<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 0-9341
Security National Financial Corporation
(Exact name of registrant as specified in its Charter)
UTAH 87-0345941
- ---------------------------- ----------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
5300 South 360 West, Suite 250 84123
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 264-1060
Securities registered pursuant to Section 12(d) of the Act:
Name of each exchange
Title of each Class on which registered
- ------------------- -------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $2.00 Par Value
(Title of Class)
Class C Common Stock, $0.20 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 31, 1999 was
approximately $10,792,000.
As of March 31, 1999, registrant had issued and outstanding
3,924,337 shares of Class A Common Stock and 5,387,567
shares of Class C Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the
registrant's 1999 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
<PAGE>
PART I
Item 1. Business
Security National Financial Corporation (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. These products
are marketed in 34 states through a commissioned sales
force of independent licensed insurance agents who may also
sell insurance products of other companies. The cemetery
and mortuary segment of the Company consists of five
cemeteries in the state of Utah and one in the state of
California and eight mortuaries in the state of Utah and
six in the state of Arizona. The Company also engages in
pre-need selling of funeral, cemetery and cremation
services through its Utah operations. Many of the
insurance agents also sell pre-need funeral, cemetery and
cremation services. The mortgage loan segment is an
approved governmental and conventional lender that
originates and underwrites residential and commercial loans
for new construction and existing homes and real estate
projects.
The design and structure of the Company is that each
segment is related to the others and contributes to the
profitability of the other segments of the Company. Because
of the increasing cemetery and mortuary operations in Utah
and Arizona, the Company enjoys a level of public awareness
that assists in the sales and marketing of insurance and
pre-need cemetery and funeral products. Security National
Life Insurance Company ("Security National Life") invests
its assets (representing in part the pre-paid funerals) in
investments authorized by the Insurance Department of the
State of Utah. One such investment authorized by the Utah
Insurance Department is high quality mortgage loans. Thus,
while each segment is a profit center on a stand-alone
basis, this horizontal integration of each segment will
lead to improved profitability of the Company. The Company
is also pursuing growth through acquisitions of both life
insurance companies and cemeteries and mortuaries. The
Company's acquisition business plan is based on reducing
overhead cost of the acquired company by utilizing existing
personnel, management, and technology while still providing
quality service to the customers and policyholders.
The Company was organized as a holding company in 1979 when
Security National Life became a wholly owned subsidiary of
the Company and the former stockholders of Security
National Life became stockholders of the Company. Security
National Life was formed in 1965 and has grown through the
direct sale of life insurance and annuities and through the
acquisition of other insurance companies, including the
acquisitions of Capital Investors Life Insurance Company in
December 1994, Civil Service Employees Life Insurance
Company in December 1995 and Southern Security Life
Insurance Company in December 1998. Memorial Estates, Inc.
and Memorial Mortuary became direct subsidiaries of the
Company in the 1979 reorganization when the Company was
formed. These companies were acquired by Security National
Life in 1973. The cemetery and mortuary operations have
also grown through the acquisition of other cemetery and
mortuary companies, including the acquisitions of Paradise
Chapel Funeral Home, Inc. in 1989, Holladay Memorial Park,
Inc., Cottonwood Mortuary, Inc. and Deseret Memorial, Inc.
in 1991, Sunset Funeral Home in January 1994, Greer-Wilson
<PAGE>
Funeral Home, Inc. in April 1995 and Crystal Rose Funeral
Home in February 1997. In July 1993, the Company formed
Security National Mortgage Company ("Security National
Mortgage") to originate and refinance mortgage loans. See
Notes to Consolidated Financial Statements for additional
disclosure and discussion regarding segments of the
business.
Life Insurance
Products
The Company, through its insurance subsidiaries, Security
National Life and Southern Security Life Insurance Company,
issues and distributes selected lines of life insurance and
annuities. The Company's life insurance business includes
funeral plans and interest-sensitive whole life insurance,
as well as other traditional life and accident and health
insurance products but places specific marketing emphasis
on funeral plans.
A funeral plan is a small face value life insurance policy
that generally has a face coverage of up to $5,000. The
Company believes that funeral plans represent a marketing
niche that has lower competition since most insurance
companies do not offer similar coverages. The purpose of
the funeral plan policy is to pay the costs and expenses
incurred at the time of a person's death. On a per
thousand dollar cost of insurance basis, these policies are
more expensive to the policyholder than many types of
non-burial insurance due to their low face amount,
requiring the fixed cost of the policy to be distributed
over a smaller policy size, and due to the simplified
underwriting practices resulting in higher mortality costs.
Markets and Distribution
The Company is licensed to sell insurance in 34 states.
The Company, in marketing its life insurance products,
seeks to locate, develop and service specific "niche"
markets. A "niche" market is an identifiable market which
the Company believes is not emphasized by most insurers.
The Company generally sells its life insurance products to
people of middle age who have a need for insurance to
protect the income of the wage earner of the family, to pay
off debts at the time of death and for other estate
planning purposes. Funeral plan policies are sold
primarily to persons who range in age from 45 to 75. Even
though people of all ages and income levels purchase
funeral plans, the Company believes that the highest
percentage of funeral plan purchasers are individuals who
are older than 45 and have low to moderate income. A
majority of the Company's funeral plan premiums come from
the states of Arizona, Colorado, Idaho, Nevada, Oklahoma,
Texas and Utah, and a majority of the Company's non-funeral
plan life insurance premiums come from the states of
California, New Mexico and Utah.
The Company sells its life insurance products through
direct agents and brokers and independent licensed agents
who may also sell insurance products of other companies.
The commissions on life insurance products range from
<PAGE>
approximately 10% to 90% of first year premiums. In those
cases where the Company utilizes its direct agents in
selling such policies, those agents customarily receive
advances against future commissions.
In some instances, funeral plan insurance is marketed in
conjunction with the Company's cemetery and mortuary sales
force. When it is marketed by that group, the beneficiary
is usually the Company. Thus, death benefits that become
payable under the policy are paid to the Company's cemetery
and mortuary subsidiaries to the extent of services
performed and products purchased.
In marketing the funeral plan insurance, the Company also
seeks and obtains third-party endorsements from other
cemeteries and mortuaries within its marketing areas.
Typically, these cemeteries and mortuaries will provide
letters of endorsement and may share in mailing and other
lead-generating costs. The incentive for such businesses
to share the costs is that these businesses are usually
made the beneficiary of the policy. The following table
summarizes the life insurance business for the five years
ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Life
Insurance
Policy/Cert.
Count
as of
December 31 69,895(1) 43,213 42,034 42,711 41,064
Insurance
in force
as of
December 31
(omitted
000) $ 2,123,734(1) 648,906 546,213 530,688 436,600
Premiums
Collected
(omitted
000) $ 5,718 5,732 5,765 5,819 5,175
</TABLE>
(1) Includes acquisition of Southern Security Life
Insurance Company on December 17, 1998.
Underwriting
Factors considered in evaluating an application for
insurance coverage include the applicant's age, occupation,
general health and medical history. Upon receipt of a
satisfactory application, which contains pertinent medical
questions, the Company writes insurance that is based on
its medical limits and requirements on a basis satisfactory
to the reinsuring company (or companies, if submitted
facultatively), subject to the following general
non-medical limits:
Age Nearest Non-Medical
Birthday Limits
0-50 $75,000
51-up Exam Required
<PAGE>
When underwriting life insurance, the Company will
sometimes issue policies with higher premium rates for
substandard risks.
In addition to the Company's ordinary life product line,
the Company also sells final expense insurance. This
insurance is a small face amount, with a maximum issue of
$10,000. It is written on a simplified medical application
with underwriting requirements being a completed
application, a phone inspection on each applicant and a
Medical Information Bureau inquiry. There are several
underwriting classes in which an applicant can be placed.
If the Company receives conflicting or incomplete
underwriting information, an attending physician's
statement can be ordered to insure the applicant is placed
in the correct underwriting class.
Annuities
Products
The Company's annuity business includes single premium
deferred annuities, flexible premium deferred annuities and
immediate annuities. A single premium deferred annuity is
a contract where the individual remits a sum of money to
the Company, which is retained on deposit until such time
as the individual may wish to purchase an immediate annuity
or surrender the contract for cash. A flexible premium
deferred annuity gives the contract holder the right to
make premium payments of varying amounts or to make no
further premium payments after his initial payment. These
single and flexible premium deferred annuities can have
initial surrender charges. The surrender charges act as a
deterrent to individuals who may wish to surrender their
annuity contracts. These types of annuities have
guaranteed interest rates of 4% to 4 1/2% per annum. Above
that, the interest rate credited is periodically determined
by the Board of Directors at their discretion. An
immediate annuity is a contract in which the individual
remits to the Company a sum of money in return for the
Company's obligation to pay a series of payments on a
periodic basis over a designated period of time, such as an
individual's life, or for such other period as may be
designated.
Holders of annuities enjoy a significant benefit under the
current federal income tax law in that interest accretions
that are credited to the annuities do not incur current
income tax expense on the part of the contract holder.
Instead, the interest income is tax deferred until such
time as it is paid out to the contract holder. In order
for the Company to realize a profit on an annuity product,
the Company must maintain an interest rate spread between
its investment income and the interest rate credited to the
annuities. From that spread must be deducted commissions,
issuance expenses and general and administrative expenses.
The Company's annuities currently have credited interest
rates ranging from 4% to 6 1/2%.
<PAGE>
Markets and Distribution
The general market for all of the Company's annuities is
middle to older age individuals who wish to save or invest
their money in a tax deferred environment, having
relatively high yields. The Company currently markets its
annuities primarily in the states of Arizona, Colorado,
Idaho, New Mexico, Oklahoma, Texas and Utah.
The major source of annuity considerations comes from
direct agents. Annuities can be sold as a by-product of
other insurance sales. This is particularly true in the
funeral planning area. If an individual does not qualify
for a funeral plan due to health considerations, the agent
will often sell that individual an annuity to take care of
those final expenses. The commission rates on annuities
range from 2% to 10%.
The following table summarizes the annuity business for the
five years ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Annuities
Policy/Cert.
Count as of
December 31 7,890(1) 7,434 7,049 6,893 5,954
Deposits
Collected
(omitted 000) 2,770 2,521 2,859 2,375 1,927
</TABLE>
(1) Includes acquisition of Southern Security Life Insurance Company
on December 17, 1998.
Accident and Health
Products
Prior to the acquisition of Capital Investors Life in
December 1994, the Company did not actively market accident
and health products. With the acquisition of Capital
Investors Life, the Company acquired a block of accident
and health policies which pay limited benefits to
policyholders. The Company is currently offering a low-
cost comprehensive diver's accident policy. The policy
provides world-wide coverage for medical expense
reimbursement and life insurance in the event of diving or
water sports accidents.
Markets and Distribution
The Company currently markets its diver's policy through
water sports magazine advertising and dive shops throughout
the world. The Company pays direct commissions ranging
from 15% to 30% for new business generated.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the accident and health
business for the five years ended December 31, 1998:
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Accident
and Health
Policy/Cert.
Count as of
December 31 27,201(2) 30,250 33,639 37,302 42,910(1)
Premiums
Collected
(omitted 000) $ 375 430 493 569 15
</TABLE>
(1) Includes acquisition of Capital Investors Life Insurance Company
on December 21, 1994.
(2) Includes acquisition of Southern Security Life
Insurance Company on December 17, 1998.
Reinsurance
The Company reinsures with other companies portions of the
individual life insurance and accident and health policies
it has underwritten. The primary purpose of reinsurance is
to enable an insurance company to write a policy in an
amount larger than the risk it is willing to assume for
itself. No other liabilities or guarantees by the Company
exist on business ceded through reinsurance treaties,
however, the Company remains obligated for amounts ceded in
the event the reinsurers do not meet their obligations.
There is no assurance that the reinsurer will be able to
meet the obligations assumed by it under the reinsurance
agreement.
The Company's policy is to retain no more than $50,000 of
ordinary insurance per insured life. Excess risk is
reinsured. The total amount of life insurance in force at
December 31, 1998, reinsured by other companies aggregated
$352,777,000, representing approximately 16.6% of the
Company's life insurance in force on that date.
The Company currently cedes and assumes certain risks with
various authorized unaffiliated reinsurers pursuant to
reinsurance treaties which are renewable annually. The
premiums paid by the Company are based on a number of
factors, primarily including the age of the insured and the
risk ceded to the reinsurer.
Investments
The investments that support the Company's life insurance
and annuity obligations are determined by the Investment
Committee of the Board of Directors of the various
subsidiaries and ratified by the full Board of Directors of
the respective subsidiaries. A significant portion of the
investments must meet statutory requirements governing the
nature and quality of permitted investments by insurance
companies. The Company's interest-sensitive type products,
primarily annuities and interest-sensitive whole life,
compete with other financial products such as bank
certificates of deposit, brokerage sponsored money market
funds as well as competing life insurance company products.
While it is not the Company's policy to offer the highest
<PAGE>
yield in this climate, in order to offer what the Company
considers to be a competitive yield, it maintains a
diversified portfolio consisting of common stocks,
preferred stocks, municipal bonds, investment and
non-investment grade bonds including high-yield issues,
mortgage loans, real estate, short-term and other
securities and investments.
See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Notes to
Consolidated Financial Statements" for additional
disclosure and discussion regarding investments.
Cemetery and Mortuary
Products
The Company has six wholly-owned cemeteries and fourteen
wholly-owned mortuaries. The cemeteries are non-
denominational. Through its cemetery and mortuary
operations, the Company markets a variety of products and
services both on a pre-need basis (prior to death) and an
at-need basis (at the time of death). The products include
grave spaces, interment vaults, mausoleum crypts and
niches, markers, caskets, flowers and other related
products. The services include professional services of
funeral directors, opening and closing of graves, use of
chapels and viewing rooms, and use of automobiles and
clothing. The Company has a funeral chapel at each of its
cemeteries other than Holladay Memorial Park and Singing
Hills Memorial Park and has ten separate stand-alone
mortuary facilities. The Company's cemetery and mortuary
business increased with the acquisition of Holladay
Memorial Park, Inc., Cottonwood Mortuary, Inc. and Deseret
Memorial, Inc. in September 1991, the acquisition of Sunset
Funeral Home, Inc. in January 1994, the acquisition of
Greer-Wilson Funeral Home, Inc. in April 1995, and the
acquisition of Crystal Rose Funeral Home in February 1997.
Markets and Distribution
The Company's pre-need cemetery and mortuary sales are
marketed to persons of all ages but are generally purchased
by persons 45 years of age and older. The Company also
markets its mortuary and cemetery products on an at-need
basis. The Company is limited in its geographic
distribution of these products to areas lying within an
approximate 20 mile radius of its mortuaries and
cemeteries. The Company's at-need sales are similarly
limited in geographic area.
The Company actively seeks to sell its cemetery and funeral
products to customers on a pre-need basis. The Company
employs cemetery sales representatives on a commission
basis to sell these products. Many of these pre-need
cemetery and mortuary sales representatives are also
licensed insurance salesmen and sell funeral plan
insurance. In many instances, the Company's cemetery and
mortuary facilities are the named beneficiary of the
funeral plan policies.
<PAGE>
The sales representatives of the Company's cemetery and
mortuary operations are commissioned and receive no salary.
The sales commissions range from 10% to 22% for cemetery
products and services and 10% to 90% of first year premiums
for funeral plan insurance. Potential customers are
located via telephone sales prospecting, responses to
letters mailed by the sales representatives, newspaper
inserts, referrals, contacts made at funeral services, and
door to door canvassing. The Company trains its sales
representatives and generates leads for them. If a
customer comes to one of the Company's cemeteries on an
at-need basis, the sales representatives are compensated on
a commission basis.
