Approximate Owned/ Square Location Function Leased Footage -------- -------- ------ ------- 5300 So. 360 West Corporate Headquarters Owned (1) 33,000 Salt Lake City, UT
755 Rinehart Rd Insurance Operations/ Owned (3) 27,000 Lake Mary, FL Mortgage Sales
1236 No. Spencer, Ste. 2 Mesa, AZ Mortgage Sales Leased (5) 3,700
1901 No. Union, Ste. 104 Colorado Springs, CO Mortgage Sales Leased (8) 2,200
595 West 800 North Orem, UT Mortgage Sales Leased (10) 2,000
970 East Holladay Rd. Murray, UT Mortgage Sales Leased (11) 6,600
(4) The Company leases this facility for $84,000 per year. The lease expires in July 2005
(6) The Company leases this facility for $39,600 per year. The lease expires in November 2005.
(8) The Company leases this facility for $28,200 per year. The lease expires in July 2003.
(9) The Company leases this facility for $37,200 per year. The lease expires in November 2004.
(10) The Company leases this facility for $34,800 per year. The lease expires in February 2007.
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 its business in the foreseeable future.
(1) As of December 31, 2002 there were mortgages of approximately $150,000 collateralized by the property and facilities of Camelback Sunset Funeral Home. (2) As of December 31, 2002, there were mortgages of approximately $1,600,000 collateralized by the property and facilities at Deseret Mortuary, Cottonwood Mortuary, Holladay Memorial Park, Lakehills Cemetery and Colonial Mortuary. (3) As of December 31, 2002, there was a mortgage of approximately $200,000, collateralized by the property and facilities of Crystal Rose Funeral Home.
The following selected financial data for each of the five years in the period ended December 31, 2002, are derived from the audited consolidated financial statements. The data as of December 31, 2002 and 2001, and for the three years ended December 31, 2002, should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.
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) capitalizing on lower interest rates by originating and refinancing mortgage loans.
On December 17, 1998, the Company purchased all of the outstanding shares of common stock of SSLIC Holding Company ("SSLIC Holding") (formerly "Consolidare Enterprises, Inc.") and Insuradyne Corporation ("Insuradyne") for a total cost of $12,248,194. As of December 31, 2002, SSLIC Holding held approximately 75% of the outstanding shares of common stock of Southern Security Life Insurance Company ("Southern Security").
In accordance with accounting principles generally accepted in the United States of America (GAAP), premiums and considerations received for interest sensitive products such as universal life insurance and ordinary annuities are reflected as increases in liabilities for policyholder account balances and not as revenues. Revenues reported for these products consist of policy charges for the cost of insurance, administration charges, amortization of policy initiation fees and surrender charges assessed against policyholder account balances. Surrender benefits paid
relating to these products are reflected as decreases in liabilities for policyholder account balances and not as expenses. The Company receives investment income earned from the funds deposited into account balances, a portion of which is passed through to the policyholders in the form of interest credited. Interest credited to policyholder account balances and benefit claims in excess of policyholder account balances are reported as expenses in the financial statements.
of Financial Accounting Standards No. 60 "Accounting and Reporting by Insurance Enterprises" (FAS No. 60). Obtaining costs, which include only costs that vary with and are primarily related to the acquisition of new pre-need cemetery and prearranged funeral business, are deferred until the merchandise is delivered or services are performed.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized which could have a material impact on the financial statements. The following is a summary of our significant accounting estimates, and critical issues that impact them:
Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in accumulated other comprehensive income which is included in stockholders' equity after adjustment for deferred income taxes and deferred acquisition costs related to universal life products.
Amortization of deferred policy acquisition costs for interest sensitive products is dependent upon estimates of current and future gross profits or margins on this business. Key assumptions used include the following: yield
Cost of insurance acquired is the present value of estimated future profits of the acquired business and is amortized similar to deferred acquisition costs. The critical issues explained for deferred acquisition costs would also apply for cost of insurance acquired.
The revenue and cost associated with the sales of pre-need cemetery merchandise and funeral services are deferred until the merchandise is delivered. Also, trust investment earnings from any pre-need sales placed into trust are also deferred until the merchandise is delivered.
