SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 8-K/A-2
-------------------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event
Reported): December 21, 1994
SECURITY NATIONAL FINANCIAL CORPORATION
----------------------------------------
(Exact name of registrant as
specified in this Charter)
Utah 0-9341 87-0345941
- -------------------- --------------- ------------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation Number Identification No.)
5300 South 360 West, Suite 310 Salt Lake City, Utah 84123
- ---------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, includuing Area Code: (801) 264-1060
----------------
Does Not Apply
------------------------------------------------------------
(Former name or former address if changed since last report)
ITEM 2. Acquisition of Capital Investors Life Insurance Company
On December 21, 1994, Security National Financial Corporation (the "Company")
completed the purchase of all of the outstanding shares of common stock of
Capital Investors Life Insurance Company, a Florida corporation, ("CLIC")
from Suncoast Financial Corporation, a Delaware corporation ("SFC") and,
prior to closing of the transaction, the sole shareholder of CILIC.
Although the closing documents were dated December 16, 1994, the
transaction was not completed until December 21, 1994 when the Florida
Department of Insurance approved the purchase of the shares of CILIC by order
dated December 21, 1994. The closing documents were executed and held in escrow
until the order was received from the Florida Department of Insurance,
following which the escrow was broken pursuant to written directions from the
Company and SFC, and the funds and documents were then disbursed in conformance
with the terms of the escrow agreement.
At the time of the transaction, CILIC was a Florida domiciled insurance company
with total assets of approximately $30.0 million. However, CILIC was
redomesticated to Utah as of December 28, 1994. CILIC's assets include fixed
maturity securities, equity securities, policy loans, receivables, accrued
investment income, deferred policy acquisition costs, cost of insurance
acquired, and property plant and equipment. CILIC is currently licensed to
transact business in 23 states. CILIC's total revenues for the year ended
December 31, 1993 were $4,637,000. CILIC had net income of $19,000 for
fiscal 1993.
As consideration for the purchase of the shares of CILIC, the Company provided
SFC at closing with the following: (i) $5,231,000 in cash, (ii) 40,000
shares of the Company's Class A Common Stock, and (iii) a profit sharing
agreement providing for 33 1/3% of the profits from new post-closing sales
of existing CILIC plans of insurance to be paid as earned. An aggregate of
$2,700,000 of the cash consideration was borrowed by the Company from Key
Bank, Crossroads Office, Salt Lake City, Utah, and is payable by the
Company in accordance with the terms of a Promissory Note dated December 16,
1994, bearing interest at one-half percent per annuam above the bank's prime
rate, and payable in monthly payments in the amount of $36,420 with the
unpaid principal balance, together with accrued interest and other charges,
due and payable on December 16, 1999. The remainder of the purchase price
came from the Company's internal funds. The Company is required to register
the 40,000 shares of Class A Common Stock by preparing and filing a Form S-3
Registration Statement with the U.S. Securities and Exchange Commission.
The Company intends to continue the operations of CILIC as
an insurance company.
ITEM 7. Financial Statements and Exhibits.
(a) The following financial statements of Capital Investors Life Insurance
Company are included herein:
Independent Auditors' Reports
Balance Sheets as of December 31, 1993 and 1992
Statements of Income for the years ended December 31, 1993, 1992 and 1991
Statements of Shareholder's Equity for the years ended December 31, 1993,
1992 and 1991
Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991
Notes to Financial Statements
Condensed Balance Sheet as of September 30, 1994 (unaudited)
Condensed Statements of Income for the nine months ended September 30, 1994
and 1993 (unaudited)
Condensed Statements of Shareholder's Equity for the nine months ended
September 30, 1994 (unaudited)
Condensed Statements of Cash Flows for the nine months ended September 30,
1994 and 1993 (unaudited)
Notes to Condensed Interim Financial Statements (unaudited)
(b) The following pro forma statements of Security National Financial
Corporation are included herein:
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1994
(unaudited)
Pro Forma Condensed Consolidated Statement of Income for the nine months
ended September 30, 1994 (unaudited)
Pro Forma Condensed Consolidated Statement of Income for the year ended
December 31, 1993 (unaudited)
Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited)
(c) Exhibits
10.1 Stock Purchase Agreement among Security
National Financial Corporation, Capital
Investors Life Insurance Company and Suncoast
Financial Corporation.*
10.2 Profit Sharing Agreement between Security
National Financial Corporation and Suncoast
Financial Corporation.**
10.3 Service Agreement between Security National
Financial Corporation and Suncoast Financial
Corporation.**
10.4 Promissory Note between Security National
Financial Corporation, as borrower, and Key
Bank of Utah, as lender.**
10.5 Loan and Security Agreement between Key Bank
of Utah and Security National Financial
Corporation.**
10.6 General Pledge Agreement between Security
National Financial Corporation, as debtor, and
Key Bank of Utah.**
* Incorporated by reference from Report on Form
8-K, as filed on October 31, 1994.
** Incorporated by reference from Report on Form
8-K, as filed on January 2, 1995.
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 hereunto duly
authorized.
SECURITY NATIONAL FINANCIAL CORPORATION
(Registrant)
Date: March 6, 1995 By: Scott M. Quist
First Vice President, General
Counsel and Treasurer
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capital Investors Life Insurance Company
We have audited the accompanying balance sheet of Capital
Investors Life Insurance Company as of December 31, 1993
and the related statements of income, shareholder's equity
and cash flows for the year then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Capital Investors Life Insurance Company at
December 31, 1993 and the results of its operations and its
cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in note 1, the Company adopted the provisions
of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes", and Standards No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts", respectively in 1993.