Mortgage Loans
Products
The Company, through its mortgage subsidiary, Security
National Mortgage Company, originates and underwrites
residential and commercial loans for new construction and
existing homes and real estate projects primarily for the
greater Salt Lake City area. The Company is an approved
government guaranteed and conventional lender and processes
government guaranteed and conventional loans. Most of the
loans are sold directly to investors. The Company has
available warehouse lines of credit with affiliated
companies and an unaffiliated financial institution to fund
mortgage loans prior to the purchase by investors.
Markets and Distribution
The Company's mortgage lending services are marketed
primarily to individual homeowners and businesses who are
located in the area known as the "Wasatch Front," covering
approximately 100 miles between Salt Lake City and Ogden,
Utah, with the greatest concentration of sales being in the
greater Salt Lake City area. The typical loan size for
residential loans ranges from $40,000 to $150,000, and for
commercial loans from $200,000 to $750,000.
The Company's mortgage loan originations are through part-
time and full time mortgage loan officers and wholesale
brokers who are paid a sales commission ranging between
.40% to 3.0% of the loan amount. Prospective customers are
located through contacts with builders, real estate agents,
and door-to-door canvassing. The part-time brokers are
individuals who are supplementing their full time
employment by soliciting residential homeowners to
refinance their existing mortgage loans. The Company
provides training to these brokers.
Recent Acquisitions and Other Business Activities
California Memorial Estates
In February 1995, California Memorial Estates, Inc., a duly
organized Utah corporation and wholly-owned subsidiary of
the Company, entered into a Purchase and Sale Agreement and
Escrow Instructions with the Carter Family Trust and the
Leonard M. Smith Family Trust to purchase approximately 100
acres of real property located in San Diego County,
<PAGE>
California (the "Property"). The Company has developed the
property by designating approximately 35 acres for a
cemetery known as Singing Hills Memorial Park. The Company
has obtained approval from the federal government and the
California Cemetery Board to operate a cemetery on the
Property. The Company has completed development on six
acres and is currently selling cemetery lots on a pre-need
and at-need basis on the developed acreage.
Greer-Wilson Funeral Home
In March 1995, the Company purchased 97,800 shares of
common stock of Greer-Wilson Funeral Home, Inc. ("Greer-
Wilson"), representing 97.8% of the total issued and
outstanding shares of common stock of Greer-Wilson after
the issuance of such shares. The Company continues to
operate Greer-Wilson, which is located in Phoenix, Arizona,
as a funeral home and mortuary.
Evergreen Memorial Park
In November 1995, the Company entered into a purchase sale
agreement with Myers Mortuary for the sale of the Company's
65% interest in Evergreen Memorial Partnership and the
Company's 50% interest in Evergreen Management Corporation.
As consideration for the sale of these entities, Myers
Mortuary paid $746,123 in satisfaction of the indebtedness
that Evergreen Memorial Partnership owed to the Company.
Myers Mortuary has also agreed to pay $200,000 to the
Company in four equal annual installments of $50,000,
beginning as of October 31, 1996. In addition, Myers
Mortuary will pay a $10.00 royalty to the Company for each
adult space sold in Evergreen Memorial Park over ten years,
beginning as of January 1, 1996.
Security National Life Insurance Company
In December 1995, Security National Life Insurance Company
("Security National Life") was merged into Capital
Investors Life Insurance Company ("Capital Investors Life")
with Capital Investors Life as the surviving corporation.
As a result of the merger, Capital Investors Life has
licenses to transact business in 29 states. In March 1996,
the Company changed the name of the surviving corporation
from Capital Investors Life to Security National Life.
Civil Service Employees Life Insurance Company
In December 1995, the Company, through its wholly-owned
subsidiary, Capital Investors Life, completed the purchase
of all of the outstanding shares of Common Stock of Civil
Service Employees Life Insurance Company ("CSE Life"), a
California corporation, from Civil Service Employees
Insurance Company, and prior to the closing of the
transaction, the sole stockholder of CSE Life. At the time
of the transaction, CSE Life was a California domiciled
insurance company with total assets of approximately $16.7
million. At the time of the acquisition, CSE Life was
licensed to transact business in seven states, including
the state of California.
Following the completion of the purchase of CSE Life, the
Company merged CSE Life into Capital Investors Life. The
Company continues to operate Capital Investors Life as the
surviving insurance company, which changed its name to
Security National Life in March 1996.
<PAGE>
Crystal Rose Funeral Home
In February 1997, the Company purchased all of the
outstanding shares of common stock of Crystal Rose Funeral
Home, Inc. ("Crystal Rose"), an Arizona corporation. In
connection with this transaction, the Company also acquired
certain real estate and other assets related to the
business of Crystal Rose from the sole stockholder of
Crystal Rose. The Company continues to operate Crystal
Rose, which is located in Tolleson, Arizona, as a funeral
home and mortuary.
Consolidare Enterprises, Inc.
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 57.4%
of the outstanding shares of common stock of Southern
Security Life Insurance Company, a Florida corporation
("Southern Security"), and all of the outstanding shares of
stock of Insuradyne Corp., a Florida corporation
("Insuradyne"). Southern Security is a Florida domiciled
insurance company with total assets of approximately $81
million. Southern Security is currently licensed to
transact business in 14 states. Southern Security is also
a reporting company under Section 13 of the Securities
Exchange Act of 1994. Reference is made to Southern
Security's annual report on Form 10-K for the year ended
December 31, 1998, which was filed with the Securities
Exchange Commission on April 6, 1999, Commission File No.
2-35669.
Regulation
The Company's insurance subsidiaries, Security National
Life and Southern Security, are subject to comprehensive
regulation in the jurisdictions in which it does business
under statutes and regulations administered by state
insurance commissioners. Such regulation relates to, among
other things, prior approval of the acquisition of a
controlling interest in an insurance company; standards of
solvency which must be met and maintained; licensing of
insurers and their agents; nature of and limitations on
investments; deposits of securities for the benefit of
policyholders; approval of policy forms and premium rates;
periodic examinations of the affairs of insurance
companies; annual and other reports required to be filed on
the financial condition of insurers or for other purposes;
and requirements regarding aggregate reserves for life
policies and annuity contracts, policy claims, unearned
premiums, and other matters. The Company's insurance
subsidiaries are subject to this type of regulation in any
state in which they are licensed to do business. Such
regulation could involve additional costs, restrict
operations or delay implementation of the Company's
business plans.
<PAGE>
The Company is currently subject to regulation in Utah
under insurance holding company legislation, and other
states where applicable. Intercorporate transfers of
assets and dividend payments from its insurance
subsidiaries are subject to prior notice of approval from
the State Insurance Department, if they are deemed
"extraordinary" under these statutes. The insurance
subsidiaries are required, under state insurance laws,
to file detailed annual reports with the supervisory
agencies in each of the states in which it does business.
Their business and accounts are also subject to examination
by these agencies.
The Company's cemetery and mortuary subsidiaries are
subject to the Federal Trade Commission's comprehensive
funeral industry rules and are subject to state regulations
in the various states where such operations are domiciled.
The morticians must be licensed by the respective state in
which they provide their services. Similarly, the
mortuaries are governed by state statutes and city
ordinances in both Utah and Arizona. Reports are required
to be kept on file on a yearly basis which include
financial information concerning the number of spaces sold
and, where applicable, funds provided to the Endowment Care
Trust Fund. Licenses are issued annually on the basis of
such reports. The cemeteries maintain city or county
licenses where they conduct business.
The Company's mortgage loan subsidiary, Security National
Mortgage, is subject to the rules and regulations of the
U.S. Department of Housing and Urban Development. These
regulations among other things specify the procedures for
the origination, the underwriting, the licensing of
wholesale brokers, quality review audits and the amounts
that can be charged to borrowers for all FHA and VA loans.
Each year the Company must have an audit by an independent
CPA firm to verify compliance under these regulations. In
addition to the government regulations, the Company must
meet loan requirements of various investors who purchase
the loans before the loans can be sold to the investors.
Income Taxes
The Company's insurance subsidiaries, Security National
Life and Southern Security, are taxed under the Life
Insurance Company Tax Act of 1984. Pursuant thereto, life
insurance companies are taxed at standard corporate rates
on life insurance company taxable income. Life insurance
company taxable income is gross income less general
business deductions, reserves for future policyholder
benefits (with modifications), and a small life insurance
company deduction (up to 60% of life insurance company
taxable income). The Company may be subject to the
corporate Alternative Minimum Tax (AMT). The exposure to
AMT is primarily a result of the small life insurance
company deduction. Also, under the Tax Reform Act of 1986,
distributions in excess of stockholder's surplus account or
significant decrease in life reserves will result in
taxable income.
Security National Life and Southern Security may continue
to receive the benefit of the small life insurance company
deduction. In order to qualify for the small company
deduction, the combined assets of the Company must be less
<PAGE>
than $500,000,000 and the taxable income of the life
insurance companies must be less than $3,000,000. To the
extent that the net income limitation is exceeded, then the
small life insurance company deduction is phased out over
the next $12,000,000 of life insurance company taxable
income.
Since 1990, Security National Life and Southern Security
have computed their life insurance taxable income after
establishing a provision representing a portion of the
costs of acquisition of such life insurance business. The
effect of the provision is that a certain percentage of the
Company's premium income is characterized as deferred
expenses and recognized over a five to ten year period.
The Company's non-life insurance company subsidiaries are
taxed in general under the regular corporate tax
provisions. For taxable years beginning January 1, 1987,
the Company may be subject to the Corporate Alternative
Minimum Tax and the proportionate disallowance rules for
installment sales under the Tax Reform Act of 1986.
Competition
The life insurance industry is highly competitive. There
are approximately 2,000 legal reserve life insurance
companies in business in the United States. These
insurance companies differentiate themselves through
marketing techniques, product features, price and customer
service. The Company's insurance subsidiaries compete with
a large number of insurance companies, many of which have
greater financial resources, a longer business history,
and a more diversified line of insurance coverage than
the Company. In addition, such companies generally have a
larger sales force. Further, many of the companies with
which the Company competes are mutual companies which may
have a competitive advantage because all profits accrue to
policyholders. Because the Company is small by industry
standards and lacks broad diversification of risk, it may
be more vulnerable to losses than larger, better
established companies. The Company believes that its
policies and rates for the markets it serves are generally
competitive.
The cemetery and mortuary industry is also highly
competitive. In the Salt Lake City and Phoenix areas in
which the Company competes, there are a number of
cemeteries and mortuaries which have longer business
histories, more established positions in the community and
stronger financial positions than the Company. In
addition, some of the cemeteries with which the Company
must compete for sales are owned by municipalities and, as
a result, can offer lower prices than can the Company. The
Company bears the cost of a pre-need sales program that is
not incurred by those competitors that do not have a
pre-need sales force. The Company believes that its
products and prices are generally competitive with those in
the industry.<PAGE>
The mortgage loan industry is highly competitive with
several mortgage companies and banks in the same geographic
area in which the Company is operating which have longer
business histories and more established positions in the
community. The refinancing market is particularly
vulnerable to changes in interest rates.
Employees
As of December 31, 1998, the Company employed 204 full-time
and 36 part-time employees.
Item 2. Properties
The following table sets forth the location of the
Company's office facilities and certain other information
relating to these properties.
<TABLE>
<CAPTION>
Approximate
Owned Square
Location Function Leased Footage
------------------ ----------- -------- -------------
<S> <C> <C> <C>
5300 So. 360 West Corporate
Salt Lake City, UT Headquarters Owned(1) 33,000
3636 No. 15th Ave. District Owned 3,000
Phoenix, AZ Sales Office
1603 Thirteenth St. District Owned(2) 5,000
Lubbock, TX Sales Office
</TABLE>
(1) The Company leases an additional 8,858 square feet of
the facility to unrelated third parties for
approximately $140,000 per year, under leases which
expire at various dates after 1998.
(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 1998.
The Company believes the office facilities it occupies are
in good operating condition, are adequate for current
operations and has no plan to build or acquire additional
office facilities. The Company believes its office
facilities are adequate for handling business in the
foreseeable future.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the location and acreage of the six Company
owned cemeteries:
Net Saleable
Acreage
Acres
Sold as Total
Name of Date Developed Total Cemetery Available
Cemetery Location Acquired Acreage(1) Acreage(1) Spaces(2) Acreage(1)
<S> <C> <C> <C> <C> <C> <C>
Memorial Estates, Inc.:
Lakeview
Cemetery(3) 1700 E.
Lakeview Dr.
Bountiful, UT 1973 6 40 7 33
Mountain View
Cemetery(3) 3115 E.
7800 So.
Salt Lake
City, UT 1973 26 54 17 37
Redwood
Cemetery(3)(5) 6500 So.
Redwood Rd.
West Jordan,
UT 1973 40 78 34 44
Holladay Memorial
Park(4)(5) 4800 So.
Memory Lane
Holladay,
UT 1991 6 14 5 9
Lakehills
Cemetery(4) 10055 So.
State
Sandy, UT 1991 12 44 6 38
Singing Hills
Memorial Park(6) 2798 Dehesa
Rd.
El Cajon,
CA 1995 6 35 1 34
</TABLE>
(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, 1998, there were mortgages of
approximately $138,000 collateralized by the
property and facilities at Memorial Estates
Lakeview, Mountain View and Redwood Cemeteries, of
which approximately $57,000 was held by Security
National Life.
(4) As of December 31, 1998, there were mortgages of
approximately $1,972,000 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, 1998, there was a mortgage of
approximately $781,000 collateralized by the
property.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the location, square footage and the number
of viewing rooms and chapels of the fourteen Company owned mortuaries:
Name of Date Viewing Square
Mortuary Location Acquired Room(s) Chapel(s) Footage
- ----------------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Memorial Mortuary 5850 South
900 East
Salt Lake
City, UT 1973 3 1 20,000
Memorial Estates, Inc.:
Redwood Mortuary 6500 South
Redwood Rd.
West Jordan, UT 1973 2 1 10,000
Mountain View
Mortuary 3115 East
7800 South
Salt Lake
City, UT 1973 2 1 16,000
Lakeview
Mortuary 1700 East
Lakeview Dr. 1973 0 1 5,500
Bountiful, UT
Paradise Chapel
Funeral Home 3934 East
Indian
School Road
Phoenix, AZ 1989 2 1 9,800
Deseret Memorial, Inc.:
Colonial
Mortuary(2) 2128 South
State St.
Salt Lake
City, UT 1991 1 1 14,500
Deseret
Mortuary(2) 36 East
700 South
Salt Lake
City, UT 1991 2 2 36,300
Lakehills
Mortuary 10055 South
State St.
Sandy, UT 1991 2 1 18,000
Cottonwood
Mortuary(2) 4670 South
Highland Dr.
Salt Lake
City, UT 1991 2 1 14,500
Camelback Sunset
Funeral Home(1) 301 West
Camelback Rd.
Phoenix, AZ 1994 2 1 11,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Date Viewing Square
Mortuary Location Acquired Room(s) Chapel(s) Footage
<S> <C> <C> <C> <C> <C>
Greer-Wilson:
Greer-Wilson
Funeral Home 5921 West
Thomas Road
Phoenix, AZ 1995 2 2 25,000
Tolleson
Funeral
Home 9386 West
VanBuren
Tolleson, AZ 1995 0 1 3,460
Avondale
Funeral
Home 218 North
Central
Avondale, AZ 1995 1 1 1,850
Crystal Rose
Funeral
Home(3) 9155 W.
VanBuren
Tolleson, AZ 1997 0 1 9,000
</TABLE>
<PAGE>
(1) As of December 31, 1998, there were mortgages of
approximately $412,000 collateralized by the
property and facilities of Camelback Sunset Funeral
Home.
(2) As of December 31, 1998, there were mortgages of
approximately $1,972,000 collateralized by the
property and facilities at Deseret Mortuary,
Cottonwood Mortuary, Holladay Memorial Park,
Lakehills Cemetery and Colonial Mortuary.
