Securities and Exchange Commission
Washington, D. C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarter ended March 31, 1999
Commission File No. 2-40764
Kansas City Life Insurance Company
3520 Broadway
Kansas City, Missouri 64111-2565
Phone: (816) 753-7000
IRS Number: 44-0308260
Incorporated in the State of Missouri
The Registrant (1) has filed all reports required to be filed by section 13 or
15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most recent date available.
Class Outstanding at April 6, 1999
Common Stock, $2.50 par value 6,201,665 shares
Page 1
Kansas City Life Insurance Company
Quarter ended March 31, 1999
Part I
Item 1. Financial Statements
Incorporated by reference from the Quarterly Report to Stockholders (pages 4
through 7). See the attached exhibit. These interim financial statements should
be read in conjunction with the Company's 1998 Annual Report to Stockholders.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Kansas City Life's operating earnings per share grew 51 percent over last year
to $0.99. Even including realized gains, which declined $2.2 million from last
year's first quarter, net income equaled $1.00 per share, a 27 percent increase.
These per share earnings amounts reflect the two-for-one common stock split
authorized by the Board of Directors in January and approved by the stockholders
in April. This operating earnings increase is primarily the result of
significantly improved mortality for all three companies and across all product
lines.
Net investment income was flat in the first quarter as was the net yield on the
investment portfolio as the yields available on new money equaled those lost
through sales and maturities. Interest spreads on the interest sensitive
products were maintained in the first quarter.
Home office operating expenses rose 1 percent versus 1998's first quarter. Home
office expenses have been increasing over the past few years as the Company has
focused on expanding sales to help improve operating efficiencies. The Company
is currently consolidating Sunset Life into its home office operations. This
process is on schedule and will be completed by the end of the third
quarter. It is expected that the resulting cost savings from this consolidation
will exceed $2.0 million annually, beginning in 2000.
The following schedule addresses the financial performance of each of the
Company's four reportable operating segments: the Parent Company, which is
divided into individual and group operations, and its two insurance affiliates.
<TABLE>
<CAPTION>
Kansas City Life Insurance Company
Segment Information
Kansas City Life Sunset Old
Individual Group Life American Total
<S> <C> <C> <C> <C> <C>
Revenues from external customers:
First Quarter: 1999 $29,574 13,070 7,540 19,054 69,238
1998 26,098 12,869 6,826 20,289 66,082
Investment revenues:
First Quarter: 1999 $37,401 282 8,112 3,479 49,274
1998 37,332 251 8,020 3,439 49,042
Operating income (loss):
First Quarter: 1999 $ 8,518 462 2,622 639 12,241
1998 6,095 (360) 2,034 329 8,098
</TABLE>
Notes:
1. Intersegment revenues are not material.
2. The above totals agree to the consolidated financial statements.
3. There has been no significant change in segment assets from last year end,
nor has there been any change in the basis of segmentation or the measurement
of segment income.
Kansas City Life - Individual
New annualized premiums rose 3 percent in the first quarter, principally due to
flexible annuities, up 24 percent, and variable annuities, up 19 percent.
Partially offsetting these increases, individual life sales declined 36 percent.
Total variable sales were flat in the first quarter. On the basis of direct
statutory receipts, new sales rose 4 percent as variable annuities grew 10
percent and individual fixed line annuities grew more than four times. Variable
sales remain at nearly two-thirds of new sales for this segment.
Total insurance revenues, which includes premium renewals, rose 13 percent for
the segment in the first quarter.
Benefits declined 4 percent for this segment in the first quarter, reflecting a
16 percent decrease in death benefits and a 33 percent decrease in surrenders.
Mortality in the first quarter was improved versus last year's first quarter.
Benefits as a percent of operating revenue equaled 58 percent in the first
quarter, down from 63 percent last year.
Primarily as a result of the improvement in mortality, operating income grew 40
percent in the first quarter and this segment provided 70 percent of
consolidated operating income.
