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 September 30, 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 October 5, 1999
Common Stock, $1.25 par value 12,281,650 shares
Page 1
Kansas City Life Insurance Company
Quarter ended September 30, 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 for the third quarter declined 5
percent from last year to equal $.99. Including realized gains, which declined
$2.3 million from last year's third quarter, net income equaled $1.09 per share,
a 13 percent decline from last year. For the nine months, operating earnings per
share declined 3 percent to $2.56 and net income per share, which included a
$6.6 million decrease in realized gains, declined 13 percent to $2.70.
Net investment income, netted for interest expenses incurred related to
investment strategies, increased 2 percent in the third quarter and 1 percent
for the nine months. Realized investment gains declined, generally due to rising
interest rates which resulted in significantly reduced investment calls on the
portfolio. Interest spreads on the interest sensitive products improved as the
yield spreads widened.
Home office operating expenses decreased 5 percent versus 1998's third quarter
and rose 2 percent for the nine months. During the third quarter, the
consolidation of Sunset Life into the parent's home office in Kansas City was
completed. While significant savings have not yet emerged as a result of this
consolidation, substantial progress has been made and the anticipated $2 to $3
million annual savings are expected to be realized going forward.
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.
Kansas City Life Insurance Company
Segment Information
Kansas City Life Sunset Old
Individual Group Life American Total
Revenues from external customers:
Nine months: 1999 $85,777 39,596 20,433 57,306 203,112
1998 88,110 39,110 21,574 60,296 209,090
Third quarter: 1999 29,836 13,475 7,022 18,949 69,282
1998 31,514 13,117 7,225 19,893 71,749
Investment revenues:
Nine months: 1999 $114,873 817 24,976 11,011 151,677
1998 114,188 835 24,276 10,609 149,908
Third quarter: 1999 39,073 217 8,608 3,820 51,718
1998 37,935 272 8,027 3,563 49,797
Operating income (loss):
Nine months: 1999 $22,104 (212) 5,600 4,230 31,722
1998 21,275 (751) 7,717 4,279 32,520
Third quarter: 1999 8,620 (70) 1,433 2,241 12,224
1998 7,960 117 2,859 1,994 12,930
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
Total new annualized premiums declined 2 percent in the third quarter.
Individual life sales were down 8 percent and flexible annuities were flat.
Non-variable universal life sales declined 26 percent and variable universal
life sales declined 2 percent. For the nine months, new annualized premiums fell
7 percent as individual life products declined 19 percent and flexible annuities
fell 3 percent. Non-variable universal life sales were down 39 percent for the
nine months and variable universal life products were down 11 percent. Total new
variable sales were up 6 percent for the third quarter but were down 4 percent
for the nine months. Variable product sales accounted for 58 percent of total
sales for the nine months. On the basis of direct statutory receipts, new sales
declined 10 percent for the nine months. New non-variable universal life sales
fell 56 percent compared to last year. New variable sales fell 7 percent and
equaled 64 percent of total new sales.
Total insurance revenues, which include premium renewals and contract charges on
the interest sensitive products, decreased 5 percent for the third quarter and 3
percent for the nine months.
Death benefits rose 3 percent for the quarter but were flat for the nine months.
Death benefits for the assumed block of business purchased two years ago were
higher than expected in the third quarter. However, mortality for the segment
remained better than last year for the nine months. Traditional life surrenders
fell 28 percent for the quarter and 29 percent for the nine months. In total,
benefits increased 2 percent for both the quarter and the nine months. Total
benefits, as a percent of operating revenue, equaled 61 percent for the nine
months, down slightly from the 62 percent for the six months and a year ago.
This segment provided 42 percent of consolidated insurance revenues for the nine
months and 70 percent of the operating income compared with 42 percent and 65
percent last year.
Kansas City Life - Group
In the third quarter, the group segment recorded a loss, however the overall
claims ratios in this segment improved during the quarter. The nine months' loss
was $0.5 million less than a year ago. This improvement stems primarily from the
dental line, which recorded $0.4 million in profit during the third quarter,
compared to a loss of $0.1 million in last year's third quarter.
Group sales, in terms of new annualized premiums, declined 25 percent in the
quarter, but rose 3 percent for the nine months. Group sales were lead by the
group life line, which grew 65 percent over last year. Group sales provided 10
percent of consolidated annualized premiums, up from 9 percent last year.
In total, the group segment provided 19 percent of consolidated insurance
revenues for the nine months, the same as last year.