(3) As of December 31, 1998, there was a mortgage of
approximately $111,000, collateralized by the
property and facilities of Crystal Rose Funeral
Home.
Item 3. Legal Proceedings
The Company has been named as a party in connection with
pending litigation brought by Garry Eckard & Co., Inc.
("Eckard") in the Federal District Court for the Southern
District of Indiana. The complaint was filed on October
14, 1996 and alleges breach of contract and civil
conversion pertaining to a finder's fee and seeks an
unspecified amount of damages plus costs and attorneys'
fees. In a prior letter to the Company from Eckard, it
appears that the amount of the fee being sought is
$152,000. The complaint, pursuant to the civil conversion
claim, seeks treble damages under Indiana's civil
conversion statute.
The complaint was initially filed in the Indiana Hamilton
County Superior Court, but was subsequently removed by the
Company to the Federal District Court for the Southern
District of Indiana. The Company filed a motion to dismiss
for lack of personal jurisdiction and Eckard filed a motion
to amend its complaint and to add Security National Life
Insurance Company, a subsidiary of the Company, as a party
defendant. On March 18, 1997, the Company's motion was
granted to dismiss the complaint against the Company for
lack of personal jurisdiction and Eckard's motion was
granted to amend the complaint by adding Security National
Life Insurance Company as a party defendant. The Company's
motion to dismiss the complaint against the Company was
granted without prejudice, which allows the complaint to be
refiled in an appropriate jurisdiction.
Security National Life Insurance Company also filed a
motion to dismiss for lack of personal jurisdiction. On
October 10, 1997, this motion to dismiss the complaint for
lack of personal jurisdiction was granted thereby also
dismissing the case against Security National Life
Insurance Company. Thus, the case in Indiana was dismissed
without prejudice against both the Company and Security
National Life Insurance Company for lack of personal
jurisdiction.
On March 13, 1998, a letter was sent by Eckard's counsel
relative to a settlement proposal together with a draft
complaint against the Company and Security National Life
Insurance Company for filing in the United States District
Court for the District of Utah. There was no material
difference between the complaint prepared for filing in
Utah and the amended complaint which had been filed in
Indiana. The complaint was filed in Utah on August 13,
<PAGE>
1998. Since its filing (the claims being the same as in the
Indiana action), the treble damage claim (conversion) has
been dismissed with prejudice. The contract claim is the
remaining claim. Formal discovery is in process. Eckard
claims approximately $152,000 plus interest and attorney's
fees. Although no prediction of outcome is given,
management intends to vigorously defend the action.
The Company has been named as a party in a lawsuit brought
by Robert L. Anderson ("Anderson") in the Superior Court of
San Diego, North County Judicial District, State of
California. The complaint was filed on January 28, 1999
and pertains to the creation of the San Diego Memorial Park
Partnership and the development of Singing Hills Memorial
Park. Anderson was denominated as a partner in the 1989
partner-ship agreement. He asserts that the Company did
not carry out the partnership agreement in developing the
property as a cemetery and residential lots and that
instead the property was later acquired by California
Memorial Estates, Inc., a subsidiary of the Company, and
developed. Anderson asserts a claim for lost profits
because of alleged breach of the partnership agreement and
further asserts breach of fiduciary duty, actual fraud,
constructive fraud, asks for an accounting, and alleges
conspiracy and declaratory relief. He seeks punitive
damages, legal fees and costs. Formal discovery has not
begun. At this stage, no complete evaluation has been
made. Management, however, intends to vigorously defend
the matter and believes that Anderson did not perform as
required and that he has no bona fide basis to complain.
The Company is not a party to any other legal proceedings
outside the ordinary course of the Company's business or to
any other legal proceedings which, adversely determined,
would have a material adverse effect on the Company or its
business.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters
The Company's Class A Common Stock trades on the Nasdaq
National Market under the symbol "SNFCA." Prior to August
13, 1987, there was no active public market for the Class
A and Class C Common Stock. During recent years there has
<PAGE>
<TABLE>
<CAPTION>
been occasional trading of Class A and Class C Common Stock
by brokerage firms in the over-the-counter market. The
following are the high and low sales prices for Class A
Common Stock as reported by Nasdaq:
Period (Calendar Year) Price Range
High Low
<S> <C> <C>
1997
First Quarter. . . . . . . . . . . . . . . . . . $4.76 $3.51
Second Quarter . . . . . . . . . . . . . . . . . 4.54 3.85
Third Quarter. . . . . . . . . . . . . . . . . . 4.20 3.63
Fourth Quarter . . . . . . . . . . . . . . . . . 4.08 3.68
1998
First Quarter. . . . . . . . . . . . . . . . . . 3.97 3.57
Second Quarter . . . . . . . . . . . . . . . . . 4.29 3.57
Third Quarter. . . . . . . . . . . . . . . . . . 3.99 3.10
Fourth Quarter . . . . . . . . . . . . . . . . . 3.27 2.92
1999
First Quarter. . . . . . . . . . . . . . . . . . 3.57 2.62
</TABLE>
The above sales prices have been adjusted for the effect of
annual stock dividends.
The Class C Common Stock is not actively traded, although
there are occasional transactions in such stock by
brokerage firms. (See Note 11 to the Consolidated Financial
Statements.)
The Company has never paid a cash dividend on its Class A
or Class C Common Stock. The Company currently anticipates
that all of its earnings will be retained for use in the
operation and expansion of its business and does not intend
to pay any cash dividends on its Class A or Class C Common
Stock in the foreseeable future. Any future determination
as to cash dividends will depend upon the earnings and
financial position of the Company and such other factors as
the Board of Directors may deem appropriate. A 5% stock
dividend on Class A and Class C Common Stock was paid in
the years 1989 through 1998.
As of March 31, 1999, there were 4,837 record holders of
Class A Common Stock and 150 record holders of Class C
Common Stock.
<PAGE>
Item 6. Selected Financial Data - The Company and Subsidiaries (Consolidated)
The following selected financial data for each of the five years in the period
ended December 31, 1998, are derived from the audited consolidated financial
statements. The data as of December 31, 1998 and 1997, and for the three
years ended December 31, 1998, should be read in conjunction with the
consolidated financial statements, related notes and other financial
information included herein.
Consolidated Statement of Earnings Data:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997(3) 1996 1995(2) 1994(1)
Revenue
- -------
<S> <C> <C> <C> <C> <C>
Premiums $ 5,916,000 $ 6,141,000 $ 5,666,000 $ 5,796,000 $4,945,000
Net investment
income 7,459,000 7,140,000 7,517,000 6,680,000 4,121,000
Net mortuary and
cemetery income 9,226,000 9,231,000 8,138,000 8,238,000 5,888,000
Realized gains on
investments 74,000 253,000 290,000 333,000 384,000
Mortgage fee income 10,082,000 5,662,000 8,237,000 4,943,000 1,170,000
Other 63,000 48,000 75,000 71,000 153,000
----------- ----------- ---------- ---------- -----------
Total revenue 32,820,000 28,475,000 29,923,000 26,061,000 16,661,000
----------- ----------- ----------- ----------- -----------
Expenses
- ---------
Policyholder
benefits $ 6,932,000 $6,669,000 $ 6,341,000 $ 6,111,000 $4,036,000
Amortization
of deferred
policy acquisition
costs 1,274,000 1,132,000 1,240,000 1,150,000 767,000
General and admini-
strative
expenses 19,649,000 15,361,000 17,292,000 13,019,000 8,064,000
Interest expense 999,000 948,000 1,318,000 1,208,000 692,000
Cost of goods
& services
of the mortuaries
& cemeteries 2,940,000 2,696,000 2,355,000 2,314,000 1,767,000
----------- ---------- ----------- ----------- ----------
Total benefits
& expenses 31,794,000 26,806,000 28,546,000 23,801,000 15,326,000
----------- ----------- ----------- ----------- ----------
Income before
income tax
expense 1,026,000 1,669,000 1,377,000 2,259,000 1,335,000
Income tax
expense (255,000) (360,000) (139,000) (728,000) (302,000)
Minority interest
in loss of
subsidiary -- -- -- 20,000 7,000
----------- ---------- ------------ ----------- ----------
Net earnings $ 771,000 $1,309,000 $ 1,237,000 $ 1,551,000 $1,040,000
=========== ========== ============ =========== ==========
Net earnings per
common share(4) $0.18 $0.33 $0.33 $0.44 $0.31
===== ===== ===== ===== =====
Weighted average out-
standing common
shares 4,273,000 3,988,000 3,750,000 3,508,000 3,350,000
Net earnings per
common
share-assuming
dilution(4) $0.18 $0.32 $0.32 $0.43 $0.30
===== ===== ===== ===== =====
Weighted average out-
standing common
shares-
assuming
dilution 4,273,000 4,093,000 3,856,000 3,576,000 3,418,000
</TABLE>
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
Year Ended December 31,
1998(5) 1997(3) 1996 1995(2) 1994(1)
Assets
- -------
<S> <C> <C> <C> <C> <C>
Investments and
restricted
assets $126,332,000 $ 81,039,000 $ 78,638,000 $ 80,815,000 $ 74,835,000
Cash 6,671,000 3,408,000 3,301,000 7,710,000 2,061,000
Receivables 28,309,000 15,224,000 17,070,000 24,177,000 4,638,000
Other assets 51,953,000 25,781,000 25,701,000 25,511,000 22,224,000
------------ ------------ ------------ ------------ -----------
Total
assets $213,265,000 $125,452,000 $124,710,000 $138,213,000 $103,758,000
============ ============ ============ ============ ============
Liabilities
Policyholder
benefits $137,466,000 $ 77,890,000 $ 76,962,000 $ 76,868,000 61,896,000
Notes &
contracts
payable 22,887,000 9,981,000 12,490,000 27,129,000 10,210,000
Cemetery &
mortuary
liabilities 6,917,000 6,116,000 5,946,000 6,078,000 6,603,000
Other
liabilities 12,473,000 6,070,000 5,844,000 6,219,000 5,070,000
----------- ------------ ----------- ----------- ----------
Total
liabilities 179,743,000 100,057,000 101,242,000 116,294,000 83,779,000
------------ ------------ ------------ ------------ -----------
Minority
interest 6,778,000 -- -- -- --
Stockholders'
equity 26,744,000 25,395,000 23,468,000 21,919,000 19,979,000
------------ ------------ ------------ ------------ -----------
Total
liabilities
and
stockholders'
equity $213,265,000 $125,452,000 $124,710,000 $138,213,000 $103,758,000
============ ============ ============ ============ ============
</TABLE>
(1) Reflects the acquisition of Capital Investors Life as of
December 31, 1994, and Camelback Sunset Funeral Home as of
January 1, 1994.
(2) Only includes Evergreen Memorial Park for the first eleven months of
1995 and the assets and liabilities of Civil Service Employees Life
Insurance Company as of December 31, 1995.
(3) Reflects the acquisition of Crystal Rose Funeral Home as of February
1997.
(4) 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.
(5) Reflects the acquisition of Consolidare Enterprises, Inc., and
subsidiaries as of December 17, 1998.<PAGE>
Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
Overview
The Company's operations over the last three 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, annuities, and limited pay accident policies;
(ii) emphasis on high margin cemetery and mortuary
business; and (iii) capitalizing on the strong economy in
the intermountain west by originating and refinancing
mortgage loans.
Results of Operations
1998 Compared to 1997
Total revenues increased by $4,345,000, or 15.3%, from
$28,475,000 for fiscal year 1997 to $32,820,000 for fiscal
year 1998. Net investment income increased $319,000 and
mortgage fee income increased $4,420,000. These increases
were offset by decreases in insurance premiums and other
considerations of $225,000, net mortuary and cemetery sales
of $5,000 and realized gains on investments and other
assets of $179,000.
Insurance premiums and other considerations decreased by
$225,000, from $6,141,000 in 1997 to $5,916,000 in 1998.
This decrease was primarily attributed to a reduction in
renewal premiums.
Net investment income increased by $319,000, from
$7,140,000 in 1997 to $7,459,000 in 1998. This increase
was primarily the result of the reinvestment of the
Company's bond portfolio in 1998 into higher long-term
rates in mortgage loans.
Net mortuary and cemetery sales decreased by $5,000, from
$9,231,000 in 1997 to $9,226,000 in 1998. The increase in
cemetery sales (primarily trusted merchandise sales) was
offset by a decrease in mortuary revenues.
Mortgage fee income increased by $4,420,000, from
$5,662,000 in 1997 to $10,082,000 in 1998. This increase
was primarily due to the increased number of loan
originations in the Company's primary market, the
intermountain region, compared to 1997.
Total benefits and expenses were $31,794,000 for 1998,
which constituted 97% of the Company's total revenues, as
compared to $26,806,000, or 94% of the Company's total
revenues for 1997.
During 1998, there was a net increase of $263,000 in death
benefits, surrender and other policy benefits, and an
increase in future policy benefits from $6,669,000 in 1997
to $6,932,000 in 1998. This increase was primarily due to
additional interest credited on annuities and reserve
increases on traditional products. This increase was
reasonable based on the underlying actuarial assumptions.
<PAGE>
Amortization of deferred policy acquisition costs and cost
of insurance acquired increased by $141,000, from
$1,132,000 in 1997 to $1,274,000 in 1998. This increase
was reasonable based on the underlying actuarial
assumptions.
General and administrative expenses increased by
$4,288,000, from $15,361,000 in 1997 to $19,649,000 in
1998. Commission expenses increased by $2,735,000, from
$4,883,000 in 1997 to $7,618,000 in 1998. Salaries
increased $553,000 from $4,806,000 in 1997 to $5,359,000 in
1998. Other expenses increased $999,000, from $5,672,000
in 1997 to $6,671,000 in 1998. These increases were
primarily the result of the increased number of loan
originations by the Company's mortgage subsidiary.
Interest expense increased by $51,000, from $948,000 in
1997 to $999,000 in 1998. This increase was primarily due
to more loan originations from the Company's mortgage
subsidiary that were funded by third parties.
Cost of the mortuary and cemetery goods and services sold
increased by $244,000 from $2,696,000 in 1997 to $2,940,000
in 1998. This increase was primarily due to the increase
in trusted merchandise sales.
1997 Compared to 1996
Total revenues decreased by $1,448,000, or 4.8%, from
$29,923,000 for fiscal year 1996 to $28,475,000 for fiscal
year 1997. Insurance premiums and other considerations
increased $475,000 and net mortuary and cemetery sales
increased $1,093,000. These increases were offset by
decreases in net investment income of $377,000 and mortgage
fee income of $2,575,000. Realized gains on investments
and other assets were slightly less than the previous year.
Insurance premiums and other considerations increased by
$474,000, from $5,666,000 in 1996 to $6,141,000 in 1997.
This increase was primarily attributed to an increase in
new business from marketing the Company's funeral plans.
Net investment income decreased by $377,000, from
$7,517,000 in 1996 to $7,140,000 in 1997. This decrease
was primarily the result of the reinvestment of the
Company's bond and mortgage portfolio in 1997 into lower
investment yields due to the decrease in long term rates in
the financial markets.
Net mortuary and cemetery sales increased by $1,093,000,
from $8,138,000 in 1996 to $9,231,000 in 1997. Of this
increase in sales, $750,000 was the result of the
acquisition of Crystal Rose Funeral Home. The balance of
the increase in sales was due to the generation of
additional sales of funeral services and cemetery products
from existing facilities.
Mortgage fee income decreased by $2,575,000, from
$8,237,000 in 1996 to $5,662,000 in 1997. This decrease
was primarily due to fewer loan originations because there
were fewer new home sales in 1997 in the Company's primary
market, the intermountain region, compared to 1996 and the
Company experienced increased competition from other
mortgage companies and banks.