Kansas City Life - Group
In the first quarter, the group segment contributed 4 percent of the
consolidated operating income compared to a loss in 1998. This turnaround was
primarily due to significantly improved claims ratios in virtually all product
lines of this segment. The gross claims ratio for all products in this segment
was 71 percent in the first quarter, compared with 80 percent last year.
Group sales, in terms of new annualized premiums, grew 27 percent in the quarter
and provided 11 percent of consolidated annualized premiums. These sales were
led by dental, up 14 percent; stop loss, up 50 percent; and life, up 68 percent.
The dental product was revamped during 1998 in order to improve its
profitability. The stop loss product continues to maintain its historically good
sales results and the group area is targeting the life product during 1999 to
improve its sales results.
In total, the group segment provided 19 percent of consolidated insurance
revenues in the first quarter for both years.
Sunset Life
Sunset Life's new annualized premiums declined 18 percent in the first quarter,
as declines were recorded in both universal life, down 33 percent, and flexible
annuities, down 18 percent. Sunset Life contributed 7 percent of total new
annualized premiums during 1999, down from 9 percent in 1998.
Insurance revenues increased 9 percent, largely due to contract charges on
interest sensitive products. Benefits, as a percent of operating revenues,
equaled 46 percent, down from 51 percent a year ago. This decline is primarily
due to improved mortality. Additionally, operating expenses declined 4 percent
from 1998. In total for Sunset Life, operating income increased 29 percent and
contributed 21 percent of consolidated operating income in the first quarter.
Old American
New annualized premiums rose 1 percent in the first quarter. As mentioned in the
1998 Annual Report, Old American has begun to more aggressively recruit new
agents and is seeking to improve its target marketing to provide better response
rates for its sales force. Old American provided 7 percent of consolidated
sales, consistent with the previous year. This segment also provided 28 percent
of consolidated insurance revenues, down from 31 percent in the first quarter of
1998.
Benefits, as a percent of operating revenues, equaled 63 percent compared with
68 percent a year ago. This improvement was primarily due to improved mortality
and partially due to the sale of the home health care block of business last
year.
Operating income for this segment nearly doubled and provided 5 percent of
consolidated operating income.
Liquidity and Capital Resources
Statements made in the Company's 1998 Annual Report to Stockholders remain
pertinent.
In addition to the two-for-one stock split previously mentioned, in January,
1999, the Board approved the purchase of 500,000 shares, on a pre-split basis,
of the Company's stock on the open market. As of this time, no shares had been
purchased under this program.
For the three months, cash provided from operating activities and net cash
outflows from contract deposits totaled $20.0 million, a decline of 8 percent
from last year. A growing, sizable portion of the Company's insurance receipts
result from variable products which directs most of the investable cash into
separate accounts rendering it unavailable for general investments. At March 31,
1999, separate accounts totaled $163.3 million, up $20.3 million from year end.
However, liquidity is not a concern as the Company made new investments totaling
$176.8 million during the first three months, an increase of 23 percent from
last year.
Assets totaled $3.6 billion at March 31, 1999, the same as year end. However,
excluding unrealized investment gains, assets grew at a 5 percent annualized
growth rate. Consolidated insurance in force totaled $26.5 billion, a 2 percent
decline on an annualized basis. Book value per share totaled $45.29 on a split
basis, a decline of 11 percent on an annualized basis. However, excluding
unrealized investment gains, book value per share grew at an 8 percent
annualized rate.
Year 2000 (Y2K) Compliance
Kansas City Life is closely monitoring its ability, and the ability of its
primary vendors and business partners, to successfully operate in the year 2000.
