SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 0-9341
Security National Financial Corporation
(Exact name of registrant as specified in its Charter)
UTAH 87-0345941
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
5300 South 360 West, Suite 310 84123
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Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 264-1060
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Securities registered pursuant to Section 12(d) of the Act:
Name of each exchange
Title of each Class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common stock, $2.00 Par Value
(Title of Class)
Class C Common stock, $0.40 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No___
Indicated by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 15, 1996 was
$16,799,895.
As of March 15, 1996, registrant had outstanding 3,220,801
shares of Class A Common Stock and 2,362,545 shares of
Class C Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the
registrant's 1996 Annual Meeting of Shareholders are
incorporated by reference into Part III hereof.
PART I
Item 1. Business
Security National Financial Corporation (the "Company")
operates three main business segments: life insurance,
cemetery and mortuary, and mortgage loans. The life
insurance segment is engaged in the business of selling and
servicing selected lines of life insurance, annuity
products and accident and health insurance. These products
are marketed in 29 states through a commissioned sales
force of independent licensed insurance agents who may also
sell insurance products of the other companies. The
cemetery and mortuary segment of the Company consist of
five cemeteries in the state of Utah and one in the state
of California and eight mortuaries in the state of Utah and
five mortuaries in the state of Arizona. The Company also
engages in pre-need selling of funeral, cemetery and
cremation services through its Utah operations. Many of
the insurance agents also sell pre-need funeral, cemetery
and cremation services. The mortgage loan segment is an
approved governmental and conventional lender that
originates and underwrites residential and commercial loans
for new construction and existing homes and real estate
projects.
The design of the Company is that each segment is related
to the others and contributes to the profitability of the
other segments of the company. Because of the increasing
cemetery and mortuary operations in Utah and Arizona, the
Company enjoys a level of public awareness that assists in
making life insurance and pre-need cemetery and funeral
product sales. Security National Life Insurance Company
("Security National Life") then invests its assets
(representing in part the pre-paid funerals) in investments
authorized by the Insurance Department of the State of
Utah. One such investment authorized by the Utah Insurance
Department is high quality mortgage loans. Thus, while each
segment is a profit center on a stand-alone basis, this
horizontal integration of each segment will lead to
improved profitability of the Company. The Company is also
pursuing growth through acquisitions of both life insurance
companies and cemeteries and mortuaries. The Company's
acquisition business plan is based on reducing overhead
cost of the acquired company by utilizing existing
personnel, management, and technology while still providing
quality service to the customers and policyholders.
The Company was organized as a holding company in 1979 when
Security National Life became a wholly owned subsidiary of
the Company and the former stockholders of Security
National Life became stockholders of the Company. Security
National Life was formed in 1965 and has grown through the
direct sale of life insurance and annuities and through the
acquisition of other insurance companies, including the
acquisitions of Investors Equity Life Insurance Company of
Hawaii Ltd, ("Investors Equity") in June 1986 and its
subsequent sale in June 1991, Capital Investors Life
Insurance Company in December 1994 and Civil Service
Employees Life Insurance Company in December 1995.
Memorial Estates, Inc. and Memorial Mortuary became direct
subsidiaries of the Company in the 1979 reorganization when
the Company was formed. These companies were acquired by
Security National Life in 1973. The cemetery and mortuary
operations have also grown through the acquisition of other
cemetery and mortuary companies, including the acquisitions
of Paradise Chapel Funeral Home, Inc. in 1989, Holladay
Memorial Park, Inc., Cottonwood Mortuary, Inc. and Deseret
Memorial, Inc. in 1991, Sunset Funeral Home in January
1994, and Greer-Wilson Funeral Home, Inc. in April 1995.
In July 1993, the Company formed Security National Mortgage
Company to originate, refinance and service mortgage loans.
See Notes to Consolidated Financial Statements for
additional disclosure and discussion regarding segments of
the business.
Life Insurance
Products
The Company, through its insurance subsidiaries, issues and
distributes selected lines of life insurance and annuities.
The Company's life insurance business includes funeral
plans and interest-sensitive whole life insurance, as well
as other traditional life and accident and health insurance
products. The Company's life insurance and annuity
business decreased significantly with the sale of Investors
Equity in 1991. In its insurance operations, the Company
markets a variety of life insurance products, including
ordinary life policies and interest-sensitive whole life
policies, but places specific marketing emphasis on
funeral plans.
A funeral plan is a small face value life insurance policy
that generally has a face coverage of up to $5,000. The
Company believes that funeral plans represent a marketing
niche that is less competitive since most insurance
companies do not offer similar coverages. The purpose of
the funeral plan policy is to pay the costs and expenses
incurred at the time of a person's death. On a per
thousand dollar cost of insurance basis, these policies are
more expensive to the policyholder than many types of
non-burial insurance due to their low face amount,
requiring the fixed cost of the policy to be distributed
over a smaller policy size, and due to the higher age of
the policyholder resulting in higher mortality costs.
Markets and Distribution
The Company is licensed to sell insurance in 29 states.
The Company, in marketing its life insurance products,
seeks to locate, develop and service specific "niche"
markets. A "niche" market is an identifiable market which
the Company believes is not emphasized by other insurers.
The Company generally sells its life insurance products to
people of middle age who have a need for insurance to
protect the income of the wage earner of the family, to pay
off debts at the time of death and for other estate
planning purposes. Funeral plan policies are sold
primarily to persons who range in age from 45 to 75. Even
though people of all ages and income levels purchase
funeral plans, the Company believes that the highest
percentage of funeral plan purchasers are individuals who
are older than 45 and have low to moderate income. A
majority of the Company's funeral plan premiums come from
the states of Arizona, Colorado, Idaho, Nevada, Oklahoma,
Texas and Utah, and a majority of the Company's non-funeral
plan life insurance premiums come from the states of
California, New Mexico and Utah.
The Company sells its life insurance products through
direct agents and brokers and independent licensed agents
who may also sell insurance products of other companies.
The commissions on life insurance products range from
approximately 10% to 90% of first year premiums. In those
cases where the Company utilizes its direct agents in
selling such policies, those agents customarily receive
advances against future commissions.
In some instances, funeral plan insurance is marketed in
conjunction with the Company's cemetery and mortuary sales
force. When it is marketed by that group, the beneficiary
is usually the Company. Thus, death benefits that become
payable under the policy are paid to the Company's cemetery
and mortuary subsidiaries to the extent of services
performed and products purchased.
In marketing the funeral plan insurance, the Company also
seeks and obtains third-party endorsements from other
cemeteries and mortuaries within its marketing areas.
Typically, these cemeteries and mortuaries will provide
letters of endorsement and may share in mailing and other
lead-generating costs. The incentive for such businesses
to share the costs is that these businesses are usually
made the beneficiary of the policy as their interest may
appear. The following table summarizes the life insurance
business over the five years ended December 31, 1995:
1995 1994 1993 1992 1991
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Life
Insurance
Policy/Cert.
Count 42,711 41,064 32,895 32,682 32,713
Insurance
in force
(omitted 000) $530,688 $436,600 $310,395 $319,020 $354,228
Premiums
Collected
(omitted 000) $ 5,819 $ 5,175 $ 5,201 $ 4,866 $ 5,297
Underwriting
Factors considered in evaluating an application for
insurance coverage include the applicant's age, occupation,
general health and medical history. Upon receipt of a
satisfactory application which contains pertinent medical
questions, the Company writes insurance that is based on
its medical limits and requirements on a basis satisfactory
to the reinsuring company (or companies, if submitted
facultatively), subject to the following general
non-medical limits:
Age Nearest Non-Medical
Birthday Limits
------------- ------------
0-40 $75,000
41-50 $75,000
51-up Exam Required
When underwriting life insurance, the Company will
sometimes issue policies with higher premium rates for
substandard risks.
In addition to the companies ordinary life product line,
the Company also sells final expense insurance. This
insurance is small face amount, with a maximum issue of
$10,000. It is written on a simplified medical application
with underwriting requirements being a completed
application, a phone inspection on each applicant and a
Medical Information Bureau inquiry. There are several
underwriting classes in which an applicant can be placed.
If the Company receives conflicting or incomplete
underwriting information, an attending physician's
statement can be ordered to insure the applicant is placed
in the correct underwriting class.
Annuities
Products
The Company's annuity business includes single premium
deferred annuities, flexible premium deferred annuities and
immediate annuities. A single premium deferred annuity is
a contract where the individual remits a sum of money to
the Company which is retained on deposit until such time as
the individual may wish to purchase an immediate annuity or
surrender his contract for cash. A flexible premium
deferred annuity gives the contract holder the right to
make premium payments of varying amounts or to make no
further premium payments after his initial payment. These
single and flexible premium deferred annuities can have
initial surrender charges. The surrender charges act as a
deterrent to individuals who may wish to surrender their
annuity contracts. These types of annuities have
guaranteed interest rates of 4% to 4 1/2% per annum. Above
that, the interest rate credited is determined by the Board
of Directors at their discretion. An immediate annuity is
a contract in which the individual remits to the Company a
sum of money in return for the Company's obligation to pay
a series of payments on a periodic basis over a designated
period of time, such as an individual's life, or for such
other period as may be designated.
Holders of annuities enjoy a significant benefit under the
current federal income tax law in that interest accretions
that are credited to the annuities do not incur current
income tax expense on the part of the contract holder.
Instead, the interest income is tax deferred until such
time as it is paid out to the contract holder. In order
for the Company to realize a profit on an annuity product,
the Company must maintain an interest rate spread between
its investment income and the interest rate credited to the
annuities. From that spread must be deducted commissions,
issuance expenses and general and administrative expenses.
The Company's annuities currently have credited interest
rates ranging from 2.5% to 8%.
Markets and Distribution
The general market for all of the Company's annuities is
middle to older age individuals who wish to save or invest
their money in a tax deferred environment, having
relatively high yields. The Company currently markets its
annuities primarily in the states of Arizona, Colorado,
Idaho, New Mexico, Oklahoma, Texas and Utah.
The major source of annuity considerations comes from
direct agents. Annuities can be sold as a by-product of
other insurance sales. This is particularly true in the
funeral planning area. If an individual does not qualify
for a funeral plan due to health considerations, the agent
will often sell that individual an annuity to take care of
those final expenses. The commission rates on annuities
range from 2% to 10%.
The following table summarizes the annuity business over
the five years ended December 31, 1995:
1995 1994 1993 1992 1991
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Annuities
Policy/Cert.
Count 6,893 5,954 4,605 4,482 4,359
Premiums
Collected
(omitted 000) $ 2,375 $ 1,927 $ 1,905 $ 1,889 $ 1,340
Accident and Health
Products
Prior to the acquisition of Capital Investors Life in
December 1994, the Company did not actively market accident
and health products. With the acquisition of Capital
Investors Life, the Company acquired a block of accident
and health policies which pay limited benefits to
policyholders. The Company is currently offering a low-
cost comprehensive diver's accident policy. The policy
provides world-wide coverage for medical expense
reimbursement and life insurance in the event of diving or
water sports accidents.
Markets and Distribution
The Company currently markets its diver's policy through
water sports magazine advertising and dive shops throughout
the world. The Company pays direct commissions for new
business generated ranging from 15% to 30%.
The following table summarizes the Accident and Health
business over the five years ended December 31, 1995:
1995 1994(1) 1993 1992 1991
------ --------- ------ ------ ------
Accident
and Health
Policy/Cert.
Count 37,302 42,910 347 463 590
Premiums
Collected
(omitted 000) $ 578 $ 15 $ 18 $ 23 $ 30
(1) Reflects acquisition of Capital Investors Life
Insurance Company on December 21, 1994.
Reinsurance
The Company reinsures with other companies portions of the
individual life insurance and accident and health policies
it has underwritten. The primary purpose of reinsurance is
to enable an insurance company to write a policy in an
amount larger than the risk it is willing to assume for
itself. No other liabilities or guarantees by the Company
exist on business ceded through reinsurance treaties,
however, the Company remains obligated for amounts ceded in
the event the reinsurers do not meet their obligations.
There is no assurance that the reinsurer will be able to
meet the obligations assumed by it under the reinsurance
agreement.
The Company's policy is to retain no more than $50,000 of
ordinary insurance per insured life. Excess risk is
reinsured. The total amount of life insurance in force at
December 31, 1995, reinsured by other companies aggregated
$80,261,000, representing approximately 28% of the
Company's life insurance in force on that date.
The Company currently cedes and assumes certain risks with
various authorized unaffiliated reinsurers pursuant to
reinsurance treaties which are renewable annually. The
premiums paid by the Company are based on a number of
factors, primarily including the age of the insured and the
risk ceded to the reinsurer.
Investments
The investments of the Company's life insurance and annuity
funds and assets is determined by the Investment Committee
of the Board of Directors of the various subsidiaries and
ratified by the full Board of Directors of the respective
subsidiaries. A significant portion of the investments
must meet statutory requirements governing the nature and
quality of permitted investments by insurance companies.
The Company's interest-sensitive type products, primarily
annuities and interest-sensitive whole life, compete with
other financial products such as bank certificates of
deposit, brokerage sponsored money market funds as well as
competing life insurance company products. While it is not
the Company's policy to offer the highest yield in this
climate, in order to offer what the Company considers to be
a competitive yield, it maintains a diversified portfolio
consisting of common stocks, preferred stocks, municipal
bonds, investment and non-investment grade bonds including
high-yield issues, mortgage loans, real estate, short-term
and other securities and investments.
See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and Notes to
Consolidated Financial Statements for additional disclosure
and discussion regarding investments.
Cemetery and Mortuary
Products
The Company has six wholly-owned cemeteries and thirteen
wholly-owned mortuaries. The cemeteries are non-
denominational. Through its cemetery and mortuary
operations, the Company markets a variety of products and
services both on a pre-need basis (prior to death) and an
at-need basis (at the time of death). The products include
grave spaces, interment vaults, mausoleum crypts and
niches, markers, caskets, flowers and other related
products. The services include professional services of
funeral directors, opening and closing of graves, use of
chapels and viewing rooms, and use of automobiles and
clothing. The Company has a funeral chapel at each of its
cemeteries other than Holladay Memorial Park and has eight
separate stand-alone mortuary facilities. The Company's
cemetery and mortuary business increased with the
acquisition of Holladay Memorial Park, Inc., Cottonwood
Mortuary, Inc. and Deseret Memorial, Inc. in September 1991
and with the acquisition of Sunset Funeral Home, Inc. in
January 1994 and with the acquisition of Greer-Wilson
Funeral Home, Inc., in March 1995.
Markets and Distribution
The Company's pre-need cemetery and mortuary sales are
marketed to persons of all ages but are generally purchased
by persons 45 years of age and older. The Company also
markets its mortuary and cemetery products on an at-need
basis. The Company is limited in its geographic
distribution of these products to areas lying within an
approximate 20 mile radius of its mortuaries and
cemeteries. This limits the sale of its products primarily
to the area known as the "Wasatch Front," covering
approximately 100 miles between Salt Lake City and Ogden,
Utah, with the greatest concentration of sales being in the
greater Salt Lake City area. The Company's at-need sales
are similarly limited in geographic area.
The Company actively seeks to sell its cemetery and funeral
products to customers on a pre-need basis. The Company
employs cemetery sales representatives on a commission
basis to sell these products. Many of these pre-need
cemetery and mortuary sales representatives are also
licensed insurance salesmen and sell funeral plan
insurance. In many instances, the Company's cemetery and
mortuary facilities are the named beneficiary of the
funeral plan policies.
The sales representatives of the Company's cemetery and
mortuary operations are commissioned and receive no salary.
The sales commissions range from 10% to 22% for cemetery
products and services and 10% to 90% of first year premiums
for funeral plan insurance. Potential customers are
located via telephone sales prospecting, responses to
letters mailed by the sales representatives, newspaper
inserts, referrals, contacts made at funeral services, and
door to door canvassing. The Company trains its sales
representatives and generates leads for them. If a
customer comes to one of the Company's cemeteries on an
at-need basis, the sales representatives are compensated on
a commission basis.
Mortgage Loans
Products
The Company originates and underwrites residential and
commercial loans for new construction and existing homes
and real estate projects primarily for the greater Salt
Lake City area. The Company is an approved governmental
and conventional lender and processes governmental and
conventional loans. Most of the loans are sold directly to
investors. The Company uses warehouse lines of credit with
affiliated companies and financial institutions to fund
mortgage loans prior to the purchase by investors.
Markets and Distribution
The Company's mortgage services are marketed primarily to
individual homeowners and businesses who are located in the
area known as the "Wasatch Front," covering approximately
100 miles between Salt Lake City and Ogden, Utah, with the
greatest concentration of sales being in the greater Salt
Lake City area. The typical loan size for residential
loans ranges from $40,000 to $150,000, and for commercial
loans from $200,000 to $750,000.
The Company's mortgage loan originations are through part-
time and full time mortgage loan officers and wholesale
brokers who are paid a sales commission ranging between
.40% to 3.0% of the loan amount. Prospective customers are
located through contacts with builders, real estate agents,
and door-to-door canvassing. The part-time brokers are
individuals who are supplementing their full time
employment by soliciting residential homeowners to
refinance their existing mortgage loans. The Company
provides training to these brokers.