Total benefits and expenses were $26,806,000 for 1997, which
constituted 94% of the Company's total revenues, as compared
to $28,546,000, or 95% of the Company's total revenues for 1996.
During 1997, there was a net increase of $328,000 in death
benefits, surrender and other policy benefits, and increase
in future policy benefits from $6,341,000 in 1996 to
$6,669,000 in 1997. This increase was primarily due to
additional interest credited on annuities and reserve
increases on traditional products. This increase was
reasonable based on the underlying actuarial assumptions.
Amortization of deferred policy acquisition costs and cost
of insurance acquired decreased by $108,000, from
$1,240,000 in 1996 to $1,132,000 in 1997. This decrease
was reasonable based on the underlying actuarial
assumptions.
General and administrative expenses decreased by
$1,931,000, from $17,292,000 in 1996 to $15,361,000 in
1997. This was primarily due to a decrease in commissions
and other expenses. Commission expenses decreased by
$1,117,000, from $6,000,000 in 1996 to $4,883,000 in 1997.
Other expenses decreased $876,000, from $6,548,000 in 1996
to $5,672,000 in 1997. These decreases were primarily the
result of fewer loan originations by the Company's mortgage
subsidiary. Salaries increased by $61,000, from $4,745,000
in 1996 to $4,806,000 in 1997. However, the number of the
Company's full time employees decreased by 10 from 165
employees in 1996 to 155 in 1997.
Interest expense decreased by $370,000, from $1,318,000 in
1996 to $948,000 in 1997. This decrease was primarily due
to fewer loan originations from the Company's mortgage
subsidiary and the payoff of bank debt in 1997.
The cost of the mortuary and cemetery goods and services
sold was consistent with the products sold during 1997 and
1996.
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
<PAGE>
timing; however, to date, that has not been necessary. The
Company purchases short-term investments on a temporary
basis to meet the expectations of short-term requirements
of the Company's products. The Company's investment
philosophy is intended to provide a rate of return which
will persist during the expected duration of policyholder
and cemetery and mortuary liabilities regardless of future
interest rate movements.
The Company's investment policy is to invest predominately
in fixed maturity securities, 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
$73,598,000, as of December 31, 1998 compared to
$49,697,000 as of December 31, 1997. This represents 61%
of the total insurance related investments in 1998 as
compared to 64% in 1997. 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, 1998, .63% ($459,926) and at
December 31, 1997, 4.06% ($2,018,000) of the Company's
total invested assets were invested in bonds in rating
categories three through six which are considered
non-investment grade.
If market conditions were to cause interest rates to
change, the market value of the fixed maturity security
portfolio (approximately $75,467,000) could change by the
following amounts based on the respective basis point swing
(the change in the market values were calculated using a
modeling technique):
<TABLE>
<CAPTION>
-200 pbs -100 pbs +100 pbs +200 pbs
-------------------------------------------
<S> <C> <C> <C> <C>
Change in
Market Value
(in thousands) $10,623 $5,021 $(4,798) $(9,140)
</TABLE>
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, 1998 and 1997, the life subsidiaries exceeded
the regulatory criteria.
The Company's total capitalization of stockholders' equity
and bank debt and notes payable was $41,990,000 and
$35,276,000 as of December 31, 1998 and 1997, respectively.
Stockholders' equity as a percent of total capitalization
was 64% and 72% as of December 31, 1998 and 1997,
respectively.
<PAGE>
Lapse rates measure the amount of insurance terminated
during a particular period. The Company's lapse rate for
life insurance in 1998 was 6.0%, as compared to a rate of
11.7% in 1997.
In February 1995, the Company purchased approximately 100
acres of real property (the "Property") located in San
Diego, California, approximately 35 acres of which is being
used for a cemetery. The purchase price of the property
was $1,062,000, $100,000 of which was paid in cash and the
balance of $962,000, together with interest thereon at the
rate of 9% percent per annum, to be paid in 12 monthly
payments of $5,000, thereafter in equal monthly payments of
$10,000. However, interest did not accrue on any part of
the principal balance until February 3, 1996. A principal
payment of $100,000 was made in December 1995. The Company
has obtained approval from the federal government and the
California Cemetery Board to operate a cemetery on the
property. The Company has completed development on six
acres and is currently selling cemetery lots on a pre-need
and at-need basis on the developed acreage.
In March 1995, the Company purchased 97,800 shares of
common stock of Greer-Wilson Funeral Home, Inc.,
representing 97.8% of the total issued and outstanding
shares of common stock of Greer-Wilson for a total
consideration of $1,218,000, which included a note to the
former owners in the amount of $588,000.
In November 1995, the Company entered into a purchase sale
agreement with Myers Mortuary for the sale of the Company's
65% interest in Evergreen Memorial Partnership and the
Company's 50% interest in Evergreen Management Corporation.
As consideration for the sale of these entities, Myers
Mortuary paid $746,123 in satisfaction of the indebtedness
that Evergreen Memorial Partnership owed to the Company.
Myers Mortuary also agreed to pay $200,000 to the Company
in four equal annual installments of $50,000, beginning as
of October 31, 1996. In addition, Myers Mortuary will pay
a $10.00 royalty to the Company for each adult space sold
in Evergreen Memorial Park over the next ten years,
beginning as of January 1, 1996.
In December 1995, the Company purchased all of the
outstanding shares of common stock of Civil Service
Employees Life Insurance Company ("CSE Life") from Civil
Service Employees Insurance Company for a total cost of
$5,200,000, which included a promissory note in the amount
of $1,063,000. Interest on the promissory note accrues at
7% per annum. Principal payments are to be made in seven
equal annual installments of $151,857, beginning on
December 29, 1996. Accrued interest is payable annually
beginning on December 29, 1996.
In February 1997, the Company purchased all of the
outstanding shares of common stock of Crystal Rose Funeral
Home, Inc. for a total consideration of $382,000, which
included a note to the former owner in the amount of
$297,000.
<PAGE>
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 57.4%
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").
As consideration for the purchase of the shares of
Consolidare, the Company paid to the stockholders of
Consolidare at closing an aggregate of $12,248,194. In
order to pay the purchase consideration, the Company
obtained $6,250,000 from bank financing, with the balance
of $5,998,194 obtained from funds then currently held by
the Company. In addition to the purchase consideration,
the Company caused SSLIC to pay, on the closing date,
$1,050,000 to George Pihakis, the President and Chief
Executive Officer of SSLIC prior to closing, as a lump sum
settlement of the executive compensation agreement between
SSLIC and Mr. Pihakis.
In connection with the acquisition of Consolidare, the
Company entered into an Administrative Services Agreement
dated December 17, 1998 with SSLIC. Under the terms of the
agreement, the Company has agreed to provide SSLIC with
certain defined administrative and financial services,
including accounting services, financial reports and
statements, actuarial, policyholder services, underwriting,
data processing, legal, building management, marketing
advisory services and investment services. In
consideration for the services to be provided by the
Company, SSLIC shall pay the Company an administrative
services fee of $250,000 per month, provided, however, that
such fee shall be reduced to zero for so long as the
capital and surplus of SSLIC is less than or equal to
$6,000,000, unless SSLIC and the Company otherwise agree in
writing and such agreement is approved by the Florida
Department of Insurance.
The administrative services fee may be increased, beginning
on January 1, 2001, to reflect increases in the Consumer
Price Index, over the index amount as of January 1, 2000.
The Administrative Services Agreement shall remain in
effect for an initial term expiring on December 16, 2003.
The term of the agreement may be automatically extended for
additional one-year terms unless either the Company or
SSLIC shall deliver a written notice on or before September
30 of any year stating to the other its desire not to
extend the term of the agreement. However, in no event can
the agreement be terminated prior to December 16, 2003.
At December 31, 1998, $20,710,999 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.<PAGE>
Year 2000 Issues
The Company is aware of the issues associated with the
programming code in existing computer systems as the
millennium (Year 2000) approaches. The "Year 2000" problem
is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of
the two digit year value to 00. The issue is whether
computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do
not properly recognize such information could generate
erroneous data or cause a system to fail.
The Company's insurance operations have two different
administrative systems for its insurance operations. The
system used for Security National Life Insurance Company
was converted to a Year 2000 compliant version in the
fourth quarter of 1998. The Company expended approximately
$52,000 for the conversion to this latest version. As part
of the acquisition of Southern Security Life Insurance
Company (Southern Security), the Company purchased a new
system which is Year 2000 compliant. The Company
successfully converted Southern Security's existing system
to the new system on January 1, 1999. The Company paid in
1998 approximately $1 million for this new system.
The Company's mortgage subsidiary uses a Year 2000
compliant system. The Company's mortuary and cemetery
operations converted to the latest version for Year 2000
software during March 1999. The Company's general
accounting and payroll systems were converted to Year 2000
versions during March 1999. The cost for these conversions
were not significant to consolidated net income.
Anticipated future costs of addressing potential problems
are not currently expected to have a material adverse
impact on the Company's financial position, results of
operations or cash flows in future periods. However, if
the Company, its customers or vendors are unable to resolve
such processing issues in a timely manner, it could result
in a material financial risk. Management believes that
manual policy and claims administration could be performed
in the unlikely event that one or more of its systems did
not function.
The Company has tested each personal computer being used
for Year 2000 compliance and has installed or replaced the
necessary software to meet compliance. The Company is
monitoring the progress of third party vendors which the
Company relies upon, i.e., telephone equipment and
communication suppliers, electricity suppliers, natural gas
suppliers, banks, brokers, U.S. Postal Service, express
mail services, etc. The Company is not aware of any if its
suppliers that will not be Year 2000 compliant and will
continue to monitor and make the necessary contingency
plans where needed. The Company is aware of the risks
associated with any of its internal systems or those of its
suppliers that are not Year 2000 compliant.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL
SCHEDULES
Page No.
Financial Statements:
Report of Independent Auditors. . . . . . . . . . . . . . . . . . 32
Consolidated Balance Sheets, December 31,
1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Earnings,
Years Ended December 31, 1998, 1997,
and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Stockholders'
Equity, Years Ended December 31, 1998, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Cash Flow,
Years Ended December 31, 1998, 1997 and
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Financial Statement Schedules:
I. Summary of Investments -- Other than
Investments in Related Parties . . . . . . . . . . . . . . . 72
II. Condensed Financial Information of
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . 73
IV. Reinsurance. . . . . . . . . . . . . . . . . . . . . . . . . 79
V. Valuation and Qualifying Accounts. . . . . . . . . . . . . . 80
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.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Security National Financial Corporation
We have audited the accompanying consolidated balance
sheets of Security National Financial Corporation and
subsidiaries as of December 31, 1998, and 1997, and the
related consolidated statements of earnings, stockholders'
equity, and cash flow for each of the three years in the
period ended December 31, 1998. Our audits also included
the financial statement schedules listed in the Index at
Item 8. These financial statements and schedules are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Security National
Financial Corporation and subsidiaries at December 31, 1998
and 1997, and the consolidated results of their operations
and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when
considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects,
the information set forth therein.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 22, 1999
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
Assets: 1998 1997
- ------- ---------------------
<S> <C> <C>
Insurance-related investments:
Fixed maturity securities
held to maturity, at amortized cost (market
$46,897,819 and $51,177,199 for 1998 and 1997) $44,984,882 $ 49,784,898
Fixed maturity securities available
for sale, at market (cost $28,675,440 in 1998) 28,675,440 --
Equity securities available for sale,
at market (cost $4,035,251 and $3,870,078
for 1998 and 1997) 5,146,059 4,831,813
Mortgage loans on real estate 12,523,395 8,307,237
Real estate, net of accumulated
depreciation of $2,380,874 and $2,049,346
for 1998 and 1997 7,866,151 7,559,725
Policy, student and other loans 11,493,637 2,966,858
Short-term investments 11,543,540 3,698,941
------------- ------------
Total insurance-related investments 122,233,104 77,149,472
Restricted assets of cemeteries and mortuaries 4,098,877 3,889,785
Cash 6,670,996 3,408,179
Receivables:
Trade contracts 4,011,722 4,323,011
Mortgage loans sold to investors 21,181,028 11,398,432
Receivable from agents 1,944,449 816,657
Receivable from officers 145,600 --
Other 2,603,243 364,782
----------- -----------
Total receivables 29,886,042 16,902,882
Allowance for doubtful accounts (1,576,668) (1,679,090)
----------- -----------
Net receivables 28,309,374 15,223,792
Policyholder accounts on deposit
with reinsurer 8,518,571 --
Land and improvements held for sale 8,405,725 8,466,886
Accrued investment income 1,440,860 1,001,998
Deferred policy acquisition costs 10,501,281 4,433,841
Property, plant and equipment, net 10,682,085 6,641,562
Cost of insurance acquired 10,462,446 3,370,018
Excess of cost over net assets
of acquired subsidiaries 1,414,910 1,554,505
Other 526,918 311,841
------------ ------------
Total assets $213,265,147 $125,451,879
=========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
December 31,
1998 1997
Liabilities:
- -----------
<S> <C> <C>
Future life, annuity, and other
policy benefits $134,899,870 $ 77,890,080
Unearned premium reserve 2,565,968 --
Line of credit for financing
of mortgage loans 7,577,248 100,000
Bank loans payable 11,909,980 6,097,351
Notes and contracts payable 3,399,272 3,783,566
Estimated future costs of pre-need sales 6,376,651 5,994,241
Payable to endowment care fund 540,504 121,370
Accounts payable 1,321,559 1,204,029
Funds held under reinsurance treaties 1,419,357 --
Other liabilities and accrued expenses 3,787,385 1,632,897
Income taxes 6,008,537 3,233,415
------------ -----------
Total liabilities 179,806,331 100,056,949
Commitments and contingencies -- --
Minority interest 6,778,557 --
Stockholders' Equity:
Common stock:
Class A: $2 par value, authorized
10,000,000 shares, issued 4,617,330
shares in 1998 and 4,326,588 shares
in 1997 9,234,660 8,653,176
Class C: $0.20 par value, authorized
7,500,000 shares, issued 5,446,595
shares in 1998 and 5,200,811 shares
in 1997 1,089,319 1,040,162
------------ -----------
Total common stock 10,323,979 9,693,338
Additional paid-in capital 9,596,444 9,133,454
Accumulated other comprehensive income,
net of deferred taxes of $222,967
and $130,796 for 1998 and 1997 1,081,113 830,939
Retained earnings 7,474,783 7,533,259
Treasury stock at cost (692,993 Class
A shares and 59,028 Class C shares
in 1998; 659,992 Class A shares and
56,217 Class C shares in 1997, held
by affiliated companies) (1,796,060) (1,796,060)
Total stockholders' equity 26,680,259 25,394,930
------------ ------------
Total liabilities and stockholders' equity $213,265,147 $125,451,879
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings
Year Ended December 31,
1998 1997 1996
Revenues:
- ---------
<S> <C> <C> <C>
Insurance premiums and
other considerations $ 5,915,659 $ 6,140,783 $ 5,666,436
Net investment income 7,458,743 7,139,580 7,517,014
Net mortuary and cemetery sales 9,225,801 9,230,864 8,138,010
Realized gains on investments
and other assets 74,121 252,635 289,543
Mortgage fee income 10,082,330 5,661,867 8,236,709
Other 62,949 48,893 74,989
----------- ----------- -----------
Total revenue 32,819,603 28,474,622 29,922,701
Benefits and expenses:
- ---------------------
Death benefits 2,432,822 2,407,931 2,143,843
Surrenders and other
policy benefits 1,145,812 1,286,511 1,452,295
Increase in future policy
benefits 3,353,287 2,974,915 2,744,326
Amortization of deferred policy
acquisition costs and cost of
insurance acquired 1,273,394 1,132,298 1,239,918
General and administrative expenses:
Commissions 7,618,335 4,882,880 6,000,119
Salaries 5,358,743 4,805,571 4,744,503
Other 6,671,823 5,671,664 6,547,639
Interest expense 999,123 947,629 1,318,102
Cost of goods and services
