UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2006 Commission File Number: 0-9341
- -------------------------------- ------------------------------
SECURITY NATIONAL FINANCIAL CORPORATION
Exact Name of Registrant
UTAH 87-0345941
(State or other jurisdiction I.R.S. Employer Identification Number
of incorporation or organization
5300 South 360 West, Salt Lake City, Utah 84123
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (801) 264-1060
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Securities Exchange Act
of 1934. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934): YES ____ NO X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $2.00 par value 5,847,239
- ------------------------------------- -----------
Title of Class Number of Shares Outstanding
as of March 31, 2006
Class C Common Stock, $.20 par value 6,642,929
- ------------------------------------ ------------
Title of Class Number of Shares Outstanding
as of March 31, 2006
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2006
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
- ------ --------
Condensed Consolidated Statement of Earnings - Three months ended
March 31, 2006 and 2005 (unaudited)....................................3
Condensed Consolidated Balance Sheet - March 31, 2006, (unaudited)
and December 31, 2005................................................4-5
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 2006 and 2005 (unaudited).................6
Notes to Condensed Consolidated Financial Statements (unaudited)....7-12
Item 2 Management's Discussion and Analysis of Financial Condition
- ------ and Results of Operations...................................12-15
Item 3 Quantitative and Qualitative Disclosures about Market Risk.....16
- ------
Item 4 Controls and Procedures........................................16
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PART II - OTHER INFORMATION
Other Information...........................................16-19
Signature Page.................................................20
Certifications..............................................21-23
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended March 31,
Revenues: 2006 2005
- -------- ---- ----
Insurance premiums and other considerations $7,554,270 $7,180,520
Net investment income 5,074,686 4,345,263
Net mortuary and cemetery sales 3,054,798 2,885,368
Realized gains (losses) on investments and other assets (2,584) 23,690
Mortgage fee income 16,629,591 13,171,106
Other 92,932 216,737
------------ ------------
Total revenues 32,403,693 27,822,684
------------ ------------
Benefits and expenses:
Death benefits 3,821,959 3,515,928
Surrenders and other policy benefits 587,125 469,367
Increase in future policy benefits 2,333,007 2,628,190
Amortization of deferred policy
and pre-need acquisition costs
and cost of insurance acquired 807,455 855,741
General and administrative expenses:
Commissions 12,362,260 10,573,325
Salaries 4,242,752 3,812,734
Other 5,290,766 4,516,123
Interest expense 1,020,791 641,688
Cost of goods and services sold-
mortuaries and cemeteries 635,421 547,840
------------ ------------
Total benefits and expenses 31,101,536 27,560,936
------------ ------------
Earnings before income taxes 1,302,157 261,748
Income tax (expense) benefit (288,491) 18,160
------------ ------------
Net earnings $1,013,666 $279,908
============ ============
Net earnings per common share $.16 $.05
==== ====
Weighted average outstanding common shares 6,511,542 6,079,717
=========== ==========
Net earnings per common share-assuming dilution $.15 $.05
==== ====
Weighted average outstanding common shares
assuming-dilution 6,639,918 6,104,229
=========== ===========
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2006 December 31,
(Unaudited) 2005
Assets:
Fixed maturity securities
held to maturity, at amortized cost $91,925,758 $89,780,942
Fixed maturity securities available
for sale, at estimated fair value 5,583,584 6,597,161
Equity securities available for sale,
at estimated fair value 5,133,253 12,346,939
Mortgage loans on real estate and construction loans,
net of allowances for losses 82,639,039 72,793,811
Real estate, net of accumulated
depreciation and allowances for losses 7,432,762 7,012,399
Policy, student and other loans net of allowance for
doubtful accounts 12,463,702 12,391,569
Short-term investments 7,617,340 3,211,590
------------- -------------
Total investments 212,795,438 204,134,411
------------- -------------
Restricted assets of cemeteries and mortuaries 5,310,700 5,240,099
------------- -------------
Cash and cash equivalents 22,694,210 16,632,966
------------- -------------
Receivables:
Trade contracts 5,139,844 5,733,142
Mortgage loans sold to investors 46,765,321 53,970,231
Receivable from agents 1,986,902 1,992,877
Other 1,120,588 958,851
------------- -------------
