Approximate Owned Square Location Function Leased Footage --------- ------------- ------ --------- 5300 So. 360 West Corporate Salt Lake City, UT Headquarters Owned(1) 33,000
(2) The Company leases an additional 2,766 square feet of the facility to unrelated third parties for approximately $15,000 per year, under leases which expire at various dates after 2000.
(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, 2000, there were mortgages of approximately $62,100 collateralized by the property and facilities at Memorial Estates Lakeview, Mountain View and Redwood Cemeteries. (4) As of December 31, 2000, there were mortgages of approximately $1,862,000 collateralized by the property and facilities at Deseret Mortuary, Cottonwood Mortuary, Holladay Memorial Park, Lakehills Cemetery and Colonial Mortuary. (5) These cemeteries include two granite mausoleums. (6) As of December 31, 2000, there was a mortgage of approximately $665,300 collateralized by the property.
Name of Date Viewing Square Mortuary Location Acquired Room(s) Chapel(s) Footage - ---------- ------------- ---------- -------- ----------- --------- Greer-Wilson:
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, 2000, are derived from the audited consolidated financial statements. The data as of December 31, 2000 and 1999, and for the three years ended December 31, 2000, should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.
(2) The earnings per share amounts prior to 1997 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, Earnings Per Share. For further discussion of earnings per share and the impact of Statement No. 128, see the notes to the audited consolidated financial statements.
Net mortuary and cemetery sales increased by $173,000 from $10,178,000 in 1999 to $10,351,000 in 2000. This increase was primarily from additional at-need sales.
Other revenue decreased by $551,000 from $856,000 in 1999 to $305,000 in 2000. This reduction was primarily the result of having received proceeds in 1999 from insurance claims filed for the recovery of the costs to litigate a case against a former officer of the Company's insurance subsidiary, Southern Security.
Total benefits and expenses were $57,767,000 for 2000, which constituted 97.9% of the Company's total revenues, as compared to $48,207,000, or 97.1 of the Company's total revenues for 1999.
Amortization of deferred policy acquisition costs and cost of insurance acquired decreased by $1,669,000 from $4,858,000 in 1999 to $3,189,000 in 2000. This decrease was primarily due to adjusting the amortization rate to current assumptions at the Company's insurance subsidiary, Southern Security.
Interest expense increased by $1,007,000, from $1,119,000 in 1999 to $2,126,000 in 2000. This increase was primarily due to more loan originations from the Company's mortgage subsidiary being funded by third parties in 2000.
Total revenues increased by $6,282,000, or 19.1%, from $32,820,000 for fiscal year 1998 to $39,102,000 for fiscal year 1999. Contributing to this increase in total revenues was a $359,000 increase in insurance premiums and other considerations, a $234,000 increase in net investment income, a $952,000 increase in net mortuary and cemetery sales, a $4,421,000 increase in mortgage fee income, and a $239,000 increase in realized gains on investments and other assets.
Net mortuary and cemetery sales increased by $952,000, from $9,226,000 in 1998 to $10,178,000 in 1999. This increase was primarily from additional pre-need and at-need sales.
Mortgage fee income increased by $4,421,000, from $10,082,000 in 1998 to $14,503,000 in 1999. This increase was primarily attributable to more loan originations made by the Company's mortgage subsidiary in 1999 due to the expansion of business activities in new geographic markets.
Total benefits and expenses were $38,065,000 for 1999, which constituted 97% of the Company's total revenues, as compared to $31,794,000, or 97% of the Company's total revenues for 1998.
Interest expense increased by $3,000, from $999,000 in 1998 to $1,002,000 in 1999. This increase was primarily due to more loan originations from the Company's mortgage subsidiary being funded by third parties in 1999.
Cost of the mortuary and cemetery goods and services sold increased by $355,000, from $2,940,000 in 1998 to $3,295,000 in 1999. This increase was primarily due to the increase in pre-need and at-need sales.
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
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, mortgage loans, 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 subsidiaries. Bonds owned by the insurance subsidiaries amounted to $62,889,000 as of December 31, 2000 compared to $63,749,000 as of December 31, 1999. This represents 60% of the total insurance related investments in 2000 as compared to 59% in 1999. Generally, all bonds owned by the life insurance subsidiaries 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, 2000, .68% ($429,000) and at December 31, 1999, 1.56% ($994,000) of the Company's total bond investments were invested in bonds in rating categories three through six which are considered non-investment grade.
-200 bps -100 bps +100 bps +200 bps Change in Market Value (in thousands) $4,441 $2,932 $(3,881) $(9,184)
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, 2000 and 1999, the life subsidiaries exceeded the regulatory criteria.