KPMG Peat Marwick LLP
Jacksonville, Florida
April 15, 1994, except
as to Note 13 , which is
as of December 28, 1994.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Capital Investors Life Insurance Company
We have audited the accompanying balance sheet of Capital
Investors Life Insurance Company as of December 31, 1992,
and the related statements of income, shareholder's equity
and cash flows for each of the two years in the period
ended December 31, 1992. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Capital Investors Life Insurance Company at
December 31, 1992 and the results of its operations and its
cash flows for each of the two years in the period ended
December 31, 1992 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Salt Lake City, Utah
April 8, 1993, except
for Note 13 as to
which the date is
December 28, 1994.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
1993 1992
(In thousands, except per share data)
-------------------------------------
ASSETS
- ------
Investments--Note 2:
Fixed maturities at amortized
cost (market: 1993-$21,529;
1992-$22,181) $21,200 $21,270
Equity securities-at market (cost:
1993-$1,738; 1992-$1,884) 1,782 1,942
Policy loans 905 968
------- -------
TOTAL INVESTMENTS 23,887 24,180
------- -------
Cash 1,294 1,209
Accrued investment income 415 756
Receivable from parent
and affiliates-Note 3 1,983 2,632
Cost of insurance acquired-Note 5 2,930 3,348
Property and equipment-at cost, less
accumulated depreciation (1993-
$176; 1992-$120) 136 200
Intangibles, net 292 324
Deferred policy acquisition cost 52 78
Other assets 7
------- -------
$30,996 $32,727
======= =======
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS--CONTINUED
December 31,
1993 1992
(In thousands, except per share data)
------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
LIABILITIES
Policy liabilities and accruals--Note 6:
Future policy benefits, claims and
losses $20,364 $21,921
Unearned premiums 397 486
Other policy claims and benefits payable 190 240
------- -------
20,951 22,647
------- -------
Other policyholders' funds--Note 5 950 979
Other liabilities 48 84
Federal income taxes payable--Note 4 -- 28
Deferred income taxes--Note 4 52 --
Surplus debentures payable--Note 7 2,000 2,000
------- -------
24,001 25,738
------- -------
COMMITMENTS AND CONTINGENCIES--NOTE 11
SHAREHOLDER'S EQUITY--Notes 4, 7, 9 and 10
Common Stock, $100 par value:
Authorized--50,000 shares
Issued and outstanding-- 15,000 shares 1,500 1,500
Additional paid-in capital 3,500 3,500
Unrealized appreciation of marketable
equity securities, less applicable
deferred taxes 44 57
Retained earnings 1,951 1,932
------- -------
6,995 6,989
------- -------
$30,996 $32,727
======= =======
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Year Ended December 31,
1993 1992 1991
(In thousands, except per share data)
------------------------------------
REVENUES--Note 6
Traditional life and other
insurance premiums $1,373 $1,784 $1,525
Net investment income 2,073 2,161 2,106
Realized gains on
investments--Note 2 1,190 658 386
Other 1 23 89
------- ------ -----
4,637 4,626 4,106
------- ------ -----
BENEFITS, LOSSES, AND
EXPENSES--Notes 3, 5 and 6
Benefits, claims and losses 1,638 2,069 1,838
Underwriting, acquisition, and
insurance expenses 1,795 1,896 1,667
Interest expense 1,128 -- --
------- ------ ------
4,561 3,965 3,505
------- ------ ------
INCOME BEFORE FEDERAL INCOME TAXES
AND EXTRAORDINARY CREDIT 76 661 601
Federal income tax expense--Note 4 57 120 107
-------- ------ -----
INCOME BEFORE EXTRAORDINARY CREDIT 19 541 494
Extraordinary credit-income tax benefit
from utilization of net operating
loss carryforward - - 84
------ ------ ------
NET INCOME $ 19 $ 541 $ 578
====== ====== ======
EARNINGS PER SHARE:
Income before extraordinary credit $ 1.28 $43.28 $49.41
EXTRAORDINARY CREDIT - - 8.40
------ ------ ------
NET INCOME $ 1.28 $43.28 $57.81
====== ====== ======
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
Unrealized
Additional Appreciation Total
Common Stock Paid-In of Equity Retained Shareholder
Shares Amount Capital Securities Earnings Equity
----------------------------------------------------------------
(In thousands, except for shares issued)
Balance at
January 1, 1990 10,000 $1,000 $1,000 $ 0 $3,813 $5,813
1991 transactions:
Net Income 578 578
Increase in unrealized
appreciation of
investments in marketable
equity securities 71 71
Parent company forgiveness
of surplus notes 3,000 <3,000>
------- ----- ------ ----- ------- ------
Balance at December
31, 1991 10,000 1,000 4,000 71 1,391 6,462
1992 Transactions:
Net Income 541 541
Decrease in unrealized
appreciation of
investments in
marketable equity
securities <14> <14>
Issuance of 5,000 shares of
common stock through a
3 for 2 stock split 5,000 500 <500>
------- ---- ---- ---- ------ ------
Balance at December
31, 1992 15,000 1,500 3,500 57 1,932 6,989
1993 Transactions:
Net Income 19 19
Decrease in unrealized
appreciation of
investments in
marketable equity
securities <13> <13>
------- -------- ------ ----- ------ ------
Balance at December
31, 1993 15,000 $1,500 $3,500 $ 44 $1,951 $6,995
======= ======== ====== ===== ====== ======
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1993 1992 1991
(In thousands)
-------------------------------
OPERATING ACTIVITIES
Net income $ 19 $ 541 $ 578
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Gain on sale of investments and
amortization/accretion of
investment premium and discounts <1,297> <696> <474>
Depreciation and amortization 540 313 267
Changes in operating assets and liabilities:
Decrease (increase) in accrued
investment income and other assets 341 138 <674>
Decrease (increase) in intercompany
account 649 <474> <859>
Decrease (increase) in agents' balances <7>
(Decrease) increase in future
policy benefits <1,646> <437> 8,011
(Decrease) Increase in policyholders' funds
and claims and other benefits payable <79> 59 710
(Decrease) increase in accounts
payable and accrued expenses <36> <451> 493
Increase (decrease) in income taxes payable
and deferred income taxes 25 <21> 106
------ ------ -------
Net cash (used in) provided by
operating activities <1,491> <1,028> 8,158
------- ------ ------
INVESTING ACTIVITIES
Cost of insurance acquired <1,744>
Purchases of investments:
Fixed maturities <13,347> <12,359> (19,407)
Equity securities <1,072> <2,169>
Sales or maturities of investments 14,860 14,746 16,700
Net (Increase) decrease in policy loans 63 <62> <688>
Purchase of EDP equipment <201>
------- ------- -------
Net cash provided by (used in)
investing activities 1,576 1,052 <7,308>
------- ------- -------
Net (decrease) increase in cash 85 24 850
Cash at beginning of year 1,209 1,185 335
------- ------- -------
Cash at end of year $1,294 $1,209 $1,185
======= ======= =======
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
Nature of Business: Capital Investors Life Insurance
Company (the Company) is a wholly-owned subsidiary of
Suncoast Financial Corporation (Suncoast). The Company's
primary business is the marketing, underwriting and
servicing of life insurance products through Suncoast and
its affiliated companies. The Company pays Suncoast and its
affiliates an administrative and marketing development fee
for such services.