Total receivables 55,012,655 62,655,101
Allowance for loan losses and doubtful accounts (1,325,280) (1,191,106)
------------- -------------
Net receivables 53,687,375 61,463,995
------------- -------------
Policyholder accounts on deposit with reinsurer -- 6,572,756
Cemetery land and improvements held for sale 8,301,811 8,498,227
Accrued investment income 2,530,784 2,197,576
Deferred policy and pre-need
contract acquisition costs 25,900,240 24,048,638
Property and equipment, net 14,727,188 14,747,276
Cost of insurance acquired 12,612,567 12,663,221
Cemetery perpetual care trust investments 1,079,605 1,152,493
Goodwill 683,191 683,191
Other 2,283,649 1,610,624
------------- -------------
Total assets $362,606,758 $359,645,473
============= =============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
March 31, 2006 December 31,
(Unaudited) 2005
Liabilities:
Future life, annuity, and other benefits $262,399,599 $260,822,803
Unearned premium reserve 3,854,335 3,157,918
Bank loans payable 8,528,704 8,946,321
Notes and contracts payable 922,934 1,326,284
Deferred pre-need cemetery and mortuary
contract revenues 10,798,584 10,828,994
Accounts payable 1,380,407 1,533,065
Funds held under reinsurance treaties -- 1,129,747
Other liabilities and accrued expenses 9,610,244 9,427,644
Income taxes 15,012,141 14,601,029
------------- -------------
Total liabilities 312,506,948 311,773,805
------------- -------------
Commitments and contingencies -- --
------------- -------------
Non-controlling interest in
perpetual care trusts 2,195,495 2,173,250
------------- -------------
Stockholders' Equity:
Common stock:
Class A: $2.00 par value, authorized
10,000,000 shares, issued 7,099,261
shares in 2006 and 7,098,363 shares
in 2005 14,198,523 14,196,726
Class C: convertible, $0.20 par value, authorized
7,500,000 shares, issued 6,781,067
shares in 2006 and 6,781,060 shares
in 2005 1,356,212 1,356,212
------------- -------------
Total common stock 15,554,735 15,552,938
Additional paid-in capital 15,652,479 15,650,344
Accumulated other comprehensive (loss
and other items, net of deferred taxes 1,313,780 117,647
Retained earnings 18,469,757 17,460,024
Treasury stock at cost (1,252,022 Class A shares
and 138,138 Class C shares in 2006;
1,251,104 Class A shares and 138,138
Class C shares in 2005 held
by affiliated companies) (3,086,436) (3,082,535)
------------- -------------
Total stockholders' equity 47,904,315 45,698,418
------------- -------------
Total liabilities and
stockholders' equity $362,606,758 $359,645,473
============= =============
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2006 2005
---- ----
Cash flows from operating activities:
Net cash (used in) provided by operating activities $ 16,686,154 $ (7,857,716)
------------ ------------
Cash flows from investing activities: Securities held to maturity:
Purchase - fixed maturity securities (2,492,945) (502,000)
Calls and maturities - fixed
maturity securities 219,587 5,622,503
Securities available for sale:
Purchase - fixed maturity securities (36,776) (7,009)
Sales - equity securities 8,907,662 --
Purchases of short-term investments (17,289,494) (5,414,701)
Sales of short-term investments 12,883,744 4,883,208
Purchases of restricted assets (42,247) (41,090)
Change in assets for perpetual care trusts 72,888 (67,735)
Amount received for perpetual care trusts 22,245 27,575
Mortgage, policy, and other loans made (19,593,150) (15,663,719)
Payments received for mortgage,
policy, and other loans 9,581,478 19,117,574
Purchases of property and equipment (405,377) (404,331)
Disposal of property and equipment 20,876 --
Purchases of real estate (1,496,925) (1,887,950)
Sale of real estate 971,086 926,062
-------------- --------------
Net cash (used in) provided by
investing activities (8,677,348) 6,588,387
-------------- --------------
Cash flows from financing activities:
Annuity contract receipts 1,540,403 1,419,729
Annuity contract withdrawals (2,701,701) (2,560,646)
Purchase of treasury stock (3,901) --
Repayment of bank loans and notes and
contracts payable (782,363) (242,940)
Proceeds from borrowing on notes and
contracts -- 270,329
--------------- -------------
Net cash used in financing activities (1,947,562) (1,113,528)
--------------- -------------
Net change in cash and cash equivalents 6,061,244 (2,382,857)
Cash and cash equivalents at beginning of period 16,632,966 15,333,668
------------- ------------
Cash and cash equivalents at end of period $22,694,210 $12,950,811
=========== ===========
See accompanying notes to condensed consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2006 (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2006. For further information, refer to the consolidated financial statements
and notes thereto for the year ended December 31, 2005, included in the
Company's Annual Report on Form 10-K (file number 0-9341).