Sunset Life
Sunset Life's new annualized premiums declined 44 percent in the third quarter
and 34 percent for the nine months. Total individual life sales were down 31
percent for the quarter and 37 percent for the nine months. Sales of flexible
annuities were down 48 percent for the third quarter and 32 percent for the nine
months. Sunset Life contributed 8 percent of total new annualized premiums
during the first nine months versus 11 percent in 1998.
Total insurance revenues for the nine months decreased 1 percent, reflecting the
sales results mentioned above. Benefits, as a percent of operating revenues,
equaled 49 percent, up from 47 percent a year ago. Total benefits increased 5
percent over last year, as mortality has increased from this time last year.
Insurance operating expenses rose 15 percent for the nine months, reflecting
costs associated with the consolidation efforts mentioned above.
In total for Sunset Life, operating income declined 27 percent but contributed
13 percent of consolidated operating revenues and 18 percent of operating income
for the nine months, compared with 13 percent and 24 percent, respectively a
year ago.
Old American
New annualized premiums declined 3 percent in the third quarter and 4 percent
for the nine months. Old American provided 7 percent of consolidated sales,
consistent with the previous year. This segment also provided 28 percent of
consolidated insurance revenues for the nine months, down slightly from 29
percent last year.
Total benefits declined 5 percent for the quarter and 9 percent for the nine
months. Benefits, as a percent of operating revenues, equaled 59 percent
compared with 62 percent a year ago. This improvement was due to improved
mortality and the sale of the home health care block of business last year.
Operating income for this segment declined 1 percent for the nine months to
equal 13 percent of consolidated operating income, the same as last year.
Liquidity and Capital Resources
Statements made in the Company's 1998 Annual Report to Stockholders remain
pertinent.
Liquidity is not a concern for the Company. For the nine months, cash provided
from operating activities increased 64 percent to total $47.5 million. Funds
from all sources totaled $712.4 million, an 8 percent increase over last year.
The Company has borrowed $30.0 million in order to pursue interest spread
strategies. At September 30, 1999, separate accounts totaled $199.6 million, an
increase of $56.6 million from year end.
Assets totaled $3.6 billion at September 30, 1999, the same as year end.
However, excluding unrealized investment gains and losses, assets grew at a 4
percent annualized growth rate. Consolidated insurance in force totaled $26.6
billion, a 1 percent decline on an annualized basis. Book value per share
totaled $42.51, a decline of 12 percent on an annualized basis. However,
excluding changes in unrealized investment gains and losses, book value per
share equaled $44.45, a 6 percent annualized growth.
During the first nine months, the Company purchased 215,500 shares of its common
stock for $8.7 million under the stock repurchase program announced last
January.
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. As of September 30, 1999, the Company is approximately 98
percent complete with resolving its IT issues and anticipates that it will have
completed its year 2000 IT compliant issues well before year end. For the
remainder of the year, the Company will continue testing and will finalize its
contingency plans. The Company's non-IT systems are fully compliant. The Company
is actively monitoring the compliance programs of those third parties with which
the Company has business relationships as well as modifying its contingency
plans based upon those assessments. These third parties are continuing to
progress well, but the Company will continue to monitor these third parties
until full compliance is achieved. 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. As market interest rates fluctuate so will the Company's
investment portfolio and its stockholders' equity. At September 30, 1999, the
Company had an unrealized investment loss of $29.6 million, net of related taxes
and deferred policy acquisition costs. This represents a $75.1 million decline
from the $45.5 million unrealized gain reported at the beginning of the year.
This decline is the result of increased market interest rates.
Part II: Other Information
Item 1: Legal Proceedings
In recent years, life insurance companies have been named as defendants in
lawsuits related to life insurance pricing and sales practices. Plaintiffs in
many of these cases seek to have their case certified as a class action. A
number of these cases have resulted in substantial settlements.
In the previously reported 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, United States District Court
for the Western District of Missouri, Case No. 98-1053-CV-W-9, the court has
granted defendants' motion to bifurcate discovery and discovery on the issue of
class certification is required to be completed by November 15, 1999. A hearing
on class certification is presently scheduled for March 20, 2000. The Company's
motion to dismiss has not been ruled upon. Management intends to continue to
defend this matter vigorously and denies the allegations, including the
existence of a legitimate class.