Total revenues increased by $19,432,000, or 25.3%, from $76,949,000 for fiscal year 2001 to $96,381,000 for fiscal year 2002. Contributing to this increase in total revenues was a $16,922,000 increase in mortgage fee income, a $653,000 increase in net mortuary and cemetery sales and a $926,000 increase in insurance premiums and other considerations.
General and administrative expenses increased by $16,212,000, from $52,247,000 in 2001 to $68,459,000 in 2002. Contributing to this increase was a $12,255,000 increase in commission expenses, from $29,859,000 in 2001 to $42,114,000 in 2002. Salaries increased $1,386,000, from $9,028,000 in 2001 to $10,414,000 in 2002. Other expenses increased $2,571,000, from $13,360,000 in 2001 to $15,931,000 in 2002. These increases were primarily the result of additional expenses due to increased numbers of loan originations made by the Company's mortgage subsidiary in 2002.
Cost of the mortuary and cemetery goods and services sold increased by $169,000, from $2,494,000 in 2001 to $2,663,000 in 2002. This increase was primarily due to greater at-need cemetery and mortuary sales.
Total revenues increased by $18,870,000, or 32.5%, from $58,079,000 for fiscal year 2000 to $76,949,000, for fiscal year 2001. Contributing to this increase in total revenues was a $17,165,000 increase in mortgage fee income, an $810,000 increase in net investment income, a $1,187,000 increase in net mortuary and cemetery sales and a $275,000 increase in insurance premiums and other considerations.
Net mortuary and cemetery sales increased by $1,187,000, from $9,417,000 in 2000 to $10,603,000 in 2001. This increase was primarily due to additional at-need cemetery and mortuary sales.
During 2001, there was a net increase of $1,160,000 in death benefits, surrenders and other policy benefits, and a decrease of $2,316,000 in future policy benefits from $12,931,000 in 2000 to $11,775,000 in 2001. This net decrease was primarily the result of a decrease in traditional life reserves.
Cost of the mortuary and cemetery goods and services sold decreased by $134,000, from $2,628,000 in 2000 to $2,494,000 in 2001. This decrease was primarily due to additional sales of cemetery burial properties in 2001, which have a lower cost of goods sold than other funeral products.
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 December 31, 2002 and 2001, the life subsidiaries exceeded the regulatory criteria.
The Company's total capitalization of stockholders' equity and bank debt and notes payable was $53,787,000 and $42,067,000 as of December 31, 2002 and 2001, respectively. Stockholders' equity as a percent of total capitalization was 64% and 71% as of December 31, 2002 and 2001, respectively.
Lapse rates measure the amount of insurance terminated during a particular period. The Company's lapse rate for life insurance in 2002 was 10.7%, as compared to a rate of 13.2% in 2001.
On December 17, 1998, the Company completed the acquisition of Consolidare Enterprises, Inc., a Florida corporation ("Consolidare") pursuant to the terms of the Acquisition Agreement which the Company entered into on April 17, 1998 with Consolidare and certain shareholders of Consolidare for the purchase of all of the outstanding shares of common stock of Consolidare. Consolidare owns approximately 75% of the outstanding shares of common stock of Southern Security Life Insurance Company, a Florida corporation ("SSLIC"), and all of the outstanding shares of stock of Insuradyne Corp., a Florida corporation ("Insuradyne").
