-LIABILITY-AND-EQUITY> 3,439,452
150,982
<INVESTMENT-INCOME> 193,696
<INVESTMENT-GAINS> 14,505
<OTHER-INCOME> 103,711
<BENEFITS> 273,178
<UNDERWRITING-AMORTIZATION> 35,712
<UNDERWRITING-OTHER> 4,894<F6>
<INCOME-PRETAX> 62,623
<INCOME-TAX> 17,762
<INCOME-CONTINUING> 44,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,861
<EPS-PRIMARY> 7.25
<EPS-DILUTED> 7.25
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
Footnotes:
<F1> Debt securities held for sale represent FASB 115 available for sale fixed
maturity securities reported on a current value basis, and do not include
trading securities or securities held to maturity.
<F2> Debt securities represent FASB 115 held to maturity fixed maturity
securities, and do not include trading securities or securities available
for sale.
<F3> Equity securities include equity securities that are available for sale
under FASB 115.
<F4> Real estate includes real estate joint ventures.
<F5> Policyholder funds include accumulated contract values as defined by FASB
97, dividend and coupon accumulations and other policyowner funds.
<F6> Underwriting expenses - other 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, 1997
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
1997
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
<TABLE>
Kansas City Life Insurance Company
Savings and Investment Plan
Statement of Net Assets Available for Plan Benefits
December 31, 1997
(in thousands)
<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> <C> <C>
Assets
Investments, at fair value:
Twentieth Century Growth 3560 - - - - - - - - - 3560
Kansas City Life common stock - 5508 33151 - - - - - - - 38659
Met Life Guar. Interest Contract - - - 5230 - - - - - - 5230
Vanguard Bond Index Fund - - - - 676 - - - - - 676
Templeton Foreign Fund - - - - - 2610 - - - - 2610
Vanguard Balanced Index Fund - - - - - - 632 - - - 632
Fidelity Value Fund - - - - - - - 3168 - - 3168
Vanguard Extended Market Fund - - - - - - - - 1065 - 1065
Loans to participants - - - - - - - - - 1159 1159
Total investments 3560 5508 33151 5230 676 2610 632 3168 1065 1159 56759
Cash 15 13 86 22 4 -68 26 8 51 - 157
Interest receivable - - - 28 - - - - - - 28
Net assets available
for plan benefits 3575 5521 33237 5280 680 2542 658 3176 1116 1159 56944
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
Kansas City Life Insurance Company
Savings and Investment Plan
Statement of Net Assets Available for Plan Benefits
December 31, 1996
(in thousands)
<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> <C> <C>
Assets
Investments, at fair value:
Twentieth 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
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
Kansas City Life Insurance Company
Savings and Investment Plan
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1997
(in thousands)
<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> <C> <C>
Contributions:
Employer $ - - 1809 - - - - - - - 1809
Employee 343 193 - 300 71 288 78 402 134 - 1809
343 193 1809 300 71 288 78 402 134 - 3618
Investment income, net:
Interest - - 11 314 - - - - - - 325
Interest on participant loans 21 8 - 16 2 12 4 20 6 - 89
Dividends 524 115 663 - 43 277 24 426 72 - 2144
Net appreciation (depreciation)
on investments 228 1693 9721 - 17 -106 78 100 120 - 11851
Net investment income 773 1816 10395 330 62 183 106 546 198 - 14409
Employee withdrawals -111 -206 -1483 -525 -25 -116 -12 -144 -44 - -2666
Forfeitures - - -62 - - - - - - - -62
Participant loans: Made -133 -64 - -185 -12 -76 -4 -130 -8 612 -
Repaid 111 72 - 90 10 60 12 98 30 -483 -
Transfer from (to) other funds 40 -517 - 555 -70 -105 91 -101 107 - -
Net assets available for plan benefits:
Net increase (decrease) 1023 1294 10659 565 36 234 271 671 417 129 15299
Beginning of year 2552 4227 22578 4715 644 2308 387 2505 699 1030 41645
End of year 3575 5521 33237 5280 680 2542 658 3176 1116 1159 56944
See accompanying Notes to Financial Statements.
</TABLE>
<TABLE>
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)
<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> <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
See accompanying Notes to Financial Statements.
</TABLE>
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 results 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 net asset value of the mutual fund shares held. The investments
in Funds II and III are reported at fair value based upon December's average bid
price. Investments in Fund IV are reported 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.
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 1997 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.