Basis of Presentation: The accompanying financial
statements have been prepared in accordance with generally
accepted accounting principles (GAAP) which differ from
statutory accounting practices prescribed or permitted by
regulatory authorities. The more significant generally
accepted accounting principles applied in the preparation
of financial statements that differ from life insurance
statutory accounting practices prescribed or permitted by
regulatory authorities (which are primarily designed to
demonstrate solvency) are as follows:
(1) Costs of acquiring new business are deferred and
amortized, rather than being charged to operations
as incurred.
(2) The liability for future policy benefits and
expenses is based on conservative estimates of
expected mortality, morbidity, interest,
withdrawals, and future maintenance and settlement
expenses, rather than on statutory rates for
mortality and interest.
(3) The liability for policyholder funds associated with
universal life and certain annuity contracts are
based on the provisions of Statement of Financial
Accounting Standards No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-
Duration Contracts and for Realized Gains and Losses
from the Sale of Investments," rather than on the
statutory rates for mortality and interest.
(4) Investments in securities are reported as described
in Note 1, rather than in accordance with
valuations established by the National Association
of Insurance Commissioners ("NAIC").
(5) Deferred income taxes, if applicable, are recognized
for future tax consequences attributable to
temporary differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases.
(6) Statutory liabilities for the asset valuation
reserve and interest maintenance reserve are not
provided.
NOTES TO FINANCIAL STATEMENTS -- Continued
NOTE 1--ACCOUNTING POLICIES -- Continued
(7) Realized gains or losses on the sale or maturity of
investments are included in the statement of
operations and retained earnings whereas for
statutory accounting purposes, a portion of these
would be applied directly to surplus.
(8) Balances relating to reserves ceded to reinsurers
and prepaid reinsurance are classified as assets for
GAAP. Under statutory accounting practices, related
liabilities for future policy benefits and
policyholders' funds are reported net of such
balances.
(9) Premiums received from policyholders for annuity and
other interest sensitive products are treated as
deposits for GAAP, while for statutory accounting
purposes, such amounts are included in premium and
annuity considerations. Cost of insurance and other
expense charges related to such interest sensitive
products are included in premium income for GAAP.
Investments: Investments are shown on the following basis:
Fixed maturities (bonds, notes, and redeemable
preferred stocks)--at cost, adjusted for
amortization of premium or discount and other-than-
temporary market value declines. The amortized cost
of such investments differs from their market
values; however, the Company generally has the
ability and intent to hold these investments to
maturity, at which time the full face value is
expected to be realized.
Equity securities (common and nonredeemable
preferred stocks)--at current market value.
Policy loans--at the aggregate unpaid principal
balances.
Realized gains and losses on sales of investments are
recognized in net income on the specific identification
basis. Changes in market values of equity securities, after
deferred income tax effects, are reported as unrealized
appreciation or depreciation directly in shareholder's
equity and accordingly have no effect on net income.
Recognition of Revenues: Premiums for traditional life
insurance products, which include those products with fixed
and guaranteed premiums and benefits and consist
principally of whole life insurance policies, limited-
payment life insurance policies, certain annuities with
life contingencies, and accident and health insurance
premiums, are recognized as revenues when due. Revenues for
interest sensitive policies and for investment products,
which include deferred annuities, consist of policy charges
for the cost of insurance, policy administration charges,
and surrender charges assessed against policyholder account
balances during the period.
NOTES TO FINANCIAL STATEMENTS -- Continued
NOTE 1--ACCOUNTING POLICIES -- Continued
Cost of Insurance Acquired: Cost of insurance acquired is
the amount by which the purchase price of the related
business exceeds the net assets acquired. In the case where
deposit type contracts have been acquired, the costs of
insurance purchases are amortized in proportion to
projected future profits on the acquired insurance in force
using discount rates equal to the valuation rate used in
establishing the related products' reserves. In the case of
premium paying traditional life insurance and accident and
health insurance contracts, the costs of insurance
purchases are amortized in proportion to the related
revenue recognized. These assets are stated at a cost of
$4,129,367, net of accumulated amortization of $1,199,661
and $781,463 at December 31, 1993 and 1992, respectively.
Intangible Assets: Intangible assets are comprised of
organization costs incurred in the start-up phase of the
Company and the excess of cost over the fair value of net
assets acquired (goodwill). These assets are stated at a
cost of $459,662 net of accumulated amortization of
$167,242 and $135,997 at December 31, 1993 and 1992,
respectively. Amortization is provided using the straight-
line method over periods ranging from 5 to 20 years.
Policy Acquisition Costs: Commissions and other costs of
acquiring traditional life insurance, interest sensitive
insurance and investment products, accident and health
insurance, that vary with and are primarily related to the
production of new and renewal business have been deferred.
Traditional life insurance and accident and health
insurance acquisition costs are being amortized over the
premium-paying period of the related policies using
assumptions consistent with those used in computing policy
benefit reserves. For interest sensitive insurance and
investment products, acquisition costs are being amortized
generally in proportion to the present value of expected
gross profits from surrender charges and investment,
mortality, and expense margins. This amortization is
adjusted retrospectively when estimates of current or
future gross profits to be realized from a group of
products are revised.
Future Policy Benefits and Claims and Other Benefits
Payable: The liability for future policy benefits for life
and annuity policies is based on assumed future investment
yields, mortality rates and withdrawal rates giving effect
to possible risk of adverse deviation. Investment yield
assumptions are graded and range from 6 1/2% to 8%. Policy
benefits include the amount of policy claims incurred
during the period. The liability for future policy benefits
relating to accident and health policies is principally
unearned premium reserves.
NOTES TO FINANCIAL STATEMENTS -- Continued
NOTE 1--ACCOUNTING POLICIES -- Continued
The liability for future policy benefits relating to
interest sensitive products consists of accumulated policy
values net of applicable surrender charges plus certain
deferred policy fees that are recognized in income over the
term of the policies. Policy benefits and claims expense
include amounts incurred in the period in excess of the
related liability for future policy benefits and interest
credited to policy account values. Interest for interest
sensitive products has been credited at rates which ranged
from 3% to 6 1/4% for 1993, and 3% to 5 1/2% for both 1992 and
1991.
Unpaid Claims: Unpaid claims represent the estimated
liability for claims reported plus claims incurred but not
yet reported.
Reinsurance: Statement of Financial Accounting Standards
("SFAS") No. 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts," is
effective for fiscal years beginning after December 15,
1992. SFAS No. 113, which eliminated net reporting of
reinsurance amounts in the balance sheet, provides
disclosure requirements and guidance on assessing transfer
of risk in insurance contracts that apply to ceding and
assuming entities and guidance with regard to gain
recognition. The Company adopted this pronouncement in
1993.
