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, 2000
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 May 4, 2000
Common Stock, $1.25 par value 12,063,592 shares
Page 1
Kansas City Life Insurance Company
Quarter ended March 31, 2000
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
1999 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 rose 7 percent over last
year to equal $1.06. Although policy benefit ratios worsened slightly, operating
expense savings and decreased amortization of deferred policy acquisition costs
more than made up the difference. Including realized gains, which were minimal
year to year, net income equaled $1.09 per share, a 9 percent increase over last
year.
Net investment income, netted for interest expenses incurred related to
investment strategies, was flat in the first quarter, reflecting market
performance. Realized gains on investments were minimal in the first quarter for
both years. These gains will vary from period to period at management's
discretion as the company seeks to maximize its portfolio returns.
Home office operating expenses decreased 1 percent in the first quarter.
The decrease is due to the savings realized from the consolidation of Sunset
Life into the parent's home office last year.
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
Revenues from external customers:
<S> <C> <C> <C> <C> <C>
First quarter: 2000 $ 28,923 13,890 7,638 18,934 69,385
1999 29,574 13,070 7,540 19,054 69,238
Investment revenues:
First quarter: 2000 $ 38,119 187 8,339 3,997 50,642
1999 38,619 282 8,112 3,479 50,492
Operating income:
First quarter: 2000 $ 9,354 377 2,382 690 12,803
1999 8,518 462 2,622 639 12,241
<FN>
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.
</FN>
</TABLE>
Kansas City Life - Individual
Total new annualized premiums declined 4 percent in the first quarter. Variable
universal life sales increased 69 percent and variable annuity sales increased
13 percent. Traditional life sales increased 47 percent over last year.
Offsetting these increases, flexible annuities decreased 51 percent and
universal life sales declined 16 percent. Variable product sales accounted for
66 percent of total sales for the three months, up from 49 percent last year. On
the basis of direct statutory receipts, new sales declined 7 percent from last
year. New non-variable universal life sales fell 45 percent compared to last
year, while flexible annuities declined 53 percent. New variable sales grew 17
percent and equaled nearly three-fourths of total new sales.
Total insurance revenues, which include premium renewals and contract charges on
the interest sensitive products, decreased 2 percent for the segment in the
first quarter.
Total benefits declined 5 percent for this segment in the first quarter,
reflecting a 1 percent decrease in death benefits and a 34 percent increase in
surrenders. Mortality in the first quarter was improved versus last year's first
quarter. Total benefits, as a percent of operating revenue, equaled 55 percent
in the first quarter, down from 58 percent from last year.
Operating income grew 10 percent in the first quarter and this segment provided
73 percent of consolidated operating income and 42 percent of consolidated
insurance revenues.
Kansas City Life - Group
In the first quarter, the group segment contributed 3 percent of the
consolidated operating income, down slightly from 4 percent in 1999 as the
overall claims ratio increased slightly from 71 percent to 73 percent.
Group sales, in terms of new annualized premiums, declined 15 percent for the
first quarter. However, excluding the stop loss line, which was discontinued
late last year, new annualized premiums increased 7 percent. Group sales were
lead by the dental line, which grew 27 percent over last year. Partially
offsetting this increase were a 54 percent decline in group life sales and a 51
percent decline in group disability sales. Group sales provided 10 percent of
consolidated new annualized premiums, down slightly from 11 percent last year.
In total, the group segment provided 20 percent of consolidated insurance
revenues in the first quarter, up slightly from 19 percent last year.
Sunset Life
Sunset Life's new annualized premiums declined 60 percent in the first quarter.
The impact is still being felt from the shift in senior marketing management and
the consolidation of Sunset's operations into the home office. Sunset Life
contributed 3 percent of total new annualized premiums during the first quarter,
down from 7 percent in 1999.
Total insurance revenues for the first quarter increased 1 percent. Benefits, as
a percent of operating revenues, equaled 52 percent, up from 45 percent a year
ago. Total benefits increased 19 percent over last year, reflecting less
favorable mortality experience. Insurance operating expenses declined 23 percent
for the first quarter, reflecting savings associated with the consolidation of
Sunset Life operations into the home office.