Recent Acquisitions and Other Business Activities
Holladay Memorial Park, Inc., Cottonwood Mortuary, Inc.
and Deseret Memorial, Inc.
In September 1991, the Company entered into a stock
purchase agreement (the "Stock Purchase Agreement") with
The John E. and Donna G. Mackay Family Trust, the sole
shareholder of Holladay Memorial Park, Inc., a Utah
corporation, and JD&M Investments, Inc., a Utah
corporation, for the purchase of all of the outstanding
shares of Holladay Memorial Park, Inc., and JD&M
Investments, Inc. JD&M Investments, Inc., now known as
Cottonwood Mortuary, Inc., has all right, title and
interest in and to the following corporations and business
entities: Holladay Cottonwood Memorial Foundation, a Utah
corporation, and Deseret Memorial, Inc., a Utah
corporation, including, but not limited to, the following
entities: Deseret Mortuary, Colonial Mortuary, Deseret
Memorial Plan, Lakehills Benevolent Trust, Lakehills
Memorial Crematory, Lakehills Mortuary, Lakehills Memorial
Park, and Alta Concrete Products and Vault Plant.
JD&M Investments, Inc. (currently named Cottonwood
Mortuary, Inc.) includes two cemeteries and four
mortuaries, all of which are located in Salt Lake County,
Utah. The mortuaries and cemeteries are non
- -denominational. The mortuaries consist of Deseret
Mortuary, which is reportedly the oldest mortuary in Salt
Lake City, Utah, Colonial Mortuary, Cottonwood Mortuary and
Lakehills Mortuary. The cemeteries are known as Lakehills
Cemetery, which consists of approximately 42 acres, and
Holladay Memorial Park, Inc., known as Holladay Memorial
Park, consisting of approximately 13 acres. Holladay
Memorial Park is reportedly the second oldest cemetery in
the State of Utah. The Company intends to operate the
companies as wholly-owned subsidiaries for an indefinite
period of time. As a result of acquiring stock of these
companies, the Company was required to assume certain
pre-need obligations under special terms and conditions
which were determined by the Department of Occupational and
Professional Licensing of the State of Utah.
Pinehill Business Park
In February 1993, the Company entered into a purchase and
sale agreement to acquire Pinehill Business Park. The
business park is approximately 8.65 acres and located in
Murray, Utah. The business park contains three office
buildings with a total of 47,000 square feet of office
space and seven office and warehouse combination buildings
with a total of 89,000 square feet of space.
Security National Mortgage Company
In June 1993, the Company formed Security National Mortgage
Company to originate, refinance and service residential and
commercial mortgage loans. The Company contributed assets
of approximately $268,000 to capitalize the initial
operations of Security National Mortgage.
Sunset Funeral Homes, Inc.
In January 1994, the Company acquired all of the issued and
outstanding shares of common stock of Sunset Funeral Homes,
Inc., ("Sunset") an Arizona corporation. In connection
with this transaction, the Company also acquired certain
real estate and other assets related to the business of
Sunset from the sole shareholder of Sunset. Sunset owns
and operates a funeral home in Phoenix, Arizona, known as
Camelback Sunset Funeral Home.
Capital Investors Life Insurance Company
In December 1994, the Company completed the purchase of all
of the outstanding shares of common stock of Capital
Investors Life Insurance Company, ("Capital Investors
Life") a Florida based life insurance company from
Suncoast Financial Corporation, ("Suncoast Financial") a
Delaware corporation and, prior to closing of the
transaction, the sole shareholder of Capital Investors
Life.
At the time of the transaction, Capital Investors Life was
a Florida domiciled insurance company with total assets of
approximately $30 million. Capital Investors Life was
redomesticated to Utah on December 28, 1994. At the time
of the acquisition, Capital Investors Life was licensed to
transact business in 23 states. The Company intends to
continue the operations of Capital Investors Life as an
insurance company.
California Memorial Estates, Inc.
In February 1995, California Memorial Estates, Inc., a duly
organized Utah corporation and wholly-owned subsidiary of
the Company, entered into a Purchase and Sale Agreement and
Escrow Instructions with the Carter Family Trust and the
Leonard M. Smith Family Trust to purchase approximately 100
acres of real property located in San Diego County,
California (the "Property"). The Company intends initially
to develop the Property by designating approximately 35
acres for the development of a cemetery named Singing Hills
Memorial Park. The Company has obtained approval from the
federal government and the California Cemetery Board to
operate a cemetery on the Property.
Greer-Wilson Funeral Home, Inc.
In March 1995, the Company purchased 97,800 shares of
common stock of Greer-Wilson Funeral Home, Inc. ("Greer-
Wilson"), representing 97.8% of the total issued and
outstanding shares of common stock of Greer-Wilson after
the issuance of such shares. The Company plans to continue
to operate Greer-Wilson as a funeral home and mortuary.
Evergreen Memorial Park
In November 1995, the Company entered into a purchase sale
agreement with Myers Mortuary for the sale of the Company's
65% interest in Evergreen Memorial Partnership and the
Company's 50% interest in Evergreen Management Corporation.
As consideration for the sale of these entities, Myers
Mortuary paid $746,123 in satisfaction of the indebtedness
that Evergreen Memorial Partnership owed to the Company.
Myers Mortuary has also agreed to pay $200,000 to the
Company in four equal annual installments of $50,000,
beginning as of October 31, 1996. In addition, Myers
Mortuary will pay a $10.00 royalty to the Company for each
adult space sold in Evergreen Memorial Park over the next
ten years, beginning as of January 1, 1996.
Security National Life Insurance Company
In December 1995, Security National Life Insurance Company
("Security National Life") was merged into Capital
Investors Life Insurance Company ("Capital Investors Life")
with Capital Investors Life as the surviving corporation.
As a result of the merger, Capital Investors Life has
licenses to transact business in 29 states. In March 1996,
the Company changed the name of the surviving corporation
from Capital Investors Life to Security National Life.
Civil Service Employees Life Insurance Company
In December 1995, the Company, through its wholly-owned
subsidiary, Capital Investors Life, completed the purchase
of all of the outstanding shares of Common Stock of Civil
Service Employees Life Insurance Company, a California
corporation ("CSE Life") from Civil Service Employees
Insurance Company, a California corporation and, prior to
the closing of the transaction, the sole shareholder of CSE
Life. At the time of the transaction, CSE Life was a
California domiciled insurance company with total assets of
approximately $16.7 million. At the time of the
acquisition, CSE Life was licensed to transact business in
seven states, including the state of California.
Following the completion of the purchase of CSE Life, the
Company merged CSE Life into Capital Investors Life. The
Company intends to continue operating Capital Investors
Life as the surviving insurance company.
Regulation
The Company's insurance subsidiary is subject to compre-
hensive regulation in the jurisdictions in which they do
business under statutes and regulations administered by
state insurance commissioners. Such regulation relates to,
among other things, prior approval of the acquisition of a
controlling interest in an insurance company; standards of
solvency which must be met and maintained; licensing of
insurers and their agents; nature of and limitations on
investments; deposits of securities for the benefit of
policyholders; approval of policy forms and premium rates;
periodic examinations of the affairs of insurance
companies; annual and other reports required to be filed on
the financial condition of insurers or for other purposes;
and requirements regarding aggregate reserves for life
policies and annuity contracts, policy claims, unearned
premiums, and other matters. The Company's insurance
subsidiaries are subject to this type of regulation in any
state in which they are licensed to do business. Such
regulation could involve additional costs, restrict
operations or delay implementation of the Company's
business plans.
The Company is currently subject to regulation in Utah
under insurance holding company legislation, and other
states where applicable. Intercorporate transfers of
assets and dividend payments from its insurance subsidiary
is subject to prior notice of approval from the State
Insurance Department, if they are deemed "extraordinary"
under these statutes. The insurance subsidiary is
required, under state insurance laws, to file detailed
annual reports with the supervisory agencies in each of the
states in which it does business. Their business and
accounts are also subject to examination by these agencies.
The Company's cemetery and mortuary subsidiaries are
subject to the Federal Trade Commission's comprehensive
funeral industry rules and are licensed by the Utah State
Cemetery Board to operate as endowment care cemeteries. The
morticians must be licensed by the state in which they
provide their services. Similarly, the mortuaries are
governed by state statutes and city ordinances in both Utah
and Arizona. Reports are required to be submitted on a
yearly basis to the Utah Cemetery Board which include
financial information concerning the number of spaces sold
and funds provided to the Endowment Care Trust Fund.
Licenses are issued annually on the basis of such reports.
The cemeteries maintain city or county licenses where they
conduct business.
The Company's mortgage loan subsidiary is subject to the
rules and regulations of the U.S. Department of Housing and
Urban Development. These regulations among other things
specify the procedures for the origination, the
underwriting, the licensing of wholesale brokers, quality
review audits and the amounts that can be charged to
borrowers for all FHA and VA loans. Each year the Company
must have an audit by an independent CPA firm to check for
compliance under these regulations. In addition to the
government regulations, the Company must meet various loan
requirements of investors who purchase the loans before the
loan can be sold to the investors.
Income Taxes
The Company's insurance subsidiaries, effective January 1,
1984, are taxed under the Life Insurance Company Tax Act of
1984. Pursuant thereto, life insurance companies are taxed
at standard corporate rates on life insurance company
taxable income. Life insurance company taxable income is
gross income less general business deductions, reserves for
future policyholder benefits (with modifications), and a
small life insurance company deduction (up to 60% of life
insurance company taxable income). The Company may be
subject to the corporate Alternative Minimum Tax (AMT).
The exposure to AMT is primarily a result of the small life
insurance company deduction. Also, under the Tax Reform
Act of 1986, distributions in excess of shareholder's
surplus account or significant decrease in life reserves
will result in taxable income.
The Company's insurance subsidiaries may continue to
receive the benefit of the small life insurance company
deduction. In order to qualify for the small company
deduction, the combined assets of the Company must be less
than $500,000,000 and the taxable income of the life
insurance companies must be less than $3,000,000. To the
extent that the net income limitation is exceeded, then the
small life insurance company deduction is phased out over
the next $12,000,000 of life insurance company taxable
income.
Since 1990, the Company's life insurance subsidiaries have
computed their life insurance taxable income after
establishing a provision representing a portion of the
costs of acquisition of such life insurance business. The
effect of the provision is that a certain percentage of the
Company's premium income is characterized as deferred
expenses and recognized over a five to ten year period.
The Company's non-life insurance company subsidiaries are
taxed in general under the regular corporate tax
provisions. For taxable years beginning January 1, 1987,
the Company may be subject to the Corporate Alternative
Minimum Tax and the proportionate disallowance rules for
installment sales under the Tax Reform Act of 1986.
Competition
The life insurance industry is highly competitive. There
are approximately 2,000 legal reserve life insurance
companies in business in the United States. These
insurance companies differentiate themselves through
marketing techniques, product features, price and customer
service. The Company's insurance subsidiary competes with
a large number of insurance companies, many of which have
greater financial resources, a longer business history,
and a more diversified line of insurance coverage than
the Company. In addition, such companies generally have a
larger sales force. Further, many of the companies with
which the Company competes are mutual companies which may
have a competitive advantage because all profits accrue to
policyholders. Because the Company is small by industry
standards and lacks broad diversification of risk, it may
be more vulnerable to losses than larger, better
established companies. The Company believes that its
policies and rates for the markets it serves are generally
competitive.
The cemetery and mortuary business is also highly
competitive. In the Salt Lake and Phoenix areas in which
the Company competes, there are a number of cemeteries and
mortuaries which have longer business histories, more
established positions in the community and stronger
financial positions than the Company. In addition, some of
the cemeteries with which the Company must compete for
sales are owned by municipalities and, as a result, can
offer lower prices than can the Company. The Company bears
the cost of a pre-need sales program that is not incurred
by those competitors that do not have a pre-need sales
force. The Company believes that its products and prices
are generally competitive with those in the industry.
The mortgage loan business is highly competitive with
several mortgage companies and banks in the same geographic
area in which the Company is operating which have longer
business histories and more established positions in the
community. The refinancing market is particularly
vulnerable to changes in interest rates.
Employees
As of December 31, 1995, the Companies employ 122 full-time
and 33 part-time employees.
Item 2. Properties
The following table sets forth the location of the
Company's office facilities and certain other information
relating to these properties.
Approximate
Owned Square
Location Function Leased Footage
- ------------------- -------------- --------- --------------
5300 So. 360 West Corporate
Salt Lake City, UT Headquarters Owned(1) 33,000
3636 No. 15th Ave. District Owned 3,000
Phoenix, AZ Sales Office
1603 Thirteenth St. District Owned(2) 5,000
Lubbock, TX Sales Office
(1) As of December 31, 1995, this facility was subject to
a mortgage of approximately $1,192,000. The Company
leases an additional 15,616 square feet of the
facility to unrelated third parties for approximately
$205,000 per year, under leases which expire at
various dates after 1995.
(2) The Company leases an additional 2,766 square feet of
the facility to unrelated third parties for
approximately $12,600 per year, under leases which
expire at various dates after 1995.
The Company believes the office facilities it occupies are
in good operating condition, are adequate for current
operations and has no plan to build or acquire additional
office facilities. The Company believes its office
facilities are adequate for handling business in the
foreseeable future.
The following table summarizes the location and acreage of the six Company
owned cemeteries:
Net Saleable Acreage
Acres
Sold as Total
Name of Date Developed Total Cemetery Available
Cemetery Location Acquired Acreage(1) Acreage(1) Spaces(2) Acreage(1)
- --------- ---------- --------- ----------- ----------- --------- ----------
Memorial Estates, Inc.:
Lakeview
Cemetery(3) 1700 E.
Lakeview Dr.
Bountiful,
UT 1973 6 40 4 36
Mountain View
Cemetery(3) 3115 E.
7800 So.
Salt Lake City,
UT 1973 26 54 14 42
Redwood
Cemetery(3)(5) 6500 So.
Redwood Rd.
West Jordan,
UT 1973 40 78 27 51
Holladay Memorial
Park(4)(5) 4800 So.
Memory Lane
Holladay,
UT 1991 6 13 4 9
Lakehills
Cemetery(4) 10055 So. State
Sandy, UT 1991 12 42 6 36
Singing Hills Memorial
Park(6) 2798 Dehesa Rd.
El Cajon,
CA 1995 0 35 0 35
(1) The acreage represents estimates of acres that are
based upon survey reports, title reports, appraisal
reports or the Company's inspection of the
cemeteries.
(2) Includes spaces sold for cash and installment
contract sales.
(3) As of December 31, 1995, there were mortgages of
approximately $260,000 collateralized by the
property and facilities at Memorial Estates
Lakeview, Mountain View and Redwood Cemeteries, of
which approximately $121,000 was held by Security
National Life.
(4) As of December 31, 1995, there were mortgages of
approximately $2,197,000 collateralized by the
property and facilities at Deseret Mortuary,
Cottonwood Mortuary, Holladay Memorial Park,
Lakehills Cemetery and Colonial Mortuary.
(5) This cemetery includes two granite mausoleums.
(6) As of December 31, 1995, there was a mortgage of
approximately $912,000 collateralized by the
property.
The following table summarizes the location, square footage and the number
of viewing rooms and chapels of the thirteen Company owned mortuaries:
Name of Date Viewing Square
Mortuary Location Acquired Room(s) Chapel(s) Footage
- ----------- ---------- ----------- --------- --------- ---------
Memorial
Mortuary 5850 South 900 East
Salt Lake City, UT 1973 3 1 20,000
Memorial Estates, Inc.:
Redwood
Mortuary 6500 South Redwood Rd.
West Jordan, UT 1973 2 1 10,000
Mountain View
Mortuary 3115 East 7800 South
Salt Lake City, UT 1973 2 1 16,000
Lakeview
Mortuary 1700 East Lakeview Dr. 1973 0 1 5,500
Bountiful, UT
Paradise Chapel
Funeral Home 3934 East Indian
School Road
Phoenix, AZ 1989 2 1 9,800
Deseret Memorial, Inc.:
Colonial
Mortuary(2) 2128 South State St.
Salt Lake City, UT 1991 1 1 14,500
Deseret
Mortuary(2) 36 East 700 South
Salt Lake City, UT 1991 2 2 36,300
Lakehills
Mortuary 10055 South State St.
Sandy, UT 1991 2 1 18,000
Cottonwood
Mortuary(2) 4670 South Highland Dr.
Salt Lake City, UT 1991 2 1 14,500
Camelback Sunset
Funeral Home(1) 301 West Camelback Rd.