Income Taxes: In February 1992, the Financial Accounting
Standards Board issued SFAS No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires a change from the deferred
method of accounting for income taxes of Accounting
Principles Board ("APB") Opinion No. 11, "Accounting for
Income Taxes", to the asset and liability method of
accounting for income taxes. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable
to differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected
to be recovered or settled. Under SFAS No. 109, the effect
on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes
the enactment date. The Company adopted SFAS No. 109
effective January 1, 1993.
Pursuant to the deferred method under APB Opinion No. 11,
which was applied in 1992 and prior years, deferred income
taxes are recognized for income and expense items that are
reported in different years for financial reporting
purposes and income tax purposes using the tax rate
applicable for the year of the calculation. Under the
deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
NOTES TO FINANCIAL STATEMENTS -- Continued
NOTE 1--ACCOUNTING POLICIES -- Continued
Depreciation: Property and equipment is recorded at cost
and is depreciated over the estimated lives of the
depreciable assets principally under the straight-line
method.
Income per Share of Common Stock: Income per share of
common stock is based on the weighted average number of
shares of common stock outstanding during each year (1993--
15,000; 1992--12,500; 1991--10,000).
Cash: Cash includes cash on hand and demand deposits.
Reclassification: Certain prior year balances have been
reclassified to conform to the 1993 presentation.
NOTE 2--INVESTMENTS
Major categories of investment income are summarized as
follows:
1993 1992 1991
(In thousands)
---------------------------
Fixed
maturities $1,831 $1,981 $1,887
Equity
securities 198 159 100
Policy loans 44 60 31
Other 58 39 159
------ ------ ------
2,131 2,239 2,177
Investment
expenses 58 78 71
------ ------ ------
Net investment
income $2,073 $2,161 $2,106
====== ====== ======
Realized gains and unrealized appreciation on fixed
maturity and equity security investments are summarized as
follows:
Net
Fixed Equity Gains on
Maturities Securities Investments
(In thousands)
------------------------------------
1993
Realized $1,186 $ 4 $1,190
Unrealized 329 44 373
------ ---- ------
Combined $1,514 $ 48 $1,563
====== ===== ======
1992
Realized $ 595 $ 63 $ 658
Unrealized 911 57 968
------ ---- ------
Combined $1,506 $120 $1,626
====== ==== ======
1991
Realized $ 352 $ 34 $ 386
Unrealized 736 71 807
------ ---- ------
Combined $1,088 $105 $1,193
====== ==== ======
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 2--INVESTMENTS-Continued
Proceeds from sale of equity securities and fixed maturities and related
realized gains and losses are as follows:
1993 1992 1991
(In thousands)
--------------------------------
Proceeds from the sale of
equity securities $ 200 $ 996 $ 458
======= ======= ======
Proceeds from the sale of
fixed maturities $14,660 $13,751 $5,236
======= ======= ======
Equity securities:
Gross realized gains 4 63 34
Gross realized losses - - -
Fixed maturities:
Gross realized gains 1,292 608 366
Gross realized losses <106> <13> <14>
------- ------- -----
$1,190 $ 658 $ 386
======= ======= =====
At December 31, 1993, gross unrealized appreciation pertaining to equity
securities was $44,000.
No investment in any person or its affiliates exceeded 10% of shareholders'
equity at December 31, 1993.
The Company is required to maintain funds on deposit with various regulatory
authorities to comply with applicable state insurance regulations. Fixed
maturities totaling aproximately $1,254,000 and $1,321,000 at December 31,
1993 and 1992, respectively, were on deposit with various state Insurance
Departments to comply with those requirements.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 2--INVESTMENTS--Continued
The amortized cost and estimated market value of fixed maturities at December
31, 1993 and 1992 are as follows:
Gross Gross
Amortized unrealized unrealized Market
cost gain loss value
--------- ---------- ---------- -------
(In thousands)
December 31, 1993:
Corporate
securities $12,067 $ 638 $<443> $12,262
U.S. government
obligations 6,881 76 <10> 6,947
Public utilities 2,252 168 <100> 2,320
------- ------ ------ -------
$21,200 $ 882 $ <553> $21,529
======= ====== ====== =======
December 31, 1992:
Corporate
securities $14,892 $ 792 $<109> $15,575
U.S. government
obligations 1,918 100 - 2,018
Public utilities 4,460 155 <27> 4,588
------- ------ ----- -------
$21,270 $1,047 $<136> $22,181
======= ====== ===== =======
The amortized cost and estimated market values of fixed maturities at
December 31, 1993, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
December 31, 1993
Amortized cost Market value
------------------------------
(In thousands)
Maturity
1994 $ 5,428 $ 5,433
1995-1998 4,062 4,432
1999-2003 8,795 8,669
2004 and after 2,770 2,832
------- -------
21,055 21,366
Mortgage-backed
securities 145 163
------- -------
$21,200 $21,529
======= =======
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 3--TRANSACTIONS WITH PARENT AND AFFILIATES
The Company, Suncoast, and affiliates share common
officers, directors, employees, and facilities. Effective
June 30, 1991, the Company entered into a management,
services and equipment agreement with an affiliate. The
agreement provides that the affiliate will provide the
Company with staffing, equipment and facilities, including
computer time, programming and processing as is necessary
to service all of the contracts or policies of insurance
assumed and administered by the Company. As consideration
for services, the Company pays the affiliate an annual fee
based on a per-policy fee basis, that varies by policy
type. The agreement contains no specified termination date,
but may be canceled by either party by giving written
notice three months in advance of the planned cancellation.
The Company has contracted with an affiliate as a managing
general agent to procure applications for policies written
by the Company. The agreement contains no specified
termination date, but may be canceled by either party by
giving written notice thirty days prior to the planned
cancellation. The Company has also entered into a marketing
development agreement with this affiliate. The agreement
also contains no specified termination date, but may be
canceled by either party by giving written notice ninety
days prior to the planned cancellation. As consideration
for services provided in the foregoing agreements, the
Company pays the affiliate a commission based on a
percentage of premium which varies by policy type.
The receivable from Suncoast and affiliates is the result
of cash advances to Suncoast and its affiliates over the
last five years. In 1993 the Company's interest accrual on
the Surplus Debenture was offset against the receivable
(see note 7).
