Selected Financial Data - The Company and Subsidiaries (Consolidated) - ----------------------------------------------------------------------------- The following selected financial data for each of the five years in the period ended December 31, 1995, are derived from the audited consolidated financial statements. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.
Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations ---------------------
The Company's operations over the last three years generally reflect four trends or events which the Company expects to continue: (i) increased attention to "niche" insurance products, such as the Company's funeral plan policies, annuities, and limited pay accident policies; (ii) decreased general and administrative costs as a percentage of revenue through efforts to reduce operating costs and through eliminating unnecessary duplication of costs at acquired companies; (iii) emphasis on high margin cemetery and mortuary business; and (iv) capitalizing on the strong economy in the intermountain west by originating and refinancing mortgage loans.
The following schedule summarizes the effect the acquisition of Capital Investors Life Insurance Company and Greer-Wilson Funeral Home had on the Consolidated Statements of Operations for the year ended December 31, 1995.
Death benefits, surrenders and other policy benefits, and increase in future policy benefits increased by $678,000, from $4,036,000 in 1994 to $4,715,000 in 1995. This increase was due to primarily to three factors: the number of policies in force have increased from 1994 to 1995; the block of business continues to age; and the mix of policies issued has changed to limited pay policies over whole life policies.
Amortization of deferred policy acquisition costs and cost of insurance acquired increased by $156,000, from $767,000 in 1994 to $923,000 in 1995. This increase was primarily due to the maturing of the policies in force.
Cost of the mortuary and cemetery goods and services sold was consistent with the products sold during 1995.
Realized gains on investments decreased by $396,000, from $780,000 in 1993 to $384,000 in 1994. The 1994 amount included the results of the sale of 13.45 acres of land deemed not suitable for cemetery development at Lake View Cemetery. In August 1994, an agreement was reached for the sale of the land to Temple Ridge Development Company for $515,000. The net gain on the sale of the land, after deducting the original cost of the land and related fees, was approximately $278,000.
The 1993 amount of realized gains on investments included the results of a favorable settlement of a lawsuit brought in 1988 by the Metropolitan Water District against the Company to condemn 6.6 acres of land at Mountain View Cemetery. The net gain on the sale of the land to the Metropolitan Water District was $184,000. The 1993 amount also included $485,000 in realized gains by Security National Life due to a significant amount of early bond redemptions.
General and administrative expenses increased by $965,000, from $7,098,000 in 1993, to $8,063,000 in 1994. This increase was primarily due to the additional costs associated with the operations of Camelback Sunset Funeral Home, which was acquired on January 10, 1994, and Security National Mortgage Company, which was formed and operated as of July 1, 1993.
Cost of mortuary and cemetery goods and services decreased by $123,000, from $1,890,000 in 1993 to $1,767,000 in 1994. This decrease was primarily due to a reduction in pre-need sales at Holladay Cottonwood Memorial Foundation.
Lapse rates measure the amount of insurance terminated during a particular period. The Company's lapse rate for life insurance in 1995 was 10.5%, as compared to a rate of 8% in 1994.
At December 31, 1995, $9,473,000 of the Company's consolidated stockholders' equity represents the statutory stockholders' equity of the Company's insurance subsidiary. The life subsidiary cannot pay a dividend to its parent company without the approval of insurance regulatory authorities.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 1995, 1994, and 1993
Security National Financial Corporation and its wholly- owned subsidiaries (the "Company") operates three main business segments; life insurance, cemetery and mortuary, and mortgage loans. The life insurance segment is engaged in the business of selling and servicing selected lines of life insurance, annuity products and accident and health insurance marketed primarily in the intermountain west, California, Texas, and Oklahoma. The cemetery and mortuary segment of the Company consists of five cemeteries in Utah and one in California, and eight mortuaries in Utah and five mortuaries in Arizona. The mortgage loan segment is an approved governmental and conventional lender that originates and underwrites residential and commercial loans for new construction and existing homes and real estate projects primarily in the intermountain west.
Mortality/Morbidity Risk - the risk that the Company's actuarial assumptions may differ from actual mortality/morbidity experience that may cause the Company's products to be underpriced, may cause the Company to liquidate insurance or other claims earlier than anticipated and other potentially adverse consequences to the business. The Company minimizes this risk through sound underwriting practices, asset/liability duration matching, and sound actuarial practices.