In the previously reported case William H. Stewart, Richard M. Littrell,
Kimberley Weyand Reisinger (f.k.a. Kimberley K. Weyand) and Catherine I. King,
Individually and on Behalf of All Others Similarly Situated vs. Security Benefit
Life Insurance Company and Bank Market Service, Inc., Tenth Judicial District
Court of Kansas, Johnson County, Kansas, Case No. 98-C04036, which the Company
is defending pursuant to the terms of the Coinsurance Agreement with Security
Benefit Life Insurance Company, the court in a bench ruling has granted in part
the Company's motion for summary judgment dismissing all fraud and fiduciary
claims and leaving only a claim for breach of contract to be litigated. A
hearing on class certification has been scheduled for February 15, 2000.
Management intends to continue to defend this matter vigorously and denies the
allegations, including the existence of a legitimate class.
In addition to the matters described above, the Company and certain of its
subsidiaries are defendants in lawsuits involving claims and disputes with
policyowners that may include clients seeking class action status and/or
punitive damages. Some of these lawsuits arise in jurisdictions where juries
sometimes award punitive damages grossly disproportionate to the actual damages.
Item 6:
Exhibit 3(a)
Articles of Incorporation
ARTICLES OF INCORPORATION OF
KANSAS CITY LIFE INSURANCE COMPANY
(As Restated in 1986 and Amended in 1999)
Article 1
The name of the Company shall continue to be Kansas City Life Insurance Company.
Article 2
The principal office of the Company shall be located in the City of Kansas City,
in the State of Missouri.
Article 3
The Company is formed for the purpose of making insurance upon the lives of
individuals, and every assurance pertaining thereto or connected therewith, and
to grant, purchase and dispose of annuities and endowments of every kind and
description whatsoever, and to provide an indemnity against death, and for
weekly or other periodic indemnity for disability occasioned by accident or
sickness to the person of the insured, all pursuant to the provisions of Section
376.010 of the Revised Statutes of Missouri, 1959. Such accident and health
insurance shall be made a separate department of the Company.
Article 4
(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 of the par
value of one and one quarter dollars ($1.25) each.
(b) No holder of any shares of stock of any class of the Company shall be
entitled as such, as a matter of right, to purchase or subscribe for any shares
of stock of the Company of any class, whether now or hereafter authorized or
whether issued for cash, property or services or as a dividend or otherwise, or
to purchase or subscribe for any obligations, bonds, notes, debentures, other
securities or stock convertible into shares of stock of any class of the Company
or carrying or evidencing any right to purchase shares of stock of any class of
the Company.
Article 5
The corporate powers of the Company shall be vested in a Board of Directors and
shall be exercised by them and by such officers and agents as they may from time
to time appoint and empower. The Board shall have the power to make, a mend or
repeal such Bylaws, rules and regulations for the transaction of the business of
the Company, as are not inconsistent with this charter or the laws of the State.
The Company shall have perpetual succession.
Article 6
The Board of Directors shall consist of fifteen (15) persons divided into three
(3) equal classes, and at each annual meeting of the stockholders five (5)
Directors shall be elected for a three (3) year term. Vacancies on the Board of
Directors shall be filled by the Board, acting by the affirmative vote of a
majority of the remaining Directors then in office, and any Director so elected
shall serve the balance of the vacated term and until his or her successor is
elected.
Article 7
Directors shall continue in office until their successors are elected. At a
meeting called expressly for that purpose, one or more Directors or the entire
Board of Directors may be removed, with or without cause, by the vote of the
holders of more than 66 2/3% of the shares then entitled to vote at an election
of the Directors. If less than the entire Board is to be removed, no one of the
Directors may be removed if the votes cast against his or her removal would be
sufficient to elect him or her if cumulatively voted at an election of the class
of Directors of which he or she is a part.
Article 8
The annual meeting of the stockholders of the Company shall be held on the
Thursday immediately preceding the fourth Monday in April of each year. Special
meetings of stockholders shall be convened by the Secretary as often as may be
requested by resolution of the Board of Directors, or requested in writing by a
majority of the Directors, or by persons holding a majority of the capital stock
of the Company, and filed with the Secretary, or as provided by the Bylaws. Such
requests shall state specifically the business to be transacted at the proposed
meeting, and no other business shall be transacted thereat.
Article 9
Except as set forth in paragraph C of this Article, the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of each class of the
"Voting Stock" (as hereinafter defined), voting as separate classes, shall be
required as a requisite for the approval, authorization, or adoption, or
consummation by the "Company" (as hereinafter defined) of any "Business
Combination" (as hereinafter defined) between the Company and a "Related Person"
(as hereinafter defined). The 66 2/3% vote requirement shall be calculated by
excluding from the voted shares and the number of shares of the class being
considered, those shares of which the Related Person is the Beneficial Owner.