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 and 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 fairly stated in all material respects.
Certain 2005 amounts have been reclassified to bring them into conformity with
the 2006 presentation.
2. Comprehensive Income
For the three months ended March 31, 2006 and 2005, total comprehensive income
amounted to $2,209,799 and $80,056, respectively.
3. Stock-Based Compensation
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123R, "Share-Based Payment" ("FAS 123R") for
its stock-based compensation plans. The Company previously accounted for these
plans under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations and disclosure requirements established by SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") as amended by SFAS No.
148, "Accounting for Stock Based Compensation - Transition and Disclosure."
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2006 (Unaudited)
3. Stock-Based Compensation (Continued)
Under APB 25, no compensation expense was recorded in earnings for the Company's
stock-based options granted under its compensation plans. The pro forma effects
on net income and earnings per share for the options and awards granted under
the plans were instead disclosed in a note to the consolidated financial
statements. Under SFAS 123R, all stock-based compensation is measured at the
grant date, based on the fair value of the option or award, and is recognized as
an expense in earnings over the requisite service, which is typically through
the date the options vest.
The Company adopted SFAS 123R using the modified prospective method. Under this
method, for all stock-based options and awards granted prior to January 1, 2006
that remain outstanding as of that date, compensation cost is recognized for the
unvested portion over the remaining requisite service period, using the
grant-date fair value measured under the original provisions of SFAS 123 for pro
forma and disclosure purposes. Furthermore, compensation costs will also be
recognized for any awards issued, modified, repurchased or cancelled after
January 1, 2006.
The Company utilized the Black-Scholes-Merton model for calculating the fair
value pro forma disclosures under SFAS 123 and will continue to use this model,
which is an acceptable valuation approach under SFAS 123R. The following table
summarizes the Black-Scholes-Merton option-pricing model assumptions used to
compute the weighted-average fair value of stock options granted during the
periods below that remain outstanding at March 31, 2006:
Three Months Ended
March 31,
2006 2005
------- ----
Dividend yield N/A* 5%
Expected volatility N/A* 39%
Risk-free interest rate N/A* 3.4%
Expected holding period (in years) N/A* 7.5
Weighted-average fair value of options granted N/A* $1.92
- ----------------
* Not applicable as there were no options granted during the period.
No options were granted for the three months ended March 31, 2006. Total
compensation costs relating to stock-based compensation was not material during
the three months ended March 31, 2006, including the effects from adoption of
SFAS 123R, which would have previously been presented in a pro form disclosure,
as discussed above.
The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair-value recognition provisions of SFAS 123
to all of its stock-based compensation awards for periods prior to adoption of
SFAS 123R, and the actual effect on net income and earnings per share for the
period subsequent to the adoption of SFAS 123R:
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2006 (Unaudited)
3. Stock-Based Compensation (Continued)
Net earnings, as reported $1,013,666 $ 279,908
Total stock-based employee
compensation recognized -- --
Total stock-based employee
compensation expense determined
under fair value based method for all awards -- (169,230)
---------- ---------
Pro forma net earnings $1,013,666 $ 110,678
========== =========
Basic earnings per share, as reported $.16 $.05
Diluted earnings per share as reported $.16 $.05
==== ====
Basic earnings per share, pro forma $.15 $.02
Diluted earnings per share, pro forma $.15 $.02
==== ====
4. Earnings Per Share
The basic and diluted earnings per share amounts were calculated as follows:
Three Months Ended March 31,
2006 2005
---- ----
Numerator:
Net income $1,013,666 $ 279,908
========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 6,511,542 6,079,717
----------- -----------
Effect of dilutive securities:
Employee stock options 127,348 23,971
Stock appreciation rights 1,028 541
------------- -----------
Dilutive potential common shares 128,376 24,512
------------ ------------
Denominator for diluted earnings
per share-adjusted weighted-average
shares and assumed conversions 6,639,918 6,104,229
=========== ==========
Basic earnings per share $.16 $.05
==== ====
Diluted earnings per share $.15 $.05
==== ====
Earnings per share amounts have been adjusted for the effect of annual stock
dividends.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2006 (Unaudited)
5. Business Segment
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
For the Three Months Ended
March 31, 2006
Revenues from
external customers $ 10,911,337 $ 3,316,689 $18,175,667 $ -- $ 32,403,693
Intersegment revenues 1,389,866 23,001 91,436 (1,504,303) --
Segment profit (loss)
before income taxes 1,106,077 371,855 (175,775) -- 1,302,157
Identifiable assets 351,077,917 51,233,037 18,974,145 (58,678,341) 362,606,758
For the Three Months Ended
March 31, 2005
Revenues from
external customers $ 10,056,516 $ 3,193,073 $14,573,095$ -- $ 27,822,684
Intersegment revenues 1,248,758 23,001 79,401 (1,351,160) --
Segment profit (loss)
before income taxes 637,839 354,198 (730,289) -- 261,748
Identifiable assets 305,320,094 48,186,225 14,239,233 (51,379,898) 316,365,654
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2006, (Unaudited)
6. Merger and Acquisition Transactions
Southern Security Life
As of December 31, 2004, the Company's wholly owned subsidiary, Security
National Life Insurance Company ("Security National Life"), and its wholly owned
subsidiary, SSLIC Holding, owned approximately 77% of the outstanding shares of
common stock of Southern Security Life.