The Company paid as expenses for the years ending December
31, 1993, 1992 and 1991, the following fees to Suncoast and
affiliates:
December 31,
1993 1992 1991
---- ----- -----
(In thousands)
Administrative and marketing
development fees $ 773 $ 858 $ 982
Interest expense 1,128 -- --
------ ----- -----
Total $1,901 $ 858 $ 982
====== ====== =====
NOTE 4--FEDERAL INCOME TAXES
The Company adopted SFAS No. 109 as of January 1, 1993.
The cumulative effect of this change has had no affect on
the accompanying financial statements. Prior years
financial statements have not been restated to apply the
provisions of SFAS 109.
Federal income tax expense consists of the following
components:
1993 1992 1991
----- ----- -----
(In thousands)
Current $ 0 $120 $107
Deferred 57 0 0
---- ---- ----
Total $ 57 $120 $107
==== ==== ====
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 4--FEDERAL INCOME TAXES --Continued
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is (in thousands except for percent information):
1993 1992 1991
Amount Percent Amount Percent Amount Percent
--------------- --------------- ---------------
Tax at U.S. statutory rates $ 26 34% $225 34% $204 34%
Small life insurance
company deduction -- -- <179> <27%> <160> <27%>
Non-deductible expenses-
amortization of
intangibles 41 54% 96 15% 91 15%
Other <10> <13%> <22> <4%> <28> <4%>
---- --- ---- --- ---- ---
$ 57 75% $120 18% $107 18%
==== === ==== === ==== ===
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 4--FEDERAL INCOME TAXES--Continued
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1993 are
presented below in thousands of dollars:
Deferred tax assets:
Difference between book
and tax bases of:
Cost of insurance acquired $192
Deferred policy acquisition
costs 45
Fixed assets --
-----
Total deferred tax assets 237
=====
Deferred tax liabilities:
Difference between book
and tax bases of:
Liability for future
policy benefits 264
Fixed maturities 25
Total deferred tax
liabilities 289
-----
Net deferred tax liability $ 52
=====
A portion of the life insurance subsidiary's income
earned prior to 1984 was not subject to current taxation
but was accumulated, for tax purposes, in a
"policyholders' surplus account." Under provisions of
the Tax Reform Act of 1984, the policyholders' surplus
account was frozen at its December 31, 1983 balance. That
amount is not taxable unless it exceeds certain
limitations under the Internal Revenue Code. At December
31, 1993, the balance in the policyholders' surplus
account was $3,365,000. The Company does not intend to
take actions nor does it expect any events to occur that
would cause tax to be payable on this amount; therefore,
no income tax provision has been made for those purposes.
However, if such taxes were assessed, the amount would be
$1,144,000.
Income taxes paid totalled $28,000, $127,000, and $-0- in
1993, 1992, and 1991, respectively.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 5--SUPPLEMENTAL FINANCIAL STATEMENT DATA
Details of certain balance sheet and income statement account balances
are as follows:
December 31,
1993 1992
(In thousands)
------------------
Balance Sheets:
Other policyholders' funds:
Dividend accumulations $606 $644
Endowment accumulations 298 297
Deposit funds 46 38
---- ----
Total $950 $979
==== ====
Year Ended December 31,
1993 1992 1991
(In thousands)
--------------------------------
Income Statements:
Underwriting, acquisition, and
insurance expenses:
Amortization of cost of insurance
acquired $ 418 $ 251 $ 236
Other operating expenses 1,377 1,645 1,431
------ ------ ------
Total $1,795 $1,896 $1,667
====== ====== ======
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 6--REINSURANCE
The Company has entered into a co-insurance agreement with
an unaffiliated insurance company under which the Company
assumed 100% of the risk for certain life insurance
policies and certain other policy-related liabilities of
the insurance company. The Company has also entered into a
modified co-insurance arrangement, for statutory purposes,
with an unaffiliated insurance company. Because this
modified co-insurance agreement does not meet risk transfer
requirements for generally accepted accounting principles,
its effects have been excluded from the accompanying
financial statements.
In addition to these two major co-insurance agreements, the
Company is involved in a variety of reinsurance
arrangements, whereby it has ceded a portion of its
exposure for life and accident and health policies. Ceded
insurance is treated as a risk and liability of the
assuming companies. The portion of risks exceeding the
Company's retention limit is reinsured with other insurers.
Reinsured risks would give rise to liability to the Company
only in the event that the reinsuring company might be
unable to meet its obligations under the reinsurance
agreement in force, as the Company remains ultimately
liable for such obligations.
The following is a summary of the effects of reinsurance
for 1993, 1992 and 1991 and as of December 31, 1993 and
1992:
December 31,
1993 1992 1991
(In thousands)
-----------------------
Ceded:
Premium income $ 67 $ 90 $ 43
Liability for future
policy benefits at
year end $ 39 $ 57
Assumed:
Premium income $460 $526 $353
Liability for future
policy benefits at
year end $7,906 $11,019
NOTE 7--DEBT
On January 30, 1989, the Company executed a $8,700,000 Loan
Agreement ("Surplus Debenture") with Suncoast Financial
Corporation, the Company's parent. The interest rate on the
Surplus Debenture is prime plus 1.0% per annum on the
unpaid principal balance. The principal and interest does
not form a part of the legal liabilities of the Company for
statutory purposes and may be repaid only out of capital
stock and surplus with the prior approval of the Department
of Insurance ("The Department"). On December 31, 1993 and
1992, the unpaid principal pursuant to the agreement was
$2,000,000. During 1993 the Company, with the prior
approval of the Department, recorded $1,127,675 in interest
expense on the Surplus Debenture.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 8--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
At December 31, 1993 and 1992, the Company held unrated or
less-than-investment grade debt securities of $750,000 and
$350,000 net of allowances for losses, with an aggregate
market value of $338,907 and $350,000, respectively. Those
holdings amounted to 5.2% and 5.2% of fixed maturities and
3.5% and 3.4% of total assets at December 31, 1993 and
1992, respectively.
NOTE 9--SHAREHOLDER'S EQUITY
Generally, the net assets of the Company available for
transfer to Suncoast are limited to the amounts that the
Company's net assets, as determined in accordance with
statutory accounting practices, exceed minimum statutory
capital requirements; however, payments of such amounts as
dividends may be subject to approval by regulatory
authorities. As a result of such restrictions, the Company
generally may not pay a dividend without prior approval of
the Department.
The Company's outstanding shares have been pledged as
collateral for a bank loan to Suncoast. The outstanding
loan amounts as of December 31, 1993 and 1992 were
$2,698,000 and $3,148,000 respectively.