Phoenix, AZ 1994 2 1 11,000
Name of Date Viewing Square
Mortuary Location Acquired Room(s) Chapel(s) Footage
- ---------- ---------- ---------- --------- --------- ---------
Greer-Wilson:
Greer-Wilson
Funeral Home 5921 West Thomas Road
Phoenix, AZ 1995 2 2 25,000
Tolleson
Funeral Home 9386 West VanBuren
Tolleson, AZ 1995 1 1 3,460
Avondale
Funeral Home 218 North Central
Avondale, AZ 1995 1 1 1,850
(1) As of December 31, 1995, there were mortgages of
approximately $543,000 collateralized by the
property and facilities of Camelback Sunset Funeral
Home.
(2) As of December 31, 1995, there were mortgages of
approximately $2,197,000 collateralized by the
property and facilities at Deseret Mortuary,
Cottonwood Mortuary, Holladay Memorial Park,
Lakehills Cemetery and Colonial Mortuary.
Item 3. Legal Proceedings
- --------------------------
The Company and its wholly-owned subsidiary, Greer-Wilson
Funeral Home, Inc. ("Greer-Wilson"), have been named as
parties in the action of In Re the Marriage of Ann Marie
Wilson, Arizona Superior Court, Maricopa County, No. DR95-
02128. This is a dissolution (divorce) action between
Scott Wilson, a former employee of Greer-Wilson and Ann
Wilson. Both the Company and Greer-Wilson are named as co-
respondents.
In 1991, Scott Wilson entered into a stock agreement with
Page Greer and Patricia Greer which, among other things,
provided for a certain percentage of stock which could be
acquired by Scott Wilson from Page and Patricia Greer. No
stock was ever transferred to Scott Wilson. On March 8,
1995, Greer-Wilson issued 97,800 shares of common stock to
the Company pursuant to a Stock Issuance Agreement. There
is also a pledge of Page and Patricia Greer's stock to the
Company securing a note. On or about that date, other
agreements were also executed, including Scott Wilson
confirming that he owned no stock of Greer-Wilson and
releasing any claims he may have pursuant to the 1991 stock
agreement.
In her dissolution action, Ann Wilson is claiming that she
has an ownership interest in Greer-Wilson by virtue of
community property rights related to the 1991 stock
agreement involving her husband Scott Wilson. It appears
that Ann Wilson asserts that Scott Wilson owned 40% of
Greer-Wilson. She is seeking to enforce community rights
pursuant to said stock agreement and to invalidate actions
contrary thereto by Scott Wilson which took place after an
injunction was put in place including Scott Wilson's
release of claims.
The litigation is in the early stages. Ann Wilson has not
yet sufficiently defined her claims to permit a complete
determination of the Company's potential exposure or that
of Greer-Wilson but it appears that there are good defenses
and a good position to limit exposure. It is the intention
of the Company and Greer-Wilson to vigorously defend this
matter.
The Company and its subsidiaries are not parties to any
other legal proceedings outside the ordinary course of the
Company's business or to any other legal proceedings which,
if adversely determined, would have a material adverse
effect on the Company or its business.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
- -----------------------------------------------------------------------
Holder Matters
--------------
The Company's Class A Common Stock trades on the Nasdaq
National Market under the symbol "SNFCA." Prior to August
13, 1987, there was no active public market for the Class
A and Class C Common Stock. During the recent years there
have been occasional trading of Class A and Class C Common
Stock by brokerage firms in the over-the-counter market.
The following are the high and low sales prices for Class
A Common Stock as reported by Nasdaq.
Period (Calendar Year) Price Range
High Low
1994
First Quarter . . . . . . . . . . 3 3/8 2 5/8
Second Quarter. . . . . . . . . . 4 1/2 2 7/8
Third Quarter . . . . . . . . . . 4 1/2 4
Fourth Quarter. . . . . . . . . . 4 3/4 4
1995
First Quarter . . . . . . . . . . 4 1/2 3 7/8
Second Quarter. . . . . . . . . . 4 1/4 3 1/4
Third Quarter . . . . . . . . . . 5 1/2 3 1/2
Fourth Quarter. . . . . . . . . . 5 3/8 4 5/8
The Class C Common Stock is not actively traded, although
there are occasional transactions in such stock by
brokerage firms. (See Note 11 to the Consolidated Financial
Statements.)
The Company has never paid a cash dividend on its Class A
or Class C Common Stock. The Company currently anticipates
that all of its earnings will be retained for use in the
operation and expansion of its business and does not intend
to pay any cash dividends on its Class A or Class C Common
Stock in the foreseeable future. Any future determination
as to cash dividends will depend upon the earnings and
financial position of the Company and such other factors as
the Board of Directors may deem appropriate. A 5% stock
dividend on Class A and Class C Common Stock was paid in
the years 1989 through 1995.
As of March 1, 1996, there were 5,129 record holders of
Class A Common Stock and 187 record holders of Class C
Common Stock.
Item 6. Selected Financial Data - The Company and Subsidiaries (Consolidated)
- -----------------------------------------------------------------------------
The following selected financial data for each of the five years in the period
ended December 31, 1995, are derived from the audited consolidated financial
statements. The data should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein.
Consolidated Statement of Earnings Data:
Year Ended December 31,
---------------------------------------------
1995(4) 1994 1993(2) 1992 1991(1)
--------- ------- ---------- --------- --------
Revenue
- -------
Premiums $5,853,000 $4,945,000 $4,933,000 $ 4,630,000 $ 5,684,000
Net investment
income 6,680,000 4,121,000 3,473,000 3,567,000 9,209,000
Net mortuary and
cemetery income 8,238,000 5,888,000 6,085,000 5,741,000 4,054,000
Realized gains on
investments 333,000 384,000 780,000 583,000 4,000
Provision for losses
on investments -- -- (28,000) (142,000) (85,000)
Gain on sale of
subsidiary -- -- -- -- 2,586,000
Mortgage fee
income 4,943,000 1,170,000 788,000 -- --
Other 71,000 153,000 465,000 354,000 597,000
----------- ----------- ----------- ----------- -----------
Total revenue $26,118,000 $16,661,000 $16,496,000 $14,733,000 $22,049,000
----------- ----------- ----------- ----------- -----------
Expenses
- --------
Policyholder
benefits 6,169,000 4,036,000 4,420,000 3,901,000 8,873,000
Amortization of
deferred policy
acquisition
costs 1,180,000 767,000 943,000 729,000 1,323,000
General and admini-
strative
expense 12,988,000 8,064,000 7,098,000 6,629,000 6,915,000
Interest expense 1,208,000 692,000 675,000 601,000 602,000
Cost of goods &
services mortuary
& cemetery 2,314,000 1,767,000 1,890,000 1,907,000 1,659,000
----------- ----------- ---------- ----------- -----------
Total benefits &
expenses 23,859,000 15,326,000 15,026,000 13,767,000 19,372,000
----------- ----------- ----------- ----------- -----------
Income before
income tax
expense 2,259,000 1,335,000 1,470,000 966,000 2,677,000
Income tax (expense)
benefit (728,000) (302,000) (388,000) 8,000 (141,000)
Minority interest in
loss of subsidiary 20,000 7,000 2,000 1,000 29,000
----------- ----------- ----------- ----------- -----------
Net income $ 1,551,000 $ 1,040,000 $ 1,084,000 $ 975,000 $ 2,565,000
=========== =========== =========== =========== ===========
Earnings per common
equivalent of Class
A Common Stock (fully
diluted):
Net income $0.42 $0.31 $0.35 $0.33 $0.85
========= ========= ========= ========== ==========
Average common
equivalent shares
outstanding 3,686,000 3,350,000 3,131,000 2,998,000 2,979,000
Item 6. Selected Finanial Data - The Company and Subsidiaries (Consolidated)
(Continued)
Balance Sheet Data:
December 31,
----------------------------------------------------
1995(4) 1994(3) 1993(2) 1992 1991(1)
----------- ---------- ----------- -------- ---------
Assets
Investments and
restricted
assets $ 80,815,000 $ 74,835,000 $47,692,000 $42,701,000 $42,711,000
Cash 7,710,000 2,061,000 6,831,000 6,120,000 1,778,000
Receivables 24,177,000 4,638,000 4,084,000 3,793,000 4,478,000
Other assets 25,511,000 22,224,000 17,314,000 17,941,000 18,229,000
------------ ------------ ----------- ----------- -----------
Total Assets $138,213,000 $103,758,000 $75,921,000 $70,555,000 $67,196,000
============ ============ =========== =========== ===========
Liabilities
Policyholder
benefits $ 76,868,000 $ 61,896,000 $38,605,000 $35,665,000 $32,841,000
Notes & contracts
payable 27,129,000 10,210,000 8,095,000 7,665,000 8,578,000
Cemetery & mortuary
liabilities 6,078,000 6,603,000 6,511,000 6,430,000 5,962,000
Other liabilities 6,219,000 5,070,000 3,876,000 3,170,000 2,983,000
------------ ----------- ----------- ----------- -----------
Total
liabilities 116,294,000 83,779,000 57,087,000 52,930,000 50,364,000
------------ ----------- ----------- ----------- -----------
Stockholders'
equity 21,919,000 19,979,000 18,834,000 17,625,000 16,832,000
------------ ----------- ----------- ----------- -----------
Total Liabilities and
Stockholders'
Equity $138,213,000 $103,758,000 $75,921,000 $70,555,000 $67,196,000
============ ============ =========== =========== ===========
(1) Only includes Cottonwood Mortuary, Inc., and Holladay Memorial Park,
Inc. for three months ended December 31, 1991, and Investors Equity
Life Ins. Co. for the first five months of 1991.
(2) Only includes Security National Mortgage Company for the five months
ended December 31, 1993.
(3) Reflects the acquisition of Capital Investors Life as of December 31,
1994, and Camelback Sunset Funeral Home as of January 1, 1994.
(4) Only includes Evergreen Memorial Park for the first eleven months of
1995 and the assets and liabilities of Civil Service Employees Life
Insurance Company as of December 31, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
---------------------
Overview
The Company's operations over the last three years
generally reflect four trends or events which the Company
expects to continue: (i) increased attention to "niche"
insurance products, such as the Company's funeral plan
policies, annuities, and limited pay accident policies;
(ii) decreased general and administrative costs as a
percentage of revenue through efforts to reduce operating
costs and through eliminating unnecessary duplication of
costs at acquired companies; (iii) emphasis on high margin
cemetery and mortuary business; and (iv) capitalizing on
the strong economy in the intermountain west by originating
and refinancing mortgage loans.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The following schedule summarizes the effect the acquisition of Capital
Investors Life Insurance Company and Greer-Wilson Funeral Home had on the
Consolidated Statements of Operations for the year ended December 31, 1995.
Consolidated
Without the
Effects of
Capital
Capital Investors
Investors Greer- Life and
Life Wilson Greer-Wilson
Consolidated 1995 1995 1995 Consolidated
1995 (Unaudited) (Unaudited) (Unaudited) 1994
------------- ----------- ----------- ------------ -----------
REVENUES:
Insurance
premiums
and other
considerations $5,853,030 $ 986,221 $ -- $ 4,866,809 $ 4,944,789
Net investment
income 6,679,704 1,945,066 718 4,733,920 4,120,917
Realized gains
on investments
and other assets 332,648 -- -- 332,648 383,637
Net mortuary and
cemetery income 8,238,347 -- 1,518,156 6,720,191 5,887,726
Mortgage fee income 4,943,103 -- -- 4,943,103 1,170,456
Other 71,519 13,852 10,880 46,787 153,042
----------- ---------- ---------- ----------- -----------
Total Revenues $26,118,351 $2,945,139 $1,529,754 $21,643,458 $16,660,576
BENEFITS AND EXPENSES:
Death benefits 2,193,232 541,051 -- 1,652,181 1,663,475
Surrenders and other
policy benefits 2,161,605 1,376,756 -- 784,849 903,603
Increase in future
policy benefits 1,813,881 (463,661) -- 2,277,542 1,469,029
Amortization of
deferred policy
acquisition costs
and cost of
insurance
acquired 1,179,510 256,744 -- 922,766 766,658
General and administrative expenses:
Commissions 3,792,408 59,517 1,548 3,731,343 1,257,043
Salaries 3,611,993 -- 304,083 3,307,910 2,937,993
Other 5,583,502 354,835 420,043 4,808,624 3,868,508
Interest expense 1,208,346 -- 124,535 1,083,811 692,675
Cost of mortuaries
and cemeteries
goods and services
sold 2,314,410 -- 446,516 1,867,894 1,766,532
----------- --------- --------- ----------- ----------
Total benefits
and expenses 23,858,887 2,125,242 1,296,725 20,436,920 15,325,516
------------ ---------- ---------- ----------- ----------
Earnings before
income taxes $ 2,259,464 $ 819,897 $ 233,029 $ 1,206,538 $1,335,060
=========== ========== ========== =========== ==========
The following management's discussion and analysis for the year ended December
31, 1995 excludes the acquisition of Capital Investors Life Insurance Company
and Greer-Wilson Funeral Home.
Results of Operations
1995 Compared to 1994
Total revenues increased $4,983,000, or 30% from
$16,661,000 for fiscal 1994, to $21,644,000 for fiscal
1995. Contributing to this increase in total revenues was
a $613,000 increase in net investment income, an $832,000
increase in mortuary and cemetery sales, and a $3,773,000
increase in mortgage fee income.
Net investment income increased by $613,000 from $4,121,000
in 1994, to $4,734,000 in 1995. This increase was
primarily attributed to the life insurance company and the
mortuaries and cemeteries participation in warehousing many
of the mortgage loans generated by Security National
Mortgage Company ("Security National Mortgage").
Realized gains on investments and other assets decreased by
$51,000, from $384,000 in 1994 to $333,000 for 1995. The
1994 amount included the results of the sale of 13.45 acres
of land deemed not suitable for cemetery development at
Lakeview Cemetery. The net gain on the sale of the land
after deducting the original cost of the land and related
fees was approximately $278,000. In 1995 an agreement was
entered into in which the Company's remaining interest in
Evergreen Memorial Park was sold to an Ogden based
mortuary. The net gain on the sale of Evergreen Memorial
Park was approximately $206,000. The remaining decrease in
realized gains on investments and other assets was a result
of fewer bond redemptions during 1995.
Net mortuary and cemetery income increased by $832,000,
from $5,888,000 in 1994 to $6,720,000 in 1995. This
increase was the result of a $242,000 increase in mortuary
sales and $590,000 increase in cemetery sales for 1995.
Mortgage fee income was increased by $3,773,000 from
$1,171,000 in 1994 to $4,944,000 in 1995. This increase
was the result of lower interest rates during 1995 which
increased the opportunity for refinancing and loan
origination. In addition, a strong economy, and an
increased demand for housing in the intermountain area has
created activity for loan originations.
Total benefits and expenses were $23,858,000 for 1995,
which constituted 91% of the Company's total revenues, as
compared to $15,326,000, or 92% of the Company's total
revenues for 1994.
Death benefits, surrenders and other policy benefits, and
increase in future policy benefits increased by $678,000,
from $4,036,000 in 1994 to $4,715,000 in 1995. This
increase was due to primarily to three factors: the number
of policies in force have increased from 1994 to 1995; the
block of business continues to age; and the mix of policies
issued has changed to limited pay policies over whole life
policies.
Amortization of deferred policy acquisition costs and cost
of insurance acquired increased by $156,000, from $767,000
in 1994 to $923,000 in 1995. This increase was primarily
due to the maturing of the policies in force.
General and administrative expenses increased by
$3,784,000, from $8,064,000 in 1994 to $11,848,000 in 1995.
This increase was primarily due to an increase in
commission expenses and general operating expenses.
Commission expenses increased $2,474,000, from $1,257,000
in 1994 to $3,731,000 in 1995. This increase is due to an
increase in business activities of Security National
Mortgage and the Company's cemetery operations. Other
general and administrative expenses also increased
$940,000, from $3,869,000 to $4,809,000. This increase was
also due to the increased activity of Security National
Mortgage. Salary expense increased $370,000 for the year
1995 as compared to 1994, primarily due to the additional
administrative personnel required at the corporate level to
meet the needs of the newly acquired companies, which
include Capital Investors Life Insurance Company and Greer-
Wilson Funeral Home, and the additional activities of
Security National Mortgage.
Interest expense increased by $391,000, from $693,000 to
$1,084,000. This increase was primarily due to the
interest on the debt incurred as a result of the
acquisition of Capital Investors Life which was completed
in December 1994.
Cost of the mortuary and cemetery goods and services sold
was consistent with the products sold during 1995.
1994 Compared to 1993
The Company's total revenues increased by $164,000 (1.0%),
from $16,496,000 in fiscal 1993, to $16,660,000 in fiscal
1994. Contributing to this increase in total revenues was
a $648,000 increase in investment income and a $70,000
increase in mortgage fee income and other.
Net investment income increased by $648,000, from
$3,473,000 in 1993, to $4,121,000 in 1994. This increase
was attributable to the Company's emphasis on investing its
cash and short-term investments in high-yielding or longer
term investments.
Realized gains on investments decreased by $396,000, from
$780,000 in 1993 to $384,000 in 1994. The 1994 amount
included the results of the sale of 13.45 acres of land
deemed not suitable for cemetery development at Lake View
Cemetery. In August 1994, an agreement was reached for the
sale of the land to Temple Ridge Development Company for
$515,000. The net gain on the sale of the land, after
deducting the original cost of the land and related fees,
was approximately $278,000.