On January 1, 2005, Security National Life and SSLIC Holding Company completed a
merger transaction with Southern Security Life Insurance Company ("Southern
Security Life"). Under the terms of the merger and pursuant to the Agreement and
Plan of Reorganization, dated August 25, 2004, including the amendment thereto
dated December 27, 2004, SSLIC Holding Company was merged with and into Southern
Security Life. The merger transaction resulted in Southern Security Life
becoming a wholly owned subsidiary of Security National Life, and the
unaffiliated stockholders of Southern Security Life, holding an aggregate of
490,816 shares of common stock, or approximately 23% of the outstanding common
shares of Southern Security Life, becoming entitled to receive $3.84 in cash for
each issued and outstanding share of their common stock of Southern Security
Life, or an aggregate of $1,884,733. This consideration was primarily paid to
those unaffiliated stockholders during 2005.
7. Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 153, Exchange of Non-monetary Assets.
SFAS No. 153 amends APB Opinion No. 29, Accounting for Non-monetary
Transactions, to eliminate the exception for non-monetary exchanges of similar
productive assets. The Company will be required to apply this statement to
non-monetary exchanges after December 31, 2005. The adoption of this standard
did not have a material effect on the Company's financial position or results of
operations.
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB
No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement
154 applies to all voluntary changes in accounting principle, and changes the
requirements for accounting for and reporting of a change in accounting
principle. Statement 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impracticable. It is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154
did not have a material impact on its financial statements.
In June 2005, the FASB Emerging Issues Task Force ("EITF") reached a consensus
on Issue No. 05-6, Determining the Amortization Period for Leasehold
Improvements. The guidance requires that leasehold improvements acquired in a
business combination or purchased subsequent to the inception of a lease be
amortized over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date of the business
combination or purchase. The Company adopted EITF No. 05-06 on January 1, 2006.
The adoption of EITF No. 05-6 did not have a material effect on the Company's
financial position or results of operations.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2006, (Unaudited)
7. Recent Accounting Pronouncements (Continued)
In September 2005, the AICPA issued Statement of Position 05-1, Accounting by
Insurance Enterprises for Deferred Acquisition Costs ("DAC") in Connection with
Modifications or Exchanges of Insurance Contracts, ("SOP 05-1"). SOP 05-1
provides guidance on accounting by insurance enterprises for DAC on internal
replacements of insurance and investment contracts. An internal replacement is a
modification in product benefits, features, rights or coverages that occurs by
the exchange of a contract for a new contract, or by amendment, endorsement, or
rider to a contract, or by the election of a feature or coverage within a
contract. Modifications that result in a replacement contract that is
substantially changed from the replaced contract should be accounted for as an
extinguishment of the replaced contract. Unamortized DAC, unearned revenue
liabilities and deferred sales inducements from the replaced contract must be
written-off. Modifications that result in a contract that is substantially
unchanged from the replaced contract should be accounted for as a continuation
of the replaced contract. SOP 05-1 is effective for internal replacements
occurring in fiscal years beginning after December 15, 2006, with earlier
adoption encouraged. Initial application of SOP 05-1 should be as of the
beginning of the entity's fiscal year. The Company is expected to adopt SOP 05-1
effective January 1, 2007. Adoption of this statement is expected to have an
impact on the Company's consolidated financial statements; however, the impact
has not yet been determined.