The Company's total capitalization of stockholders' equity and bank debt and notes payable was $40,787,000 and $41,143,000 as of December 31, 2000 and 1999, respectively. Stockholders' equity as a percent of total capitalization was 66% and 64% as of December 31, 2000 and 1999, respectively.
At December 31, 2000, $22,715,000 of the Company's consolidated stockholders' equity represents the statutory stockholders' equity of the Company's insurance subsidiaries. The life insurance subsidiaries cannot pay a dividend to its parent company without the approval of insurance regulatory authorities.
Report of Independent Auditors . . . . . . . . . . .26
Consolidated Statement of Earnings, Years Ended December 31, 2000, 1999, and 1998 . . . . . . . . . . . . . . . . . . . . . .29
Consolidated Statement of Stockholders' Equity, Years Ended December 31, 2000, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . .30
I. Summary of Investments -- Other than Investments in Related Parties. . . . . . . . . . .61
V. Valuation and Qualifying Accounts . . . . . . . . .69
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, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years ended December 31, 2000 and 1999, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related 2000 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.
December 31, 2000 1999 -------- -------- Liabilities: - ----------- Future life, annuity, and other policy benefits $140,000,344 $138,501,316 Unearned premium reserve 1,754,980 1,866,523 Line of credit for financing of mortgage loans -- 8,687,023 Bank loans payable 9,805,118 10,768,098 Notes and contracts payable 4,240,830 3,885,684 Estimated future costs of pre-need sales 7,119,544 6,817,685 Accounts payable 1,242,407 804,133 Funds held under reinsurance treaties 1,417,216 1,475,512 Other liabilities and accrued expenses 4,115,920 3,219,166 Income taxes 6,124,512 5,736,860 ------------ ------------ Total liabilities 175,820,871 181,762,000
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles which, for the life insurance subsidiaries, differ from statutory accounting principles prescribed or permitted by regulatory authorities.
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 (71.5%)
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, infrequent and unusual conditions could occur under which it would sell certain of these securities. Those conditions include unforeseen changes in asset quality, significant changes in tax laws, and changes in regulatory capital requirements or permissible investments.
For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
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 life 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 10.0% in 2000, 1999, and 1998. Benefit reserves for traditional limited-payment life insurance policies include the deferred portion of the premiums received during the premium-paying period. Deferred premiums are recognized as income over the life of the policies. Policy benefit claims are charged to expense in the period the claims are incurred.
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 increased or decreased each period as current costs change. A corresponding charge is made to operations to reflect the change in costs. 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. All pre-need sales contracts bear interest at 8%.
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 businesses is being amortized over a range of fifteen to twenty years using the straight-line method. The Company periodically evaluates the recoverability of amounts recorded. Accumulated amortization was $1,162,262 and $1,029,528 at December 31, 2000 and 1999, respectively.
The Company has two fixed option plans (the "1993 Plan" and the "2000 Plan"). In accordance with APB Opinion No. 25, no compensation cost has been recognized for these plans. Had compensation cost for these plans been determined based upon the fair value at the grant date consistent with the methodology prescribed under SFAS No. 123, the Company's net income would have been reduced by approximately $0, $203,000, and $110,000 in 2000, 1999, and 1998, respectively. As a result, basic and diluted earnings per share would have been reduced by $0, $0.05, and $0.03 in 2000, 1999, and 1998, respectively.
Estimated Amortized Fair Held to Maturity: Cost Value ------------ ----------- Due in 2001 $ 8,276,712 $ 8,298,094 Due in 2002 through 2005 17,348,014 17,496,854 Due in 2006 through 2010 6,050,499 5,691,138 Due after 2010 2,360,077 2,469,744 Mortgage-backed securities 5,320,861 5,295,978 Redeemable preferred stock 28,005 31,458 ----------- ----------- $39,384,168 $39,283,266 =========== ===========
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 83% of its mortgage loans in the state of Utah.