Such affirmative vote shall be in addition to the vote of the holders of the
securities of the Company otherwise required by law or by agreement between the
Company and any other Person, including but not limited to a national securities
exchange.
A. Definitions: For purposes of this Article, and where expressly indicated
herein for purposes of these Articles, the following terms shall have the
following meanings:
(1) "Affiliate." The term "Affiliate" shall mean a Person (as hereinafter
defined) that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified.
(2) "Associate." The term "Associate" as used to indicate a relationship with
any Person, means (a) any corporation or organization (other than the Company)
of which such Person is an officer or partner, or is, directly or indirectly,
the "Beneficial Owner" (as hereinafter defined) of ten percent (10%) or more of
any class of equity securities; (b) any trust or estate in which such Person has
a substantial beneficial interest or as to which such person serves as trustee
or in a similar fiduciary capacity; and (c) a relative or spouse of such Person
or any relative of such spouse, who has the same home as such Person.
(3) "Beneficial Owner." A Person shall be considered to be the "Beneficial
Owner" of any shares of the Voting Stock (whether or not owned of record), and
any such shares shall be considered to be "Beneficially Owned" by such Person,
in the following circumstances:
(a) With respect to which such Person or any Affiliate or Associate of such
Person directly or indirectly has or shares (i) voting power, including the
power to vote or to direct the voting of such shares of the voting stock and/or
(ii) investment power, including the power to dispose of or to direct the
disposition of such shares of the Voting Stock;
(b) Which such Person or any Affiliate or Associate of such Person has (i) the
right to acquire (whether such right is exercisable immediately or only after
passage of time or occurrence of other event or contingency) pursuant to any
agreement, arrangement, or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise; and/or (ii) the
right to vote pursuant to any agreement, arrangement, or understanding (whether
such right is exercisable immediately or only after the passage of time or
occurrence of other event or contingency); or
(c) Which are Beneficially Owned within the meaning of paragraphs (a) or (b) of
this definition by any other Person with which such first mentioned Person or
any of its Affiliates or Associates has any agreement, arrangement, or
understanding, written or oral, with the respect to acquiring, holding, voting,
or disposing of any shares of the Voting Stock of the Company or with respect to
acquiring, holding, or disposing of all or substantially all, or a Substantial
Part (as hereinafter defined), of the assets or business of the Company.
For the purpose only of determining whether a Person is the Beneficial Owner of
a percentage specified in this Article of the outstanding shares of the Voting
Stock, such shares shall be deemed to include any shares of the Voting Stock
that may be issuable pursuant to any agreement, arrangement, or understanding or
upon the exercise of conversion rights, exchange rights, warrants, options, or
otherwise and which are deemed to be Beneficially Owned by such person pursuant
to the foregoing provisions of this Article.
(4) "Business Combination." The term "Business Combination" shall include all of
the following, except to the extent that any of the following occur pursuant to
the participation of a Related Person in an employee benefit or compensation
plan of the Company:
(a) Any merger or consolidation of the Company with or into any Related Person;
(b) Any merger or consolidation of a Related Person with or into the Company;
(c) Any sale, exchange, lease, transfer, or other disposition, in a single
transaction or a series of transactions, of all or a Substantial Part of the
assets of the Company to or with a Related Person;
(d) Any sale, exchange, lease, transfer, or other disposition, in a single
transaction or in a series of transactions, of all or a Substantial Part of the
assets of a Related Person to or with the Company;
(e) The issuance of any securities of the Company to a Related Person;
(f) Any reclassification of securities of the Company, recapitalization of the
Company, or other transaction other than a redemption in accordance with the
security redeemed, which has the effect, directly or indirectly, of increasing
the power of a Related Person to vote the Voting Stock, in relation to the
voting power of the other stockholders of the Company;
(g) Any partial or complete liquidation, spinoff, splitoff, or splitup of the
Company or other transaction with a similar purpose or effect, directly or
indirectly involving any Related Person;
(h) Any transaction or event that is intended by any party thereto to have, or
that is likely to have, a similar effect as any of the transactions or events
described in this definition of Business Combination; or
(i) Any agreement, contract, commitment, or other arrangement providing for any
of the transactions or events described in this definition of Business
Combination.
(5) "Company." As used throughout these Articles of Incorporation, the term
"Company" shall mean the entity organized pursuant to these Articles of
Incorporation and unless contrary to the express provisions of the reference to
that term, that term shall include all subsidiary corporations or other entities
of which the entity organized pursuant to these Articles of Incorporation owns,
directly or indirectly, a majority of the equity securities thereof, or
otherwise controls.