In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 155, Accounting for Certain Hybrid Financial Instruments -- an amendment of
FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities and related interpretations. SFAS 155 permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation and clarifies which
interest-only strips and principal-only strips are not subject to recognition as
liabilities. SFAS 155 eliminates the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS 155
is effective for the Company for all financial instruments acquired or issued
beginning January 1, 2007. The impact of adoption of this statement on the
Company's consolidated financial statements, if any, has not yet been
determined.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140 (SFAS 156). SFAS 156
amends SFAS 156 requires an entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial asset. It
also requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable. SFAS 156
permits an entity to use either the amortization method or the fair value
measurement method for each class of separately recognized servicing assets and
servicing liabilities. SFAS 156 is effective for the Company as of January 1,
2007. The impact of adoption of this statement on the Company's consolidated
financial statements, if any, has not yet been determined.
8. Other Business Activity
The City of Phoenix (in Arizona) has commenced condemnation proceedings on the
property where the Camelback Funeral Home was located for purposes of
constructing a light rail facility. The city has placed $1,200,000 in escrow to
pay the Company for the property that was condemned. The carrying amount on the
Company's financial statements for the land and building of the Camelback
Funeral Home at March 31, 2006 and December 31, 2005 was $678,889. The Company
has had an independent appraisal and is currently negotiating the sales price
with the city.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
----------------------------------------------------------------------
Overview
The Company's operations over the last several years generally reflect three
trends or events which the Company expects to continue: (i) increased attention
to "niche" insurance products, such as the Company's funeral plan policies and
traditional whole-life products; (ii) emphasis on cemetery and mortuary
business; and (iii) originating and refinancing mortgage loans.
During the three months ended March 31, 2006, Security National Mortgage Company
("SNMC") experienced an increase in revenue and expenses due to the increase in
loan volume of its operations. SNMC is a mortgage lender incorporated under the
laws of the State of Utah. SNMC is approved and regulated by the Federal Housing
Administration (FHA), a department of the U.S. Department of Housing and Urban
Development (HUD), to originate mortgage loans that qualify for government
insurance in the event of default by the borrower. SNMC obtains loans primarily
from independent brokers and correspondents. SNMC funds the loans from internal
cash flows and lines of credit from financial institutions. SNMC receives fees
from the borrowers and other secondary fees from third party investors who
purchase the loans from SNMC. SNMC primarily sells all of its loans to third
party investors and does not retain servicing to these loans. SNMC pays the
brokers and correspondents a commission for loans that are brokered through
SNMC. SNMC originated and sold 2,713 ($455,173,000) and 2,532 ($395,920,000)
loans, respectively, for the three months ended March 31, 2006 and 2005.
Results of Operations
Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
Total revenues increased by $4,581,000, or 16.5%, to $32,404,000 for the three
months ended March 31, 2006, from $27,823,000 for the three months ended March
31, 2005. Contributing to this increase in total revenues was a $3,458,000
increase in mortgage fee income, a $374,000 increase in insurance premiums and
other considerations, a $729,000 increase in investment income, and a $169,000
increase in net mortuary sales. This increase was partially offset by a $124,000
decrease in other revenues.
Insurance premiums and other considerations increased by $374,000, or 5.2%, to
$7,554,000 for the three months ended March 31, 2006, from $7,180,000 for the
comparable period in 2005. This increase was primarily due to the additional
insurance premiums realized from new insurance sales and additional premiums
from the purchase of Memorial Insurance Company on December 29, 2005.
Net investment income increased by $730,000, or 16.8%, to $5,075,000 for the
three months ended March 31, 2006, from $4,345,000 for the comparable period in
2005. This increase was primarily attributable to additional borrower interest
income from increased long-term bond purchases over the comparable period in
2005 and additional investment income from the assets received in the Memorial
Insurance Company acquisition.
Net mortuary and cemetery sales increased by $169,000, or 5.9%, to $3,055,000
for the three months ended March 31, 2006, from $2,886,000 for the comparable
period in 2005. This increase was due to increased at-need sales at the cemetery
and mortuary operations.