Kansas City Life continues the assessment and resolution of potential problems
in both its information technology (IT) systems and in its non-information
technology systems. At the present time, the Company is approximately 90 percent
complete with resolving its IT issues and anticipates that it will have
completed its year 2000 IT compliant issues by mid-summer. The Company completed
converting its one remaining non-IT system in the first quarter. The Company is
actively monitoring the compliance programs of those third parties with which
the Company has business relationships as well as developing contingency plans
based upon those assessments. These third parties are progressing well, but the
Company will continue to monitor these third parties until full compliance is
achieved. Contingency plans are currently being developed and will be completed
by mid-1999. The incremental cost of the Company's compliance effort generally
has been expensed as incurred and has not been material thus far, estimated at
less than $700,000, nor are additional costs expected to be material in the
future. The forecast costs, consequences of the year 2000 problem, and the dates
on which the Company believes it will complete its various year 2000 computer
modifications are based on its best estimates, which, in turn, were based on
numerous assumptions of future events, including third-party modification and
compliance plans, continued availability of resources, and other factors. The
Company cannot be sure that these estimates will be achieved or that the
assumptions are accurate, and actual results could differ materially from those
anticipated.
Market and Interest Rate Risk Analysis
Statements made in the 1998 Annual Report to Stockholders pertaining to the
market and interest rate risk analysis remain pertinent. As mentioned in the
Annual Report, the primary market risk affecting Kansas City Life concerns
interest rates. The Company's unrealized investment gains were approximately $49
million at March 31, 1999, representing a decrease in such gains from last year
end, due to increased interest rates in the market during the first quarter.
Part II: Other Information
Item 2. Changes in Securities and Use of Proceeds
As a result of the two-for-one stock split approved by the
stockholders, each share of the Company's common stock with a par
value of two and one-half dollars ($2.50) a share will be changed
into two (2) shares with a par value of one and one-quarter dollars
($1.25). The record date for the stock split will be May 20, 1999.
On or about June 21, 1999, each stockholder will receive an
additional share for each share held on the record date, together
with a written notice that the par value of each share held has
been reduced to one and one-quarter dollars ($1.25). The amount of
stated capital will remain unchanged.
Item 4. Result of Votes of Security Holders
On April 22, 1999, the Annual Stockholders Meeting was held at 3520
Broadway, Kansas City, Missouri. At this meeting, there were
6,201,665 shares outstanding and eligible to vote, and 5,293,202
shares were represented at the meeting either in person or by
proxy. The following Directors received the number of votes
indicated and were elected for a three year term:
W. E. Bixby, III - 5,265,583
Webb R. Gilmore - 5,261,303
Nancy Bixby Hudson - 5,259,290
Daryl D. Jensen - 5,261,677
C. John Malacarne - 5,261,040
The following Directors continued their term of office after this
meeting:
J. R. Bixby
R. Philip Bixby
W. E. Bixby
Richard L. Finn
Jack D. Hayes
Warren J. Hunzicker, M.D.
Francis P. Lemery
Michael J. Ross
Elizabeth T. Solberg
Larry Winn, Jr.
For amending Article 4(a) of the Articles of Incorporation to
authorize a two-for-one stock split, there were 6,201,665 shares
outstanding and eligible to vote, and 5,290,366 shares were
represented at the meeting either in person or by proxy. The vote
was as follows:
FOR - 5,132,140
AGAINST - 158,226
Item 6.
(a) Exhibit: 3(a) Article 4(a), as Amended, of the 1986 Restatement of the
Articles of Incorporation of Kansas City Life Insurance Company.
(b) Reports on 8-K: There were no reports on Form 8-K filed for
the three months ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KANSAS CITY LIFE INSURANCE COMPANY
/s/Richard L. Finn
Richard L. Finn
Senior Vice President, Finance
/s/John K. Koetting
John K. Koetting
Vice President and Controller
/s/C. John Malacarne
C. John Malacarne
Vice President, General Counsel and Secretary
Date: May 11, 1999
KANSAS CITY LIFE INSURANCE COMPANY
Quarter ended March 31, 1999
EXHIBIT
Quarterly Report to Stockholders
Balance Sheet
(in thousands)
March 31 December 31
1999 1998
------------- -------------
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 2,074,156 2,094,362
Securities held to maturity,
at amortized cost 115,522 115,504
Equity securities available
for sale, at market 105,930 100,749
Mortgage loans 322,555 315,706
Policy loans 121,597 122,860
Other 140,571 142,387
------------- -------------
2,880,331 2,891,568
Deferred acquisition costs 218,944 218,957
Other assets 316,185 323,881
Separate account assets 163,326 143,008
------------- -------------
$ 3,578,786 3,577,414
============= =============
Liabilities and equity
Future policy benefits $ 825,518 822,343
Accumulated contract values 1,725,074 1,731,262
Other liabilities 303,098 302,868
Separate account liabilities 163,326 143,008
------------- -------------
Total liabilities 3,017,016 2,999,481
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 17,882 17,633
Accumulated other comprehensive
income (loss) 20,061 45,466
Retained earnings 590,537 581,074
Less treasury stock (89,831) (89,361)
------------- -------------
561,770 577,933
------------- -------------
$ 3,578,786 3,577,414
============= =============
Notes:
* Comprehensive income (loss) equals ($12,963,000) and
$13,832,000, for 1999 and 1998, respectively.