In total for Sunset Life, operating income declined 9 percent in the quarter.
The segment contributed 13 percent of consolidated operating revenues and 19
percent of operating income for the first quarter, compared with 13 percent and
21 percent, respectively, a year ago.
Old American
New annualized premiums declined 1 percent in the first quarter. Old American
provided 7 percent of consolidated sales, consistent with the previous year.
This segment also provided 27 percent of consolidated insurance revenues for the
first quarter, the same as last year.
Total insurance revenues for the first quarter decreased 1 percent. Benefits, as
a percent of operating revenues, equaled 65 percent, up from 63 percent a year
ago. Total benefits increased 4 percent for the quarter as death benefits
increased 5 percent and surrenders rose 16 percent. The segment's operating
expenses declined 4 percent in the quarter.
Operating income for this segment increased 8 percent for the first quarter and
provided 5 percent of consolidated operating income.
Liquidity and Capital Resources
Statements made in the Company's 1999 Annual Report to Stockholders remain
pertinent.
Liquidity is not a concern for the Company. For the first quarter, cash provided
from operating activities decreased 12 percent to total $20.3 million. Funds
from all sources totaled $239.0 million, a 14 percent increase over last year.
At March 31, 2000 the Company had $30.0 million of short-term borrowings, down
$39.5 million from year end. The Company uses these borrowings in order to
pursue interest spread strategies. At March 31, 2000, separate accounts totaled
$292.0 million, an increase of $32.1 million from year end.
Assets totaled $3.6 billion at March 31, 2000, the same as year end. However,
excluding unrealized investment gains and losses, assets declined at a 1 percent
annualized rate. Consolidated insurance in force totaled $26.8 billion, a 1
percent increase on an annualized basis. Book value per share totaled $41.91, an
increase of 10 percent on an annualized basis. However, excluding changes in
unrealized investment gains and losses, book value per share equaled $46.21, an
8 percent annualized growth.
During the first quarter, the Company purchased 98,500 shares of its common
stock for $3.2 million under the stock repurchase program. The Company may
purchase up to one million shares during 2000 under this program.
The Board of Directors declared a quarterly dividend of $.25 per share, a 4
percent increase over last year's dividend of $.24 per share
Market and Interest Rate Risk Analysis
Statements made in the 1999 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 March 31, 2000, the
Company had an unrealized investment loss of $51.6 million, net of related taxes
and deferred policy acquisition costs. This represents a $1.8 million
improvement from the $53.4 million unrealized loss reported at year end 1999.
This decline is the result of decreased interest rates in the market during the
first quarter.
Part II: Other Information
Item 1: Legal Proceedings
In a previously reported case, Patricia A. Adams, et al, v. Kansas City Life
Insurance Company, United States District Court for the Western District of
Missouri, Case No. 98-1053-CV-W-9-6, the trial court, following discovery and a
class certification hearing, denied the plaintiffs' amended motion for class
certification on April 4, 2000. The plaintiffs, three Company policyowners,
alleged numerous complaints concerning the marketing of their policies,
including that the Company marketed their policies as policies that would pay
for themselves after a certain period of time, i.e., that the premium would
"vanish" and/or that the policies were inappropriately marketed as "retirement
plans". Management denies the allegations of the complaint, including the
existence of a certifiable class, and intends to continue to defend this case
vigorously.
Item 4: Result of Votes of Security Holders
On April 20, 2000, the Annual Stockholders Meeting was held at 3520 Broadway,
Kansas City, Missouri. At this meeting, there were 12,023,990 shares outstanding
and eligible to vote, and 10,179,111 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:
Joseph R. Bixby - 10,127,529
R. Philip Bixby - 10,127,522
Richard L. Finn - 10,128,712
Warren J. Hunzicker, M.D. - 10,118,069
Larry Winn, Jr. - 10,117,733
The following Directors continued their term of office after this meeting:
Walter E. Bixby, III
Webb R. Gilmore
Jack D. Hayes
Nancy Bixby Hudson
Daryl D. Jensen
C. John Malacarne
Michael J. Ross
Elizabeth T. Solberg
Item 6.