Other revenues decreased by $124,000 or 57.1%, to $93,000 for the three months
ended March 31, 2006 from $217,000 for the comparable period in 2005. This
decrease was due to a reduction in other revenues from the Company's mortuary
operations.
Mortgage fee income increased by $3,459,000, or 26.3%, to $16,630,000 for the
three months ended March 31, 2006, from $13,171,000 for the comparable period in
2005. This increase was primarily attributable to an increase in the number of
loan originations during the first quarter of 2006 due to the opening of new
mortgage offices and increased production in existing mortgage offices, which
resulted in the financing of a greater number of mortgage loans.
Total benefits and expenses were $31,102,000, or 96.0% of total revenues, for
the three months ended March 31, 2006, as compared to $27,561,000, or 99.1% of
total revenues, for the comparable period in 2005. This increase primarily
resulted from loan costs at SecurityNational Mortgage Company due to a greater
number of loan originations and additional expenses related to operations of
Memorial Insurance Company, which the Company purchased on December 29, 2005.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $129,000 or 1.9%, to $6,742,000 for
the three months ended March 31, 2006, from $6,613,000 for the comparable period
in 2005. This increase was primarily the result of an increase in death benefits
and surrenders and other policy benefits.
Amortization of deferred policy and pre-need acquisition costs and cost of
insurance acquired decreased by $48,000, or 5.6%, to $807,000 for the three
months ended March 31, 2006, from $855,000 for the comparable period in 2005.
This decrease was primarily due to recognition of improvements in persistency
and expenses.
General and administrative expenses increased by $2,994,000, or 15.8%, to
$21,896,000 for the three months ended March 31, 2006, from $18,902,000 for the
comparable period in 2005. This increase primarily resulted from an increase in
commissions due to a greater number of mortgage loan originations made by
SecurityNational Mortgage Company during the first quarter of 2006, the
additional expenses related to the operations of Memorial Insurance Company,
which the Company purchased on December 29, 2005, and increased salaries of
existing employees and an increase in the number of employees.
Interest expense increased by $379,000, or 59.1%, to $1,021,000 for the three
months ended March 31, 2006, from $642,000 for the comparable period in 2005.
This increase was primarily due to increased warehouse lines of credit required
for a greater number of warehoused mortgage loans by SecurityNational Mortgage
Company.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$88,000, or 16.0%, to $636,000 for the three months ended March 31, 2006, from
$548,000 for the comparable period in 2005. This increase was primarily due to
increased cemetery and mortuary sales.
Liquidity and Capital Resources
The Company's life insurance subsidiaries 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 investments 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 predominantly in fixed maturity
securities, mortgage loans, and warehousing of mortgage loans on a short-term
basis before selling the loans to investors in accordance with the requirements
and laws governing the life insurance subsidiaries. Bonds owned by the life
insurance subsidiaries amounted to $97,509,000 as of March 31, 2006, compared to
$96,378,000 as of December 31, 2005. This represents 46% of the total
insurance-related investments as of March 31, 2006, and December 31, 2005.
Generally, all bonds owned by the life insurance subsidiaries are rated by the
National Association of Insurance Commissioners. Under this rating system, there
are six categories used for rating bonds. At March 31, 2006 and December 31,
2005, 3% ($3,348,000) and 4% ($3,431,000) of the Company's total bond
investments were invested in bonds in rating categories three through six, which
are considered non-investment grade.
The Company has classified certain of its fixed income securities, including
high-yield securities, in its portfolio as available for sale, with the
remainder classified as held to maturity. However, in accordance with Company
policy, any such securities purchased in the future will be classified as held
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 higher-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 March 31, 2006,
and December 31, 2005, the life insurance subsidiary exceeded the regulatory
criteria.
The Company's total capitalization of stockholders' equity and bank debt and
notes payable was $57,355,000 as of March 31, 2006, as compared to $55,970,000
as of December 31, 2005. Stockholders' equity as a percent of total
capitalization was 84% and 82% as of March 31, 2006 and December 31, 2005.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2005 was 7.9% as compared
to a rate of 9.0% for 2004. The 2006 lapse rate to date has been approximately
the same as 2005.