NOTE 10--STATUTORY NET INCOME, CAPITAL AND SURPLUS
Shareholder's equity and net income, as reported to the
domiciliary state insurance department (Florida) in
accordance with its prescribed or permitted statutory
accounting practices, for the Company are summarized as
follows:
December 31,
1993 1992
(In thousands)
----------------------
Shareholder's equity: $3,018 $5,245
Year ended December 31,
1993 1992 1991
(In thousands)
---------------------------
Net income: $<963> $140 $559
The Florida Insurance Department imposes minimum risk-based
capital requirements on insurance enterprises that were
developed by the NAIC. The formulas for determining the
amount of risk-based capital ("RBC") specify various
weighing factors that are applied to financial balances or
various levels of activity based on the perceived degree of
risk. Based on calculations using the appropriate NAIC
formula, the Company exceeded the RBC requirements at
December 31, 1993.
NOTES TO FINANCIAL STATEMENTS--Continued
NOTE 11--COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved
in various pending or threatened proceedings, which involve
routine litigation relating to insurance risk underwritten
by the Company and other contractual matters. Management of
the Company does not believe any of the pending or
threatened proceedings will have a material effect on the
Company's financial statements or results of operations.
NOTE 12--NEW PRONOUNCEMENTS BY THE FINANCIAL
ACCOUNTING STANDARDS BOARD
The Financial Accounting Standards Board issued SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities", effective for fiscal years beginning after
December 15, 1993. SFAS No. 115 addresses the accounting
and reporting for investments in equity securities that
have readily determinable fair market values and for all
investments in fixed maturities. This pronouncement will be
adopted prospectively and will require that these
investments be categorized as (1) held to maturity, (2)
trading or (3) available for sale.
While the Company has not yet adopted this pronouncement,
it is expected that the effect of adopting it will be to
record fixed maturities available for sale at market, with
the related unrealized gain of approximately $329,000, net
of deferred federal income taxes and a valuation allowance
against deferred policy acquisition costs, included in
shareholder's equity. The valuation allowance against
deferred acquisition costs represents the estimated
additional amortization of costs associated with interest
sensitive products when such gains are realized. Had this
pronouncement been adopted as of December 31, 1993,
shareholder's equity would have been approximately
$7,324,000.
In December 1991, SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," was issued. SFAS No. 107
was effective for years ending after December 15, 1992,
except for entities, such as the Company, with less than
$150 million in total assets in the applicable 1992
statement of financial position, for which the effective
date is fiscal year ending after December 15, 1995. As
required by SFAS No. 107, the Company will have to disclose
the fair value of all financial instruments, except for
those financial instruments specifically excluded, for
which it is practicable.
NOTE 13--SUBSEQUENT EVENT
Effective December 21, 1994, Security National Financial
Corporation (Security National) purchased all of the
outstanding shares of common stock of the Company. As
consideration for the purchase of the shares of the
Company, Security National provided the following (i)
$5,231,000 in cash, (ii) 40,000 shares of Security
National's Class A Common Stock, and (iii) a profit sharing
agreement providing for 33 1/3% of the profits from new
post-closing sales of existing Company's plans of insurance
to be paid as earned. As a result of the acquisition the
Company was redomesticated to Utah on December 28, 1994.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
CONDENSED BALANCE SHEET (UNAUDITED)
September 30, 1994
(In thousands, except
per share data)
---------------------
ASSETS
Investments:
Fixed maturities-at
amortized cost (market:
$19,701) $21,204
Equity securities-at market
(cost: $1,958) 1,810
Policy loans 885
-------
TOTAL INVESTMENTS 23,899
-------
Cash 216
Accrued investment income 451
Federal income tax receivable 44
Receivable from parent and
affiliates 2,127
Cost of insurance acquired and
deferred policy acquisition costs 2,684
Property and equipment-at
cost, less accumulated
depreciation of $229 83
Intangibles, net 269
Other assets 3
-------
$29,776
=======
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
CONDENSED BALANCE SHEET (UNAUDITED)--CONTINUED
September 30, 1994
(In thousands, except
per share data)
---------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits,
claims and losses $19,822
Unearned premiums 402
Other policy claims and
benefits payable 140
--------
20,364
Other policyholders'
funds 889
Other liabilities 58
Surplus debentures
payable 2,000
-------
23,311
-------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common Stock, $100 par value:
Authorized--50,000 shares
Issued and outstanding--
15,000 shares 1,500
Additional paid-in capital 3,500
Unrealized depreciation of
marketable equity securities,
less applicable deferred taxes <148>
Retained earnings 1,613
--------
6,465
--------
$29,776
========
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ending
September 30,
1994 1993
---------------------
(In thousands, except per share data)
REVENUES
Traditional life and other
insurance premiums $1,110 $1,191
Net investment income 1,269 1,661
Realized losses on investments <280>
Other 3 8
------- ------
2,102 2,860
------- ------
BENEFITS, LOSSES, AND EXPENSES
Benefits, claims and losses 1,261 1,270
Underwriting, acquisition, and
insurance expenses 1,231 1,244
Interest expense
------- ------
2,492 2,514
------- ------
INCOME (LOSS) BEFORE
FEDERAL INCOME TAXES <390> 346
Federal income tax benefit <52> -
-------- -------
NET INCOME (LOSS) $ <338> $ 346
======== =======
Net Income (loss) per Common Share $<22.53> $ 23.03
======== =======
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
CONDENSED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
(In Thousands, except for shares issued)
Balance at Decrease in Balance at
12/31/93 Net Income Market Value 9/30/94
---------- ------------ -------------- ----------
Common Stock
Shares 15,000 15,000
======= =======
Amount $1,500 $1,500
Additional Paid-In
Capital 3,500 3,500
Unrealized Appreciation
(Depreciation) of
Equity Securities 44 <192> <148>
Retained Earnings 1,951 <338> 1,613
-------- ------- ------- ------
Total Shareholder's
Equity $6,995 $ <338> $ <192> $6,465
====== ======= ======= ======
See notes to financial statements.