The 1993 amount of realized gains on investments included
the results of a favorable settlement of a lawsuit brought
in 1988 by the Metropolitan Water District against the
Company to condemn 6.6 acres of land at Mountain View
Cemetery. The net gain on the sale of the land to the
Metropolitan Water District was $184,000. The 1993 amount
also included $485,000 in realized gains by Security
National Life due to a significant amount of early bond
redemptions.
Net mortuary and cemetery income decreased by $197,000,
from $6,085,000 in 1993 to $5,888,000 in 1994. This
decrease was primarily related to a $299,000 reduction in
pre-need sales at Holladay Cottonwood Memorial Foundation.
This decrease was partially offset by the additional sales
of the Company's other mortuaries, particularly Camelback
Sunset Funeral Home, which was acquired in January 1994.
Mortgage fee income and other increased by $71,000, from
$1,253,000 in 1993 to $1,324,000 in 1994. This increase
was due to $382,000 in additional revenues that were
generated by Security National Mortgage, which was formed
as a wholly-owned subsidiary of the Company in July 1993,
for the purpose of originating and refinancing mortgage
loans. Partially offsetting the additional revenues that
were realized in 1994 from Security National Mortgage was
a $174,000 reduction in revenues from Bonneville Limousine.
The higher level of revenues from Bonneville Limousine in
1993 reflected the increased limousine services from the
NBA Allstar Game, which was held in Salt Lake City in 1993.
There was also a $75,000 reduction in 1994 due to the
termination of a computer services agreement. The Company
had provided computer services to a third-party in 1993
under a computer services agreement but these services were
not provided in 1994.
Total benefits and expenses were $15,326,000 for 1994,
which constituted 92% of total revenue of the Company, as
compared to $15,027,000, or 91% of total revenues for 1993.
Policy benefits decreased by $384,000, from $4,420,000 in
1993 to $4,027,000 in 1994. This decrease was primarily
due to diminishing policies inforce from 1993 to 1994 and
because a large block of business obtained paid-up status.
Amortization of deferred policy acquisition costs decreased
by $176,000, from $943,000 in 1993 to $767,000 in 1994.
This decrease was primarily due to certain deferred policy
acquisition costs which were determined unrecoverable and
amortized against income in 1993.
General and administrative expenses increased by $965,000,
from $7,098,000 in 1993, to $8,063,000 in 1994. This
increase was primarily due to the additional costs
associated with the operations of Camelback Sunset Funeral
Home, which was acquired on January 10, 1994, and Security
National Mortgage Company, which was formed and operated as
of July 1, 1993.
Interest expense increased by $18,000, from $675,000 in
1993 to $693,000 in 1994, due primarily to the debt assumed
with the acquisition of Camelback Sunset Funeral Home.
Cost of mortuary and cemetery goods and services decreased
by $123,000, from $1,890,000 in 1993 to $1,767,000 in 1994.
This decrease was primarily due to a reduction in pre-need
sales at Holladay Cottonwood Memorial Foundation.
Liquidity and Capital Resources
The Company's life insurance subsidiary and cemetery and
mortuary subsidiaries realize cash flow from premiums,
contract payments and sales on personal services rendered
for cemetery and mortuary business from interest and
dividends on invested assets, and from the proceeds from
the maturity of held-to-maturity investment, or sale of
other investments. The mortgage subsidiary realizes cash
flow from fees generated by originating and refinancing
mortgage loans and interest earned on mortgages sold to
investors. The Company considers these sources of cash
flow to be adequate to fund future policyholder and
cemetery and mortuary liabilities which generally are
long-term and adequate to pay current policyholder claims,
annuity payments, expenses on the issuance of new policies,
the maintenance of existing policies, debt service, and to
meet operating expenses.
The Company attempts to match the duration of invested
assets with its policyholder and cemetery and mortuary
liabilities. The Company may sell investments other than
those held to maturity in the portfolio to help in this
timing; however, to date, that has not been necessary. The
Company purchases short-term investments on a temporary
basis to meet the expectations of short-term requirements
of the Company's products. The Company's investment
philosophy is intended to provide a rate of return which
will persist during the expected duration of policyholder
and cemetery and mortuary liabilities regardless of future
interest rate movements.
The Company's investment policy is to invest predominately
in fixed maturity securities and warehouse mortgage loans
on a short-term basis before selling the loans to investors
in accordance with the requirements and laws governing the
life insurance subsidiary. Bonds owned by the insurance
subsidiary amounted to $51,143,000, at amortized cost as of
December 31, 1995 compared to $39,398,000 at amortized cost
as of December 31, 1994 This represents 66% of the total
insurance related investments in 1995 as compared to 54% in
1994. Generally all bonds owned by the life insurance
company are rated by the National Association of Insurance
Commissioners (NAIC). Under this rating system, there are
six categories used for rating bonds. At December 31,
1995, 3.61% ($1,851,000) and at December 31, 1994, 4.8%
($1,893,000) of the Company's total invested assets were
invested in bonds in rating categories three through six
which are considered non-investment grade.
Based on preliminary information, the Company plans to hold
its fixed income securities, including high-yield
securities, in its portfolio to maturity. Business
conditions, however, may develop in the future which may
indicate a need for a higher level of liquidity in the
investment portfolio. In that event the Company believes
it could sell short-term investment grade securities before
liquidating high-yielding longer term securities.
The Company is subject to risk based capital guidelines
established by statutory regulators requiring minimum
capital levels based on the perceived risk of assets,
liabilities, disintermediation, and business risk. At
December 31, 1995 and 1994, the life subsidiary exceeded
the regulatory criteria.
Shareholders' equity as a percent of assets is one measure
of capital strength. At December 31, 1995 the Company's
ratio decreased to 16% down from 19% at December 31, 1994.
This decrease is primarily due to the mortgage company
acting as a warehouse, by financing the mortgage loans
through bank debt, and then selling them to investors
within 45 days, and repaying the debt. This transaction
results in a receivable for mortgage loans sold to
investors which are offset by a bank loan payable.
Computation of the ratio without this transaction results
in the Company's debt to total assets at 11% in 1995 and
10% in 1994 and the Company's equity to total assets to 18%
in 1995 and 19% in 1994.
Lapse rates measure the amount of insurance terminated
during a particular period. The Company's lapse rate for
life insurance in 1995 was 10.5%, as compared to a rate of
8% in 1994.
In February 1995, the Company purchased approximately 100
acres of real property (the "Property") located in San
Diego, California; approximately 35 acres of which will be
used for the development of a cemetery. The purchase price
of the property was $1,062,000, $100,000 of which was paid
in cash and the balance of $1,062,000, together with
interest thereon at the rate of nine percent per annum, to
be paid in 12 monthly payments of $5,000, thereafter in
equal monthly payments of $10,000; however, interest does
not accrue on any part of the principal balance until
February 3, 1996. A principal payment of $100,000 was made
in December 1995. The Company has obtained approval from
the federal government and the California Cemetery Board to
operate a cemetery on the property. The development of the
cemetery will be financed internally. Initial development
of 35 acres to operate as a cemetery is estimated to cost
approximately $560,000.
In November 1995, the Company entered into a purchase sale
agreement with Myers Mortuary for the sale of the Company's
65% interest in Evergreen Memorial Partnership and the
Company's 50% interest in Evergreen Management Corporation.
As consideration for the sale of these entities, Myers
Mortuary paid $746,123 in satisfaction of the indebtedness
that Evergreen Memorial Partnership owes to the Company.
Myers Mortuary has also agreed to pay $200,000 to the
Company in four equal annual installments of $50,000,
beginning as of October 31, 1996. In addition, Myers
Mortuary will pay a $10.00 royalty to the Company for each
adult space sold in Evergreen Memorial Park over the next
ten years, beginning as of January 1, 1996.
In December 1995, the Company purchased all of the
outstanding shares of common stock of Civil Service
Employees Life Insurance Company ("CSE Life") from Civil
Service Employees Insurance Company for a total cost of
$5,200,000, which included a promissory note in the amount
of $1,063,000. Interest on the promissory note accrues at
7% per annum. Principal payments are to be made in seven
equal annual installments of $151,857, beginning on
December 29, 1996. Accrued interest will be payable
annually beginning on December 29, 1996.
In March 1995, the Company purchased 97,800 shares of
common stock of Greer-Wilson Funeral Home, Inc., ("Greer-
Wilson") representing 97.8% of the total issued and
outstanding shares of common stock of Greer-Wilson for a
total consideration of $1,218,000, which included a note to
the former owners for $588,000.
At December 31, 1995, $9,473,000 of the Company's
consolidated stockholders' equity represents the statutory
stockholders' equity of the Company's insurance subsidiary.
The life subsidiary cannot pay a dividend to its parent
company without the approval of insurance regulatory
authorities.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Page No.
Financial Statements:
Report of Independent Auditors. . . . . . . . . . . . . . 32
Consolidated Balance Sheets, December 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Earnings,
Years Ended December 31, 1995, 1994,
and 1993. . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Stockholders'
Equity, Years Ended December 31, 1995, 1994
and 1993. . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows,
Years Ended December 31, 1995, 1994 and
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . 39
Financial Statement Schedules:
I. Summary of Investments -- Other than
Investments in Related Parties . . . . . . . . . . . . . 64
II. Condensed Financial Information of
Registrant . . . . . . . . . . . . . . . . . . . . . . . 65
IV. Reinsurance. . . . . . . . . . . . . . . . . . . . . . . 71
V. Valuation and Qualifying Accounts and
Reserves . . . . . . . . . . . . . . . . . . . . . . . . 72
All other schedules to the consolidated financial
statements required by Article 7 of Regulation S-X are not
required under the related instructions or are inapplicable
and therefore have been omitted.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Security National Financial Corporation:
We have audited the accompanying consolidated balance
sheets of Security National Financial Corporation and
subsidiaries as of December 31, 1995, and 1994, and the
related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the three years in the
period ended December 31, 1995. Our audits also include
the financial statement schedules listed in the Index at
Item 8. These financial statements and schedules are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Security National
Financial Corporation and subsidiaries at December 31, 1995
and 1994, and the consolidated results of their operations
and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when
considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects,
the information set forth therein.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 15, 1996
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
Assets: 1995 1994
- ------- --------- -----------
Investments (Note 2):
Fixed maturity securities
held to maturity, at amortized
cost (market $52,528,726 and
$38,695,480 for 1995 and 1994) $51,143,361 $39,397,628
Equity securities available for sale,
at market (cost $4,071,936 and
$3,927,923 for 1995 and 1994) 4,556,565 4,149,713
Mortgage loans on real estate 10,434,844 13,857,729
Real estate, net of accumulated
depreciation of $1,560,106
and $1,262,853 for 1995 and 1994 7,669,296 7,586,650
Policy loans 3,007,596 2,670,989
Other loans 294,165 677,334
Short-term investments 722,593 4,013,296
------------ -----------
Total insurance related investments 77,828,420 72,353,339
Restricted assets of cemeteries
and mortuaries (Note 7) 2,986,658 2,482,068
Cash 7,710,155 2,060,876
Receivables:
Trade contracts 5,552,888 4,985,615
Mortgage loans sold to investors 19,839,657 823,564
Receivable from agents 471,937 463,040
Other 623,628 289,284
------------ ------------
Total receivables 26,488,110 6,561,503
Allowance for doubtful accounts (2,311,450) (1,923,808)
------------ ------------
Net receivables 24,176,660 4,637,695
Land and improvements held for sale 7,568,016 6,920,208
Accrued investment income 1,113,945 996,845
Deferred policy acquisition costs 4,509,974 4,768,284
Property, plant and equipment, net (Note 4) 6,432,615 4,899,873
Cost of insurance acquired (Note 3) 4,007,804 3,580,964
Excess of cost over net assets
of acquired subsidiaries 1,461,025 718,391
Other 417,409 339,714
------------ ------------
Total Assets $138,212,681 $103,758,257
============ ============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31,
1995 1994
-------- -------
Liabilities:
Future life, annuity, and other
policy benefits $76,867,685 $61,895,251
Line of credit for financing
of mortgage loans (Note 5) 14,468,354 --
Bank loans payable (Note 5) 7,485,391 7,440,576
Notes and contracts payable (Note 6) 5,175,317 2,768,546
Estimated future costs of pre-need sales 6,065,875 6,284,421
Payable to endowment care fund (Note 7) 12,520 319,336
Accounts payable 1,193,859 574,406
Other liabilities and accrued expenses 2,402,842 2,624,882
Income taxes (Note 8) 2,622,245 1,872,294
------------ -----------
Total Liabilities 116,294,088 83,779,712
Commitment and contingencies (Note 9)
Stockholders' Equity (Note 11):
Common stock:
Class A: $2 par value, authorized
10,000,000 shares, issued 3,819,415
shares in 1995 and 3,558,406 shares
in 1994 7,638,830 7,116,814
Class C: $0.40 par value, authorized
7,500,000 shares, issued 2,388,040
shares in 1995 and 2,275,045 shares
in 1994 955,216 910,018
----------- -----------
Total common stock 8,594,046 8,026,832
Additional paid-in capital 7,879,578 7,214,061
Unrealized appreciation of investments 484,629 221,790
Retained earnings 6,759,972 6,154,694
Treasury stock at cost (598,614 Class
A shares and 25,495 Class C shares
in 1995; 532,015 Class A shares and
24,281 Class C shares in 1994, held
by affiliated companies) (1,799,632) (1,638,832)
Total Stockholders' Equity 21,918,593 19,978,545
----------- ------------
Total Liabilities and Stockholders'
Equity $138,212,681 $103,758,257
============ ============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
Year Ended December 31,
1995 1994 1993
------- -------- -------
Revenue:
- --------
Insurance premiums and
other considerations $ 5,853,030 $ 4,944,789 $ 4,932,853
Net investment income (Note 2) 6,679,704 4,120,917 3,473,374
Net mortuary and cemetery sales 8,238,347 5,887,726 6,085,066
Realized gains on investments
and other assets (Note 2) 332,648 383,637 751,511
Mortgage fee income 4,943,103 1,170,465 788,032
Other 71,519 153,042 465,320
----------- ----------- -----------
Total revenue 26,118,351 16,660,576 16,496,156
Benefits and expenses:
Death benefits 2,193,232 1,663,475 1,553,892
Surrenders and other
policy benefits 2,161,605 903,603 860,925
Increase in future policy
benefits 1,813,881 1,469,029 2,005,048
Amortization of deferred policy
acquisition costs and cost of
insurance acquired 1,149,510 766,658 943,387
General and administrative
expenses:
Commissions 3,792,408 1,257,043 1,183,997
Salaries 3,611,993 2,937,993 2,434,934
Other 5,613,502 3,868,508 3,479,279
Interest expense 1,208,346 692,675 675,103
Cost of goods and services
sold of the mortuaries
and cemeteries 2,314,410 1,766,532 1,889,944
----------- ----------- -----------
Total benefits and expenses 23,858,887 15,325,516 15,026,509
----------- ----------- -----------
Earnings before income taxes 2,259,464 1,335,060 1,469,647
Income tax expense (Note 8) (728,000) (302,218) (388,100)
Minority interest in loss of
subsidiary 20,316 6,917 1,994
----------- ----------- -----------
Net earnings $ 1,551,780 $ 1,039,759 $ 1,083,541
=========== =========== ===========
Earnings per share $0.42 $0.31 $0.35
===== ===== =====
Weighted average
outstanding common shares 3,686,000 3,350,000 3,131,000
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Additional
Class Class Paid-in Unrealized
A C Capital Appreciation
----------- --------- ----------- ------------
Balance at
December 31,
1992 $ 6,313,216 $ 845,259 $ 6,611,989 $ 228,803
Net earnings
Stock dividends 315,686 41,015 112,141
Conversion Class
C to Class A 17,622 (17,624) 2
Tender offer 1,320 116 274
Surrendered
Certificates (2,208) 2,208
Change in
unrealized
appreciation 123,609
---------- --------- -------- --------
Balance at
December 31,
1993 6,645,636 868,766 6,726,614 352,412
Net earnings
Stock dividends 338,922 43,343 382,276
Conversion Class
C to Class A 2,090 (2,091) 1
Stock issued 130,166 105,170
Change in
unrealized
appreciation (130,622)
------------- ---------- ---------- --------
Balance at
December 31,
1994 7,116,814 910,018 7,214,061 221,790
Net earnings
Stock dividends 363,802 45,496 537,204
Conversion Class
C to Class A 298 (298)
Stock issued 157,916 128,313
Purchase of
treasury stock
Change in
unrealized
appreciation 262,839
-------------- --------- ---------- --------
Balance at
December 31,
1995 $ 7,638,830 $ 955,216 $ 7,879,578 $ 484,629
============ ========== ============ =========
Retained Treasury
Earnings Stock Total
-------- -------- --------
Balance at
December 31,
1992 $ 5,264,777 $(1,638,832) $17,625,212
Net earnings 1,083,541 1,083,541
Stock dividends (468,824)
Coversion Class C
to Class A
Tender offer 1,710
Surrendered
Certificates
Change in
unrealized
appreciation 123,609
------------ --------- ---------
Balance at
December 31,
1993 5,879,476 (1,638,832) 18,834,072
Net earnings 1,039,759 1,039,759
Stock dividends (764,541)
Conversion Class C
to Class A
Stock issued 235,336
Change in
unrealized
appreciation (130,622)
---------- ------------- ----------
Balance at
December 31,
1994 6,154,694 (1,638,832) 19,978,545
Net earnings 1,551,780 1,551,780
Stock dividends (946,502)
Conversion Class C
to Class A
Stock issued 286,229
Purchase of
treasury stock (160,800) (160,800)
Change in
unrealized
appreciation 262,839
----------- ----------- ----------
Balance at
December 31,
1995 $6,759,972 $(1,799,632) $21,918,593
========== =========== ===========
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
1995 1994 1993
---------- ----------- ----------
Cash flows from operating activities:
Net earnings $1,551,780 $1,039,759 $1,083,541
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities:
Realized gains on investments
and other assets (332,648) (383,637) (751,511)
Depreciation 719,903 565,777 557,558
Provision for losses on accounts
and loans receivable 548,327 79,752 101,803
Amortization of goodwill, premiums,
and discounts (152,472) (28,632) (47,101)
Income taxes 749,951 302,218 388,100
Policy acquisition costs deferred (644,873) (585,576) (893,777)
Policy acquisition costs amortized 903,183 758,443 931,457
Cost of insurance acquired amortized 246,327 8,215 11,930
Change in assets and liabilities net of
effects from purchases and disposals
of subsidiaries:
Land and improvements held for sale (1,401,165) 454,707 40,027
Future life and other benefits 2,326,507 1,437,243 1,798,544
Receivables for mortgage loans
sold (19,016,093) (823,564) --
Other operating assets and
liabilities (1,212,085) 567,730 244,191
----------- ---------- ----------
Net cash (used in) provided by
operating activities (15,713,358) 3,392,435 3,464,762
Cash flows from investing activities:
Securities held to maturity:
Purchases - fixed maturity
securities (313,393) (9,242,105) (4,028,098)
Calls and maturities - fixed
maturity securities 2,932,435 1,989,244 10,116,298
Securities available for sale:
Purchases - equity securities (424,095) (209,275) (376,005)
Sales - equity securities 388,021 235,484 266,921
Purchases of short-term investments (2,117,410) (3,194,870) (1,730,231)
Sales of short-term investments 5,408,113 9,584,611 5,190,692
Purchases of restricted assets (617,781) (395,968) (728,064)
Mortgage, policy, and other loans made (4,222,888) (9,591,567)(14,508,184)
Payments received for mortgage,
policy, and other loans 8,100,070 6,268,626 10,880,677
Purchases of property, plant,
and equipment (263,055) (1,545,167) (178,229)
Purchases of real estate (409,367) (147,837) (2,629,918)
Purchases of subsidiaries
net of cash acquired (4,544,043) (5,008,708) --
Other uses (26,567) -- --
----------- ----------- -----------
Net cash provided by (used in)
investing activities 3,890,040 (11,257,532) (4,645,063)
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Year Ended December 31,
1995 1994 1993
------- ------- ------
Cash flows from financing activities:
Annuity receipts 2,597,540 2,011,940 1,951,902
Annuity withdrawals (1,727,659) (1,031,305) (490,976)
Repayment of bank loans
and notes and contracts
payable (1,554,154) (1,768,985) (1,211,827)
Proceeds from borrowings
on bank loans and notes
and contracts payable 3,688,516 3,883,272 1,640,953
Net increase in line of
credit for financing of
mortgage loans 14,468,354 -- --
Other uses -- -- 1,710
------------ ----------- -----------
Net cash provided by
financing activities 17,472,597 3,094,922 1,891,792
------------ ----------- -----------
Net increase (decrease)
in cash 5,649,279 (4,770,175) 711,491
Cash at beginning of year 2,060,876 6,831,051 6,119,560
------------ ------------ -----------
Cash at end of year $ 7,710,155 $ 2,060,876 $ 6,831,051
============ ============ ===========
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
1) Significant Accounting Principles
General Overview of Business
Security National Financial Corporation and its wholly-
owned subsidiaries (the "Company") operates three main
business segments; life insurance, cemetery and mortuary,
and mortgage loans. The life insurance segment is engaged
in the business of selling and servicing selected lines of
life insurance, annuity products and accident and health
insurance marketed primarily in the intermountain west,
California, Texas, and Oklahoma. The cemetery and mortuary
segment of the Company consists of five cemeteries in Utah
and one in California, and eight mortuaries in Utah and
five mortuaries in Arizona. The mortgage loan segment is
an approved governmental and conventional lender that
originates and underwrites residential and commercial loans
for new construction and existing homes and real estate
projects primarily in the intermountain west.