(6) "Date of Determination." The "Date of Determination" shall mean:
(a) The date on which a binding agreement (except for the fulfillment of
conditions precedent, including, without limitations, votes of stockholders to
approve such a transaction) is entered into by the Company, as authorized by its
Board of Directors, and another Person providing for any Business Combination;
or
(b) If such an agreement is referred to in the preceding paragraph (a) is
amended so as to make it less favorable to the Company and its stockholders, the
date on which such amendment is approved by the Board of Directors of the
Company; or
(c) In cases where neither of preceding paragraphs (a) nor (b) shall be
applicable, then the record date for determination of stockholders of the
Company entitled to notice of and to vote upon the transaction in question.
(7) "Person." The term "Person" shall mean any individual, partnership,
corporation, trust, syndicate, association, group, or other entity, other than
the Company or a trustee holding stock for the benefit of the employees of the
Company pursuant to one or more employee benefit plans or arrangements. When two
or more Persons act as a partnership, limited partnership, syndicate,
association, group, or other entity for the purpose of acquiring, holding, or
disposing of shares of stock, such partnerships, syndicates, associations,
groups, or other entities shall be deemed to be a single "Person."
(8) "Related Person." The term "Related Person" shall mean any Person that (a)
is the Beneficial Owner as of the Date of Determination or at any time
thereafter of 5% or more of the outstanding shares of any class of Voting Stock;
or (b) any Person who is an Affiliate of the Company and who at any time within
five years immediately preceding the Date of Determination was the Beneficial
Owner of 5% or more of the then outstanding shares of any class of the Voting
Stock; or (c) any Associate or Affiliate of any Person described in paragraphs
(a) and (b) above.
(9) "Substantial Part." The term "Substantial Part" means assets with a fair
market value that is equal to or exceeds 5% of the fair market value of the
total assets of the Company or Person in question as of the end of its most
recent previous fiscal year.
(10) "Voting Stock." As used throughout these Articles of Incorporation, the
term "Voting Stock" means all issued and outstanding shares of capital stock of
the Company that are entitled to vote for the election of directors by their
terms or applicable law, as divided into separate classes pursuant to the terms
of these Articles of Incorporation.
B. Powers and Duties of Executive Committee. On the basis of information known
to the Directors, the Executive Committee of the Board of Directors (or if there
is no Executive Committee or if the Executive Committee fails, refuses, or is
unable to act, then the Chairman of the Board), shall have the power and duty to
make any determinations required under this Article by the affirmative vote of a
majority of its members, including but not limited to those listed below, which
determinations shall be conclusive and binding on the Company and all other
Persons for purposes of this Article:
(1) Whether any Person is the Beneficial Owner, directly or indirectly, of 5% or
more of the outstanding shares of any class of Voting Stock, or is an Affiliate
or Associate of another Person;
(2) Whether or any proposed sale, lease, exchange, or other disposition of part
of the assets of the Company or any other entity involves a Substantial Part of
that entity's assets;
(3) Whether any series of transactions is a series of transactions for purposes
of this Article;
(4) Whether any transaction or event constitutes a Business Combination for
purposes of this Article;
<PAGE>
(5) The Date of Determination relating to any Business Combination; and
(6) Whether any other definition stated in this Article or any other provision
contained herein is applicable to any transaction, event, or Person.