CAPITAL INVESTORS LIFE INSURANCE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ending
September 30,
1994 1993
-------------------
(In thousands)
OPERATING ACTIVITIES
Net income (loss) $ <338> $ 346
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Gain (loss) on sale of investments and
amortization/accretion of
investment premium and discounts 258 <187>
Depreciation and amortization 354 245
Changes in operating assets and liabilities:
Decrease (increase) in accrued
investment income and other assets <17> 96
Increase in intercompany account <144> <212>
Decrease (increase) in agents' balances 4 <9>
Decrease in future policy benefits <537> <1,573>
Decrease in policyholders' funds and
claims and other benefits payable <110> <50>
(Decrease) increase in accounts
payable and accrued expenses 10 <3>
Decrease in income taxes payable <96> <28>
------ -------
Net cash used in operating activities <616> <1,375>
------ -------
INVESTING ACTIVITIES
Purchases of investments <6,982> <3,380>
Sales or maturities of investments 6,500 3,771
Net decrease in policy loans 20 70
------ ------
Net cash provided by (used in)
investing activities <462> 461
------ ------
Net decrease in cash <1,078> <914>
Cash at beginning of year 1,294 1,209
------- ------
Cash at end of year $ 216 $ 295
======= ======
NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
Note 1: Capital Investors Life Insurance Company (the
Company) is a wholly-owned subsidiary of Suncoast Financial
Corporation (Suncoast). The primary business activities are
the marketing, underwriting and servicing of life insurance
products through Suncoast and its affiliated companies. The
Company pays an administrative and marketing fee to
Suncoast and its affiliates for these services. The
accompanying unaudited interim financial statements for the
Company have been prepared in accordance with generally
accepted accounting principles for interim financial
information. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements.
However these financial statements reflect all adjustments
which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods
presented. The operating results are not indicative of the
results which might be expected for a twelve month period.
Footnote disclosures which would substantially duplicate
the footnotes included in the 1993 audited financial
statements have been omitted. Please refer to the footnotes
of the 1993 financial statements included elsewhere herein.
Note 2: Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", was adopted by the Company as
of January 1, 1994. In accordance with SFAS No. 115, the
Company's prior-year financial statements have not been
restated to reflect the change in accounting principle.
Under SFAS No. 115, securities are classified as available-
for-sale, held-to-maturity, or trading. The Company has
classified all of its fixed maturities security portfolio
as "held-to-maturity" and equity securities as "available
for sale". Securities classified as available for sale are
carried at fair value and unrealized gains and losses on
such securities are reported as a separate component of
stockholder's equity. Securities classified as held-to-
maturity are carried at cost, adjusted for amortization of
premium or discount.
Note 3: The Company paid as expenses to Suncoast and its
affiliates for the nine months ending September 30, 1994
and 1993 $531,000 and $584,000 respectively for
administrative and marketing development services.
Note 4: Effective December 21, 1994, Security National
Financial Corporation (Security National) purchased all of
the outstanding shares of common stock of the Company. As
consideration for the purchase of the shares of the
Company, Security National provided the following (i)
$5,231,000 in cash, (ii) 40,000 shares of Security
National's Class A Common Stock, and (iii) a profit sharing
agreement providing for 33 1/3% of the profits from new post-
closing sales of existing Company's plans of insurance to
be paid as earned. As a result of the acquisition the
Company was redomesticated to Utah on December 28, 1994.
Item 7 (b). Pro Forma Financial Information.
On December 21, 1994 Security National Financial
Corporation (SNFC) purchased all of the outstanding shares
of Capital Investors Life Insurance Company (CILIC) for
cash and stock of SNFC. In the acquisition SNFC issued
40,000 shares of Class A Common Stock and made a cash
payment of $5,231,000 of which $2,700,000 was from long
term bank debt.
The accompanying unaudited pro forma condensed consolidated
financial statements give effect to the acquisition of
CILIC by SNFC. The adjustments to the pro forma condensed
consolidated balance sheet assume that the acquisition took
place on September 30, 1994, while the adjustments to the
pro forma condensed consolidated statements of income
assume that the acquisition was consummated on the first
day of the year ended December 31, 1993. The pro forma
adjustments and the assumptions on which they are based are
described in the accompanying notes to pro forma condensed
consolidated financial statements.
The pro forma information for SNFC is taken from the Form
10-Q and Form 10-K as filed with the Securities and
Exchange Commission for the third quarter ended September
30, 1994 and year ended December 31, 1993. The pro forma
information for CILIC is obtained from the financial
statements presented elsewhere in this Form 8-k filing.
The pro forma condensed consolidated financial statements
are presented for illustrative purposes only and should be
read in conjunction with the financial statements referred
to in the two preceeding sentences.
The pro forma condensed consolidated financial statements
are not necessarily indicative of the results that actually
would have occurred if the acquisition had been in effect
as of and for the period presented or that may be achieved
in periods subsequent to the acquisition.
In addition to the consideration described in the first
paragraph, SNFC has entered a profit sharing agreement with
Suncoast Financial Corporation, the former sole shareholder
of CILIC, providing for 33 1/3% of the profits from new
post-closing sales of existing CILIC plans of insurance to
be paid as earned. Based upon 1993 new sales, management
of SNFC believes future consideration pursuant to this
agreement will be nominal, if any, and therefore no
adjustments have been made to reflect this agreement in the
pro forma condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1994
(In Thousands)
(Unaudited)
Security Capital
National Investors
Financial Life Pro Forma Pro Forma
Corporation Insurance Adjustments Consolidated
---------------------------------------------------
Fixed maturities at
amortized cost $ 19,646 $ 21,204 $(1,503) (b) $ 39,347
Equity securities at
market 2,584 1,810 4,394
Mortgage loans 13,667 13,667
Real Estate 7,568 7,568
Other invested assets 11,118 885 (2,531) (a) 9,472
--------- -------- ------- -------
Total investments 54,583 23,899 (4,034) 74,448
Cash 2,199 216 2,415
Receivables, net 3,623 2,622 (2,000) (b) 4,245
Land and improvements 6,882 6,882
Deferred acquisition costs
and cost of insurance
acquired 4,970 2,684 3,519 (c)
(2,684) (c) 8,489
Property, plant and equipment,
net 4,608 83 150 (b) 4,841
Other assets 1,803 272 (272) (b) 1,803
------- ------- ------- --------
Total assets $78,668 $29,776 $(5,321) $103,123
======= ======= ======= ========
Policyholder obligations $39,357 $19,822 $ (400) (d) $ 58,779
Bank loans payable 4,933 2,700 (a) 7,633
Notes and contracts payable 2,834 2,000 (2,000) (g) 2,834
Estimated future costs of
pre-need sales 6,308 6,308
Other liabilities 5,940 1,489 844 (e) 8,273
-------- ------- ------ -------
Total liabilities 59,372 23,311 1,144 83,827
-------- ------- ------ -------
Common stock 7,565 1,500 80 (a)
(1,500) (f) 7,645
Paid in capital 6,752 3,500 80 (a)
(3,500) (f) 6,832
Unrealized appreciation
(depreciation) on
investments 416 (148) 148 (f) 416
Retained earnings 6,202 1,613 (160) (a)
(1,613) (f) 6,042
Treasury stock at cost (1,639) (1,639)
-------- ------- ------- --------
Total stockholders'
equity 19,296 6,465 (6,465) 19,296
-------- ------- ------- --------
Total liabilities and
stockholders' equity $ 78,668 $29,776 $(5,321) $103,123
======== ======= ======= ========
See notes to pro forma condensed consolidated financial statements.