Basis of Presentation
The accompanying consolidated financial statements have
been prepared in accordance with generally accepted
accounting principles which, for the life insurance
subsidiary, differ from statutory accounting principles
prescribed or permitted by regulatory authorities. The
following is a description of the most significant risks
facing the Company and how it mitigates those risks:
Legal/Regulatory Risk - the risk that changes in the legal
or regulatory environment in which the Company operates
will create additional expenses and/or risks not
anticipated by the Company in developing and pricing its
products. That is, regulatory initiatives designed to
reduce insurer profits, new legal theories or insurance
company insolvencies through guaranty fund assessments may
create costs for the insurer beyond those recorded in the
consolidated financial statements. In addition, changes in
tax law with respect to mortgage interest deductions or
other public policy or legislative changes may affect the
Company's mortgage sales. Also, the Company may be subject
to further regulations in the cemetery/mortuary business.
The Company mitigates this risk by offering a wide range of
products and by diversifying its operations, thus reducing
its exposure to any single product or jurisdiction, and
also by employing underwriting practices which identify and
minimize the adverse impact of such risk.
Credit Risk - the risk that issuers of securities owned by
the Company or mortgagors on mortgage loans on real estate
owned by the Company will default or that other parties,
including reinsurers and holders of cemetery/ mortuary
contracts which owe the Company money, will not pay. The
Company minimizes this risk by adhering to a conservative
investment strategy, by maintaining sound reinsurance and
credit and collection policies and by providing for any
amounts deemed uncollectible.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
Interest Rate Risk - the risk that interest rates will
change which may cause a decrease in the value of the
Company's investments or impair the ability of the Company
to market its mortgage and cemetery/mortuary products.
This change in rates may cause certain interest-sensitive
products to become uncompetitive or may cause
disintermediation. The Company mitigates this risk by
charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to
the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more
quickly than assets mature, the Company might have to
borrow funds or sell assets prior to maturity and
potentially recognize a gain or loss.
Mortality/Morbidity Risk - the risk that the Company's
actuarial assumptions may differ from actual
mortality/morbidity experience that may cause the Company's
products to be underpriced, may cause the Company to
liquidate insurance or other claims earlier than
anticipated and other potentially adverse consequences to
the business. The Company minimizes this risk through
sound underwriting practices, asset/liability duration
matching, and sound actuarial practices.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
The estimates susceptible to significant change are those
used in determining the liability for future policy
benefits an claims, those used in determining valuation
allowances for mortgage loans on real estate, and those
used in determining the estimated future costs for pre-need
sales. Although some variability is inherent in these
estimates, management believes the amounts provided are
adequate.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts and operations of the Company. The Company's
wholly-owned subsidiaries at December 31, 1995, are as
follows:
*Capital Investors Life Insurance Company ("Capital
Investors Life")
Security National Life Insurance Company
Civil Service Employees Life Insurance Company
Memorial Estates, Inc.
Memorial Mortuary
Paradise Chapel Funeral Home
Singing Hills Memorial Park
Cottonwood Mortuary, Inc.
Deseret Memorial
Holladay Cottonwood Memorial Foundation
Holladay Memorial Park
Camelback Sunset Funeral Home, Inc.
Security National Mortgage Company
Greer-Wilson Funeral Home
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
* In December 1995, Security National Life Insurance
Company and Civil Service Employees Life Insurance Company
were merged into Capital Investors Life, with Capital
Investors Life as the surviving corporation. In March
1996, the Company changed the name of the surviving
corporation from Capital Investors Life to Security
National Life Insurance Company.
All significant intercompany transactions and accounts have
been eliminated in consolidation.
In December 1995, the Company purchased all of the
outstanding shares of common stock of Civil Service
Employees Life Insurance Company ("CSE Life") from Civil
Service Employees Insurance Company for total consideration
of $5,200,000, which included a promissory note in the
amount of $1,063,000. The acquisition was accounted for
using the purchase method. Concurrent with the completion
of the purchase of CSE Life, the Company merged CSE Life
into Capital Investors Life. The assets and liabilities of
CSE Life have been included in the Company's balance sheet
at December 31, 1995. The results of operations of CSE
Life were not included in the consolidated financial
statements of the Company for the year ended December 31,
1995, as the effective date for accounting purposes was
December 31, 1995.
In March 1995, the Company purchased 97,800 shares of
common stock of Greer-Wilson Funeral Home, Inc., ("Greer-
Wilson") representing 97.8% of the total issued and
outstanding shares of common stock of Greer-Wilson for
total consideration of $1,218,000, which included a note to
the former owners for $588,000. The acquisition was
accounted for using the purchase method. The assets and
liabilities of Greer-Wilson have been included in the
Company's balance sheet at December 31, 1995. The results
of operation of Greer-Wilson for the nine months ended
December 31, 1995, were included in the consolidated
financial statements of the Company. This acquisition
resulted in an addition to excess of cost over net assets
acquired of approximately $800,000.
The unaudited consolidated pro forma results of operations
assuming consummation of these acquisitions as of January
1, 1994 are summarized as follows:
Pro Forma
1995 1994
-------------------------
(In thousands except
earnings per share)
Total Revenue $28,130,000 $20,203,000
Net earnings $ 1,843,000 $ 1,564,000
Earnings per share $ 0.50 $ 0.47
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
Investments
Investments are shown on the following basis:
Fixed maturity securities held to maturity - at cost,
adjusted for amortization of premium or accretion of
discount. Although the Company has the ability and intent
to hold these investments to maturity, there could occur
infrequent and unusual conditions in which it would sell
certain of these securities. Those conditions would
include unforeseen changes in asset quality, and
significant changes in tax laws affecting the changes in
regulatory capital requirements or permissible investments.
Equity securities available for sale - at fair value, which
is based upon quoted trading prices. Changes in fair
values net of income taxes are reported as unrealized
appreciation or depreciation and recorded as an adjustment
directly to stockholders' equity and, accordingly, have no
effect on net income.
Mortgage loans on real estate - at unpaid principal
balances, adjusted for amortization of premium or accretion
of discount, less allowance for possible losses.
Real estate - at cost, less accumulated depreciation
provided on a straight-line basis over the estimated useful
lives of the properties, and net of allowance for
impairment in value.
Policy and other loans - at the aggregate unpaid balances.
Short-term investments - consists of certificates of
deposit and commercial paper with maturities of up to one
year.
Restricted Assets of Cemeteries and Mortuaries - consists
of cash, mortgage loans, and mutual funds carried at cost,
fixed maturity securities carried at cost adjusted for
amortization of premium or accretion of discount, and
equity securities carried at fair value which is based upon
quoted trading prices.
Realized gains and losses on Investments - realized gains
and losses on investments, and declines in value considered
to be other than temporary, are recognized in operations on
the specific identification basis.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost.
Depreciation is calculated principally on the straight-line
method over the estimated useful lives of the assets.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
Recognition of Insurance Premiums and Other Considerations
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, and certain annuities with life contingencies)
are recognized as revenues when due from policyholders.
Revenues for interest-sensitive insurance policies (which
include universal life policies, interest-sensitive life
policies, deferred annuities and annuities without life
contingencies) consist of policy charges for the cost of
insurance, policy administration charges, and surrender
charges assessed against policyholder account balances
during the period.
Deferred Policy Acquisition Costs and Cost of Insurance Acquired
Commissions and other costs, net of commission and expense
allowances for reinsurance ceded, that vary with and are
primarily related to the production of new and renewal
insurance business have been deferred. Deferred policy
acquisition costs for traditional life insurance 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 products, deferred policy 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 when estimates of current or
future gross profits to be realized from a group of
products are reevaluated. Deferred acquisition costs are
written off when policies lapse or are surrendered.
Cost of insurance acquired is the present value of
estimated future profits of the acquired business and is
amortized similar to deferred policy acquisition costs.
Future Life, Annuity and Other Policy Benefits
Future policy benefit reserves for traditional life
insurance are computed using a net level method, including
assumptions as to investment yields, mortality, morbidity,
withdrawals, and other assumptions based on the insurance
subsidiaries' experience, modified as necessary to give
effect to anticipated trends and to include provisions for
possible unfavorable deviations. Such liabilities are, for
some plans, graded to equal statutory values or cash values
at or prior to maturity. The range of assumed interest
rates for all traditional life insurance policy reserves
was 4.5% to 10% in 1995, 1994, and 1993. Benefit reserves
for traditional limited-payment life insurance policies
include the deferred portion of the premiums received
during the premium-paying period; those deferred premiums
are recognized in income over the life of the policies.
Policy benefit claims are charged to expense in the period
that the claims are incurred. All insurance-related
benefits and expenses are reported net of reinsurance
ceded.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
Future policy benefit reserves for interest-sensitive
insurance products are computed under a retrospective
deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred
in the period in excess of related policy account balances.
Interest crediting rates for interest-sensitive insurance
products ranged from 4% to 6.5% in 1995, 4% to 6.25% in
1994, and 4% to 7% in 1993.
Participating Insurance
Participating business constitutes 5%, 12%, and 11% of the
ordinary life insurance in force for 1995, 1994 and 1993,
respectively. The provision for policyholders' dividends
included in policyholder obligations is based on dividend
scales anticipated by management. Amounts to be paid are
determined annually by the Board of Directors.
Reinsurance
The Company follows the procedure of reinsuring risks in
excess of $50,000. The Company is liable for those amounts
in the event the reinsurers are unable to pay their portion
of the claims.
The Company has entered into coinsurance agreements with
unaffiliated insurance companies under which the Company
assumed 100% of the risk for certain life insurance
policies and certain other policy-related liabilities of
the insurance company.
Reinsurance premiums, commissions, expense reimbursements
and reserves related to reinsured business are accounted
for on a basis consistent with those used in accounting for
the original policies issued and the terms of the
reinsurance contracts. Premiums ceded to other companies
are reported as a reduction of premium income. Expense
allowances received in connection with reinsurance ceded
are accounted for as a reduction of the related policy
acquisition costs and are deferred and amortized
accordingly.
Cemetery and Mortuary Operations
Land and improvements used in cemetery operations are
stated at cost and charged to operations when sold based on
the number of spaces available for sale. Mausoleum costs
are charged to operations when sold based on the number of
niches available for sale. Perpetual care is maintained on
sold spaces as discussed in Note 7.
Certain cemetery products are sold on a pre-need basis.
Revenues from pre-need cemetery sales are recognized at the
time of sale. Related costs required to establish the
liability for estimated future costs of pre-need sales are
also recorded at the time of sale. This liability relates
to promised merchandise and funeral services and is
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
increased or decreased each period as current costs change.
A corresponding charge is made to operations. Certain
mortuary products and services are also sold on a pre-need
basis. Pre-need mortuary sales are fully reserved at the
time of the sale. Revenue on pre-need mortuary services is
recognized at the time the service is performed. Through
1990, these contracts were non-interest bearing and the
related receivables were discounted using current market
rates. Resulting discount amounts are amortized into
operations as other income over the terms of the contracts.
Beginning in 1991, all pre-need sales contracts bear
interest at 8%.
The Company is required to place specified amounts into
restricted asset accounts for products sold on a pre-need
basis. Income from assets placed in these restricted asset
accounts are used to offset required increases to the
estimated future liability. Management believes that
amounts placed into these accounts are sufficient to
fulfill all future pre-need contract obligations.
Revenues and costs for at-need sales are recorded when the
services are performed.
The Company, through its mortuary and cemetery operations,
provides a guaranteed funeral arrangement wherein a
prospective customer can receive future goods and services
at guaranteed prices. To accomplish this, the Company,
through its life insurance operations, sells to the
customer an increasing benefit life insurance policy that
is assigned to the mortuaries. If, at the time of need,
the policyholder/potential mortuary customer utilizes one
of the Company's facilities, the guaranteed funeral
arrangement contract that has been assigned will provide
the funeral goods and services at the contracted price.
The increasing life insurance policy will cover the
difference between the original contract prices and current
prices. Risks may arise if the difference cannot be fully
met by the life insurance policy. However, management
believes that given current inflation rates and related
price increases of goods and services, the risk of exposure
is minimal.