sold of the mortuaries
and cemeteries 2,940,220 2,696,174 2,355,353
Total benefits and expenses 31,793,559 26,805,573 28,546,098
------------ ----------- -----------
Earnings before income taxes 1,026,044 1,669,049 1,376,603
Income tax expense (254,815) (360,108) (139,458)
----------- ----------- -----------
Net earnings $ 771,229 $ 1,308,941 $ 1,237,145
=========== =========== ===========
Net earnings per common share $0.18 $0.33 $0.33
===== ===== =====
Weighted average
outstanding common shares 4,272,516 3,988,034 3,750,498
Net earnings per common
share-assuming dilution $0.18 $0.32 $0.32
===== ===== =====
Weighted average
outstanding common shares
assuming-dilution 4,272,516 4,092,691 3,855,560
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Additional
Class Class Paid-in
A C Capital
<S> <C> <C> <C>
Balance at
December 31, 1995 $7,638,830 $ 955,216 $7,879,578
Comprehensive income:
Net earnings
Unrealized loss on securities
Total comprehensive income
Stock dividends 403,758 42,101 548,844
Conversion Class C
to Class A 3,904 (3,904)
Stock issued 174,926 246,964
Purchase of treasury stock --------- --------- --------
Balance at
December 31, 1996 8,221,418 993,413 8,675,386
Comprehensive income:
Net earnings
Unrealized gain on securities
Total comprehensive income
Stock dividends 412,712 49,531 431,967
Conversion Class C
to Class A 2,718 (2,718)
Stock issued 16,328 (64) 26,101
Purchase of treasury stock ---------- ------- --------
Balance at
December 31, 1997 8,653,176 1,040,162 9,133,454
Comprehensive income:
Net earnings
Unrealized gain on securities
Total comprehensive income
Stock dividends 439,784 51,875 338,046
Conversion Class C
to Class A 2,672 (2,672)
Stock issued 139,028 (46) 124,944
Purchase of treasury stock ----------- ---------- -----------
Balance at
December 31, 1998 $9,234,660 $1,089,319 $ 9,596,444
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Accumulated
Other
Comprehensive Retained Treasury
Income Earnings Stock Total
-------------- --------- ----------- --------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 $368,515 $6,876,086 $(1,799,632) $21,918,593
Comprehensive income:
Net earnings 1,237,145 1,237,145
Unrealized loss
on securities (108,600) (108,600)
----------
Total comprehensive income 1,128,545
----------
Stock dividends (994,703)
Conversion Class C
to Class A
Stock issued 421,890
Purchase of treasury stock (1,000) (1,000)
----------- ---------- ----------- -----------
Balance at
December 31, 1996 259,915 7,118,528 (1,800,632) 23,468,028
Comprehensive income:
Net earnings 1,308,941 1,308,941
Unrealized gain
on securities 571,024 571,024
-----------
Total comprehensive income 1,879,965
-----------
Stock dividends (894,210)
Conversion Class C
to Class A
Stock issued 43,520 85,885
Purchase of treasury stock (38,948) (38,948)
------------ ------------ -------- ----------
Balance at
December 31, 1997 830,939 7,533,259 (1,796,060) 25,394,930
Comprehensive income:
Net earnings 771,229 771,229
Unrealized gain
on securities 250,174 250,174
-----------
Total comprehensive income 1,021,403
-----------
Stock dividends (829,705)
Conversion Class C
to Class A
Stock issued 263,926
Purchase of treasury stock ---------- ----------- ---------- ----------
Balance at
December 31, 1998 $1,081,113 $ 7,474,783 $(1,796,060) $26,680,259
========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flow (Continued)
Year Ended December 31,
1998 1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 771,229 $1,308,941 $1,237,145
Adjustments to reconcile
net earnings to net
cash provided by operating
activities:
Realized gains on
investments and other assets (74,121) (252,635) (289,543)
Depreciation 917,166 815,977 1,213,639
Provision for losses
on accounts and
loans receivable 175,750 129,502 197,239
Amortization of
goodwill, premiums,
and discounts 90,622 106,783 (5,528)
Provision for income taxes 254,815 360,108 139,458
Policy acquisition
costs deferred (1,310,170) (909,943) (748,356)
Policy acquisition
costs amortized 976,482 753,662 980,768
Cost of insurance
acquired amortized 296,912 378,636 259,150
Change in assets and
liabilities net of
effects from purchases
and disposals of
subsidiaries:
Land and improvements
held for sale 61,161 (10,584) (888,286)
Future life and
other benefits 3,349,196 2,879,911 2,759,439
Receivables for
mortgage loans sold (5,841,576) 2,056,691 6,384,534
Other operating assets
and liabilities 921,158 (534,157) 497,522
----------- ----------- -----------
Net cash provided by
operating activities 588,624 7,082,892 11,737,181
Cash flows from investing activities:
Securities held to maturity:
Purchase - fixed maturity
securities (524,562) (9,254,030) (1,496,512)
Calls and maturities - fixed
maturity securities 10,482,673 7,561,598 5,018,437
Securities available for sale:
Purchases - equity securities (22,183) (309,547) (3,126)
Sales - equity securities 114,608 465,935 384,045
Purchases of short-term
investments (11,453,095) (5,008,706) (7,768,574)
Sales of short-term investments 11,102,460 3,568,048 6,232,884
Purchases of restricted assets (15,820) (329,379) (467,964)
Mortgage, policy, and other
loans made (6,974,351) (1,337,456) (4,931,984)
Payments received for mortgage,
policy, and other loans 2,811,841 3,066,889 5,663,131
Purchases of property, plant,
and equipment (2,040,023) (351,091) (986,924)
Purchases of real estate (755,581) (97,013) (484,471)
Purchases of subsidiaries
net of cash acquired (11,764,823) (60,602) --
-------------- ---------- ----------
Net cash (used in)
provided by
investing activities (9,038,856) (2,085,354) 1,158,942
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flow (Continued)
Year Ended December 31,
1998 1997 1996
---------- ----------- ---------
Cash flows from financing activities:
<S> <C> <C> <C>
Annuity receipts 2,770,045 2,521,025 2,858,798
Annuity withdrawals (3,962,579) (4,472,918) (5,523,860)
Repayment of bank
loans and notes and
contracts payable (918,065) (1,965,706) (1,550,583)
Proceeds from borrowings
on bank loans and
notes and contracts
payable 6,246,400 233,000 167,915
Sale of treasury stock -- 44,994 --
Purchase of treasury stock -- (38,948) (1,000)
Net change in line of credit
for financing of
mortgage loans 7,577,248 (1,211,890) (13,256,464)
----------- ----------- ------------
Net cash (used in)
provided by financing
activities 11,713,049 (4,890,443) (17,305,194)
----------- ----------- ------------
Net change in cash 3,262,817 107,095 (4,409,071)
Cash at beginning
of year 3,408,179 3,301,084 7,710,155
----------- ----------- ------------
Cash at end of year $ 6,670,996 $ 3,408,179 $ 3,301,084
=========== =========== ============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles
General Overview of Business
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, Texas, and Oklahoma. The cemetery and mortuary
segment of the Company consists of five cemeteries in Utah,
one cemetery in California, eight mortuaries in Utah and
six 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 the intermountain west.
Basis of Presentation
The accompanying consolidated financial statements have
been prepared in accordance with generally accepted
accounting principles which, for the life insurance
subsidiaries, differ from statutory accounting principles
prescribed or permitted by regulatory authorities.
Risks
The following is a description of the most significant
risks facing the Company and how it mitigates those risks:
Legal/Regulatory Risk - the risk that changes in the legal
or regulatory environment in which the Company operates
will create additional expenses and/or risks not
anticipated by the Company in developing and pricing its
products. That is, regulatory initiatives designed to
reduce insurer profits, new legal theories or insurance
company insolvencies through guaranty fund assessments may
create costs for the insurer beyond those recorded in the
consolidated financial statements. In addition, changes in
tax law with respect to mortgage interest deductions or
other public policy or legislative changes may affect the
Company's mortgage sales. Also, the Company may be subject
to further regulations in the cemetery/mortuary business.
The Company mitigates this risk by offering a wide range of
products and by diversifying its operations, thus reducing
its exposure to any single product or jurisdiction, and
also by employing underwriting practices which identify and
minimize the adverse impact of such risk.
Credit Risk - the risk that issuers of securities owned by
the Company or mortgagors on mortgage loans on real estate
owned by the Company will default or that other parties,
including reinsurers and holders of cemetery/ mortuary
contracts which owe the Company money, will not pay. The
Company minimizes this risk by adhering to a conservative
investment strategy, by maintaining sound reinsurance and
credit and collection policies and by providing for any
amounts deemed uncollectible.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
Interest Rate Risk - the risk that interest rates will
change which may cause a decrease in the value of the
Company's investments or impair the ability of the Company
to market its mortgage and cemetery/mortuary products.
This change in rates may cause certain interest-sensitive
products to become uncompetitive or may cause
disintermediation. The Company mitigates this risk by
charging fees for non-conformance with certain policy
provisions, by offering products that transfer this risk to
the purchaser, and/or by attempting to match the maturity
schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more
quickly than assets mature, the Company might have to
borrow funds or sell assets prior to maturity and
potentially recognize a gain or loss.
Mortality/Morbidity Risk - the risk that the Company's
actuarial assumptions may differ from actual
mortality/morbidity experience 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.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
The estimates susceptible to significant change are those
used in determining the liability for future policy
benefits 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
adequate.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts and operations of the Company. The Company's
subsidiaries at December 31, 1998, are as follows:
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
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
Camelback Sunset Funeral Home, Inc.
Greer-Wilson Funeral Home
Crystal Rose Funeral Home
Hawaiian Land Holdings
Consolidare Enterprises, Inc.
Insuradyne
Southern Security Life Insurance Company (57.4%)
All significant intercompany transactions and accounts have
been eliminated in consolidation.
On December 17, 1998, the Company purchased all of the
outstanding shares of common stock of Consolidare
Enterprises, Inc., (Consolidare) for a total cost of
$12,248,194. Consolidare owns approximately 57.4% of the
outstanding shares of common stock of Southern Security
Life Insurance Company (Southern Security) and all of the
outstanding shares of stock of Insuradyne Corp. The
acquisition was accounted for using the purchase method.
The assets and liabilities of Consolidare and subsidiaries
have been included in the Company's balance sheet at
December 31, 1998. The results of operations of
Consolidare and subsidiaries were not material to the
financial statements of the Company from the date of
acquisition through December 31, 1998 and, consequently,
have not been included in the Consolidated Statements of
Earnings for the year then ended.
The unaudited consolidated pro forma results of operations
assuming consummation of the purchase as of January 1, 1997
are summarized as follows:
<TABLE>
<CAPTION>
Pro Forma
1998 1997
(in thousands except
earnings per share)
<S> <C> <C>
Total revenues $43,943 $39,968
Net earnings 1,117 2,068
Earnings per share .26 .52
</TABLE>
Investments
Investments are shown on the following basis:
Fixed maturity securities held to maturity - at cost,
adjusted for amortization of premium or accretion of
discount. Although the Company has the ability and intent
to hold these investments to maturity, 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.
Fixed maturity and equity securities available for sale -
at fair value, which is based upon quoted trading prices.
Changes in fair values net of income taxes are
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
reported as unrealized appreciation or depreciation and
recorded as an adjustment directly to stockholders' equity
and, accordingly, have no effect on net income.
Mortgage loans on real estate - at unpaid principal
balances, adjusted for amortization of premium or accretion
of discount, less allowance for possible losses.
Real estate - at cost, less accumulated depreciation
provided on a straight-line basis over the estimated useful
lives of the properties, and net of allowance for
impairment in value, if any.
Policy, student, and other loans - at the aggregate unpaid
balances.
Short-term investments - consists of certificates of
deposit and commercial paper with maturities of up to one
year.
Restricted assets of cemeteries and mortuaries - consists
of cash, participations in mortgage loans with Security
National Life Insurance Company, and mutual funds carried
at cost; fixed maturity securities carried at cost adjusted
for amortization of premium or accretion of discount; and
equity securities carried at fair market value.
Realized gains and losses on investments - realized gains
and losses on investments and declines in value considered
to be other than temporary, are recognized in operations on
the specific identification basis.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost.
Depreciation is calculated principally on the straight-line
method over the estimated useful lives of the assets which
range from three to thirty years. Leasehold improvements
are amortized over the lesser of the useful life or
remaining lease terms.
Recognition of Insurance Premiums and Other Considerations
Premiums for traditional life insurance products (which
include those products with fixed and guaranteed premiums
and benefits and consist principally of whole life
insurance policies, limited-payment life insurance
policies, and certain annuities with life contingencies)
are recognized as revenues when due from policyholders.
Revenues for interest-sensitive insurance policies (which
include universal life policies, interest-sensitive life
policies, deferred annuities, and annuities without life
contingencies) consist of policy charges for the cost of
insurance, policy administration charges, and surrender
charges assessed against policyholder account balances
during the period.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
Deferred Policy Acquisition Costs and Cost of Insurance
Acquired
Commissions and other costs, net of commission and expense
allowances for reinsurance ceded, that vary with and are
primarily related to the production of new 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.
Cost of insurance acquired is the present value of
estimated future profits of the acquired business and is
amortized similar to deferred policy acquisition costs.
Future Life, Annuity and Other Policy Benefits
Future policy benefit reserves for traditional life
insurance are computed using a net level method, including
assumptions as to investment yields, mortality, morbidity,
withdrawals, and other assumptions based on the 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% in 1998, 1997, and 1996. 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.
Future policy benefit reserves for interest-sensitive
insurance products are computed under a retrospective
deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred
in the period in excess of related policy account balances.
Interest crediting rates for interest-sensitive insurance
products ranged from 4% to 6.5% in 1998, 1997 and 1996.
Participating Insurance
Participating business constitutes 1%, 8%, and 5% of
insurance in force for 1998, 1997 and 1996, respectively.
The provision for policyholders' dividends included in
policyholder obligations is based on dividend scales
anticipated by management. Amounts to be paid are
determined by the Board of Directors.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
Reinsurance
The Company follows the procedure of reinsuring risks in
excess of $50,000 to provide for greater diversification of
business, allow management to control exposure to potential
losses arising from large risks, and provide additional
capacity for growth. The Company remains liable for
amounts ceded in the event the reinsurers are unable to
meet their obligations.
The Company has entered into coinsurance agreements with
unaffiliated insurance companies under which the Company
assumed 100% of the risk for certain life insurance
policies and certain other policy-related liabilities of
the insurance company.
Reinsurance premiums, commissions, expense reimbursements,
and reserves related to reinsured business are accounted
for on a basis consistent with those used in accounting for
the original policies issued and the terms of the
reinsurance contracts. Expense allowances received in
connection with reinsurance ceded are accounted for as a
reduction of the related policy acquisition costs and are
deferred and amortized accordingly.
Cemetery and Mortuary Operations
Land and improvements used in cemetery operations are
stated at cost and charged to operations when sold based on
the number of spaces available for sale. Mausoleum costs
are charged to operations when sold based on the number of
niches available for sale. Perpetual care is maintained on
sold spaces as discussed in Note 7.
Certain cemetery products are sold on a pre-need basis.
Revenues from pre-need cemetery sales are recognized at the
time of sale. Related costs required to establish the
liability for estimated future costs of pre-need sales are
also recorded at the time of sale. This liability relates
to promised merchandise and funeral services and is
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%.
The Company is required to place specified amounts into
restricted asset accounts for products sold on a pre-need
basis. Income from assets placed in these restricted asset
accounts are used to offset required increases to the
estimated future liability.