At March 31, 2006, $21,025,000 of the Company's consolidated stockholders'
equity represents the statutory stockholders' equity of the Company's life
insurance subsidiaries. The life insurance subsidiaries cannot pay a dividend to
its parent company without the approval of insurance regulatory authorities.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes since the annual report Form 10-K filed
for the year ended December 31, 2005.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures - The Company's principal
executive officer and principal financial officer have reviewed and evaluated
the effectiveness of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934
(the "Exchange Act") as of March 31, 2005. Based on that evaluation, the
principal executive officer and the principal financial officer have concluded
that the Company's disclosure controls and procedures are effective, providing
them with material information relating to the Company as required to be
disclosed in the reports the Company files or submits under the Exchange Act on
a timely basis.
(b) Changes in internal controls - There were no significant changes in the
Company's internal controls over financial reporting or in other factors that
could significantly affect the Company's internal controls and procedures
subsequent to the date of their most recent evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. As a result, no corrective actions were required or undertaken.
Part II Other Information:
Item 1. Legal Proceedings
The Company received a letter dated November 9, 2004 on behalf of Charles Hood,
who worked at Singing Hills Memorial Park in El Cajon, California. Hood was
hired in April 2003 as a groundskeeper with his work concluding on October 30,
2003. Hood claims he wrote a letter to the Company expressing his concerns
regarding the operation of the cemetery, and that the next day he was
terminated, even though he recognizes his relationship was as an at-will
employee. Hood's claims against the Company also include, but are not limited
to, violation of labor laws, whistleblower retaliation and infliction of
emotional distress. The letter proposed a settlement in the amount of $275,000.
On November 23, 2005, Hood filed a complaint in the Superior Court of the State
of California for the County for San Diego (Case No. GIE 028978) against Singing
Hills Memorial Park and California Memorial Estates, Inc, wholly owned
subsidiaries of the Company. The claims in the complaint include wrongful
termination in violation of public policy, retaliation in violation of public
policy, race discrimination in violation of the California Fair Employment and
Housing Act, retaliation in violation of the California Fair Employment and
Housing Act, intentional infliction of emotional distress, plus punitive
damages, attorney's fees and costs of the lawsuit. There are no specific amounts
requested in the complaint, but damages are in an amount to be proven at a jury
trial. The Company contends that Hood voluntarily quit and was not terminated.
The Company intends to vigorously defend the action. An answer was filed. The
case is in the discovery stage.
The Company also received a letter dated November 29, 2004 on behalf of Roger
Gornichec, who the Company recognizes as having been an independent contractor.
The attorney who wrote the letter on behalf of Gornichec also wrote the letter
on behalf of Hood. Gornichec concluded his services as an agent selling
insurance in the spring of 2003 and his license to sell cemetery plots was not
renewed in the summer of 2004. Gornichec asserts that he was an employee
contrary to the Company's position.
The claims made on behalf of Gornichec include, but are not limited to, wrongful
termination in violation of public policy, misrepresentation, age
discrimination, whistle-blower retaliation, interference with economic
advantage, breach of contract, breach of the covenant of good faith and fair
dealing, and infliction of emotional distress. Gornichec also claims he is owed
a certain amount from a retirement plan. The letter proposes a settlement in the
amount of $420,000. Based on its investigation, the Company believes Gornichec
was an independent contractor rather than an employee, and there is no
justification for the claims and the settlement amount sought. The Company has
reached a tentative settlement with Gornichec, which is contingent upon the
completion of a settlement agreement.
The Company is 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. Based on management's assessment and legal counsel's representations
concerning the likelihood of unfavorable outcomes, no amounts have been accrued
for the above claims in the consolidated financial statements.
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See "Table of Contents - Part I - Financial Information" under page 2
above
(a)(2) Financial Statement Schedules
None
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.
(3) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-K or are incorporated by reference to previous filings.