Mortgage Operations
Mortgage company fee income is generated through the
origination and refinancing of mortgage loans and is
deferred until such loans are sold.
Excess of Cost Over Net Assets of Acquired Businesses
Previous acquisitions have been accounted for as purchases
under which assets acquired and liabilities assumed were
recorded at their fair values. The excess of cost over net
assets of acquired subsidiaries is being amortized over a
range of fifteen to thirty years using the straight-line
method. The Company periodically evaluates the
recoverability of amounts recorded. Accumulated
amortization was $590,495 and $532,140 at December 31, 1995
and 1994, respectively.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
Income Taxes
Income taxes include taxes currently payable plus deferred
taxes related to the tax effect of temporary differences in
the financial reporting basis and tax basis of assets and
liabilities. Such temporary differences are related
principally to the deferral of policy acquisition costs and
the provision for future policy benefits in the insurance
operations.
Earnings Per Common Share
Earnings per common share are based on the weighted average
number of shares outstanding during the year after giving
effect to the assumed conversion of Class C Common Stock to
Class A Common Stock, the acquisition of treasury stock,
and the retroactive effect of stock dividends declared for
each year presented. Outstanding stock options and related
stock dividends that attach to outstanding options are not
included in the computation when the effect is
antidilutive.
Reclassifications
Certain amounts in prior years have been reclassified to
conform with the 1995 presentation.
New Accounting Standards
During 1995, the FASB issued Statement 123, "Accounting for
Stock-Based Compensation," which is effective for fiscal
years beginning after December 15, 1995. The Company
accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to
Employees," and intends to continue to do so.
Also during 1995, the Financial Accounting Standards Board
("FASB") issued Statement 121, "Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed of" and
Statement 122, "Accounting for Mortgage Servicing Rights"
which are effective for fiscal years beginning after
December 15, 1995. The Company has not yet adopted these
new standards; however, the effect on operations and
stockholders' equity is not considered to be significant.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
2) Investments
- ---------------
The Company's investments in fixed maturity securities held to maturity
and equity securities available for sale are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995: Cost Gains Losses Value
- ------------------ ----------- ------------ ----------- ----------
Fixed maturity securities
held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
agencies $13,713,860 $539,876 $(48,647) $14,205,089
Obligations of states and
political subdivisions 204,586 11,106 (21,242) 194,450
Corporate securities
including public utilities 29,244,915 1,217,107 (244,811) 30,217,211
Redeemable preferred stock 133,788 25,468 (36,589) 122,667
Mortgage-backed securities 7,846,212 11,835 (68,738) 7,789,309
----------- ---------- --------- -----------
Total $51,143,361 $1,805,392 $(420,027) $52,528,726
Equity securities =========== ========== ========= ===========
available for sale $ 4,071,936 $ 736,008 $(251,379) $ 4,556,565
=========== ========== ========= ===========
December 31, 1994:
Fixed maturity securities
held to maturity:
U.S. Treasury securities and
obligations of U.S. Government
agencies $10,146,365 $ 27,897 $ (228,438) $ 9,945,824
Obligations of states and
political subdivisions 194,913 7,744 (34,821) 167,836
Corporate securities
including public utilities 26,285,230 441,253 (728,611) 25,997,872
----------- --------- ---------- -----------
Redeemable preferred stock 133,788 14,557 (33,837) 114,508
Mortgage-backed securities 2,637,332 -- (167,892) 2,469,440
----------- ---------- ----------- -----------
Total $39,397,628 $ 491,451 $(1,193,599) $38,695,480
=========== ========== =========== ===========
Equity securities
available for sale $ 3,927,923 $ 539,137 $ (317,347) $ 4,149,713
=========== ========== =========== ===========
The fair values for fixed maturity securities are based on quoted market
prices, when available. For fixed maturity securities not actively traded,
fair values are estimated using values obtained from independent pricing
services, or in the case of private placements, are estimated by discounting
expected future cash flows using a current market value applicable to the
coupon rate, credit and maturity of the investments. The fair
values for equity securities are based on quoted market prices.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
The amortized cost and estimated fair value of fixed
maturity securities held to maturity at December 31, 1995,
by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because
certain borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
------------ -------------
Due in 1996 $ 944,176 $ 951,681
Due in 1997 through 2000 12,266,182 12,591,973
Due in 2001 through 2005 26,286,895 27,266,016
Due after 2005 3,666,108 3,807,080
Mortgage backed securities 7,846,212 7,789,309
Redeemable preferred stock 133,788 122,667
----------- -----------
$51,143,361 $52,528,726
=========== ===========
The Company's realized gains and losses in investments are summarized
as follows:
1995 1994 1993
----------- ----------- ---------
Fixed maturity
securities held
to maturity:
Gross realized gains $ 33,028 $101,862 $662,434
Gross realized losses (7,112) (7,523) (18,552)
Equity securities
available for sale:
Gross realized gains 101,874 -- 54,482
Gross realized losses (1,237) -- (106,038)
Other assets 206,095 289,298 159,185
-------- -------- --------
Total $332,648 $383,637 $751,511
======== ======== ========
The change in unrealized appreciation of investments, as
shown in the accompanying consolidated statements of
stockholders' equity, relates entirely to equity securities
for 1995, 1994, and 1993.
Concentrations of credit risk arise when a number of
mortgage loan debtors have similar economic characteristics
that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic
conditions. Although the Company has a diversified
mortgage loan portfolio consisting of residential and
commercial loans and requires collateral on all real estate
exposures, a substantial portion of its debtors' ability to
honor obligations is reliant on the economic stability of
the geographic region in which the debtors do business.
The Company has 95% of its mortgage loans in the state of
Utah with one mortgage loan to Wasatch Land and Development
which constitutes 27% of the total mortgage loan balance.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
Major categories of net investment income are as follows:
1995 1994 1993
----------- ---------- ---------
Fixed maturity
securities $3,070,180 $1,290,174 $1,333,251
Equity securities 266,613 137,283 135,110
Mortgage loans
on real estate 1,888,855 1,210,670 846,186
Real estate 1,115,212 1,286,328 1,104,362
Policy loans 138,303 102,995 101,826
Other 888,952 849,900 783,823
---------- ---------- ----------
Gross investment
income 7,368,115 4,877,350 4,304,558
Investment expenses (688,411) (756,433) (831,184)
---------- ---------- ----------
Net investment
income $6,679,704 $4,120,917 $3,473,374
========== ========== ==========
Net investment income includes net investment income earned
by the restricted assets of the cemeteries and mortuaries
of approximately $574,000, $515,000 and $426,000 for 1995,
1994, and 1993, respectively.
Investment expenses consist primarily of depreciation,
property taxes and an estimated portion of administrative
expenses relating to investment activities.
Securities on deposit for regulatory authorities as
required by law amounted to $7,142,237 at December 31, 1995
and $3,907,432 at December 31, 1994.
3) Cost of Insurance Acquired
Information with regard to cost of insurance acquired is as
follows:
1995 1994 1993
---------- ---------- ----------
Balance at
beginning of year $3,580,964 $ 100,796 $ 112,726
Cost of insurance
acquired 673,167 3,488,383 --
Interest accrued at 7% 250,667 7,056 7,473
Amortization (496,994) (15,271) (19,403)
---------- ---------- --------
Net amortization
charged to income (246,327) (8,215) (11,930)
---------- ---------- --------
Balance at end of year $4,007,804 $3,580,964 $100,796
========== ========== ========
Amortization is expected to approximate $302,000, $341,000,
$320,000, $302,000, and $282,000 for the years 1996 through
2000.
4) Property, Plant and Equipment
The cost of property, plant and equipment is summarized
below:
December 31,
------------------------------
1995 1994
---------- -----------
Land and Buildings $ 6,273,245 $ 4,779,417
Furniture and
equipment 3,472,402 3,046,362
----------- -----------
9,745,647 7,825,779
Less accumulated
depreciation (3,313,032) (2,925,906)
----------- -----------
$ 6,432,615 $ 4,899,873
=========== ===========
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
5) Bank Loans Payable and Line of Credit for Financing Mortgage Loans
- -----------------------------------------------------------------------
December 31,
-----------------
1995 1994
---------- ------
Bank loans payable are summarized
as follows:
Prime rate plus 1/2% (8.5% at
December 31, 1995) note
payable in monthly
installments of $36,420
including principal and
interest, collateralized by
1,000,000 shares of Security
National Life stock, due
December 1999. $2,688,434 $2,859,177
10% note payable in monthly
installments of $8,444
including principal and
interest, collateralized by
real property, which book
value is approximately
$1,182,000, due January 2013 829,924 --
One year treasury constant
maturity plus 2.75% (6.04%
at December 31, 1995) note
payable in monthly
installments of $6,000,
including principal and
interest, collateralized by
real property, which book
value is approximately
$496,000, due October
1999. 379,462 414,368
Prime plus 1/2% (8.5% at
December 31, 1995) note
payable in monthly
installments of $15,018,
including principal and
interest, collateralized
by real property, which
book value is approximately
$1,249,000, due August 1997 1,897,040 1,907,453
Time deposit plus 2% (3.25%
at December 31, 1995) note
payable in monthly
installments of $3,500,
including principal and
interest, collateralized
by 75% of the unpaid face
amount of the accounts
receivable, which are less
than 60 days from payment
date, due March 2006 267,085 297,004
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
5) Bank Loans Payable and Line of Credit
for Financing of Mortgage Loans (Continued)
December 31,
------------------
1995 1994
------ -----
Prime rate plus 1/2% (8.5% at
December 31, 1995) note
payable in monthly
installments of $7,235
including principal and
interest collateralized
by real property, which
book value is approximately
$1,058,000, due August
1999. 542,669 575,200
Prime plus 1% (8.5% at
December 31, 1995) note
payable in monthly
installments of $14,345,
including principal and
interest, collateralized
by real property, which
book value is approximately
$2,266,000, due February
2003 650,752 1,014,683
Other collateralized
notes payable 230,025 372,691
----------- ----------
Total bank loans 7,485,391 7,440,576
Less current installments 516,469 532,707
----------- ----------
Bank loans, excluding
current installments $ 6,968,922 $6,907,869
=========== ==========
$20 million revolving
line of credit at the
London Interbank
offered rates plus 1.45%
(7.14% at December 31,
1995) note payable within
30 days collateralized by
mortgage loans sold to
investors. $14,468,354 $ --
=========== ===========
See Note 6 for summary of maturities for subsequent years.
6) Notes and Contracts Payable
Notes and contracts payable are summarized as follows:
December 31,
-------------------
1995 1994
------- ------
10% note payable in monthly
installments of $37,551,
including principal and
interest, collateralized
by a building, which book
value is approximately
$2,942,000, due December,
1997 $1,192,194 $1,506,318
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
6) Notes and Contracts Payable (Continued)
December 31,
-------------------
1995 1994
------ ------
Due to former stockholders
of Deseret Memorial, Inc.
resulting from the
acquisition of such entity.
Amount represents the
present value discounted
at 8% of monthly annuity
payments ranging from
$4,600 to $5,000 plus
an index adjustment in
the 7th through the 12th
years, over a minimum
period of 20 years. 692,243 696,670
Due to former stockholders
of Greer Wilson resulting from
the acquisition of such entity.
Amount represents the present
value discounted at 10% of
monthly annuity payments of
$7,000, due March 2005. 509,848 --
Due to former stockholders of
Civil Service Employees Life
Insurance Company resulting from
the acquisition of such entity.
7% note payable in seven annual
principal payments of $151,857,
due December 2003. 1,063,000 --
9% note payable in monthly
installments of $10,000
including principal and interest
collateralized by real
property, which book value is
approximately $2,332,000, due
July 2008 912,000 --
Other notes payable 806,032 565,558
---------- ----------
Total notes and contracts 5,175,317 2,768,546
Less current installments 686,326 141,643
---------- ----------
Notes and contracts,
excluding current
installments $4,488,991 $2,626,903
========== ==========
The following tabulation shows the combined maturities of
bank loans payable, line of credit for financing of
mortgage loans, and notes and contracts payable:
1996 $15,671,149
1997 1,208,586
1998 1,293,490
1999 979,704
2000 940,791
Thereafter 7,035,342
-----------
Total $27,129,062
===========
Interest paid approximated interest expense in 1995, 1994
and 1993.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
7) Cemetery and Mortuary Endowment Care and Pre-need
Merchandise Funds
The Company owns and operates several endowment care
cemeteries, for which it has established and maintains an
endowment care fund. Per statutory requirement, the
Company records a liability to the fund of $14 for each
space sold after 1979, $42 for spaces sold after July 1,
1983 and $50 for spaces sold after May 1, 1993. For each
space sold in the mausoleum, $30 is recognized as a
liability. The Company is not required to transfer assets
to the fund until the spaces are paid for. The Company is
not liable for any maintenance costs exceeding the
stipulated statutory rate.
The liability to the endowment care fund is summarized as
follows:
December 31,
--------------
1995 1994
------- ------
Liability for spaces sold $1,265,217 $1,306,320
Less assets in the fund (1,252,697) (986,984)
---------- ----------
Total due to fund (fully
and not fully paid) $ 12,520 $ 319,336
========== ==========
Assets in the endowment care fund are summarized as
follows:
December 31,
--------------
1995 1994
------ ------
Cash $ 92,037 $870,127
Mutual funds 20,299 19,927
Bonds, at cost 1,000 1,000
Other common stock 89,163 90,480
Preferred stock 5,450 5,450
Mortgage loans 1,044,748 --
---------- --------
$1,252,697 $986,984
========== ========
The Company has established and maintains certain
restricted asset accounts to provide for future merchandise
obligations incurred in connection with its pre-need sales.
Such amounts are reported as restricted assets of
cemeteries and mortuaries in the accompanying balance
sheet.
In addition to the above mentioned assets, $128,867 of
accounts receivable have been pledged to the restricted
asset accounts. Cemeteries and mortuaries transfer assets
to the restricted asset accounts as merchandise payments
are received.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
8) Income Taxes
The Company's income tax liability at December 31 is
summarized as follows:
1995 1994
-------- --------
(In Thousands)
Current $ 213 $ --
Deferred 2,409 1,872
------ ------
Total $2,622 $1,872
====== ======
Significant components of the Company's deferred tax
liabilities and assets at December 31 are approximately as
follows:
1995 1994
------ ------
(In Thousands)
Assets
Future policy benefits $(286) $(47)
Uncollected agents'
balances (46) (30)
Difference between book
and tax basis of bonds (95) (142)
Surplus notes -- (272)
Funds held under
reinsurance treaty -- (56)
Net operating
loss carryforwards (138) (369)
Unearned premium discount -- (9)
Capital loss
carryforward (21) --
----- -----
Total deferred
tax assets (586) (925)
----- -----
Liabilities
Deferred policy
acquisition costs 300 304
Cost of insurance
acquired 536 453
Installment sales 478 551
Depreciation 898 889
Trusts 360 286
Other 423 314
------ ------
Total deferred
tax liabilities 2,995 2,797
------ ------
Net deferred tax
liability $2,409 $1,872
====== ======
The Company paid no income taxes in 1995, 1994, and 1993.
The Company's income tax expense is summarized as follows:
1995 1994 1993
------- ------ ------
(In Thousands)
Current $191 $-- $--
Deferred 537 302 388
---- ---- ----
Total $728 $302 $388
==== ==== ====
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
The reconciliation of income tax attributable to continuing
operations computed at the U.S. federal statutory rates is
as follows:
1995 1994 1993
-------- ------- -------
(In Thousands)
Computed expense at
statutory rate $ 768 $ 454 $ 500
Special deductions
allowed small life
insurance companies (164) (108) (25)
Dividends received
deduction (40) (50) (116)
Prior year provision
to tax return true-up 158 (4) --
Other, net 6 10 29
----- ----- ------
Tax expense
(benefit) $ 728 $ 302 $ 388
===== ===== ======
A portion of the life insurance 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 Internal Revenue Code, the policyholders'
surplus account was frozen at its December 31, 1983 balance
and will be taxed generally only when distributed. As of
December 31, 1995, the policyholders' surplus accounts
approximated $4,262,000. Management does not intend to
take actions nor does management expect any events to occur
that would cause federal income taxes to become payable on
that amount. However, if such taxes were accrued, the
amount of taxes payable would be approximately $1,449,000.
The insurance companies have remaining loss carry forwards
for tax purposes of approximately $1,017,000.
9)Reinsurance, Commitments and Contingencies
The Company follows the procedure of reinsuring risks in
excess of a specified limit, which was $50,000 at December
31, 1995. The Company is contingently liable for these
amounts in the event such reinsurers are unable to pay
their portion of the claims. At December 31, 1995 and
1994, the contingent liabilities for such future policy
benefits aggregated $264,547 and $122,096, respectively,
all of which relate to life and accident and health
insurance. These amounts pertain to insurance in force
aggregating $80,261,274 in 1995 and $35,073,111 in 1994.
The Company has also assumed insurance from other companies
(credit life and credit accident and health) having
insurance in force amounting to $58,916,837 at December 31,
1995 and $69,998,195 at December 31, 1994.