This varies from net income due to unrealized gains
or losses on securities.
* These financial statements are unaudited but, in
management's opinion, include all adjustments
necessary for a fair presentation of the results.
* Income per common share is based upon the weighted
average number of shares outstanding during the period,
12,406,574 shares (12,390,452 shares - 1998). The
number of shares in both years has been adjusted to
reflect the two-for-one stock split.
* These interim financial statements should be read in
conjunction with the Company's 1998 Annual Report to
Stockholders. The results of operations for any
interim period are not necessarily indicative of
the Company's operating results for a full year.
* Certain amounts from the prior year's financial statements
have been reclassified to conform with the current
presentation.
Consolidated
Income Statement
(in thousands, except per share data)
Quarter ended
March 31
1999 1998
---- ----
Revenues
Insurance revenues:
Premiums:
Life insurance $ 27,805 26,096
Accident and health 10,263 10,368
Contract charges 27,233 27,280
Investment revenues:
Investment income, net 49,274 49,042
Realized gains 309 2,527
Other 3,937 2,339
------- -------
Total revenues 118,821 117,652
------- -------
Benefits and expenses
Policy benefits:
Death benefits 27,509 32,007
Surrenders of life insurance 3,561 4,833
Other benefits 16,053 16,904
Increase in benefit and contract reserve 20,502 18,923
Amortization of policy acquisition costs 10,475 8,517
Insurance operating expenses 23,129 23,247
------- -------
Total benefits and expenses 101,229 104,431
------- -------
Pretax income 17,592 13,221
------- -------
Federal income taxes:
Current 5,835 4,764
Deferred (685) (1,284)
------- -------
5,150 3,480
------- -------
Net income $ 12,442 9,741
======= =======
Per common share
Operating income $ 0.99 0.66
Realized gains, net 0.01 0.13
------- -------
Net income $ 1.00 0.79
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands)
Quarter ended
March 31
1999 1998
Operating activities
Net cash provided $23,069 21,845
Investing activities
Purchases of fixed maturity investments (145,282) (129,363)
Sales of fixed maturity investments 68,163 29,960
Maturities and principal paydowns of
fixed maturity investments 56,561 71,072
Purchases of other investments (31,512) (13,717)
Sales maturities and principal paydowns
of other investments 17,577 18,502
Net (purchases) sales of short-term investments 3,898 (627)
Net cash used (30,595) (24,173)
Financing activities
Policyowner contract deposits 40,815 46,743
Withdrawals of policyowner
contract deposits (43,876) (46,818)
Dividends paid to stockholders (2,979) (2,787)
Other, net (329) (2,490)
Net cash used (6,369) (5,352)
Decrease in cash (13,895) (7,680)
Cash at beginning of year 16,763 50,927
Cash at end of period $2,868 43,247
Message from the President and CEO
Kansas City Life is off to a good start in 1999 as the first quarter's
operating earnings improved 51 percent over last year to $.99 a share. Net
income rose 27 percent to $1.00 a share as realized investment gains declined
$2.2 million in the quarter. These per share earnings reflect the two-for-one
stock split authorized by the Board of Directors in January and approved by the
stockholders in April.