3.1 Articles of Restatement of Articles of Incorporation (6)
3.2 Amended Bylaws (8)
4.1 Specimen Class A Stock Certificate (1)
4.2 Specimen Class C Stock Certificate (1)
4.3 Specimen Preferred Stock Certificate and Certificate of Designation of
Preferred Stock (1)
10.1 Restated and Amended Employee Stock Ownership Plan and Trust Agreement
(1)
10.2 2000 Director Stock Option Plan (3)
10.3 2003 Stock Option Plan (7)
10.4 Deferred Compensation Agreement with George R. Quist (2)
10.5 Promissory Note with George R. Quist (4)
10.6 Deferred Compensation Plan (5)
10.7 Stock Purchase Agreement with Paramount Security Life Insurance
Company (9)
10.8 Reinsurance Agreement between Security National Life Insurance Company
and Guaranty Income Life Insurance Company(10)
10.9 Employment agreement with J. Lynn Beckstead, Jr.(10)
10.10 Employment agreement with Scott M. Quist (11)
10.11 Agreement and Plan of Reorganization among Security National Life
Insurance Company, SSLIC Holding Company, and Southern Security Life
Insurance Company (12)
10.12 Agreement and Plan of Merger, among Security National Life Insurance
Company, SSLIC Holding Company, and Southern Security Life Insurance
Company (13)
10.13 Agreement to Repay Indebtedness and Convey Option with Monument
Title, LLC. (13)
10.14 Stock Purchase Agreement among Security National Life Insurance
Company, Southern Security Life Insurance Company, Memorial Insurance
Company of America, and the shareholders of Memorial Insurance Company
(14)
10.15 Reinsurance Agreement between Security National Life Insurance
Company and Memorial Insurance Company of America(15)
10.16 Trust Agreement between Security National Life Insurance Company and
Memorial Insurance Company of America(15)
10.17 Promissory Note between Memorial Insurance Company as Maker and
Security National Life Insurance Company as Payee(15)
10.18 Security Agreement between Memorial Insurance Company as Debtor and
Security National Life Insurance Company as Secured Party(15)
10.19 Surplus Contribution Note between Memorial Insurance Company of
America as Maker and Southern Security Life Insurance Company as
Payee(15)
10.20 Guaranty Agreement by Security National Life Insurance Company and
Southern Security Life Insurance Company as Guarantors(15)
10.21 Administrative Services Agreement between Security National Life
Insurance Company and Memorial Insurance Company of America(15)
10.22 Reinsurance Agreement between Security National Life Insurance
Company and Southern Security Life Insurance Company(16)
10.23 Trust Agreement among Security National Life Insurance Company,
Southern Security Life Insurance Company and Zions First National
Bank(16)
10.24 Subsidiaries of the Registrant
31.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002
32.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(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, 1989
(3) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, filed August 29, 2000, relating to the Company's Annual
Meeting of Shareholders
(4) Incorporated by reference from Annual Report on Form 10-K, as filed on
April 16, 2001
(5) Incorporated by reference from Annual Report on Form 10-K, as filed on
April 3, 2002
(6) Incorporated by reference from Report on Form 8-K/A as filed on
January 8, 2003
(7) Incorporated by reference from Schedule 14A Definitive Proxy
Statement, Filed on June 5, 2003, relating to the Company's Annual
Meeting of Shareholders
(8) Incorporated by reference from Report on Form 10-Q, as filed on
November 14, 2003
(9) Incorporated by reference from Report on Form 8-K, as filed March 30,
2004
(10) Incorporated by reference from Report on Form 10-K, as filed on March
30, 2004
(11) Incorporated by reference from Report on Form 10-Q, as filed on August
13, 2004
(12) Incorporated by reference from Report on Form 8-K, as filed on August
30, 2004
(13) Incorporated by reference from Report on Form 10-K, as filed on March
31, 2005
(14) Incorporated by reference from Report on Form 8-K, as filed on
September 27, 2005
(15) Incorporated by reference from Report on Form 8-K, as filed on January
5, 2006
(16) Incorporated by reference from Report on Form 8-K, as filed on January
11, 2006
(b) Reports on Form 8-K:
Current Report on Form 8-K, as filed on January 5, 2006
Current Report on Form 8-K, as filed on January 11, 2006
Current Report on Form 8-K, as filed on March 27, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT
SECURITY NATIONAL FINANCIAL CORPORATION
Registrant
DATED: May 15, 2006 By: s/s George R. Quist
-------------------
George R. Quist
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
DATED: May 15, 2006 By: s/s Stephen M. Sill
-------------------
Stephen M. Sill
Vice President, Treasurer and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ENACTED BY
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, George R. Quist, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15-d-15(e)) for the registrant to have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period covered in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: May 15, 2006
By: George R. Quist
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ENACED BY
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen M. Sill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15-d-15(e)) for the registrant to have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period covered in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls over
financial reporting.
Date: May 15, 2006
By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10-Q for the period ending March 31, 2005,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, George R. Quist, Chairman of the Board and Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge
and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: May 15, 2006 By: George R. Quist
Chairman of the Board
and Chief Executive Office
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10-Q for the period ending March 31, 2006,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Stephen M. Sill, Vice President, Treasurer and Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Date: May 15, 2006 By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