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 establishes an accounting model for long-lived assets to be disposed of by sale that applies to all long-lived assets, including discontinued operations. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. Adoption of SFAS No. 144 did not have a material impact on the Company's financial condition or results of operations. In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". Under historical guidance, all gains and losses resulting from the extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. SFAS No. 145 rescinds that guidance and requires that gains and losses from extinguishments of debt be classified as extraordinary items only if they are both unusual and infrequent in occurrence. SFAS No. 145 also amends SFAS No. 13, "Accounting for Leases" for the required accounting treatment of certain lease modifications that have economic effects similar to sale-leaseback transactions. SFAS No. 145 requires that those lease modifications be accounted for in the same manner as sale-leaseback transactions. The provisions of SFAS No. 145 related to SFAS No. 13 are effective for transactions occurring after May 15, 2002. Adoption of the provisions of SFAS No. 145 related to SFAS No. 13 did not have a material impact on the Company's financial condition or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Action (including Certain Costs Incurred in a Restructuring)" ("Issue 94-3"). The principal difference between SFAS No. 146 and Issue 94-3 is that SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, rather than at the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities after December 31, 2002. Based upon a preliminary review, adoption of SFAS No. 146 would not have a material impact on the Company's financial condition or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure and Amendment to FASB No. 123", which provides three optional transition methods for entities that decide to voluntarily adopt the fair value recognition principles of SFAS No. 123, "Accounting for Stock Issued to Employees", and modifies the disclosure requirements of that Statement. Under the prospective method, stock-based compensation expense is recognized for awards granted after the beginning of the fiscal year in which the change is made. The modified prospective method recognizes stock-based compensation expense related to new and unvested awards in the year of change equal to that which would have been recognized had SFAS No. 123 been adopted as of its effective date, fiscal years beginning after December 15, 1994. The retrospective restatement method recognizes stock compensation costs for the year of change and restates financial statements for all prior periods presented as though the fair value recognition provisions of SFAS No. 123 had been adopted as of its effective date. Since the Company does not intend to voluntarily adopt the fair value presentation for FASB 123, adoption of SFAS 148 would not have a material effect on the financial condition or results of operations of the Company. However, pro forma disclosures required by SFAS 148 will be included in the Company's future interim financial statements when necessary.
FIN 46 is effective for new VIE's established subsequent to January 31, 2003 and for existing VIE's as of July 1, 2003. Based upon a preliminary review, the adoption of FIN 46 would not have a material impact on the Company's financial condition or results of operations as there were no material VIE's identified which would require consolidation. FIN 46 further requires the disclosure of certain information related to VIE's in which the Company holds a significant variable interest. The Company does not believe that it owns any such interests that require disclosure at this time.
Consolidated Statement of Earnings, Years Ended December 31, 2002, 2001, and 2000............................................................37
Consolidated Statement of Stockholders' Equity, Years Ended December 31, 2002, 2001 and 2000. ..........................................................38
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, 2002 and 2001, and the consolidated results of their operations and their cash flows for the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
Stockholders' Equity: - -------------------- Common stock: Class A: $2 par value, authorized 10,000,000 shares, issued 5,794,492 shares in 2002 and 5,363,591 shares in 2001 11,588,984 10,727,182 Class C: $0.20 par value, authorized 7,500,000 shares, issued 6,182,669 shares in 2002 and 6,113,430 shares in 2001 1,236,533 1,222,686 ------------- ------------- Total common stock 12,825,517 11,949,868 Additional paid-in capital 11,280,842 10,168,523 Accumulated other comprehensive income, net of deferred taxes of $293,519 and $212,734 for 2002 and 2001 1,191,863 1,223,930 Retained earnings 11,992,542 9,989,230 Treasury stock at cost (1,151,811 Class A shares and 71,749 Class C shares in 2002; 1,294,716 Class A shares and 68,332 Class C shares in 2001, held by affiliated companies) (2,777,353) (3,362,233) ------------- ------------- Total stockholders' equity 34,513,411 29,969,318 ------------- ------------- Total liabilities and stockholders' equity $307,156,762 $213,059,575 ============= =============
The following information shows the non-cash items in connection with the assumption of reinsurance from Acadian Life Insurance Company on December 23, 2002:
Security National Financial Corporation and its wholly owned subsidiaries (the "Company") operates in 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, Florida, Mississippi, Oklahoma and Texas. The cemetery and mortuary segment of the Company consists of five cemeteries in Utah, one cemetery in California, 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, existing homes and real estate projects primarily in California, Colorado, Florida, Utah, Arizona and Texas.