The Company and its wholly-owned subsidiary, Greer-Wilson
have been named as parties in the action of In Re the
Marriage of Ann Marie Wilson, Arizona Superior Court,
Maricopa County, No. DR95-02128. This is a dissolution
(divorce) action between Scott Wilson, a former employee of
Greer-Wilson and Ann Wilson. Both the Company and Greer-
Wilson are named as co-respondents. The litigation is in
the early stages. Ann Wilson has not yet sufficiently
defined her claims to permit a complete determination of
the Company's potential exposure or that of Greer-Wilson
but it appears that there are good defenses and a good
position to limit exposure. It is the intention of the
Company and Greer-Wilson to vigorously defend this matter.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
The Company is also a defendant in various other legal
actions arising from the normal conduct of business.
Management believes that none of the actions will have a
material effect on the Company's financial position or
results of operations.
10)Retirement Plans
The Company and its subsidiaries have a noncontributory
ESOP for all eligible employees. Eligible employees are
primarily those with more than one year of service and who
work in excess of 1,040 hours per year. Contributions,
which may be in cash or stock of the Company, are
determined annually by the Board of Directors. The
Company's contributions are allocated to eligible employees
based on the ratio of each eligible employee's compensation
to total compensation for all eligible employees during
each year. ESOP contribution expense totaled $21,914,
$54,288, and $146,039 for 1995, 1994, and 1993,
respectively. At December 31, 1995 the ESOP held 593,675
shares of Class A and 472,665 shares of Class C common
stock of the Company. All shares held by the ESOP have
been allocated to the participating employees and all
shares held by the ESOP are considered outstanding for
purposes of computing earnings per share.
The Company organized a 401(k) savings plan in 1995, which
allows employees to contribute pre tax compensation up to
the lesser of 5% of total annual compensation or the
statutory limit (currently $9,240). The Company matches
50% of each employee's contribution in Company stock.
Company matching contributions were not significant in
1995.
11)Capital Stock
The Company has two classes of common stock with shares
outstanding, Class A and Class C. Class C shares vote
share for share with the Class A shares on all matters
except election of one-third of the directors who are
elected solely by the Class A shares, but generally are
entitled to a lower dividend participation rate. Class C
is convertible into Class A at any time on a five to one
ratio, however, the conversion rights of Class A into Class
C have numerous restrictions.
Shareholders of both classes of common stock have received
5% stock dividends in the years 1989 through 1995, as
authorized by the Company's Board of Directors.
The Company has Class B Common Stock of $1.00 par value,
5,000,000 shares authorized, of which none are issued.
Class B shares are non-voting stock except to any proposed
amendment to the Articles of Incorporation which would
affect Class B Common Stock.
In 1987, the Company adopted the 1987 Incentive Stock
Option Plan (the 1987 Plan). The 1987 Plan provides that
shares of the Class A Common Stock of the Company may be
optioned to certain officers and key employees of the
Company. The Plan establishes a Stock Option Plan
Committee which selects the employees to whom the options
will be granted and determines the price of the stock. The
Plan establishes the minimum purchase price of the stock at
an amount which is not less than 100% of the fair market
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
value of the stock (110% for employees owning more than 10%
of the total combined voting power of all classes of
stock). The Plan provides that if additional shares of
Class A Common Stock are issued pursuant to a stock split
or a stock dividend, the number of shares of Class A Common
Stock then covered by each outstanding option granted
hereunder shall be increased proportionately with no
increase in the total purchase price of the shares then so
covered, and the number of shares of Class A Common Stock
reserved for the purpose of the Plan shall be increased by
the same proportion. In the event that the shares of Class
A Common Stock of the Company from time to time issued and
outstanding are reduced by a combination of shares, the
number of shares of Class A Common Stock then covered by
each outstanding option granted hereunder shall be reduced
proportionately with no reduction in the total price of the
shares then so covered, and the number of shares of Class
A Common Stock reserved for the purposes of the Plan shall
be reduced by the same proportion. The Plan terminates ten
years from its effective date and options granted are
non-transferable. The Plan also includes a Stock
Appreciation Right which permits the holder of the option
to elect to receive cash, amounting to the difference
between the option price and the fair market value of the
stock at the time of the exercise, or a lesser amount of
stock without payment, upon exercise of the option.
Activity of the 1987 Plan for 1995 and 1994 is summarized
as follows:
1995 1994
------- ------
Number Option Number Option
The 1987 Stock of Shares Price of Shares Price
Option Plan
Outstanding at
beginning
of year 176,893 $2.43-2.72 168,469 $2.55-$2.86
Stock
Dividend 8,845 8,424
-------- -------
Outstanding
at end
of year 185,738 2.31-2.59 176,893 2.43- 2.72
======== =======
Exercisable
at end
of year 185,738 2.31-2.59 176,893 2.43- 2.72
Available options
for future grant
under the
1987 Stock
Incentive
Plan 188,000 188,000
On June 21, 1993, the Company adopted the Security National
Financial Corporation 1993 Stock Incentive Plan (the "1993
Plan"), which reserves shares of Class A Common Stock for
issuance thereunder. The 1993 Plan was approved at the
annual meeting of the stockholders held on June 21, 1993.
The 1993 Plan allows the Company to grant options and issue
shares as a means of providing equity incentives to key
personnel, giving them a proprietary interest in the
Company and its success and progress.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
The 1993 Plan provides for the grant of options and the
award or sale of stock to officers, directors, and
employees of the Company. Both "incentive stock options,"
as defined under Section 422A of the Internal Revenue Code
of 1986 (the "Code"), and "non-qualified options" may be
granted pursuant to the 1993 Plan. The exercise prices for
the options granted are equal to or greater than the fair
market value of the stock subject to such options as of the
date of grant, as determined by the Company's Board of
Directors.
The options granted on April 29, 1993, were to reward
certain officers and key employees who have been employed
by the Company for a number of years and to help the
Company retain these officers by providing them with an
additional incentive to contribute to the success of the
Company.
The 1993 Plan is to be administered by the Board of
Directors or by a committee designated by the Board. The
terms of options granted or stock awards or sales effected
under the 1993 Plan are to be determined by the Board of
Directors or its committee. The Plan provides that if the
shares of Common Stock shall be subdivided or combined into
a greater or smaller number of shares or if the Company
shall issue any shares of Common Stock as a stock dividend
on its outstanding Common Stock, the number of shares of
Common Stock deliverable upon the exercise of Options shall
be increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share
to reflect such subdivision, combination or stock dividend.
No options may be exercised for a term of more than ten
years from the date of grant. Options intended as
incentive stock options may be issued only to employees,
and must meet certain conditions imposed by the code,
including a requirement that the option exercise price be
no less than the fair market value of the option shares on
the date of grant. The 1993 Plan provides that the
exercise price for non-qualified options will be not less
than at least 50% of the fair market value of the stock
subject to such option as of the date of grant of such
options, as determined by the Company's Board of Directors.
The 1993 Plan has a term of ten years. The Board of
Directors may amend or terminate the 1993 Plan at any time.
1995 1994
-------- -------
Number Option Number Option
The 1993 Stock of Shares Price of Shares Price
Option Plan ----------- ------- --------- -------
- ------------
Outstanding at
beginning
of year 198,200 2.98-4.40 90,000 3.13-3.44
Stock
dividend 9,910 4,500
Granted 0 103,700
-------- --------
Outstanding at
end of year 208,110 2.84-4.19 198,200 2.98-4.40
======== ========
Exercisable at
end of year 208,110 2.84-4.19 198,200 2.98-4.40
Available options
for future
grant under the
1993 Stock
Incentive Plan 106,300 106,300
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
12) Statutory Financial Information
The Company's insurance subsidiary is domiciled in Utah and
prepares its statutory basis financial statements in
accordance with accounting practices prescribed or
permitted by the Utah Insurance Department. "Prescribed"
statutory accounting practices include state laws,
regulations, and general administrative rules, as well as
a variety of publications of the National Association of
Insurance Commissioners ("NAIC"). "Permitted" statutory
accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from
state to state, may differ from company to company within
a state, and may change in the future. The NAIC currently
is in the process of codifying statutory accounting
practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to
be completed in 1997, will likely change, to some extent,
prescribed statutory accounting practices, and may result
in changes to the accounting practices that insurance
enterprises use to prepare their statutory financial
statements. Statutory net income and statutory
stockholder's equity for the life subsidiary as reported to
state regulatory authorities, is presented below:
1995 1994 1993
------- ------ ------
Statutory net income
(loss) for the years
ended December 31 $1,414,246 $ 701,985 $ (380,271)
Statutory Stockholder's
Equity at
December 31 $9,472,696 $8,569,956 $7,499,128
Generally, the net assets of the life subsidiary are
available for transfer to the Company are limited to the
amounts that the life subsidiary'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.
The Utah 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. Regulatory compliance is determined by a ratio (the
"Ratio") of the enterprise's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control
level, RBC, as defined by the NAIC. Enterprises below
specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective
action. The life insurance subsidiary has a Ratio that is
greater than 300% of the minimum RBC requirements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
13) Business Segment Information
The Company is principally involved in three segments: Life insurance and
annuities, cemetery/mortuary operations and mortgage operations. The
following schedules summarize segment information for the three segments
and corporate activities for 1995, 1994, and 1993:
1995
Life Cemetery/
Insurance Corporate Mortuary Mortgage Consolidated
------------ --------- ---------- ---------- -------------
Revenues:
Net investment
income $ 5,630,462 $ 14,518 $ 574,116 $ 460,608 $ 6,679,704
Other revenues 6,017,641 207,116 8,270,787 4,943,103 19,438,647
---------- --------- ----------- ----------- ------------
11,648,103 221,634 8,844,903 5,403,711 26,118,351
Expenses:
Death and other
policy benefits 4,354,837 -- -- -- 4,354,837
Increase in
future policy
benefits 1,813,881 -- -- -- 1,813,881
Amortization of
deferred policy
acquisition costs
and cost
of insurance
acquired 1,149,510 -- -- -- 1,149,510
General, admini-
strative and
other costs 3,446,723 529,678 7,916,265 4,647,993 16,540,659
----------- -------- ----------- ---------- ------------
10,764,951 529,678 7,916,265 4,647,993 23,858,887
----------- -------- ----------- ---------- ------------
Earnings before
income taxes $ 883,152 $(308,044) $ 928,638 $ 755,718 $ 2,259,464
=========== ========= =========== =========== ============
Identifiable
assets $93,152,884 $ 361,161 $24,126,989 $20,571,647 $138,212,681
=========== ========= =========== =========== ============
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
13) Business Segment Information (Continued)
1994
Life Cemetery/
Insurance Corporate Mortuary Mortgage Consolidated
------------ ---------- ---------- ---------- ------------
Revenues:
Net investment
income $ 3,582,518 $ 23,379 $ 515,020 $ -- $ 4,120,917
Other revenues 5,077,914 171 6,291,109 1,170,465 12,539,659
----------- -------- ----------- ---------- ------------
8,660,432 23,550 6,806,129 1,170,465 16,660,576
Expenses:
Death and other
policy benefits 2,567,078 -- -- -- 2,567,078
Increase in
future policy
benefits 1,469,029 -- -- -- 1,469,029
Amortization of
deferred policy
acquisition costs 766,658 -- -- -- 766,658
General, admini-
strative and
other costs 3,126,598 228,604 6,073,846 1,093,703 10,522,751
----------- -------- ---------- ----------- -----------
7,929,363 228,604 6,073,846 1,093,703 15,325,516
----------- -------- ---------- ----------- -----------
Earnings before
income taxes $ 731,069 $(205,054) $ 732,283 $ 76,762 $ 1,335,060
=========== ========= =========== ========== ============
Identifiable
assets $81,962,820 $ 764,201 $20,573,980 $ 457,256 $103,758,257
=========== ========= =========== ========== ============
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
13) Business Segment Information (Continued)
1993
Life Cemetery/
Insurance Corporate Mortuary Mortgage Consolidated
----------- ----------- ------------ --------- ------------
Revenues:
Net investment
income $3,059,424 $21,235 $ 392,715 $ -- $ 3,473,374
Other revenues 5,588,015 35,964 6,610,771 788,032 13,022,782
---------- ------- ---------- --------- -----------
8,647,439 57,199 7,003,486 788,032 16,496,156
---------- ------- ---------- --------- -----------
Expenses:
Death and other
policy
benefits 2,414,817 -- -- -- 2,414,817
Increase in
future policy
benefits 2,005,048 -- -- -- 2,005,048
Amortization of
deferred policy
acquisition
costs 943,387 -- -- -- 943,387
General, admini-
strative and
other costs 2,763,250 28,559 6,216,203 655,245 9,663,257
---------- ------- ---------- --------- -----------
8,126,502 28,559 6,216,203 655,245 15,026,509
---------- ------- ---------- --------- -----------
Earnings before
income
taxes $ 520,937 $ 28,640 $ 787,283 $132,787 $ 1,469,647
=========== ======== =========== ========= ===========
Identifiable
assets $55,240,540 $733,542 $19,463,228 $483,900 $75,921,210
=========== ======== =========== ========= ===========
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994, and 1993
14) Disclosure about Fair Value of Financial Instruments
The fair values of investments in fixed maturity and equity
securities along with methods used to estimate such values
are disclosed in Note 2. The following methods and
assumptions were used by the Company in estimating the
"fair value" disclosures related to other significant
financial instruments:
Cash, Short-term Investments, and Restricted Assets of the
Cemeteries and Mortuaries: The carrying amounts reported
in the accompanying balance sheets for these financial
instruments approximate their fair values.
Mortgage, Policy, and Collateral Loans: The fair values
are estimated using interest rates currently being offered
for similar loans to borrowers with similar credit ratings.
Loans with similar characteristics are aggregated for
purposes of the calculations. The carrying amounts
reported in the accompanying balance sheets for these
financial instruments approximate their fair values.
Investment Contracts: The fair values for the Company's
liabilities under investment-type insurance contracts
presented are estimated based on the contracts' cash
surrender values and are summarized as follows:
Carrying Fair
Amount Value
----------------------
(In Thousands)
Individual and group
annuities $33,663 $32,654
Supplementary contracts
without life contingencies 261 261
with life contingencies 1,638 1,638
------- -------
Total $35,562 $34,553
======= =======
The fair values for the Company's insurance contracts other
than investment-type contracts are not required to be
disclosed. However, the fair values of liabilities under
all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, such
that the Company's exposure to changing interest rates is
minimized through the matching of investment maturities
with amounts due under insurance contracts.
Schedule I
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Summary of Investments
Other than Investments in Related Parties
As of December 31, 1995:
Amount at
Which
Shown
Estimated in the
Type of Investment Amortized Fair Balance
Cost Value Sheet
------------- ----------- ----------
Fixed maturity securities
held to maturity:
Bonds:
United States
Government and
government agencies
and authorities $13,713,860 $14,205,089 $13,713,860
States,
municipalities and
political
subdivisions 204,586 194,450 204,586
Mortgage backed
securities 7,846,212 7,789,309 7,846,212
Public utilities and
other corporate 29,244,915 30,217,211 29,244,915
Redeemable preferred
stocks 133,788 122,667 133,788
------------ ------------ -----------
Total 51,143,361 52,528,726 51,143,361
Equity securities,
available for sale:
Common Stocks:
Public utilities 278,980 403,200 403,200
Banks, trusts and
insurance
companies 91,725 214,270 214,270
Industrial,
miscellaneous
and all other 3,453,374 3,619,637 3,619,637
Nonredeemable
preferred stocks 247,857 319,458 319,458
----------- ---------- ----------
Total 4,071,936 4,556,565 4,556,565
Mortgage loans on
real estate 10,434,844 10,434,844
Real estate 7,669,296 7,669,296
Policy loans 3,007,596 3,007,596
Other investments 1,016,758 1,016,758
----------- -----------
Total investments $77,343,791 $77,828,420
=========== ===========
Schedule II
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Balance Sheets
December 31,
---------------
1995 1994
------- ------
Assets
- ------
Short-term investments $ 274,850 $ 660,405
Cash 29,280 39,041
Investment in affiliates,
at equity 26,172,249 22,162,208
Receivables:
Receivable from affiliates 1,738,557 1,453,570
Other 16,585 16,585
----------- -----------
Total receivables 1,755,142 1,470,155
Property, plant and
equipment, at cost,
net of accumulated
depreciation of $273,608
for 1995 and $262,594
for 1994 40,318 50,815
Other assets 128 54
----------- -----------
Total assets $28,271,967 $24,382,678
=========== ===========
See accompanying notes to parent company only financial
statements.