Revenues and costs for at-need sales are recorded when the
services are performed.
The Company, through its mortuary and cemetery operations,
provides a guaranteed funeral arrangement wherein a
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
prospective customer can receive future goods and services
at guaranteed prices. To accomplish this, the Company,
through its life insurance operations, sells to the
customer an increasing benefit life insurance policy that
is assigned to the mortuaries. If, at the time of need,
the policyholder/potential mortuary customer utilizes one
of the Company's facilities, the guaranteed funeral
arrangement contract that has been assigned will provide
the funeral goods and services at the contracted price.
The increasing life insurance policy will cover the
difference between the original contract prices and current
prices. Risks may arise if the difference cannot be fully
met by the life insurance policy. However, management
believes that given current inflation rates and related
price increases of goods and services, the risk of exposure
is minimal.
Mortgage Operations
Mortgage fee income is generated through the origination
and refinancing of mortgage loans and is deferred until
such loans are sold.
Excess of Cost Over Net Assets of Acquired Businesses
Previous acquisitions have been accounted for as purchases
under which assets acquired and liabilities assumed were
recorded at their fair values. The excess of cost over net
assets of acquired 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 $919,951 and $780,356 at December 31, 1998
and 1997, respectively.
Income Taxes
Income taxes include taxes currently payable plus deferred
taxes related to the tax effect of temporary differences in
the financial reporting basis and tax basis of assets and
liabilities. Such temporary differences are related
principally to the deferral of policy acquisition costs and
the provision for future policy benefits in the insurance
operations, and unrealized gains on fixed maturity and
equity securities available for sale.
Earnings Per Common Share
The Company computes earnings per share in accordance with
Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share". This Standard requires
presentation of two new amounts, basic and diluted earnings
per share. Basic earnings per share are computed by
dividing net earnings by the weighted average number of
common shares outstanding during each year presented, after
the effect of the assumed conversion of Class C Common
Stock to Class A Common Stock, the acquisition of treasury
stock, and the retroactive effect of stock dividends
declared. Diluted
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
earnings per share is computed by dividing net earnings by
the weighted average number of common shares outstanding
during the year plus the incremental shares that would have
been outstanding under certain deferred compensation plans.
Stock Compensation
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 Company has one fixed option plan (the "1993 Plan").
In accordance with APB Opinion No. 25, no compensation cost
has been recognized for the 1993 plan. Had compensation
cost for the 1993 plan 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 $110,000, $10,000,
and $7,000 in 1998, 1997, and 1996, respectively. As a
result, basic and diluted earnings per share would have
been reduced in 1998 from $0.18 to $0.15. There would have
been no measurable effect on earnings per share in 1997 or
1996.
The fair value of each option granted in 1998 under the
1993 Plan is estimated at $0.81 as of the grant date using
the Black Scholes option-pricing model with the following
assumptions: dividend yield of 5%, volatility of 29.3%,
risk-free interest rate of 5.7%, and an expected life of
five years. The fair value of each option granted in 1996
under the 1993 Plan is estimated at $1.19 as of the grant
date using the Black Scholes option-pricing model with the
following assumptions: dividend yield of 5%, volatility of
34.2%, risk-free interest rate of 6.9%, and an expected
life of five years.
The Company also has one variable option plan (the "1987
Plan"). In accordance with APB Opinion No. 25,
compensation cost related to options granted and
outstanding under the 1987 Plan is estimated and recognized
over the period of the award based on changes in the
current market price of the Company's stock over the
vesting period. Options granted under the 1987 Plan are
exercisable for a period of ten years from the date of
grant.
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS 130,
"Reporting Comprehensive Income". SFAS 130 establishes new
rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement
had no impact on the Company's net income nor stockholders'
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
1) Significant Accounting Principles (Continued)
equity. SFAS 130 requires unrealized gains or losses on
the Company's available-for-sale securities, which prior to
adoption were reported separately in stockholders' equity,
to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to
the requirements of SFAS 130.
Reclassifications
Certain amounts in prior years have been reclassified to
conform with the 1998 presentation.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
2) Investments
The Company's investments in fixed maturity securities held to maturity and
equity securities available for sale are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ---------- --------
<S> <C> <C> <C> <C>
December 31, 1998:
Fixed maturity securities
held to maturity:
Bonds
U.S. Treasury securities
and obligations of U.S.
Government agencies $14,548,493 $ 483,831 $ (117) $15,032,207
Obligations of states and
political subdivisions 169,941 15,047 (5,938) 179,050
Corporate securities
including public
utilities 22,764,172 1,410,810 (34,627) 24,140,355
Mortgage-backed
securities 7,439,713 -- -- 7,439,713
Redeemable
preferred stock 62,563 51,874 (7,943) 106,494
----------- ---------- --------- -----------
Total $44,984,882 $1,961,562 $ (48,625) $46,897,819
=========== ========== ========= ===========
Securities available for sale
Bonds
U.S. Treasury securities
and obligations of U.S.
Government agencies (1) $ 5,309,323 $ -- $ -- $ 5,309,323
Corporate securities
including public
utilities(1) 23,366,117 -- -- 23,366,117
Nonredeemable preferred
stock 76,431 75,675 (3,231) 148,875
Common stock 3,958,820 1,581,457 (543,093) 4,997,184
---------- ---------- --------- ----------
Total $32,710,691 $1,657,132 $ (546,324)$33,821,499
=========== ========== ========== ===========
Restricted equity
securities (note 7) $ 172,391 $ 203,619 $ (10,348)$ 365,662
=========== ========== ========== ===========
</TABLE>
(1) Fixed maturity securities available for sale were acquired as part
of the SSLIC acquisition. As such, cost equaled fair value as of December
31, 1998.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
2) Investments (Continued)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- --------
December 31, 1997:
<S> <C> <C> <C> <C>
Fixed maturity securities
held to maturity:
U.S. Treasury
securities and
obligations of
U.S. Government
agencies $17,212,358 $300,816 $ (13,139) $17,500,035
Obligations of
states and
political
subdivisions 216,290 14,066 (12,406) 217,950
Corporate securities
including
public utilities 25,144,396 1,260,917 (158,966) 26,246,347
Redeemable
preferred stock 87,563 35,054 (34,041) 88,576
Mortgage-backed
securities 7,124,291 -- -- 7,124,291
------------ ---------- ---------- ------------
Total $49,784,898 $1,610,853 $(218,552) $51,177,199
=========== ========== ========= ===========
Equity securities
available
for sale $ 3,870,078 $1,563,836 $(602,101) $ 4,831,813
=========== ========== ========= ===========
Restricted equity
securities (note 7) $ 172,391 $ -- $ -- $ 172,391
=========== ========== ========== ===========
</TABLE>
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
2) Investments (Continued)
The fair values for fixed maturity securities are based on
quoted market prices, when available. For fixed maturity
securities not actively traded, fair values are estimated
using values obtained from independent pricing services, or
in the case of private placements, are estimated by
discounting expected future cash flows using a current
market value applicable to the coupon rate, credit and
maturity of the investments. The fair values for equity
securities are based on quoted market prices.
The amortized cost and estimated fair value of fixed
maturity securities at December 31, 1998, 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.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Held to Maturity: Cost Value
----------- ----------
<S> <C> <C>
Due in 1999 $ 5,710,714 $ 5,699,201
Due in 2000 through 2003 22,989,518 24,364,311
Due in 2004 through 2008 8,271,794 8,685,749
Due after 2008 510,580 602,351
Mortgage-backed securities 7,439,713 7,439,713
Redeemable preferred stock 62,563 106,494
----------- -----------
$44,984,882 $46,897,819
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Estimated
Available for Sale: Amortized Fair
Cost Value
----------- -------------
<S> <C> <C>
Due in 1999 $ 2,852,809 $ 2,852,809
Due in 2000 through 2003 11,757,682 11,757,682
Due in 2004 through 2008 12,664,452 12,664,452
Due after 2008 1,400,497 1,400,497
----------- ------------
$28,675,440 $28,675,440
=========== ===========
</TABLE>
The Company's realized gains and losses in investments are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Fixed maturity ------ ------ ------
securities held
to maturity:
<S> <C> <C> <C>
Gross realized gains $ 43,154 $ 37,995 $ 347,728
Gross realized losses (26,470) (12,457) (141,848)
Securities available
for sale:
Gross realized gains 66,589 242,714 89,823
Gross realized losses (3,887) (15,617) --
Other assets (5,265) -- (6,160)
-------- -------- ---------
Total $ 74,121 $252,635 $ 289,543
======== ======== =========
</TABLE>
The change in unrealized appreciation of investments, as
shown in the accompanying consolidated statements of
stockholders' equity, relates entirely to equity securities
for 1998, 1997, and 1996.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
2) Investments (Continued)
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,
1998, other than investments issued or guaranteed by the
United States Government, are as follows:
Carrying Amount
Dean Witter Discover $4,260,911
Philip Morris, Inc. 6,014,608
Major categories of net investment income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
Fixed maturity
securities $3,293,949 $3,519,270 $3,684,089
Equity securities 219,785 238,097 251,733
Mortgage loans
on real estate 1,036,132 774,478 1,225,207
Real estate 1,384,311 1,375,996 1,281,511
Policy loans 170,752 170,726 168,857
Short-term
investments 405,848 529,979 575,498
Other 1,899,643 1,310,246 1,179,889
---------- ----------- ----------
Gross investment
income 8,410,420 7,918,792 8,366,784
Investment expenses (951,677) (779,212) (849,770)
---------- ----------- ----------
Net investment
income $7,458,743 $7,139,580 $7,517,014
========== ========== ==========
</TABLE>
Net investment income includes net investment income earned
by the restricted assets of the cemeteries and mortuaries
of approximately $683,000, $609,000 and $655,000 for 1998,
1997, and 1996, respectively.
Investment expenses consist primarily of depreciation,
property taxes and an estimated portion of administrative
expenses relating to investment activities.
Securities on deposit for regulatory authorities as
required by law amounted to $9,924,315 at December 31, 1998
and $7,115,070 at December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
3) Cost of Insurance Acquired
Information with regard to cost of insurance acquired is as
follows:
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
Balance at
beginning of year $3,370,018 $3,748,654 $4,007,804
Cost of insurance
acquired 7,389,340 -- --
Interest accrued at 7% 235,901 262,406 280,546
Amortization (532,813) (641,042) (539,696)
Net amortization
charged to income (296,912) (378,636) (259,150)
----------- ----------- ----------
Balance at end
of year $10,462,446 $3,370,018 $3,748,654
=========== ========== ==========
</TABLE>
Presuming no additional acquisitions, net amortization
charged to income is expected to approximate $664,000,
$644,000, $629,000, $617,000, and $607,000 for the years
1999 through 2003.
4) Property, Plant and Equipment
The cost of property, plant and equipment is summarized
below:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Land and Buildings $ 9,983,828 $ 6,584,835
Furniture and equipment 6,011,048 4,784,763
----------- -----------
15,994,876 11,369,598
Less accumulated
depreciation (5,312,791) (4,728,036)
----------- -----------
Total $10,682,085 $ 6,641,562
=========== ===========
</TABLE>
5) Bank Loans Payable and Lines of Credit
Bank loans payable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Bank prime rate plus
1/2% (8.25% at December
31, 1998) note payable in
monthly installments of
$36,420 including principal
and interest, collateralized
by 15,000 shares of Security
National Life stock, due
December 1999. $1,974,898 $2,221,394
10% note payable in monthly
installments of $8,444
including principal and
interest, collateralized by
real property, which book
value is approximately
$1,113,000, due January 2013. 766,186 789,516
</TABLE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
5) Bank Loans Payable and Lines of Credit
Bank loans payable are summarized as follows:
December 31,
1998 1997
<S> <C> <C>
One year treasury constant
maturity plus 2.75%
(8.03% at December 31,
1998) note payable in monthly
installments of $6,000,
including principal and
interest, collateralized by
real property, which book
value is approximately
$414,000, due October
1999. 239,134 295,113
Bank prime rate less
1.35% (6.40% at December
31, 1998) note payable
in monthly installments of
$20,836, including principal
and interest, collateralized
by real property, which
book value is approximately
$1,120,000, due November
2007. 1,755,736 1,789,349
$6,250,000 revolving line
of credit at bank prime
rate less 1%, (6.75% at
December 31, 1998) interest
only to December 1999
thereafter interest and
principal, collateralized by
15,000 shares of Security
National Life Insurance
Company stock, due December
2005. 6,246,400 --
Bank prime rate plus 1/2%
(8.25% at December 31,
1998) note payable in monthly
installments of $7,235
including principal and
interest, collateralized
by real property, which
book value is approximately
$934,000, due August
1999. 412,116 460,654
Bank prime rate less 1.35%
(6.40% at December 31,
1998) note payable in
monthly installments of
$2,736 including principal
and interest, collateralized
by 15,000 shares of Security
National Life Insurance
Company stock, due
December 2005. 216,117 233,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
5) Bank Loans Payable and Lines of Credit (Continued)
December 31,
1998 1997
<S> <C> <C>
Other collateralized
bank loans payable 299,393 308,325
----------- -----------
Total bank loans 11,909,980 6,097,351
Less current installments 3,181,330 597,523
----------- ----------
Bank loans, excluding
current installments $8,728,650 $5,499,828
========== ==========
$15 million revolving
line of credit at LIBOR
plus 1.45% (6.51% at
December 31, 1998),
payable within 30 days
collateralized by
receivable from mortgage
loans sold to investors. $7,577,248 $ --
========== ==========
$100,000 revolving line of
credit at bank prime rate
plus 1/2% (8.25% at
December 31, 1998),
payable within 30 days. $ -- $ 100,000
=========== ==========
</TABLE>
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, 1998 or 1997. 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.
See Note 6 for summary of maturities in subsequent years.
6) Notes and Contracts Payable
Notes and contracts payable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
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. $ 667,829 $ 680,220
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
6) Notes and Contracts Payable (Continued)
December 31,
1998 1997
<S> <C> <C>
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. 392,458 435,543
Due to former stockholders of
Civil Service Employees Life
Insurance Company resulting from
the acquisition of such entity.
7% note payable in seven annual
installments with principal
payments of $151,857,
due December 2003. 607,429 759,286
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. 221,587 263,261
9% note payable in monthly
installments of $10,000
including principal and
interest collateralized
by real property, which
book value is approximately
$2,908,000, due July 2008 780,604 828,836
Other notes payable 729,365 816,420
---------- ----------
Total notes and
contracts payable 3,399,272 3,783,566
Less current
installments 416,679 422,061
----------- ----------
Notes and contracts,
excluding current
installments $2,982,593 $3,361,505
========== ==========
</TABLE>
The following tabulation shows the combined maturities of
bank loans payable, lines of credit and notes and contracts
payable:
1999 11,175,257
2000 1,389,360
2001 1,466,177
2002 1,534,972
2003 1,432,800
Thereafter 5,887,934
-----------
Total $22,886,500
===========
Interest paid approximated interest expense in 1998, 1997 and 1996.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
7) Cemetery and Mortuary Endowment Care and Pre-need
Merchandise Funds
The Company owns and operates several endowment care
cemeteries, for which it has established and maintains an
endowment care fund. 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. The liability to the
endowment care fund is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Liability for spaces sold $ 1,400,398 $ 1,351,788
Less assets in the fund (859,894) (1,230,418)
----------- -----------
Total due to fund $ 540,504 $ 121,370
=========== ===========
</TABLE>
Assets in the endowment care fund are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Cash and cash equivalents $119,761 $ 111,637
Equity securities 294,608 94,613
Participation in mortgage
loans with Security
National Life 310,525 889,168
Other 135,000 135,000
Total $ 859,894 $1,230,418
</TABLE>
The Company has established and maintains certain
restricted asset accounts to provide for future merchandise
obligations incurred in connection with its pre-need sales.