Security National Life Insurance Company Security National Mortgage Company Memorial Estates, Inc. Memorial Mortuary Paradise Chapel Funeral Home Singing Hills Memorial Park Cottonwood Mortuary, Inc. Deseret Memorial, Inc. Holladay Cottonwood Memorial Foundation Holladay Memorial Park Camelback Sunset Funeral Home, Inc. Greer-Wilson Funeral Home Crystal Rose Funeral Home Hawaiian Land Holdings SSLIC Holding Company Insuradyne Corporation Southern Security Life Insurance Company (75%)
On December 23, 2002, the Company, through its wholly-owned subsidiary Security National Life Insurance Company completed the asset purchase transaction with Acadian Life Insurance Company ("Acadian") from which it acquired from Acadian $75,000,000 in assets and $75,000,000 in statutory insurance reserves. Security National Life paid a ceding commission of $10,254,803. On January 1, 2003, Security National entered into an assumption agreement in which Acadian transferred and assigned to Security National Life all of its right, title and interest in the reinsured policies and Security National Life took over the operations of this block of business. The assets and liabilities acquired have been included in the Company's consolidated balance sheet as of December 31, 2002. Since the Company did not take over the operations from Acadian until January 1, 2003, nothing was included in the consolidated statement of earnings.
The unaudited consolidated pro forma results of operations assuming consummation of the purchase as of January 1, 2001 are summarized as follows:
Pro Forma 2002 2001 ---- ---- (In thousands except earnings per share)
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, if any.
Policy, student, and other loans - at the aggregate unpaid balances, less allowances for possible losses.
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 insurance business have been deferred. Deferred policy acquisition costs for traditional life insurance are 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 amortized generally in proportion to the present value of expected
gross profits from surrender charges, 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.
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%.
Substantially all loans are sold to third party investors and the Company does not retain servicing rights. The amounts sold to investors are shown on the balance sheet as due from sale of loans, and are shown on the basis of the amount of fees due from the investors. Any impairment to sold loans or possible loan losses are included in a separate provision for loan losses. At December 31, 2002 and 2001 the provision for loan losses was $906,000 and $509,000, respectively.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation". In accordance with the provisions of SFAS 123, the Company has elected to continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and related interpretations in accounting for its stock option plans.
The weighted average fair value of options granted in 2000 under the 1993 Plan and the 2000 Plan is estimated at $1.50 as of the grant date using the Black Scholes Option Pricing Model with the following assumptions: dividend yield of 5%, volatility of 30.8%, risk-free interest rate of 6.6%, and an expected life of five to ten years.
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which requires an enterprise to assess if consolidation of an entity is appropriate based upon its variable economic interests in a variable interest entity (VIE). The initial determination of whether an entity is a VIE shall be made on the date at which an enterprise becomes involved with the entity. A VIE is an entity in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. An enterprise shall consolidate a VIE if it has a variable interest that will absorb a majority of the VIE's expected losses if they occur, receive a majority of the entity's expected residual returns if they occur or both. A direct or indirect ability to make decisions that significantly affect the results of the activities of a VIE is a strong indication that an enterprise has one or both of the characteristics that would require consolidation of the VIE.
The amortized cost and estimated fair value of fixed maturity securities at December 31, 2002, 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.
2002 2001 2000 ---- ---- ---- Fixed maturity securities $3,228,042 $3,776,132 $4,629,916 Equity securities 53,889 49,281 235,491 Mortgage loans on real estate 1,350,882 1,570,478 1,735,590 Real estate 1,501,534 1,548,507 1,507,239 Policy loans 663,554 630,352 641,272 Short-term investments 189,894 379,562 402,350 Other 6,501,763 5,973,092 3,962,362 ------------ ------------ ------------ Gross investment income 13,489,558 13,927,404 13,114,220 Investment expenses (950,128) (980,905) (978,148) ------------ ------------ ------------ Net investment income $12,539,430 $12,946,499 $12,136,072 ============ ============ ============
Net investment income includes net investment income earned by the restricted assets of the cemeteries and mortuaries of approximately $924,000, $872,000 and $717,000 for 2002, 2001, and 2000, respectively.