The unaudited consolidated pro forma results of operations assuming consummation of these acquisitions as of January 1, 1994 are summarized as follows:
The amortized cost and estimated fair value of fixed maturity securities held to maturity at December 31, 1995, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Net investment income includes net investment income earned by the restricted assets of the cemeteries and mortuaries of approximately $574,000, $515,000 and $426,000 for 1995, 1994, and 1993, respectively.
The liability to the endowment care fund is summarized as follows:
In addition to the above mentioned assets, $128,867 of accounts receivable have been pledged to the restricted asset accounts. Cemeteries and mortuaries transfer assets to the restricted asset accounts as merchandise payments are received.
Significant components of the Company's deferred tax liabilities and assets at December 31 are approximately as follows:
The Company paid no income taxes in 1995, 1994, and 1993.
The insurance companies have remaining loss carry forwards for tax purposes of approximately $1,017,000.
The Company has also assumed insurance from other companies (credit life and credit accident and health) having insurance in force amounting to $58,916,837 at December 31, 1995 and $69,998,195 at December 31, 1994.
The Company and its wholly-owned subsidiary, Greer-Wilson have been named as parties in the action of In Re the Marriage of Ann Marie Wilson, Arizona Superior Court, Maricopa County, No. DR95-02128. This is a dissolution (divorce) action between Scott Wilson, a former employee of Greer-Wilson and Ann Wilson. Both the Company and Greer- Wilson are named as co-respondents. The litigation is in the early stages. Ann Wilson has not yet sufficiently defined her claims to permit a complete determination of the Company's potential exposure or that of Greer-Wilson but it appears that there are good defenses and a good position to limit exposure. It is the intention of the Company and Greer-Wilson to vigorously defend this matter.
The Company organized a 401(k) savings plan in 1995, which allows employees to contribute pre tax compensation up to the lesser of 5% of total annual compensation or the statutory limit (currently $9,240). The Company matches 50% of each employee's contribution in Company stock. Company matching contributions were not significant in 1995.
value of the stock (110% for employees owning more than 10% of the total combined voting power of all classes of stock). The Plan provides that if additional shares of Class A Common Stock are issued pursuant to a stock split or a stock dividend, the number of shares of Class A Common Stock then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the shares then so covered, and the number of shares of Class A Common Stock reserved for the purpose of the Plan shall be increased by the same proportion. In the event that the shares of Class A Common Stock of the Company from time to time issued and outstanding are reduced by a combination of shares, the number of shares of Class A Common Stock then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the shares then so covered, and the number of shares of Class A Common Stock reserved for the purposes of the Plan shall be reduced by the same proportion. The Plan terminates ten years from its effective date and options granted are non-transferable. The Plan also includes a Stock Appreciation Right which permits the holder of the option to elect to receive cash, amounting to the difference between the option price and the fair market value of the stock at the time of the exercise, or a lesser amount of stock without payment, upon exercise of the option.
Activity of the 1987 Plan for 1995 and 1994 is summarized as follows:
The 1993 Plan is to be administered by the Board of Directors or by a committee designated by the Board. The terms of options granted or stock awards or sales effected under the 1993 Plan are to be determined by the Board of Directors or its committee. The Plan provides that if the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. No options may be exercised for a term of more than ten years from the date of grant. Options intended as incentive stock options may be issued only to employees, and must meet certain conditions imposed by the code, including a requirement that the option exercise price be no less than the fair market value of the option shares on the date of grant. The 1993 Plan provides that the exercise price for non-qualified options will be not less than at least 50% of the fair market value of the stock subject to such option as of the date of grant of such options, as determined by the Company's Board of Directors.
Generally, the net assets of the life subsidiary are available for transfer to the Company are limited to the amounts that the life subsidiary's net assets, as determined in accordance with statutory accounting practices, exceed minimum statutory capital requirements; however, payments of such amounts as dividends may be subject to approval by regulatory authorities.
The Company is principally involved in three segments: Life insurance and annuities, cemetery/mortuary operations and mortgage operations. The following schedules summarize segment information for the three segments and corporate activities for 1995, 1994, and 1993:
Mortgage, Policy, and Collateral Loans: The fair values are estimated using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. The carrying amounts reported in the accompanying balance sheets for these financial instruments approximate their fair values.