Reports on 8-K: There were no reports on Form 8-K filed for the three months
ended March 31, 2000.
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 10, 2000
Kansas City Life Insurance Company
Quarter ended March 31, 2000
EXHIBIT
Quarterly Report to Stockholders
Consolidated
Balance Sheet
(in thousands)
March 31 December 31
2000 1999
------------- -------------
Assets
Investments:
Fixed maturities:
Securities available for sale,
at market $ 2,009,232 1,999,215
Securities held to maturity,
at amortized cost 93,777 107,606
Equity securities available
for sale, at market 99,381 115,968
Mortgage loans 339,122 340,704
Policy loans 117,138 118,521
Other 90,766 98,727
------------- -------------
2,749,416 2,780,741
Cash 9,566 22,355
Deferred acquisition costs 236,344 236,370
Other assets 324,024 321,919
Separate account assets 291,960 259,899
------------- -------------
$ 3,611,310 3,621,284
============= =============
Liabilities and equity
Future policy benefits $ 828,132 829,556
Accumulated contract values 1,667,647 1,688,706
Notes payable 30,000 69,500
Current income taxes payable 12,039 7,870
Other liabilities 278,782 271,948
Separate account liabilities 291,960 259,899
------------- -------------
Total liabilities 3,108,560 3,127,479
Stockholders' equity:
Capital stock 23,121 23,121
Paid in capital 18,862 18,498
Accumulated other comprehensive
income (loss) (57,304) (59,095)
Retained earnings 624,382 614,278
Less treasury stock (106,311) (102,997)
------------- -------------
502,750 493,805
------------- -------------
$ 3,611,310 3,621,284
============= =============
Notes:
* Comprehensive income (loss) equals $14,909,000 and ($12,963,000), for 2000
and 1999, 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 quarter, 12,034,516 shares (12,406,574 shares -
1999).
* These interim financial statements should be read in conjunction with the
Company's 1999 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
2000 1999
---------------------
Revenues
Insurance revenues:
Premiums:
Life insurance $ 25,633 27,805
Accident and health 11,052 10,263
Contract charges 28,526 27,233
Investment revenues:
Investment income, net 50,642 50,493
Realized gains 486 309
Other 4,174 3,936
------- -------
Total revenues 120,513 120,039
------- -------
Benefits and expenses
Policy benefits:
Death benefits 28,771 27,509
Surrenders of life insurance 4,471 3,561
Other benefits 17,365 16,053
Increase in benefit and contract reserve 17,717 20,502
Amortization of policy acquisition costs 8,588 10,475
Insurance operating expenses 24,639 24,347
------- -------
Total benefits and expenses 101,551 102,447
------- -------
Pretax income 18,962 17,592
------- -------
Federal income taxes:
Current 6,187 5,835
Deferred (343) (685)
------- -------
5,844 5,150
------- -------
Net income $ 13,118 12,442
======= =======
Per common share
Operating income $ 1.06 0.99
Realized gains, net 0.03 0.01
------- -------
Net income $ 1.09 1.00
======= =======
CONSOLIDATED
STATEMENT OF CASH FLOWS
(in thousands)
Quarter ended
March 31
2000 1999
Operating activities
Net cash provided $20,328 23,069
------- -------
Investing activities
Purchases of fixed maturities
available for sale (113,474) (145,282)
Sales of fixed maturities available for sale 87,328 68,163
Sales of equity securities available for sale 28,925 5,916
Maturities and principal paydowns of
fixed maturity investments:
Available for sale 22,780 56,561
Held to maturity 13,681 0
Purchases of other investments (29,914) (31,512)
Sales, maturities and principal paydowns
of other investments 10,425 11,661
Net sales of short-term investments 12,546 3,898
------- -------
Net cash provided (used) 32,297 (30,595)
------- -------
Financing activities
Policyowner contract deposits 33,962 40,815
Withdrawals of policyowner
contract deposits (53,912) (43,876)
Dividends paid to stockholders (3,015) (2,979)
Proceeds from borrowings 9,000 0
Repayment of borrowings (48,500) 0
Other, net (2,949) (329)
------- -------
Net cash used (65,414) (6,369)
------- -------
Decrease in cash (12,789) (13,895)
Cash at beginning of year 22,355 16,763
------- -------
Cash at end of period $9,566 2,868
======= =======
Kansas City Life Insurance Company
2000 First Quarter Report
Message from the President and CEO
First quarter operating earnings per share improved 7 percent to $1.06 a
share. A slight deterioration in policy benefits ratios was more than offset by
operating expense savings and the decreased amortization of deferred policy
acquisition costs. Realized investment gains rose slightly so net income equaled
$1.09 per share, a 9 percent improvement over the prior year.