Imputed interest at 7% 507,268 572,061 641,325 Amortization (1,244,585) (1,396,223) (1,509,367) ------------ ------------ ------------ Net amortization charged to income (737,317) (824,162) (868,042) ------------ ------------ ------------ Balance at end of year $15,984,340 $7,615,348 $8,729,264 ============ ============ ============
In addition to the lines of credit described above, the Company has line of credit agreements with banks for $2,000,000 and $5,000,000, of which none were outstanding at December 31, 2002 or 2001. The lines of credit are for general operating purposes. The $2,000,000 line of credit bears interest at the bank's prime rate and must be repaid every 30 days. The $5,000,000 line of credit bears interest at a variable rate with interest payable monthly and is collateralized by student loans equaling 115% of the unpaid principal balance.
2003 $2,730,144 2004 3,801,840 2005 3,325,101 2006 2,145,441 2007 1,929,913 Thereafter 5,340,797 ------------ Total $19,273,236 ===========
- -The Company owns and operates several endowment care cemeteries, for which it has established and maintains an endowment care fund. The Company records a liability to the fund for each space sold at current statutory rates. The Company is not required to transfer assets to the fund until the spaces are fully paid for. As of December 31, 2001 the Company had transferred $5,586 in excess of the required contribution to the fund, and as of December 31, 2002, the Company owed the fund $73,151.
December 31, ------------ 2002 2001 ---- ---- Cash and cash equivalents $378,388 $475,712 Mutual funds 188,732 188,732 Fixed maturity securities 301,928 348,737 Equity securities 77,778 77,778 Participation in mortgage loans with Security National Life 4,352,214 4,214,781 Time certificate of deposit 33,696 33,696 ---------- ---------- Total $5,332,736 $5,339,436 ========== ==========
December 31, ------------ 2002 2001 ---- ---- Current $45,702 $(86,569) Deferred 8,058,180 6,961,166 ----------- ----------- Total $8,103,882 $6,874,597 =========== ===========
2002 2001 2000 ---- ---- ---- Current $595,254 $391,492 $44,688 Deferred 970,139 522,047 259,952 ---------- ---------- ---------- Total $1,565,393 $913,539 $304,640 ========== ========== ==========
2002 2001 2000 ---- ---- ---- Computed expense at statutory rate $1,883,255 $1,282,517 $423,682 Special deductions allowed small life insurance companies (315,923) (356,734) (68,769) Dividends received deduction (737) (6,405) (24,418) Minority interest taxes 7,429 (7,466) (19,222) Other, net (8,631) 1,627 (6,633) ----------- ----------- ----------- Tax expense $1,565,393 $913,539 $304,640 =========== =========== ===========
The insurance companies have remaining loss carry forwards of approximately $8,300,000, approximately $286,000 of which is subject to an annual limitation of approximately $300,000.
The Company follows the procedure of reinsuring risks in excess of a specified limit, which ranged from $30,000 to $75,000 at December 31, 2002 and 2001. The Company is liable for these amounts in the event such reinsurers are unable to pay their portion of the claims. The Company has also assumed insurance from other companies having insurance in force amounting to $1,174,604,000 at December 31, 2002 and $838,421,000 at December 31, 2001.
As part of the acquisition of Southern Security, the Company has a co-insurance agreement with The Mega Life and Health Insurance Company ("MEGA"). On December 31, 1992 Southern Security ceded to MEGA 18% of all universal life policies in force at that date. MEGA is entitled to 18% of all future premiums, claims, policyholder loans and surrenders relating to the ceded policies. In addition, Southern Security receives certain commission and mortgage loans originated and sold to unaffiliated investors are sold subject to certain recourse provisions.
In 2001, the Company's Board of Directors adopted a Deferred Compensation Plan. Under the terms of the Plan, the Company will provide deferred compensation for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. The Board has appointed a Committee of the Company to be the Plan Administrator and to determine the employees who are eligible to participate in the plan. The employees who participate may elect to defer a portion of their compensation into the plan. The Company may contribute into the plan at the discretion of the Company's Board of Directors. The Company's contribution for 2002 and 2001 was $100,577 and $220,038, respectively.
The following table summarizes the activity in shares of capital stock for the three-year period ended December 31, 2002:
Stock Dividends 255,413 291,104 Conversion of Class C to Class A 547 (5,479) ---------- ----------
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 shares are convertible into Class A shares at any time on a ten to one ratio.
Stockholders of both classes of common stock have received 5% stock dividends in the years 1989 through 2002, as authorized by the Company's Board of Directors.