Investments, aggregated by issuer, in excess of 10% of shareholders' equity (before net unrealized gains and losses on available for sale securities) at December 31, 2000, other than investments issued or guaranteed by the United States Government, are as follows:
Carrying Amount --------------- Dean Witter Discover $4,274,338 Philip Morris, Inc. 5,653,514
Imputed interest at 7% 641,325 732,371 235,901 Amortization (1,509,367) (1,597,511) (532,813) ----------- ----------- ----------- Net amortization charged to income (868,042) (865,140) (296,912) ----------- ----------- ----------- Balance at end of year $8,729,264 $9,597,306 $10,462,446 ============ ========== ===========
10% note payable in monthly installments of $8,444 including principal and interest, collateralized by real property, which book value is approximately $1,045,000, due January 2013 711,608 740,202
December 31, 2000 1999 One year treasury constant maturity plus 2.75% (8.03% at December 31, 2000) note payable in monthly installments of $6,000, including principal and interest, collateralized by real property, which book value is approximately $359,000, due October 2002 120,824 182,089
$5,046,448 revolving line of credit at bank prime rate less 1%, (8.5% at December 31, 2000) interest only to December 1999 thereafter interest and principal, collateralized by 15,000 shares of Security National Life Insurance Company stock, due December 2005 4,904,426 5,610,111
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, 2000 or 1999. 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.
December 31, 2000 1999 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, due September 2011 $628,802 $646,294
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 289,865 344,860
Due to former stockholders of Crystal Rose Funeral Home resulting from the acquisition of such entity. Amount represents the present value discounted at 9% of monthly annuity payments of $5,350 due February 2007 62,892 177,246
Due to former shareholders of Southern Security Life Insurance Company resulting from the acquisition of such entity 6.5% note payable in five annual installments with principal payments of $158,840 due April 2005 794,202 --
Liabilities Deferred policy acquisition costs $ 5,213,517 $ 4,485,047 Cost of insurance acquired 1,714,724 1,884,547 Installment sales 1,215,773 1,323,994 Depreciation 653,192 660,369 Trusts 1,051,602 821,165 Tax on unrealized appreciation 214,337 (9,299) Other 415,827 724,924 ----------- ----------- Total deferred tax liabilities 10,478,972 9,890,747 ----------- ----------- Net deferred tax liability $ 5,624,798 $ 5,594,858 =========== ===========
2000 1999 1998 --------- -------- --------- Current $ 486,931 $ 2,052 $(84,948) Deferred (182,291) 228,464 339,763 --------- -------- -------- Total $ 304,640 $230,516 $254,815 ========= ======== ========
2000 1999 1998 -------- ------- ------ Computed expense at statutory rate $423,682 $493,266 $348,855 Special deductions allowed small life insurance companies (68,769) (122,204) (88,658) Dividends received deduction (24,418) (24,401) (26,691) Minority interest taxes (19,222) (102,828) -- Other, net (6,633) (13,317) 21,309 --------- --------- --------- Tax expense $304,640 $230,516 $254,815 ======== ======== ========
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, 2000, the policyholders' surplus accounts approximated $4,500,000. 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 $1,500,000.
The Company has a 401(k) savings plan covering all eligible employees, as defined above, which includes employer participation in accordance with the provisions of Section 401(k) of the Internal Revenue Code. The plan allows participants to make pretax contributions up to the lesser of 15% of total annual compensation or the statutory limits. The Company may match up to 50% of each employee's investment in Company stock, up to 1/2% of the employee's total annual compensation. The Company's match will be Company stock and the amount of the match will be at the discretion of the Company's Board of Directors. The Company's matching 401(k) contributions for 2000, 1999, and 1998 were approximately $0, $3,858, and $7,000 respectively. Also, the Company may contribute at the discretion of the Company's Board of Directors an Employer Profit Sharing Contribution to the 401-K savings plan. The Employer Profit Sharing Contribution shall be divided among three different classes of participants in the plan based upon the participant's title in the Company. The Company contribution for 2000, 1999 and 1998 were $0, $130,958, and $0, respectively. All amounts contributed to the plan are deposited into a trust fund administered by an independent trustee.
The following table summarizes the activity in shares of capital stock for the three year period ended December 31, 2000:
Stock Dividends 231,672 264,550 Conversion of Class C to Class A 15,580 (155,795) Stock Issued (cancelled) (851) -- --------- --------- Balance at December 31, 1999 4,863,731 5,555,350
Stock Dividends 243,393 277,515 Conversion of Class C to Class A 507 (5,060) --------- --------- Balance at December 31, 2000 5,107,631 5,827,805 ========= =========
Stockholders of both classes of common stock have received 5% stock dividends in the years 1989 through 2000, as authorized by the Company's Board of Directors.
2000 1999 1998 ------- --------- --------- Numerator: Net income $895,729 $975,895 $771,229 ======== ========= ========= Denominator: Denominator for basic earnings per share- weighted-average shares 4,317,779 4,397,141 4,272,516
Effect of dilutive securities: Employee stock options 17,265 -- -- Stock appreciation rights -- -- -- ------------ ------------ ------------ Dilutive potential common shares 17,265 -- --
Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions 4,335,044 4,397,141 4,272,516 ========= ========== ========== Basic earnings per share $0.21 $0.22 $0.18 ===== ===== ===== Diluted earnings per share $0.21 $0.22 $0.18 ===== ===== =====
The 1987 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 covered, and the number of shares of Class A Common Stock reserved for the purpose of the 1987 Plan shall be increased by the same proportion.