The Plan will change for 1998 in that the Company will match employee
contributions up to 6 percent of salary and the Company may contribute a profit
sharing amount up to 4 percent of salary depending upon the Company's profit
performance. In addition non-highly compensated employees will be allowed to
contribute up to 15 percent of salary.
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 in 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 Section 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.
INVESTMENTS
The guaranteed interest contract held by the Plan provided an average yield of
6.34% and 5.99% during 1997 and 1996, respectively. Crediting rates were 6.35%
and 6.25% at December 31, 1997 and 1996, 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.
1997 1996
---- ----
(in thousands)
Twentieth Century Growth Stock Fund,
148,251 shares - 1997 and 117,323 shares - 1996. $ 3,560 2,567
Kansas City Life Insurance Company common stock,
445,954 shares - 1997 and 441,496 shares - 1996. 38,659 26,914
Met Life Managed Guaranteed Interest Contract 5,230 4,497
Templeton Foreign Fund
262,281 shares - 1997 and 236,154 shares - 1996. 2,610 2,447
Fidelity Value Fund
58,613 shares - 1997 and 46,657 shares - 1996. 3,168 2,405
The fair value of the Plan's investments has changed as follows.
1997 1996
---- ----
Net Net
Appreciation Appreciation
(Depreciation) (Depreciation)
Fair Value In Fair Value Fair Value In Fair Value
(in thousands) (in thousands)
Fund I $3,560 228 $2,567 304
II 5,508 1,693 4,398 665
III 33,151 9,721 22,516 3,344
IV 5,230 - 4,497 -
V 676 17 661 (18)
VI 2,610 (106) 2,447 265
VII 632 78 391 38
VIII 3,168 100 2,405 121
IX 1,065 120 638 58
----- ----- ----- -----
Total $55,600 11,851 $40,520 4,777
====== ====== ====== =====
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.
PLAN DOCUMENT
The Plan document is available upon request. Participants should refer to this
document for a more complete description of the Plan's provisions.
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 Plan 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.
PLAN TERMINATION
Although the Company has not expressed any intent to terminate the Savings and
Investment Plan, it may do so at any time by adoption of a written resolution by
the Company's Board of Directors or the Executive Committee of the Board of
Directors. Upon termination of the Plan, participants' accounts would become
fully vested and nonforfeitable and distributions would be made as promptly as
possible.
IMPACT OF YEAR 2000 (unaudited)
The Company is converting to a new administrative system which will be year 2000
ready. It is anticipated that this conversion will be completed during 1999 at
the latest. The costs related to becoming year 2000 ready are minor and will be
borne by the Company and therefore will not have an effect on the Plan's
financial statements.
Kansas City Life Insurance Company
Savings and Investment Plan
Assets Held for Investment
December 31, 1997
(in thousands, except shares)
Number of
Shares or
Description of Investments Par Value Cost Fair Value
Common stock:
Kansas City Life Insurance Company * 445,954 shares 15,850 38,659
Mutual funds:
Twentieth Century Growth Stock Fund 148,251 shares 2,392 3,560
Met Life Managed Guar. Interest Contract $5,230 5,230 5,230
Vanguard Bond Index Fund 67,046 shares 661 676
Templeton Foreign Fund 262,281 shares 2,361 2,610
Vanguard Balanced Index Fund 38,794 shares 506 632
Fidelity Value Fund 58,613 shares 2,664 3,168
Vanguard Index Trust-Extended Market Fund 34,644 shares 864 1,065
Total mutual funds 14,678 16,941
Loans:
Loans to participants (interest rates
range from 6.5% to 10.0%) - 1,159 1,159
31,687 56,759
* Party-in-interest to the Plan.
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, 1997
(in thousands, except shares)
Party Involved and
Description of Asset Transactions Shares Cost Consideration Net Gain
Category (iii)--series of securities transactions in excess of 5 percent of plan
assets:
Kansas City Life
common stock * 14 buys 21,849 $1,585 - -
Kansas City Life
common stock * 11 sells 17,391 588 1,253 665
Met Life Guaranteed
interest contract 30 buys - $1,498 - -
Met Life Guaranteed
interest contract 14 sells - 764 764 -
There were no category (i), (ii), or (iv) reportable transactions during 1997.
* Party-in-interest to the Plan.
<PAGE>
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, 1997 and 1996, 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, 1997 and 1996, 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 performed 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, 1997 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
Kansas City, Missouri
February 27, 1998