C. Exceptions to Article. The provisions of this Article shall not be applicable
to a Business Combination in any of the following circumstances:
(1) If more than two-thirds of all members of the Board of Directors of the
Company then in office shall have expressly approved such Business Combination
by resolution; or
(2) If in the proposed Business Combination, more than two-thirds of all members
of the Board of Directors of the Company then in office shall determine that all
of the following conditions are met:
(a) The ratio of (i) the aggregate amount of the cash and the fair market value
of other consideration to be received per share of securities of the Company in
such Business Combination by holders of those securities, other than a Related
Person involved in such Business Combination, over (ii) the market price per
share of those securities immediately prior to the announcement of the proposed
Business Combination, is at least as great as the ratio of (x) the highest per
share price (including brokerage commissions, transfer taxes, and soliciting
dealers' fees) that such Related Person has heretofore paid in acquiring any
such securities prior to such Business Combination, over (y) the market price
per share of those securities immediately prior to the initial acquisition by
such Related Person of any of those securities;
(b) Except to the extent that a stockholder agrees otherwise as to all or part
of the securities that the stockholder owns, the consideration to be received in
such Business Combination by holders of the securities of the Company to be
acquired, other than the Related Person involved, shall be in the same form and
of the same kind as the consideration paid by the Related Person in acquiring
such securities already owned by it;
(c) After such Related Person became a Related Person and prior to the
consummation of such Business Combination:
(i) The Company shall have not failed to pay full dividends pursuant to the
terms of any preferred stock then issued by the Company and shall not have
reduced the rate of dividends previously paid on its common stock, unless such
failure or reduction was approved in advance by more than two-thirds of the
members of the Board of Directors then in office;
(ii) Such Related Person shall not have acquired from the Company, directly or
indirectly, any securities of the Company, except upon (x) a conversion of
convertible securities acquired by it prior to becoming a Related Person, or (y)
as a result of a pro rata stock dividend, stock split or division of shares, or
(2) a transaction consummated in compliance with the provisions of this Article;
(iii) Such Related Person shall have not acquired any additional securities of
the Company or securities convertible into or exchangeable for such securities,
except as a part of the transaction that resulted in such Related Person's
becoming a Related Person; and
(iv) Such Related Person shall not have (x) received the benefit, directly or
indirectly (except pro rata as a stockholder of the Company), of any loans,
advances, guarantees, pledges, or other financial assistance or tax credits
provided by the Company, or (y) made any major change in the Company's business
or equity capital structure or entered into any contract, arrangement, or
understanding with the Company, except as were approved in advance by more than
two-thirds of the members of the Board of Directors of the Company then in
office; and
<PAGE>
(v) The payment of the purchase price for the securities proposed to be
acquired by the Related Person in the Business Combination shall not,
directly or indirectly, be financed or proposed to be financed by sale of
all or part of the assets of the Company or by use of the Company's assets,
directly or indirectly, as security for that financing; and
(d) A proxy statement complying with the requirements of the rules relating
thereto that are applicable to the Company shall have been mailed to all
holders of shares of the Voting Stock for the purpose of soliciting
stockholder approval of such Business Combination. Such proxy statement
shall contain at the front thereof, in a prominent place, any
recommendations as to the advisability or inadvisability of the Business
Combination which the Board of Directors may have furnished in writing, and
if deemed advisable by a majority of the Directors, an opinion of a
reputable investment banking firm as to the fairness or lack of fairness of
the terms of such Business Combination from the point of view of the
holders of the shares of the Voting Stock other than the Related Person,
such investment and banking firm to be selected by a majority of the
Directors and to be furnished with all information it reasonably requests,
and to be paid by the Company a reasonable fee for its services upon
receipt by the Company of such opinion.
For purposes of paragraph C(2)(a) of this Article, in the event of a Business
Combination upon consummation of which the Company would be the surviving
corporation or would continue to exist (unless it is provided, contemplated, or
intended that as a part of such Business Combination or within one (1) year
after consummation thereof a plan of liquidation or dissolution of the Company
will be effected), the term "other consideration to be received" shall include,
without limitation, any shares of the Voting Stock retained by stock retained by
stockholders of the Company other than the Related Persons who are parties to
such Business Combination.
Article 10
These Articles of Incorporation may be amended at any annual or special
meeting of the stockholders by the votes of the holders and owners of more than
66 2/3% of the shares of the capital stock of the Company voting on such
question but in no event by the vote of less than a majority of all of the
shares of the capital stock of the Company entitled to vote on said question,
whether said stock is voted by the holder or owner thereof in person or by
proxy, provided that if it is proposed to amend the same at any meeting of the
stockholders, a copy of the proposed amendment shall be mailed to each
stockholder as his or her address appears upon the books of the Company, at
least ten days before such meeting.
Exhibit 4(a)
Specimen Copy of Stock Certificate
(Engraving of Roman God Mercury,
Messenger and Protector of Commerce)
Number Shares
KU
Par Value $1.25 Per Share Par Value $1.25 Per Share
COMMON STOCK COMMON STOCK
Incorporated Under the Laws of the State of Missouri
KANSAS CITY LIFE INSURANCE COMPANY
This Certifies that is the owner of
See Reverse for
Certain Definitions
Cusip 484836 10 1
Fully Paid and Non-Assessable Shares of the Common Stock of
Kansas City Life Insurance Company transferable in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the certificate of incorporation and by-laws of the company,
as amended, to all of which the holder, by acceptance hereof, assents. This
certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
In Witness Whereof, the company has caused this certificate to be signed
in facsimile by its duly authorized officers and a facsimile seal of the company
to be hereunto affixed.