Such amounts are reported as restricted assets of
cemeteries and mortuaries in the accompanying balance
sheet.
Assets in the restricted asset account are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Cash and cash equivalents $2,243,808 $2,038,828
Mutual funds 132,945 132,944
Fixed maturity securities 294,210 384,690
Equity securities 71,054 77,778
Participation in mortgage
loans with Security
National Life 1,323,164 1,221,849
Time certificate of deposit 33,696 33,696
---------- ----------
Total $4,098,877 $3,889,785
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
8) Income Taxes
The Company's income tax liability at December 31 is
summarized as follows:
December 31,
1998 1997
<S> <C> <C>
Current $ 141,352 $ 226,300
Deferred 5,867,185 3,007,115
---------- ----------
Total $6,008,537 $3,233,415
========== ==========
</TABLE>
Significant components of the Company's deferred tax assets
and liabilities at December 31 are approximately as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Future policy benefits $(2,138,384) $(67,238)
Unearned premium (965,574) --
Uncollected agents'
balances (45,140) (45,140)
Difference between book
and tax basis of bonds (46,885) (46,885)
AMT credits (11,658) (13,064)
Net operating
loss carryforwards
expiring in the years
2001 through 2010 (213,409) (219,069)
Other (80,985) --
--------- ---------
Total deferred tax assets $(3,502,035) $(391,396)
=========== =========
Liabilities
Deferred policy
acquisition costs $2,186,241 $ 394,253
Cost of insurance
acquired 3,198,551 466,426
Installment sales 351,080 538,205
Depreciation 758,149 790,136
Trusts 899,415 528,803
Tax on unrealized
appreciation 541,901 130,796
Other 1,433,883 549,892
------------ ------------
Total deferred
tax liabilities 9,369,220 3,398,511
----------- ----------
Net deferred tax
liability $5,867,185 $3,007,115
========== ==========
</TABLE>
The Company paid no income taxes in 1998, 1997 and 1996.
The Company's income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current $(84,948) $200,173 $(168,527)
Deferred 339,763 159,935 307,985
-------- -------- ---------
Total $254,815 $360,108 $ 139,458
======== ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
8) Income Taxes(Continued)
The reconciliation of income tax expense at the U.S.
federal statutory rates is as follows:
1998 1997 1996
<S> <C> <C> <C>
Computed expense at
statutory rate $348,855 $562,772 $ 461,574
Special deductions
allowed small life
insurance
companies (88,658) (152,215) (260,803)
Dividends received
deduction (26,691) (32,343) (32,968)
Prior year
provision to tax
return true-up -- (18,421) --
Other, net 21,309 315 (28,345)
-------- -------- ---------
Tax expense $254,815 $360,108 $ 139,458
======== ======== =========
</TABLE>
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, 1998, 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 insurance companies have remaining loss carry forwards
for tax purposes of approximately $1,600,000, approximately
$286,000 of which is subject to an annual limitation of
approximately $300,000.
9) Reinsurance, Commitments and Contingencies
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, 1998 and 1997. 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 $569,448,000 at December
31, 1998 and $46,254,000 at December 31, 1997.
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 expense
reimbursements. The funds held related to reinsurance
treaties of $1,419,357 and policyholders' account balances
on deposit with reinsurer of $8,518,571 represent the 18%
share of policy loans and policyholder account balances
ceded to MEGA as of December 31, 1998.
Mortgage loans originated and sold to unaffiliated
investors are sold subject to certain recourse provisions.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
9) Reinsurance, Commitments and Contingencies (Continued)
The Company has been named as a party in connection with
pending litigation brought by Garry Eckard & Co., Inc.
("Eckard") in the Federal District Court for the Southern
District of Indiana. The complaint was filed on October
14, 1996 and alleges breach of contract and civil
conversion pertaining to a finder's fee and seeks an
unspecified amount of damages plus costs and attorneys'
fees. In a prior letter to the Company from Eckard, it
appears that the amount of the fee being sought is
$152,000. The complaint, pursuant to the civil conversion
claim, seeks treble damages under Indiana's civil
conversion statute.
The complaint was initially filed in the Indiana Hamilton
County Superior Court, but was subsequently removed by the
Company to the Federal District Court for the Southern
District of Indiana. The Company filed a motion to dismiss
for lack of personal jurisdiction and Eckard filed a motion
to amend its complaint and to add Security National Life
Insurance Company, a subsidiary of the Company, as a party
defendant. On March 18, 1997, the Company's motion was
granted to dismiss the complaint against the Company for
lack of personal jurisdiction and Eckard's motion was
granted to amend the complaint by adding Security National
Life Insurance Company as a party defendant. The Company's
motion to dismiss the complaint against the Company was
granted without prejudice, which allows the complaint to be
refiled in an appropriate jurisdiction.
Security National Life Insurance Company then filed a
motion to dismiss for lack of personal jurisdiction. On
October 10, 1997, this motion to dismiss the complaint for
lack of personal jurisdiction was granted thereby also
dismissing the case against Security National Life
Insurance Company. Thus, the case in Indiana was dismissed
without prejudice against both the Company and Security
National Life Insurance Company for lack of personal
jurisdiction.
On March 13, 1998, a letter was sent by Eckard's counsel
relative to a settlement proposal together with a draft
complaint against the Company and Security National Life
Insurance Company for filing in the United States District
Court for the District of Utah. There appears to be no
material difference between the complaint prepared for
filing in Utah and the amended complaint which had been
filed in Indiana. The complaint was filed in Utah on
August 13, 1998. Since its filing (the claims being the
same as in the Indiana action), the treble damage claim
(conversion) has been dismissed with prejudice. The
contract claim is the remaining claim. Formal discovery is
in process. Eckard claims approximately $152,000 plus
interest and attorney's fees. Although no prediction of
outcome is given, management intends to vigorously defend
the action. No amount has been accrued for this contingent
liability.
The Company has been named as a party in a lawsuit brought
by Robert L. Anderson ("Anderson") in the Superior Court of
San Diego, North County Judicial District, State of
California. The complaint was filed on January 28, 1999
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
9) Reinsurance, Commitments and Contingencies (Continued)
and pertains to the creation of the San Diego Memorial Park
Partnership and development of Singing Hills Memorial Park.
Anderson was denominated as a partner in the 1989 partner-
ship agreement. He asserts that the Company did not carry
out the partnership agreement in developing the property as
a cemetery and residential lots and that instead the
property was later acquired by California Memorial Estates,
Inc., a subsidiary of the Company, and developed. Anderson
asserts a claim for lost profits because of alleged breach
of the partnership agreement and further asserts breach of
fiduciary duty, actual fraud, constructive fraud, asks for
an accounting, and alleges conspiracy and declaratory
relief. He seeks punitive damages, legal fees and costs.
Formal discovery has not begun. At this stage, no complete
evaluation has been made. Management, however, intends to
vigorously defend the matter and believes that Anderson did
not perform as required and that he has no bona fide basis
to complain. No amount has been accrued for this
contingent liability.
The Company is also a defendant in various other legal
actions arising from the normal conduct of business.
Management believes that none of the actions will have a
material effect on the Company's financial position or
results of operations.
10) Retirement Plans
The Company and its subsidiaries have a noncontributory
Employee Stock Ownership Plan (ESOP) for all eligible
employees. Eligible employees are primarily those with
more than one year of service, who work in excess of 1,040
hours per year. Contributions, which may be in cash or
stock of the Company, are determined annually by the Board
of Directors. The Company's contributions are allocated to
eligible employees based on the ratio of each eligible
employee's compensation to total compensation for all
eligible employees during each year. ESOP contribution
expense totaled $59,613, $45,616, and $50,017 for 1998,
1997, and 1996, respectively. At December 31, 1998 the
ESOP held 597,081 shares of Class A and 1,158,903 shares of
Class C common stock of the Company. All shares held by
the ESOP have been allocated to the participating employees
and all shares held by the ESOP are considered outstanding
for purposes of computing earnings per share.
The Company 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 5% 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. All
amounts contributed to the plan are deposited into a trust
fund administered by an independent trustee. The Company's
matching 401(k) contributions for 1998, 1997, and 1996 were
approximately $7,000, $-0-, and $50,000, respectively.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
11) Capital Stock
The following table summarizes the activity in shares of
capital stock for the three year period ended December 31,
1998:
Class A Class C
<S> <C> <C>
Balance at December
31, 1995 3,819,415 2,388,040
Stock Dividends 201,879 105,256
Conversion of Class C
to Class A 1,952 (9,760)
Stock Issue 87,463 --
---------- ----------
Stock split of Class C -- 2,483,536
Balance at December
31, 1996 4,110,709 4,967,072
Stock Dividends 206,344 247,329
Conversion of Class C
to Class A 1,359 (13,590)
Stock Issued 8,176 --
---------- ----------
Balance at December
31, 1997 4,326,588 5,200,811
Stock Dividends 219,892 259,374
Conversion of Class C
to Class A 1,336 (13,352)
Stock Issued 69,514 (238)
---------- ----------
Balance at December
31, 1998 4,617,330 5,446,595
========== ==========
</TABLE>
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. Also Class A shares can be converted
into Class C shares, but the conversion rights have
numerous restrictions.
Stockholders of both classes of common stock have received
5% stock dividends in the years 1989 through 1998, as
authorized by the Company's Board of Directors.
The Company has Class B Common Stock of $1.00 par value,
5,000,000 shares authorized, of which none are issued.
Class B shares are non-voting stock except to any proposed
amendment to the Articles of Incorporation which would
affect Class B Common Stock.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
11) Capital Stock (Continued)
In accordance with SFAS 128, the basic and diluted earnings
per share amounts were calculated as follows:
1998 1997 1996
<S> <C> <C> <C>
Numerator:
Net income $ 771,229 $1,308,941 $1,237,145
=========== ========== ==========
Denominator:
Denominator for basic
earnings per share-
weighted-average
shares 4,272,516 3,988,034 3,750,498
Effect of
dilutive securities:
Employee stock
options -- 19,606 23,321
Stock appreciation
rights -- 85,051 81,741
----------- ----------- ----------
Dilutive potential
common shares -- 104,657 105,062
Denominator
for diluted earnings per
share-adjusted
weighted-average
shares and assumed
conversions 4,272,516 4,092,691 3,855,560
========== ========== ==========
Basic earnings
per share $0.18 $0.33 $0.33
Diluted earnings
per share $0.18 $0.32 $0.32
</TABLE>
There are no dilutive effects on net income for purpose of
this calculation.
12) Deferred Compensation Plans
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).
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
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
12) Deferred Compensation Plans (Continued)
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. 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 1987 Plan shall be reduced by the same proportion.
The 1987 Plan terminated in 1997 and options granted are
non-transferable. Options granted and outstanding under
the 1987 Plan include Stock Appreciation Rights which
permit 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 is summarized as follows:
<TABLE>
<CAPTION>
Number Option
of Shares Price
---------- ------------
<S> <C> <C>
Outstanding at
December 31, 1995 185,738 $2.31 - $2.59
Dividend 9,287
Exercised (172,716)
---------
Outstanding at
December 31, 1996 22,309 $2.20 - $2.47
Granted 148,000
Dividend 7,400
Exercised (22,309)
--------
Outstanding at
December 31, 1997 155,400 $4.29 - $4.71
Dividend 7,770
Exercised --
---------
Outstanding at
December 31, 1998 163,170 $4.08 -$4.49
=========
Exercisable
at end of year 163,170
=========
Available options
for future grant
1987 Stock
Incentive Plan -0-
-------
</TABLE>
On June 21, 1993, the Company adopted the Security National
Financial Corporation 1993 Stock Incentive Plan (the "1993
Plan"), which reserved 300,000 shares of Class A Common
Stock for issuance thereunder. The 1993 Plan allows the
Company to grant options and issue shares as a means of
providing equity incentives to key personnel, giving them
a proprietary interest in the Company and its success and
progress.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
12) Deferred Compensation Plans (Continued)
The 1993 Plan provides for the grant of options and the
award or sale of stock to officers, directors, and
employees of the Company. Both "incentive stock options,"
as defined under Section 422A of the Internal Revenue Code
of 1986 (the "Code"), and "non-qualified options" may be
granted pursuant to the 1993 Plan. 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
not less than the fair market value of the option shares on
the date of grant. The 1993 Plan provides that the
exercise price for non-qualified options will be not less
than at least 50% of the fair market value of the stock
subject to such option as of the date of grant of such
options, as determined by the Company's Board of Directors.
The options were granted to reward certain officers and key
employees who have been employed by the Company for a
number of years and to help the Company retain these
officers by providing them with an additional incentive to
contribute to the success of the Company.
The 1993 Plan is administered by the Board of Directors or
by a committee designated by the Board. The 1993 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. In addition,
the number of shares of Common Stock reserved for the
purpose of the Plan shall be adjusted by the same
proportion. No options may be exercised for a term of more
than ten years from the date of grant.
The 1993 Plan has a term of ten years. The Board of
Directors may amend or terminate the 1993 Plan at any time,
subject to approval of certain modifications to the 1993
Plan by the shareholders of the Company as may be required
by law or the 1993 Plan.
On November 7, 1996 the Company amended the Articles of
Incorporation as follows: (i) to increase the number of
shares of Class A Common Stock reserved for issuance under
the plan from 300,000 Class A shares to 600,000 Class A
shares; and (ii) to provide that the stock subject to
options, awards and purchases may include Class C common
stock.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
12) Deferred Compensation Plans (Continued)
Activity of the 1993 Plan is summarized as follows:
Number Option
of Shares Price
<S> <C> <C>
Outstanding at
December 31, 1995 208,110 $2.84 - $4.19
Dividend 13,706
Granted 66,000
---------
Outstanding at
December 31, 1996 287,816 $2.70 - $4.52
Cancelled (9,450)
Dividend 13,918
Outstanding at
December 31, 1997 292,284 $2.58 - $4.31
Dividend 30,869
Granted 148,000
Exercised (63,814)
---------
Outstanding at
December 31, 1998 407,339 $2.34 - $4.16
=========
Exercisable
at end of year 407,339
=========
Available options
for future grant
1993 Stock
Incentive Plan 274,565
========
</TABLE>
13) Statutory-Basis Financial Information
The Company's life insurance subsidiaries are domiciled in
Utah and Florida and prepare their statutory-basis
financial statements in accordance with accounting
practices prescribed or permitted by the Utah and Florida
Insurance Departments. "Prescribed" statutory accounting
practices are interspersed throughout state insurance laws
and regulations, the National Association of Insurance
Commissioners ("NAIC") Accounting Practices and Procedures
Manual and a variety of other NAIC publications.
"Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such
practices may differ from state to state, may differ from
company to company within a state, and may change in the
future.
In 1998, the NAIC adopted codified statutory accounting
principles ("Codification"). Codification will likely
change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting
practices that the Company uses to prepare its statutory-
basis financial statements. Codification will require
adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly,
before Codification becomes effective for the Company, the
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
13) Statutory-Basis Financial Information (Continued)
states of Florida and Utah must adopt Codification as the
prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Insurance
Departments. At this time it is unclear when the states of
Florida and Utah will adopt Codification. Management has
not yet determined the impact of Codification to the
Company's statutory-basis financial statements. 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,
1998 1997 1996
<S> <C> <C> <C>
Security National Life 346,659 712,219 694,745
Southern Security Life (486,825) 45,398 1,022,182
</TABLE>
<TABLE>
<CAPTION>
Statutory Stockholders' Equity
December 31,
1998 1997 1996
<S> <C> <C> <C>
Security National Life 12,083,747 11,789,615 10,020,668
Southern Security Life 8,627,252 9,316,923 9,283,928
</TABLE>
Generally, the net assets of the life insurance
subsidiaries available for transfer to the Company are
limited to the amounts that the life insurance subsidiaries
net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital
requirements; however, payments of such amounts as
dividends are subject to approval by regulatory
authorities.