Number Option of Shares Price ----------- ---------- Outstanding at December 31, 1997 155,400 $4.29 - $4.71
Dividend 8,159 Exercised -- --------- Outstanding at December 31, 1999 171,329 $3.89 - $4.28
Dividend 24,762 Granted 190,000 Expired (102,103) -------- Outstanding at December 31, 1999 519,998 $2.22 - $3.96
Dividend 27,313 Granted 26,000 -------- Outstanding at December 31, 2000 573,311 $2.12 - $3.77 ======== Exercisable at end of year 573,311 ========
The primary purposes of the 2000 Plan are to enhance the Company's ability to attract and retain well-qualified persons for service as directors and to provide incentives to such directors to continue their association with the Company.
The 2000 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 subdivisions, combination or stock dividend.
Number Option of Shares Price --------- ---------- Outstanding at December 31, 1999 0 Dividend 200 Granted 4,000 ------- Outstanding at December 31, 2000 4,200 $2.14 ======
Exercisable at end of year 0 ====== Available options for future grant 2000 Director Plan 48,300 ======
The National Association of Insurance Commissioners has adopted the Codification of Statutory Accounting Principles ("Codification"). Codification changes current statutory accounting rules in several areas and is effective January 1, 2001. Although the Company has not estimated the potential effect, it does not believe Codificaiton will have a material effect on the financial position, results of operation, or liquidity of the Company. Statutory net income and statutory stockholder's equity for the life subsidiaries as reported to state regulatory authorities, is presented below:
Statutory Net Income (Loss) December 31, 2000 1999 1998 -------- -------- -------- Security National Life $796,047 $628,538 346,659 Southern Security Life 80,477 533,233 (486,825)
Statutory Stockholders' Equity December 31, 2000 1999 1998 -------- -------- -------- Security National Life $14,309,515 $12,089,618 12,083,747 Southern Security Life 8,405,211 8,976,516 8,627,252
The accounting policies of the reportable segments are the same as those described in the Significant Accounting Principles. Intersegment revenues are recorded at cost plus an agreed upon intercompany profit.
As of December 31, 2000: - ----------------------- Amount at Which Shown Estimated in the Type of Investment Amortized Fair Balance Cost Value Sheet ---------- ---------- ------------- Fixed maturity securities held to maturity: Bonds: U.S. Treasury securities and obligations of U.S. Government agencies $12,900,371 $13,078,200 $12,900,371 Obligations of states and political subdivisions 183,399 188,325 183,399 Corporate securities including public utilities 20,951,532 20,689,306 20,591,532 Mortgage backed securities 5,320,861 5,295,978 5,320,861 Redeemable preferred stocks 28,005 31,458 28,005 --------- --------- -------- Total Fixed Securities held to maturity 39,384,168 39,283,267 39,384,168 ---------- ---------- ---------- Securities available for sale: Bonds: U.S. Treasury securities and obligations of U.S. Government agencies 3,367,097 3,411,451 3,411,451 Corporate securities including public utilities 20,124,932 20,028,631 20,028,631 Mortgage-backed securities 64,836 64,907 64,907 Nonredeemable preferred stock 56,031 76,738 76,738 Common stock: Public utilities 315,068 617,311 617,311 Banks, trusts and insurance companies 195,983 489,282 489,282 Industrial, miscellaneous and all other 1,050,280 1,590,747 1,590,747 ----------- ----------- ----------- Total Securities available for sale 25,174,227 26,279,067 26,279,067 ----------- ----------- ----------- Mortgage loans on real estate 17,435,178 17,435,178 Real estate 8,564,395 8,564,395 Policy loans 11,277,742 11,277,742 Other investments 1,027,927 1,027,927 ----------- ----------- Total investments $102,863,636 $103,968,476 ============ ============
December 31, 2000 1999 Liabilities: Bank loans payable: Current installments $1,035,585 $841,767 Long-term 5,294,808 6,465,741
Notes and contracts payable: Current installments 152,818 152,818 Long-term 151,857 303,713
The following tabulation shows the combined maturities of bank loans payable and notes and contracts payable:
2001 1,188,403 2002 1,420,553 2003 1,366,940 2004 1,505,600 2005 1,153,572 Thereafter -- ---------- Total $6,635,068 ==========