Dated
/s/ C. John Malacarne /s/ R. Philip Bixby
Secretary President
Countersigned and Registered:
Kansas City Life Insurance Company
(Kansas City, Missouri) Transfer Agent
and Registrar
Authorized Signature
SEAL
(Lioness Logo) (Lioness Logo)
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common
UNIF GIFT MIN ACT- Custodian
(Cust) (Minor) under Uniform
Gifts to Minors Act
(State)
TEN ENT -as tenants by the UNIF TRF MIN ACT- Custodian (until age )
etireties (Cust)
(Minor) under Uniform
JT TEN -as joint tenants with Transfers to Minors Act
right of survivorship (State)
and not as tenants in
common
TOD -transfer on death direction In event of owner's death, To person
named on face and Subject to TOD rules Referenced
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
Please insert Social
Security or other
identifying number
of Assignee
Please print or typewrite name and address Including postal zip code of
assignee.
Shares of the Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint Attorney to transfer the said stock on
the books of the within-named Company with full power of substitution in the
premises. Dated,
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change
whatever.
SIGNATURE(S) GUARANTEED:
The signature(s) must be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved medallion signature guarantee program, pursuant to S.E.C. Rule
17Ad-15.
(b) Reports on 8-K: There were no reports on Form 8-K filed for the nine months
ended September 30, 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: November 9, 1999
EXHIBIT
Quarterly Report to Stockholders
Consolidated
Balance Sheet
(in thousands)
September 30 December 31
1999 1998
------------- -------------
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 2,048,016 2,094,362
Securities held to maturity,
at amortized cost 104,796 115,504
Equity securities available
for sale, at market 104,920 100,749
Mortgage loans 328,405 315,706
Policy loans 118,965 122,860
Other 96,685 142,387
------------- -------------
2,801,787 2,891,568
Deferred acquisition costs 226,829 218,957
Other assets 334,217 323,881
Separate account assets 199,628 143,008
------------- -------------
$ 3,562,461 3,577,414
============= =============
Liabilities and equity
Future policy benefits $ 826,288 822,343
Accumulated contract values 1,701,826 1,731,262
Other liabilities 317,774 302,868
Separate account liabilities 199,628 143,008
------------- -------------
Total liabilities 3,045,516 2,999,481
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 18,352 17,633
Accumulated other comprehensive
income (loss) (29,611) 45,466
Retained earnings 605,299 581,074
Less treasury stock (100,216) (89,361)
------------- -------------
516,945 577,933
------------- -------------
$ 3,562,461 3,577,414
============= =============
Notes:
* Comprehensive income (loss) equals $(41,718,000) and
$76,795,000, for 1999 and 1998, respectively,
and $(2,958,000) and $45,887,000 for the third quarter
of 1999 and 1998. This varies from net income
due to unrealized gains or losses on securities.
* 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.
* Income per common share is based upon the weighted
average number of shares outstanding during the nine months,
12,370,974 shares (12,391,085 shares - 1998).
* These financial statements are unaudited but, in management's
opinion, include all adjustments necessary for a fair
presentation of the results.
* Certain amounts from the prior financial statements
have been reclassified to conform with the current
presentation.
Consolidated
Income Statement
(in thousands, except per share data)
Quarter ended Nine Months ended
September 30 September 30
1999 1998 1999 1998
------- ------- ------- -------
Revenues
Insurance revenues:
Premiums:
Life insurance $ 26,713 30,480 79,049 84,532
Accident and health 10,813 10,508 31,636 31,581
Contract charges 28,663 26,853 81,912 81,782
Investment revenues:
Investment income, net 51,718 49,797 151,677 149,907
Realized gains 1,842 4,121 2,519 9,082
Other 3,092 3,907 10,514 11,196
------- ------- ------- -------
Total revenues 122,841 125,666 357,307 368,080
------- ------- ------- -------
Benefits and expenses
Policy benefits:
Death benefits 28,152 25,284 84,308 83,346
Surrenders of life insurance 3,775 4,846 11,201 14,611
Other benefits 18,870 17,273 53,307 54,263
Increase in benefit and contract reserve 21,135 22,103 61,400 64,883
Amortization of policy acquisition costs 7,259 10,246 27,294 27,363
Insurance operating expenses 24,149 23,765 72,186 69,635
------- ------- ------- -------
Total benefits and expenses 103,340 103,517 309,696 314,101
------- ------- ------- -------
Pretax income 19,501 22,149 47,611 53,979
------- ------- ------- -------
Federal income taxes:
Current 4,226 6,394 15,180 16,057
Deferred 1,853 146 (928) (501)
------- ------- ------- -------
6,079 6,540 14,252 15,556
------- ------- ------- -------
Net income $ 13,422 15,609 33,359 38,423
======= ======= ======= =======