2002 2001 2000 ---- ---- ---- Numerator: Net income $3,991,280 $2,840,780 $895,729 ========== ========== ==========
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 1987 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 1987 Plan establishes the minimum purchase price of the stock at an amount which is not less than 100% of the fair market value of the stock (110% for employees owning more than 10% of the total combined voting power of all classes of stock).
Number of Shares Option Price ---------- ------------- Outstanding at January 1, 2000 519,998 $2.22 - $3.96 Dividend 27,313 Granted 26,000 --------
Outstanding at December 31, 2000 4,200 $2.14 Dividend 410 Granted 4,000 -------
Statutory Net Income (Loss) December 31, 2002 2001 2000 ---- ---- ----
Security National Life $1,547,253 $1,732,018 $796,047 Southern Security Life (427,439) (429,143) 80,477
Security National Life $14,381,257 $16,316,605 $14,309,515 Southern Security Life 8,582,968 8,459,700 8,405,211
The Utah and Florida Insurance Departments impose minimum risk-based capital requirements that were developed by the NAIC on insurance enterprises. The formulas for determining the risk-based capital ("RBC") specify various 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, 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 subsidiaries have a Ratio that is greater than 569% of the first level of regulatory action.
The Company has three reportable segments: life insurance, cemetery and mortuary, and mortgage loans. The Company's life insurance segment consists of life insurance premiums and operating expenses from the sale of insurance products sold by the Company's independent agency force and net investment income derived from investing policyholder and segment surplus funds. The Company's cemetery and mortuary segment consists of revenues and operating expenses from the sale of at-need cemetery and mortuary merchandise and services at its mortuaries and cemeteries and the net investment income from investing segment surplus funds. The Company's mortgage loan segment consists of loan originations fee income and expenses from the originations of residential mortgage loans and interest earned and interest expenses from warehousing pre-sold loans before the funds are received from financial institutional investors.
Investment Contracts: The fair values for the Company's liabilities under investment-type insurance contracts are estimated based on the contracts' cash surrender values. The carrying amount and fair value as of December 31, 2002 and December 31, 2001, were approximately $87,351,000 and $86,544,000, respectively.
Liabilities: Bank loans payable: Current installments $2,082,175 $1,386,857 Long-term 11,400,191 4,168,453
Stockholders' equity: Common Stock: Class A: $2 par value, authorized 10,000,000 shares, issued 5,794,492 shares in 2002 and 5,363,591 shares in 2001 11,588,984 10,727,182 Class C: $0.20 par value, authorized 7,500,000 shares, issued 6,182,669 shares in 2002 and 6,113,430 shares in 2001 1,236,533 1,222,686 ------------ ----------- Total common stock 12,825,517 11,949,868
Additional paid-in capital 11,280,842 10,168,523 Accumulated other comprehensive income 1,191,863 1,223,930 Retained earnings 11,992,542 9,989,230 Treasury stock at cost (1,151,811 Class A shares and 71,749 Class C shares in 2002; 1,294,716 Class A shares and 68,332 Class C shares in 2001, held by affiliated companies) (2,777,353) (3,362,233) ------------ ------------ Total stockholders' equity 34,513,411 29,969,318 ------------ ------------ Total liabilities and stockholders' equity $61,135,999 $48,200,852 ============ ============
Year Ended December 31, ----------------------- 2002 2001 2000 ---- ---- ----
Revenue: Net investment income $34,053 $188 $96 Fees from affiliates 3,772,293 3,824,259 3,878,458 ----------- ----------- ----------- Total revenue $3,806,346 3,824,447 3,878,554 ----------- ----------- -----------
Earnings (loss)before income taxes, and earnings of subsidiaries 167,064 (631,806) 1,412,003
Equity in earnings (loss) of subsidiaries 4,870,007 4,003,856 (143,199) ----------- ----------- ----------- Net earnings $3,991,280 $2,840,780 $895,729 =========== =========== ===========
In 2002 Security National Life Insurance Company, a wholly owned subsidiary of the Registrant, paid to the registrant cash dividends of $2,381,687. There were no dividends paid for years 2001 and 2000 by any subsidiaries.