The significant earnings increase reflected improved claims experience at
all three of our insurance companies. Mortality experience on our individual
insurance products improved as did claims ratios in the group line of business.
The sale of Old American's home health care block late last year provided a
modest boost to earnings as well.
Sales, in terms of annualized new premiums, rose 3 percent in the quarter.
Annuity sales, both variable and non-variable, were up 18 percent. However,
sales of individual life coverage declined 27 percent. Sales of variable
products, which include both annuities and universal life, were level for the
quarter. Group sales improved 27 percent due to strong growth in dental, stop
loss and group life.
Insurance revenues, as shown in the attached earnings statement, rose 4
percent excluding the decline in home health care premiums. Life premiums rose 7
percent while accident and health premiums increased 7 percent, again excluding
home health care premiums. Contract charges associated with the interest
sensitive and variable products were level for the quarter. Insurance in force
declined 2 percent on an annualized basis to $26.5 billion.
Net investment income was unchanged for the quarter as was the net yield on
the investment portfolio. Additionally, interest spreads were maintained on the
interest sensitive products.
Home office operating expenses rose 1 percent in the quarter, the same
percentage increase as statutory premiums. The relocation of Sunset Life into
the Kansas City home office is progressing according to plan and should be
completed by the end of the third quarter. Costs associated with the relocation
should absorb most of the savings from increased efficiencies in 1999.
In January the Company announced a stock repurchase program whereby the
Company may repurchase up to 500,000 shares of its stock on the open market
during 1999. No shares were acquired under this program during the first
quarter.
The Board of Directors approved a regular quarterly dividend of $.48 a
share payable on May 24 to stockholders of record on May 10. This dividend is on
a pre-split basis since the record date for the stock split is May 20.
Book value declined to $45.29 a share on a split basis. This decrease arose
from a decline in the market value of our securities classified as available for
sale due to rising interest rates. Excluding the effects of the change in
unrealized gains, book value rose 8 percent on an annualized basis, in line with
historical trends.
Article 4(a)
(a) The capital stock of the Company shall be forty-five million dollars
($45,000,000) divided into thirty-six million (36,000,000) shares with a par
value of one and one-quarter dollars ($1.25) each.
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000054473
<NAME> Kansas City Life Insurance Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> $2,074,156
<DEBT-CARRYING-VALUE> 115,522
<DEBT-MARKET-VALUE> 121,807
<EQUITIES> 105,930
<MORTGAGE> 322,555
<REAL-ESTATE> 85,335
<TOTAL-INVEST> 2,825,095
<CASH> 58,347
<RECOVER-REINSURE> 118,999
<DEFERRED-ACQUISITION> 218,944
<TOTAL-ASSETS> 3,578,786
<POLICY-LOSSES> 825,518
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 35,822
<POLICY-HOLDER-FUNDS> 1,866,811
<NOTES-PAYABLE> 0
0
0
<COMMON> 23,121
<OTHER-SE> 538,649
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38,068
<INVESTMENT-INCOME> 49,274
<INVESTMENT-GAINS> 309
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<BENEFITS> 67,625
<UNDERWRITING-AMORTIZATION> 10,475
<UNDERWRITING-OTHER> 2,024
<INCOME-PRETAX> 17,592
<INCOME-TAX> 5,150
<INCOME-CONTINUING> 12,442
<DISCONTINUED> 0
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<NET-INCOME> 12,442
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<FN>
<F1> Debt securities held for sale represent FASB 115 available for sale fixed
maturity securities reported on a current value basis, and do not include
trading securities or securities held to maturity.
<F2> Debt securities represent FASB 115 held to maturity fixed maturity
securities, and do not include trading securities or securities available
for sale.
<F3> Equity securities include equity securities that are available for sale
under FASB 115.
<F4> Real Estate includes real estate joint ventures.
<F5> Policyholder funds include accumulated contract values as defined by FASB
97, dividend and coupon accumulations and other policyowner funds.
<F6> Underwriting expenses - other reprsenet amortization of the value of
purchased insurance in force.
</FN>
</TABLE>