Per common share
Operating income $ 0.99 1.04 2.56 2.62
Realized gains, net 0.10 0.22 0.14 0.48
------- ------- ------- -------
Net income $ 1.09 1.26 2.70 3.10
======= ======= ======= =======
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands)
Quarter ended
September 30
1999 1998
Operating activities
Net cash provided $47,512 28,973
Investing activities
Purchases of fixed maturity investments (475,250) (463,844)
Sales of fixed maturity investments 263,554 268,508
Maturities and principal paydowns of
fixed maturity investments 147,696 183,563
Purchases of other investments (81,417) (86,672)
Sales, maturities and principal paydowns
of other investments 63,830 48,170
Net sales of short-term investments 44,118 1,723
Acquisition of life block:
Cash received net of purchase price paid - 3,550
Net cash used (37,469) (45,002)
Financing activities
Policyowner contract deposits 114,615 127,110
Withdrawals of policyowner
contract deposits (133,181) (145,063)
Dividends paid to stockholders (8,925) (7,711)
Proceeds from borrowings 30,000 -
Treasury stock acquired (11,223) (1,026)
Other, net 1,087 (500)
Net cash used (7,627) (27,190)
Increase (decrease) in cash 2,416 (43,219)
Cash at beginning of year 16,763 50,927
Cash at end of period $19,179 7,708
Message from the President and CEO
Kansas City Life achieved strong earnings in the third quarter, but this
performance must be compared to last year's third quarter which was the
Company's best quarter on record. Thus operating earnings for the quarter
equaled $.99 a share and were 5 percent below a year earlier, while the nine
month's operating earnings declined 3 percent to $2.56 a share. Since realized
investment gains declined in both the quarter and nine months, net income
decreased 13 percent in both the quarter and the nine months to $1.09 and $2.70
a share, respectively.
Strong earnings results in Kansas City Life's non-variable universal life
line for the nine months were offset by declining earnings in the block of
insurance purchased two years ago, largely due to higher benefits ratios.
Universal life earnings rose due to improved interest, mortality and expense
margins. Less favorable mortality experience in several other lines of business
dampened the quarter's earnings, but was partially offset by reduced operating
expenses. Home office operating expenses rose 2 percent for the nine months but
declined 5 percent in the third quarter. Expense savings due to the
consolidation of Sunset Life's operations into the home office are beginning to
emerge. Fourth quarter earnings should receive much of the benefit of the
projected $2 to $3 million annual savings.
The effort to surpass last year's solid sales results continues. However,
new annualized premiums were 9 percent below last year for the nine months and
12 percent below for the third quarter. Sales of variable products rose 6
percent in the quarter, but remain down 4 percent for the year. These products
have generated $215 million of assets since their inception. New non-variable
universal life and annuity premiums were down 42 percent and 12 percent,
respectively. However, group sales rose 3 percent in the nine months due to
growth in the group life and dental lines. Life insurance in force totals $26.4
billion, $252 million below the beginning of the year.
Investment income, net of interest costs incurred to support investment
strategies, rose 1 percent year to date and 2 percent in the third quarter. The
portfolio's net yield rose slightly to 7.26 percent. Rising interest rates in
the marketplace restrained realized investment gains.
The Board approved a quarterly dividend of $.24 a share, payable November
22 to stockholders of record on November 8. Thus far this year the Company has
purchased 215,500 of its shares in the open market for $8.7 million under a
stock repurchase program.
Rising interest rates also caused the market value of the bond portfolio
which is marked to market to fall, thus book value declined 12 percent on an
annualized basis to $42.51 a share. Excluding these unrealized losses, the
Company's book value rose 6 percent to $44.45 a share.
I regret to inform you of the death of my father, Walter E. Bixby, Vice
Chairman of the Board and Past President of the Company. He was a man of wide
interests, a hearty laugh, an open door to all and generosity of both his time
and resources to our community. He oversaw a period of sustained growth during
his eight-year presidency as earnings doubled, insurance in force nearly tripled
and the market value of our stock tripled. Walt would have wanted these remarks
kept simple, and simply put-Kansas City Life has lost an outstanding leader.
/s/ R. Philip Bixby
Includes our subsidiaries:
Sunset Life Insurance
Company of America
Old American
Insurance Company
Post Office Box 219139
Kansas City, Missouri 64121-9139
Listing: OTC
Stock Symbol: KCLI
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