Schedule II, Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Balance Sheets (Continued)
December 31,
-------------
1995 1994
----- -------
Liabilities:
Bank loans payable (note 1):
Current installments $ 185,683 $ 187,316
Long-term 2,502,751 2,671,861
Notes and contracts payable
(note 2):
Current installments 179,448 425
Long-term 939,330 55,353
Advances from affiliated
companies (note 3) 1,781,118 947,936
Accounts payable 90 6,683
Other liabilities and
accrued expenses 540,448 408,195
Income Taxes 224,506 126,364
---------- ----------
Total liabilities 6,353,374 4,404,133
---------- ----------
Stockholders' equity:
Common Stock:
Class A: $2 par value,
authorized 10,000,000
shares, issued
3,819,415 shares in
1995 and 3,558,406
shares in 1994 7,638,830 7,116,814
Class C: $0.40 par
value, authorized
7,500,000 shares,
issued 2,388,040
shares in 1995
and 2,275,045
shares in 1994 955,216 910,018
Additional paid-in capital 7,879,578 7,214,061
Unrealized appreciation
of investments 484,629 221,790
Retained earnings 6,759,972 6,154,694
----------- -----------
23,718,225 21,617,377
Treasury stock at cost
(598,614 Class A
shares and 25,495
Class C shares in
1995; 532,015
Class A shares and
24,281 Class C shares
in 1994, held
by affiliated
companies) (1,799,632) (1,638,832)
------------ ------------
Total Stockholders'
Equity 21,918,593 19,978,545
------------ ------------
Total liabilities
and Stockholders'
equity $ 28,271,967 $24,382,678
============ ===========
See accompanying notes to parent company only financial
statements.
Schedule II, (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Statements of Earnings
Year Ended December 31,
---------------------------
1995 1994 1993
----- -------- -------
Revenue:
Net investment
income $ 14,518 $ 23,379 $ 21,235
Realized loss on
investments -- -- (98,859)
Other 971,505 568,971 656,023
---------- ---------- ----------
Total revenues 986,023 592,350 578,399
---------- ---------- ----------
Expenses:
General and
administrative
expenses 278,581 209,500 (18,773)
Interest expense 271,701 40,607 64,047
---------- --------- ---------
Total expenses 550,282 250,107 45,274
---------- --------- ---------
Earnings before income
taxes, and earnings
of subsidiaries 435,741 342,243 533,125
Income tax expense (98,142) (93,222) (500)
Equity in earnings of
subsidiaries 1,214,181 790,738 550,916
---------- ---------- ----------
Net earnings $1,551,780 $1,039,759 $1,083,541
========== ========== ==========
See accompanying notes to parent company only financial
statements.
Schedule II, (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Statements of Cash Flows
December 31,
--------------
1995 1994 1993
------- ------ -------
Cash flows from
operating activities:
Net earnings $1,551,780 $1,039,759 $1,083,541
Adjustments to
reconcile net earnings
to net cash provided
by operating activities:
Depreciation and
amortization 11,014 4,378 2,821
Provision for loss on
accounts receivable 161,528 -- (98,859)
Gain on sale of
investment to
affiliate -- -- (121,898)
Change in assets and
liabilities:
Undistributed earnings
of affiliates (1,214,181) (790,731) (550,916)
Accounts receivable (327,115) (43,546) 44,489
Other assets (74) 76,770 19,533
Accounts payable and
accrued expenses (6,593) (54,968) (119,140)
Other liabilities 138,282 86,420 58,262
Income taxes 98,142 93,222 500
----------- --------- ---------
Net cash provided
by operating activities 412,783 411,304 318,333
Cash flows from investing
activities:
Proceeds from sale of
equity securities -- -- 203,248
Proceeds from sale of
short term investments 385,555 61,485 54,652
Investment in
subsidiaries (2,533,021) (3,196,446) (147,451)
Purchase of Property
plant & equipment (517) (52,842) --
----------- ----------- -----------
Net cash (used in)
provided by investing
activities (2,147,983) (3,187,803) 110,449
Cash flows from financing
activities:
Proceeds from advances
from affiliates 833,182 493,345 --
Payments of notes and
contracts payable (170,743) (528,023) (384,055)
Proceeds from
borrowings on notes
and contracts payable 1,063,000 2,859,177 1,710
------------ ---------- ----------
Net cash provided by
(used in) financing
activities 1,725,439 2,824,499 (382,345)
------------ ----------- ----------
Net (decrease) increase
in cash (9,761) 48,000 46,437
Cash at beginning of year 39,041 (8,959) (55,396)
----------- ---------- ----------
Cash at end of year $ 29,280 $ 39,041 $ (8,959)
=========== ========== ==========
Schedule II, (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
Notes to Parent Company Only Financial Statements
(1) Bank Loans Payable
- ----------------------
Bank loans payable are summarized as follows:
December 31,
-------------
1995 1994
------ ------
Prime rate plus 1/2% (8.5% at
December 31, 1995) note
payable in monthly
installments of $36,420 $2,688,434 $2,859,177
Less current installments 185,683 187,316
---------- ----------
Bank loans, excluding
current installments $2,502,751 $2,671,861
========== ==========
(2) Notes and Contracts Payable
Notes and contracts are summarized as follows:
December 31,
-------------
1995 1994
----- ------
7 year notes due April 16, 1996,
1/2% over U.S. Treasury 6 month
bill rate 27,166 27,166
10 year notes due April 16, 1999,
1% over U.S. Treasury 6 month
bill rate 28,187 28,187
Due to former stockholders of
Civil Service Employees Life
Insurance Company resulting from
the acquisition of such entity.
7% note payable in seven annual
principal payments of $151,857
due December 2003 1,063,000 --
Other $ 425 $ 425
---------- ---------
Total notes and contracts $1,118,778 $ 55,778
Less current installments 179,448 425
---------- ---------
Notes and contracts, excluding
current installments $ 939,330 $ 55,353
========== =========
The following tabulation shows the combined maturities of bank loans
payable and notes and contracts payable:
1996 $ 365,131
1997 372,608
1998 393,316
1999 444,153
2000 440,742
Thereafter 1,791,262
----------
Total $3,807,212
==========
Schedule II, (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
Notes to Parent Company Only Financial Statements
(3) Advances from Affiliated Companies
- ----------------------------------------
December 31,
-------------
1995 1994
------ ------
Non-interest bearing advances
from affiliates:
Cemetery and Mortuary
subsidiary $1,126,527 $493,345
Mortgage subsidiary 200,000 --
Life Insurance Subsidiary 454,591 454,591
---------- --------
$1,781,118 $947,936
========== ========
(4) Dividends
No dividends have been paid to the registrant for each of the
last three years by any subsidiaries.
Schedule IV
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Reinsurance
Percentage
Ceded to Assumed of Amount
Direct Other from Other Net Assumed to
Amount Companies Companies Amount Net
--------- ------------ ------------ ------- -----------
1995
Life Insurance
in force
($000) $ 471,771 $ 80,262 $ 58,917 $ 450,426 13.08%
========== ======== ======== ========== ======
Premiums:
Life
Insurance $5,004,568 $122,399 $317,312 $5,199,481 6.10%
Accident and
Health
Insurance 566,097 34,585 11,558 543,070 2.13%
---------- -------- -------- ---------- ------
Total
premiums $5,570,665 $156,984 $328,870 $5,742,551 5.73%
========== ======== ======== ========== =====
1994
Life Insurance
in force
($000) $ 366,522 $ 35,073 $ 69,998 $ 401,447 17.44%
========== ======== ======== ========== ======
Premiums:
Life
Insurance $4,852,223 $108,076 $ -- $4,744,147 N/A
Accident and
Health
Insurance 15,403 957 -- 14,446 N/A
---------- -------- --------- ---------- -----
Total
premiums $4,867,626 $109,033 $ -- $4,758,593 N/A
========== ======== ========= ========== ======
1993
Life Insurance
in force
($000) $ 310,260 $ 16,396 $ 135 $ 293,999 0.0459%
========== ======== ======== ========== =======
Premiums:
Life
Insurance $4,855,633 $ 95,140 -- $4,760,493 N/A
Accident and
Health
Insurance 17,655 1,046 -- 16,619 N/A
---------- -------- -------- ---------- ------
Total
premiums $4,873,288 $ 96,186 -- $4,777,112 N/A
========== ======== ======= ========== =====
Schedule V
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Balance Additions Deductions, Balance
at Charged Disposals at
Beginning to Costs and End of
of Year and Expenses Write-offs Year
----------- -------------- ------------ --------
For the Year Ended December 31, 1995
- ------------------------------------
Accumulated depreciation
on real estate $ 1,262,853 $297,254 $ -- $1,560,107
Accumulated depreciation on
property, plant
and equipment 2,925,906 422,649 (35,523) 3,313,032
Allowance for
doubtful accounts 1,923,808 548,327 (160,685) 2,311,450
Allowance for
doubtful loans 158,553 -- -- 158,553
For the Year Ended December 31, 1994
- ------------------------------------
Accumulated depreciation
on real estate $ 1,000,113 $262,740 $ -- $1,262,853
Accumulated depreciation on
property, plant
and equipment 2,622,935 374,503 71,532 2,925,906
Allowance for
doubtful accounts 1,949,553 79,752 105,497 1,923,808
Allowance for
doubtful loans 158,553 -- -- 158,553
For the Year Ended December 31, 1993
- ------------------------------------
Accumulated depreciation
on real estate $ 738,242 $261,871 $ -- $1,000,113
Accumulated depreciation on
property, plant
and equipment 2,327,249 295,686 -- 2,622,935
Allowance for
doubtful accounts 2,931,025 73,250 1,054,722 1,949,553
Allowance for
doubtful loans 130,000 28,553 -- 158,553
Item 9. Changes In and Disagreements with Accountants on Accounting
- --------------------------------------------------------------------
and Financial Disclosure
- ------------------------
None
PART III
Item 10. Directors and Executive Officers
- -----------------------------------------
There is incorporated by reference herein information
contained in the registrant's definitive proxy statement in
connection with the Company's 1996 annual shareholders
meeting.
Item 11. Executive Compensation
- --------------------------------
There is incorporated by reference herein information
contained in the registrant's definitive proxy statement in
connection with the Company's 1996 annual shareholders
meeting.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
There is incorporated by reference herein information
contained in the registrant's definitive proxy statement in
connection with the Company's 1996 annual shareholders
meeting.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
There is incorporated by reference herein information
contained in the registrant's definitive proxy statement in
connection with the Company's 1996 annual shareholders
meeting.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a)(1)(2) Financial Statements and Schedules
----------------------------------
See "Index to Consolidated Financial Statements and
Supplemental Schedules" under Item 8 above.
(a)(3) Exhibits
--------
The following Exhibits are filed herewith pursuant
to Rule 601 of Regulation S-K or are incorporated by
reference to previous filings.
Exhibit
Table No Document
- ----------- ---------
(a)(3) Exhibits:
3.A. Articles of Restatement of Articles of
Incorporation***
B. Bylaws*
4.A. Specimen Class A Stock Certificate*
B. Specimen Class C Stock Certificate*
C. Specimen Preferred Stock Certificate and
Certificate of Designation of Preferred Stock*
10. A. Restated and Amended Employee Stock Ownership
Plan and Trust Agreement (1)
B. 1993 Stock Option Plan (2)
C. Stock Purchase Agreement with Capital
Investors Life Insurance Company and Suncoast
Financial Corporation (3)
D. Profit Sharing Agreement with Suncoast
Financial Corporation (4)
E. Service Agreement with Suncoast Financial
Corporation (4)
F. Promissory Note with Key Bank of Utah (4)
G. Loan and Security Agreement with Key Bank of
Utah (4)
H. General Pledge Agreement with Key Bank of
Utah (4)
I. Purchase and Sale Agreement with Escrow
Instructions with the Carter Family Trust and
the Leonard M. Smith Family Trust (5)
J. Note Secured by Purchase Price Deed of Trust
and Assignment of Rents with the Carter
Family Trust and the Leonard M. Smith Family
Trust (5)
K. Deed of Trust and Assignment of Rents with
the Carter Family Trust and the Leonard M.
Smith Family Trust (5)
L. Stock Insurance Agreement with Greer-Wilson
Funeral Home, Inc. and Page E. Greer (5)
M. Promissory Note with Page E. Greer and
Patricia R. Greer (5)
N. Pledge Agreement with Page E. Greer and Patricia
R. Greer (5)
O. Option Agreement with Page E. Greer, Patricia
R. Greer and Greer-Wilson Funeral Home, Inc.
(5)
P. Consultation and Noncompetition Agreement with
Page E. Greer, Patricia R. Greer and Greer-
Wilson Funeral Home, Inc. (5)
Q. Guaranty with Page E. Greer and Patricia R.
Greer (5)
R. Irrevocable Stock Proxy with Page E. Greer and
Patricia R. Greer (5)
S. Stock Purchase Agreement with Civil Service
Life Insurance Company and Civil Service
Employees Insurance Company (6)
T. Promissory Note with Civil Service Employees
Insurance Company (6)
U. Articles of Merger of Civil Service Employees
Life Insurance Company into Capital Investors
Life Insurance Company (6)
V. Agreement and Plan of Merger of Civil Service
Employees Life Insurance Company into Capital
Investors Life Insurance Company (6)
11. Statement Re: Computation of Per-share Earnings
22. Subsidiaries of the Registrant
(1) Incorporated by reference from Registration
Statement on Form S-1, as filed on June 29,
1987.
(2) Incorporated by reference from Annual Report
on Form 10-K, as filed on March 31, 1994.
(3) Incorporated by reference from Report on Form
8-K, as filed on November 2, 1994.
(4) Incorporated by reference from Report on Form
8-K, as filed on February 24, 1995.
(5) Incorporated by reference from Report on Form
8-K, as filed on May 1, 1995.
(6) Incorporated by reference from Report on Form
8-K, as filed on January 16, 1996.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K with the
Securities and Exchange Commission on January 16,
1996. The report supplied information under Section
2 thereof, captioned "Acquisition or Disposition of
Assets," which was related to the acquisition of
Civil Service Employees Life Insurance Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SECURITY NATIONAL FINANCIAL CORPORATION
Dated: March 28, 1995 By: George R. Quist,
----------------
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934 as amended, this report has been signed by the
following persons in counterpart on behalf of the Company
on the dates indicated:
SIGNATURE TITLE DATE
------------ --------- --------
George R. Quist Chairman of the March 28, 1996
- --------------- Board, President and
Chief Executive Officer
Scott M. Quist (Principal Executive March 28, 1996
- -------------- Officer) First Vice
President, General
Counsel, Treasurer
and Director (Principal
Accounting Officer)
William C. Sargent Senior Vice President, March 28, 1996
- ------------------ Secretary and Director
Charles L. Crittenden Director March 28, 1996
- ---------------------
Sherman B. Lowe Director March 28, 1996
- ---------------
R.A.F. McCormick Director March 28, 1996
- ----------------
H. Craig Moody Director March 28, 1996
- --------------
W. Lowell Steen Director March 28, 1996
- ---------------
Nathan H. Wagstaff Director March 28, 1996
- ------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Year Ended December 31, 1995
SECURITY NATIONAL FINANCIAL CORPORATION
Commission File No. 0-9341
E X H I B I T S
Exhibit Index
Exhibit No. Document Name
95.
95.
95.
95.
95.
95.
Exhibit 11
SECURITY NATIONAL FINANCIAL CORPORATION
Computation of Per-Share Earnings
For the Year Ended December 31,
---------------------------------
1995 1994 1993
------ ------ ------
Primary:
Average shares
outstanding 3,551 3,322 3,131
Net effect of dilutive
stock options - based
on the treasury stock
method using average
market price 135 28 --
-------- --------- --------
Total 3,686 3,350 3,131
======== ========= ========
Net income $ 1,552 $ 1,040 $ 1,084
======== ========= =======
Per-share amount $ .42 $ .31 $ .35
======== ========= =======
Fully Diluted
Average shares
outstanding 3,551 3,322 3,131
Net effect of dilutive
stock options - based
on the treasury stock
method using the year-
end market price, if
higher than average
market price 145 37 --
-------- -------- -------
Total 3,696 3,359 3,131
======== ======== =======
Net income $ 1,552 $ 1,040 $ 1,084
======= ======= =======
Per-share amount $ .42 $ .31 $ .35
======= ======= =======
Exhibit 22
Subsidiaries of Security National Financial Corporation
(as of March 28, 1996)
Security National Life Insurance Company
Memorial Estates, Inc.
Memorial Mortuary
Paradise Chapel Funeral Home, Inc.
California Memorial Estates, Inc.
Cottonwood Morutary, Inc.
Deseret Memorial, Inc.
Holladay Cottonwood Memorial Foundation
Holladay Memorial Park, Inc.
Camelback Sunset Funeral Home, Inc.
Security National Mortgage Company
Greer-Wilson Funeral Home, Inc.
7
12-MOS
DEC-31-1995
DEC-31-1995
0
51,143,361
0
4,556,565
10,434,844
7,669,296
77,828,420
7,710,155
0
4,509,974
138,212,681
74,281,374
0
727,379
1,858,932
27,129,062
8,594,046
0
0
13,324,547
138,212,681
5,853,030
6,679,704
332,648
13,252,969
6,168,718
1,149,510
0
2,259,464
728,000
1,531,464
0
0
0
1,551,780
0.42
0.42
0
0
0
0
0
0
0