Security National Financial Corporation
Pro Forma Condensed Consolidated Statement of Income
For the Nine Months Ended September 30, 1994
(In Thousands)
(Unaudited)
Security Capital
National Investors
Financial Life Pro Forma Pro Forma
Corporation Insurance Adjustments Consolidated
-------------------------------------------------------
Revenue:
Premiums $ 3,595 $ 1,110 $ 4,705
Investment income 2,913 1,269 (76) (j)
113 (i) 4,219
Realized gains
(losses) 387 (280) 107
Mortuary and cemetery
income 4,434 4,434
Other 1,233 3 1,236
-------- ------- ---- --------
Total revenue 12,562 2,102 37 14,701
-------- ------- ---- --------
Benefits and Expenses:
Death and policy
benefits 1,986 1,261 3,247
Increase in future
policy benefits 1,428 21 (l) 1,449
Amortization of DPAC 756 301 (301) (k)
252 (k) 1,008
General and administrative
expenses 5,990 930 (531) (m) 6,389
Interest Expense 524 182 (h) 706
Cost of mortuary and
cemetery lots
and services 1,325 1,325
------- ------- ----- -------
Total benefits and
expenses 12,009 2,492 (377) 14,124
------- ------- ----- -------
Earnings before income
tax expense 553 (390) 414 577
Income tax expense
(benefit) 155 (52) 116 (o) 219
------ ------- ---- ------
Net earnings 398 (338) 298 358
====== ======= ==== ======
Earnings per share 0.12 0.11
====== ======
Average number of
shares outstanding 3,271 3,311
See notes to pro forma condensed consolidated financial statements.
Security National Financial Corporation
Pro Forma Condensed Consolidated Statement of Income
For the Twelve Months Ended December 31, 1993
(In Thousands)
(Unaudited)
Security Capital
National Investors
Financial Life Pro Forma Pro Forma
Corporation Insurance Adjustments Consolidated
--------------------------------------------------
Revenue:
Premiums $ 4,777 $ 1,373 $ 6,150
Investment income 3,473 2,073 (101) (j)
150 (i) 5,595
Realized gains (losses) 751 1,190 1,941
Mortuary and cemetery
income 6,085 6,085
Other 1,410 1 1,411
------- ------- ---- --------
Total revenue 16,496 4,637 49 21,182
------- ------- ----- --------
Benefits and Expenses:
Death and policy
benefits 2,415 1,638 4,053
Increase in future
policy benefits 2,005 42 (l) 2,047
Amortization of DPAC 943 450 (450) (k)
365 (k) 1,308
General and
administrative
expenses 7,098 1,345 (666) (m) 7,777
Interest Expense 675 1,128 (1,128) (n)
243 (h) 918
Cost of mortuary
and cemetery lots
and services 1,890 1,890
------- ------ ------- ------
Total benefits and
expenses 15,026 4,561 (1,594) 17,993
------- ------ ------ -------
Earnings before
income tax expense 1,470 76 1,643 3,189
Income tax expense 388 57 460 (o) 905
Minority interest 2 2
------- ------ ------- -------
Net earnings $ 1,084 $ 19 $ 1,183 $ 2,286
------- ====== ======= -------
Earnings per share $ 0.33 $ 0.70
======= =======
Average number of
shares outstanding 3,246 3,286
See notes to pro forma condensed consolidated financial statements.
Security National Financial Corporation
Notes to Pro Forma Condensed
Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited pro forma condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for pro forma
financial information and with the instructions to Form 8-K
and Article 11 of Regulation S-X. The acquisition will be
accounted for as a purchase by SNFC. The pro forma
adjustments presented are estimates as of the periods
presented and do not necessarily reflect the actual amounts
that will be booked on the actual purchase date and
subsequent periods. In the opinion of management all
significant adjustments required for an appropriate pro
forma presentation have been included.
Note 2. Pro Forma Adjustments
The following pro forma adjustments are made to the
unaudited consolidated condensed balance sheet as if the
acquisition and related transactions occurred September 30,
1994. Reference numbers correspond to those on the
statement.
a. To reflect the issuance of 40,000 shares of Class A
Common Stock of SNFC, the payment of $2,531,000 in
cash and the borrowing of $2,700,000 from a bank, to
acquire the outstanding shares of CILIC.
b. To adjust assets of CILIC to market value as of the
date of acquisition.
c. To eliminate CILIC's historical deferred policy
acquisition costs and establish a new asset
representing the present value of future profits on
the insurance contracts acquired.
d. To reflect CILIC's policy liabilities based on current
actuarial assumptions.
e. To accrue certain nonrecurring expenses that include
but are not limited to, costs of moving CILIC's
administrative functions to Salt Lake City, Utah,
attorney and accounting fees, acquisition finder fees,
and other acquisition related costs.
f. To eliminate CILIC's historical equity.
g. To eliminate CILIC's surplus debenture which is
payable to SNFC.
Security National Financial Corporation
Notes to Pro Forma Condensed
Consolidated Financial Statements
(Unaudited) - Continued
Note 2. Pro Forma Adjustments - Continued
The following pro forma adjustments are made to the
unaudited condensed consolidated statements of income as if
the CILIC's acquisition and related transactions occurred
at the beginning of the periods presented. Reference
numbers correspond to those presented on the statements.
h. To reflect SNFC's interest expense on the $2,700,000
borrowed to partially finance the CILIC acquisition.
i. To reflect the amortization of premiums and accretion
of discounts on investments based on purchased values.
j. To reflect investment income lost on the $2,531,000
cash paid by SNFC to finance the acquisition of CILIC.
k. To eliminate CILIC's amortization of deferred policy
acquisition costs and cost of insurance acquired and
reflect the amortization of the new cost of insurance
acquired established by SNFC.
l. To reflect the increase policy benefits due to
revaluation of policy liabilities to fair value at the
acquisition date.
m. To reflect decreases in operating expenses due to
moving CILIC's administrative functions to Salt Lake
City, Utah.
n. To eliminate interest expense on CILIC's surplus
debenture to SNFC.
o. To reflect the tax effect for the pro forma
adjustments.