Sales, in terms of new annualized premiums, declined 9 percent from last
year's record first quarter. However, variable universal life sales climbed 69
percent while sales of variable annuities rose 13 percent. Variable products
contributed 59 percent of consolidated sales. Sales of interest sensitive
products, which represent one fifth of total sales, declined by half in the
quarter. Sales of traditional products improved slightly due to a 17 percent
increase in term life insurance sales. New group insurance premiums rose 7
percent, excluding the stop loss line which was discontinued in late 1999. Life
insurance in force totaled $26.8 billion, a 1 percent annualized increase.
Insurance revenues in the adjacent income statement were unchanged overall
as a decline in life insurance premiums offset 8 percent growth in accident and
health premiums and 5 percent growth in contract charges from the interest
sensitive and variable lines of business. Life insurance premiums declined 8
percent due to decreased single premium annuity receipts. Accident and health
premium growth was generated by the group dental line of business.
Net investment income was largely unchanged for the quarter as a six basis
point increase in the investment portfolio's yield was offset by a 1 percent
annualized decline in the portfolio's book value. Interest margins on the
Company's interest sensitive business narrowed slightly in the quarter.
Home office operating expenses declined 1 percent in the first quarter due
to the savings realized from the transfer of Sunset Life's operations into the
home office.
The Office of Thrift Supervision approved a federal thrift charter for
Kansas City Life late in the first quarter. The Company is now awaiting Federal
Deposit Insurance Corporation approval. The necessary systems and procedures are
being put into place and the new bank, to be called Generations Bank, is
expected to open for business as early as the end of the second quarter.
Generations Bank will allow us to expand the financial services we provide our
customers.
The Company purchased 98,500 of its shares on the open market during the
first quarter under its stock repurchase program at a cost of $3.2 million. The
Board of Directors has granted authority to purchase up to one million shares
this year.
Stockholders' equity per share, or book value, rose 10 percent on an
annualized basis to $41.91 a share. Excluding unrealized gains and losses on
those securities valued at market, book value equaled $46.21, an 8 percent
annualized increase from last year end.
The Board of Directors approved a quarterly dividend of $.25 a share
payable May 22 to stockholders of record on May 8.
<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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> $2,009,232
<DEBT-CARRYING-VALUE> 93,777
<DEBT-MARKET-VALUE> 93,296
<EQUITIES> 99,380
<MORTGAGE> 339,122
<REAL-ESTATE> 83,726
<TOTAL-INVEST> 2,749,415
<CASH> 9,760
<RECOVER-REINSURE> 124,604
<DEFERRED-ACQUISITION> 236,344
<TOTAL-ASSETS> 3,611,310
<POLICY-LOSSES> 828,132
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 34,886
<POLICY-HOLDER-FUNDS> 1,817,656
<NOTES-PAYABLE> 30,000
0
0
<COMMON> 23,121
<OTHER-SE> 479,628
<TOTAL-LIABILITY-AND-EQUITY> 3,611,310
36,685
<INVESTMENT-INCOME> 50,642
<INVESTMENT-GAINS> 486
<OTHER-INCOME> 32,700
<BENEFITS> 68,324
<UNDERWRITING-AMORTIZATION> 8,588
<UNDERWRITING-OTHER> 1,950
<INCOME-PRETAX> 18,962
<INCOME-TAX> 5,844
<INCOME-CONTINUING> 13,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,118
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.09
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Debt securities held for sale represent FASB 115 available for sale fixed
maturity securities reported on a current value basis, and do not include
trading securities or securities held to maturity.
<F2> Debt securities represent FASB 115 held to maturity fixed maturity
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>