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 300% of the first level of regulatory action.
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
14) Business Segment Information
Description of Products and Services by Segment
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 pre-need and 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. In addition, the Company has a
corporate segment which provides administrative and
marketing services to the reportable segments described
above.
Measurement of Segment Profit or Loss and Segment Assets
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.
Factors Management Used to Identify the Enterprise's
Reportable Segments
The Company's reportable segments are business units that
offer different products and are managed separately due to
the different products and the need to report to the
various regulatory jurisdictions.
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
14) Business Segment Information (Continued)
1998
Life Cemetery/
Insurance Mortuary Mortgage
<S> <C> <C> <C>
Revenues:
From external sources:
Revenue from customers $ 5,915,659 $9,225,801 $10,082,330
Net investment income 5,553,486 682,915 1,206,578
Realized gains
on investments 74,121
Other revenues 22,078 32,456 6,034
Intersegment revenues:
Net investment income 1,360,877
Other revenues 109,887
----------- ---------- ----------
$13,036,108 $ 9,941,172 $11,294,942
Expenses:
Death and other
policy benefits $ 3,578,634 $ $
Increase in future
policy benefits 3,353,287
Amortization of
deferred policy
acquisition costs
and cost of
insurance acquired 1,273,394
Depreciation 85,557 455,418 39,125
General, administrative
and other costs:
Intersegment 536,400 70,656 71,631
Other 3,497,140 8,775,932 9,540,801
Interest expense:
Intersegment 187,151 183,908 1,176,969
Other 11,587 554,283 176,091
------------ ----------- ----------
$ 12,523,150 $10,040,197 $11,004,617
------------ ----------- -----------
Earnings (losses)
before income taxes $ 512,958 $ (99,025) $ 290,325
============ =========== ===========
Identifiable
assets $183,340,180 $33,539,827 $ 9,010,581
============ =========== ===========
Expenditures for
long-lived assets $ 761,246 $ 1,202,056 $ 76,721
============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
14) Business Segment Information (Continued)
1998
Reconciling
Corporate Items Consolidated
<S> <C> <C> <C>
Revenues:
From external sources:
Revenue from customers $ $ $25,223,790
Net investment income 15,764 7,458,743
Realized gains
on investments 74,121
Other revenues 2,381 62,949
Intersegment revenues:
Net investment income 187,151 (1,548,028) --
Other revenues 568,800 (678,687) --
----------- ----------- -----------
$ 774,096 $(2,226,715) $32,819,603
Expenses:
Death and other
policy benefits $ $ $ 3,578,634
Increase in future
policy benefits 3,353,287
Amortization of
deferred policy
acquisition costs
and cost of
insurance acquired 1,273,394
Depreciation 4,655 584,755
General, administrative
and other costs:
Intersegment (678,687) --
Other 190,493 22,004,366
Interest expense:
Intersegment (1,548,028) --
Other 257,162 999,123
----------- ------------ ------------
$ 452,310 $( 2,226,715) $ 31,793,559
----------- ------------ ------------
Earnings (losses)
before income taxes $ 321,786 $ -- $ 1,026,044
=========== ============= ============
Identifiable assets $ 3,070,453 $(15,695,894) $213,265,147
=========== ============ ============
Expenditures for
long-lived assets $ $ $ 2,040,023
============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
14) Business Segment Information (Continued)
1997
Life Cemetery/
Insurance Mortuary Mortgage
<S> <C> <C> <C>
Revenues:
From external sources:
Revenue from customers $6,140,783 $9,230,864 $5,661,867
Net investment income 5,856,221 609,194 664,331
Realized gains
on investments 252,635
Other revenues 13,778 27,621 450
Intersegment revenues:
Net investment income 978,930
Other revenues 115,622
----------- ----------- ------------
$13,357,969 $ 9,867,679 $ 6,326,648
Expenses:
Death and other
policy benefits $ 3,694,442 $ $
Increase in future
policy benefits 2,974,915
Amortization of
deferred policy
acquisition costs
and cost of
insurance acquired 1,132,298
Depreciation 55,338 420,787 29,150
General, administrative
and other costs:
Intersegment 536,400 75,408 72,614
Other 3,722,336 8,312,812 5,377,440
Interest expense:
Intersegment 188,767 192,835 783,257
Other 41,723 628,616 19,836
----------- ---------- -----------
$12,346,219 $9,630,458 $ 6,282,297
----------- ---------- -----------
Earnings (losses)
before income taxes $ 1,011,750 $ 237,221 $ 44,351
=========== ========== ===========
Identifiable assets $103,604,675 $31,297,233 $ 1,176,039
============ =========== ===========
Expenditures for
long-lived assets $ 40,882 $ 283,622 $ 26,587
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
14) Business Segment Information (Continued)
1997
Reconciling
Corporate Items Consolidated
<S> <C> <C> <C>
Revenues:
From external sources:
Revenue from customers $ $ $21,033,514
Net investment income 9,834 7,139,580
Realized gains
on investments 252,635
Other revenues 7,044 48,893
Intersegment revenues:
Net investment income 188,767 (1,167,697) --
Other revenues 568,800 (684,422) --
------------- ----------- -----------
$ 774,445 $ (1,852,119) $28,474,622
Expenses:
Death and other
policy benefits $ $ $ 3,694,442
Increase in future
policy benefits 2,974,915
Amortization of
deferred policy
acquisition costs
and cost of
insurance acquired 1,132,298
Depreciation 10,644 515,919
General, administrative
and other costs:
Intersegment (684,422) --
Other 127,782 17,540,370
Interest expense:
Intersegment 2,838 (1,167,697) --
Other 257,454 947,629
---------- ---------- -----------
$ 398,718 $(1,852,119) $26,805,573
---------- ----------- -----------
Earnings (losses)
before income taxes $ 375,727 $ -- $ 1,669,049
========== =========== ============
Identifiable
assets $1,881,997 $(12,508,065) $125,451,879
========== ============ ============
Expenditures for
long-lived assets $ $ $ 351,091
========== ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
14) Business Segment Information (Continued)
1996
Life Cemetery/
Insurance Mortuary Mortgage
<S> <C> <C> <C>
Revenues:
From external sources:
Revenue from customers $5,666,436 $8,138,010 $8,236,709
Net investment income 6,166,585 655,255 664,457
Realized gains
on investments 289,543
Other revenues 24,363 50,570
Intersegment revenues:
Net investment income 839,445
Other revenues 108,175
---------- ----------- -----------
$13,094,547 $8,843,835 $8,901,166
Expenses:
Death and other
policy benefits $3,596,138 $ $
Increase in future
policy benefits 2,744,326
Amortization of
deferred policy
acquisition costs
and cost of
insurance acquired 1,239,918
Depreciation 408,528 433,391 38,688
General, administrative
and other costs:
Intersegment 536,400 75,408 65,167
Other 2,797,726 7,417,202 7,907,439
Interest expense:
Intersegment 185,438 219,231 616,463
Other 186,479 598,810 223,532
------------ ----------- -----------
$ 11,694,953 $ 8,744,042 $ 8,851,289
------------ ----------- -----------
Earnings (losses)
before income taxes $ 1,399,594 $ 99,793 $ 49,877
============ =========== ===========
Identifiable
assets $102,268,803 $29,765,362 $ 2,300,513
============ =========== ===========
Expenditures for
long-lived assets $ 496,433 $ 417,329 $ 73,162
============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
14) Business Segment Information (Continued)
1996
Reconciling
Corporate Items Consolidated
<S> <C> <C> <C>
Revenues:
From external sources:
Revenue from customers $ $ $22,041,155
Net investment income 30,717 7,517,014
Realized gains
on investments 289,543
Other revenues 56 74,989
Intersegment revenues:
Net investment income 185,438 (1,024,883) --
Other revenues 568,800 (676,975) --
---------- ----------- ------------
$ 785,011 $(1,701,858) $29,922,701
Expenses:
Death and other
policy benefits $ $ $3,596,138
Increase in future
policy benefits 2,744,326
Amortization of
deferred policy
acquisition costs
and cost of
insurance acquired 1,239,918
Depreciation 24,952 905,559
General, administrative
and other costs:
Intersegment (676,975) --
Other 619,688 18,742,055
Interest expense:
Intersegment 3,751 (1,024,883) --
Other 309,281 1,318,102
---------- ------------ ------------
$ 957,672 $ (1,701,858) $ 28,546,098
---------- ------------ ------------
Earnings (losses)
before income taxes $ (172,661) $ -- $ 1,376,603
========== ============= ============
Identifiable
assets $1,935,763 $(11,560,938) $124,709,503
========== ============ ============
Expenditures for
long-lived assets $ $ $ 986,924
========== ============ ============
</TABLE>
<PAGE>
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997, and 1996
15) Disclosure about Fair Value of Financial Instruments
The fair values of investments in fixed maturity and equity
securities along with methods used to estimate such values are
disclosed in Note 2. The following methods and assumptions were
used by the Company in estimating the "fair value" disclosures
related to other significant financial instruments:
Cash, Receivables, Short-term Investments, and Restricted Assets
of the Cemeteries and Mortuaries: The carrying amounts reported
in the accompanying balance sheets for these financial
instruments approximate their fair values.
Mortgage, Policy, Student, and Collateral Loans: The fair values
are estimated using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Loans
with similar characteristics are aggregated for purposes of the
calculations. The carrying amounts reported in the accompanying
balance sheets for these financial instruments approximate their
fair values.
Investment Contracts: The fair values for the Company's
liabilities under investment-type insurance contracts are
estimated based on the contracts' cash surrender values. The
carrying amount and fair value as of December 31, 1998 were
approximately $89,844,000 and $83,049,000, respectively.
The fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed.
However, the fair values of liabilities under all insurance
contracts are taken into consideration in the Company's overall
management of interest rate risk, such that the Company's
exposure to changing interest rates is minimized through the
matching of investment maturities with amounts due under
insurance contracts.
16) Other Comprehensive Income
<TABLE>
<CAPTION>
The following summarizes other comprehensive income:
1998 1997 1996
<S> <C> <C> <C>
Unrealized gains (loss)
on available
for-sale securities $405,047 $928,917 $(18,777)
Less: reclassification
adjustment for net
realized gains in
net income (62,702) (227,097) (89,823)
Net unrealized gains (loss) 342,345 701,820 (108,600)
Tax expense on net unrealized
gain (92,171) (130,796) --
Other comprehensive
income (loss) $ 250,174 $ 571,024 $(108,600)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule I
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Summary of Investments
Other than Investments in Related Parties
As of December 31, 1998:
Amount at
Which
Shown
Estimated in the
Type of Investment Amortized Fair Balance
Cost Value Sheet
<S> <C> <C> <C>
Fixed maturity securities
held to maturity:
Bonds:
U.S. Treasury securities
and obligations
of U.S. Government
agencies $14,548,493 $15,032,207 $14,548,493
Obligations of states
and political
subdivisions 169,941 179,050 169,941
Corporate securities
including public
utilities 22,764,172 24,140,355 22,764,172
Mortgage backed
securities 7,439,713 7,439,713 7,439,713
Redeemable preferred
stocks 62,563 106,494 62,563
----------- ----------- -----------
Total Fixed
Securities held
to maturity 44,984,882 46,897,819 44,984,882
Securities
available for sale:
Bonds:
U.S. Treasury
securities and
obligations of U.S.
Government agencies 5,309,323 5,309,323 5,309,323
Corporate securities
including public
utilities 23,366,117 23,366,117 23,366,117
Nonredeemable
preferred stock 76,431 148,875 148,875
Common stock:
Public utilities 286,815 500,141 500,141
Banks, trusts and
insurance companies 91,723 415,205 415,205
Industrial,
miscellaneous and
all other 3,580,282 4,081,838 4,081,838
----------- ---------- ----------
Total Securities
available for sale 32,710,691 33,821,499 33,821,499
----------- ----------- -----------
Mortgage loans on real estate 12,523,395 12,523,395
Real estate 7,866,151 7,866,151
Policy loans 11,493,637 11,493,637
Other investments 11,543,540 11,543,540
----------- -----------
Total investments $121,122,296 $122,233,104
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Balance Sheets
December 31,
1998 1997
<S> <C> <C>
Assets
Short-term investments $ 294,927 $ 283,190
Cash 118,731 28,353
Investment in subsidiaries
(equity method) 36,107,078 29,043,712
Receivables:
Receivable from affiliates 1,579,965 1,584,965
Other 76,368 (19,232)
---------- -----------
Total receivables 1,656,333 1,565,733
Property, plant and
equipment, at cost,
net of accumulated
depreciation of $313,859
for 1998 and $309,204
for 1997 66 4,721
Other assets 396 --
----------- -----------
Total assets $38,178,127 $30,925,709
=========== ===========
</TABLE>
See accompanying notes to parent company only financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Schedule II Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Balance Sheets (Continued)
December 31,
1998 1997
<S> <C> <C>
Liabilities:
Bank loans payable:
Current installments $ 2,358,684 $ 245,041
Long-term 5,862,614 1,976,353
Notes and contracts payable:
Current installments 181,319 181,319
Long-term 455,572 607,429
Advances from affiliated
companies 1,781,118 1,781,118
Accounts payable -- --
Other liabilities and
accrued expenses 494,367 489,671
Income taxes 364,194 249,848
----------- -----------
Total liabilities 11,497,868 5,530,779
----------- -----------
Stockholders' equity:
Common Stock:
Class A: $2 par value,
authorized 10,000,000
shares, issued
4,617,330 shares in
1998 and 4,326,588
shares in 1997 9,234,660 8,653,176
Class C: $0.20 par
value, authorized
7,500,000 shares,
issued 5,446,595
shares in 1998
and 5,200,811
shares in 1997 1,089,319 1,040,162
----------- -----------
Total common stock 10,323,979 9,693,338
Additional paid-in capital 9,596,444 9,133,454
Accumulated other
comprehensive income 1,081,113 830,939
Retained earnings 7,474,783 7,533,259
Treasury stock at cost
(692,993 Class A
shares and 59,028
Class C shares in
1998; 659,992
Class A shares and
56,217 Class C shares
in 1997, held
by affiliated
companies) (1,796,060) (1,796,060)
------------ ------------
Total stockholders'
equity 26,680,259 25,394,930
------------ ------------
Total liabilities
and stockholders'
equity $38,178,127 $30,925,709
=========== ===========
See accompanying notes to parent company only financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Statements of Earnings
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Revenue:
Net investment income $ 18,145 $ 16,878 $ 30,717
Fees from
affiliates 755,951 757,567 754,294
---------- --------- --------
Total revenue 774,096 774,445 785,011
---------- --------- --------
Expenses:
General and
administrative
expenses 195,148 138,425 644,640
Interest expense 257,162 260,293 313,032
---------- --------- ---------
Total expenses 452,310 398,718 957,672
---------- --------- ---------
Earnings (loss)
before income
taxes, and earnings of
subsidiaries 321,786 375,727 (172,661)
Income tax expense (114,346) (124,256) (26,112)
--------- ---------- ---------
Equity in earnings
of subsidiaries 563,789 1,057,470 1,435,918
--------- ---------- ----------
Net earnings $ 771,229 $1,308,941 $1,237,145
========= ========== ==========
</TABLE>
See accompanying notes to parent company only financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Schedule II (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
(Parent Company Only)
Statements of Cash Flow
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from
operating activities:
Net earnings $ 771,229 $1,308,941 $1,237,145
Adjustments to
reconcile net earnings
to net cash provided
by (used in)
operating activities:
Depreciation and
amortization 4,655 10,644 24,953
Undistributed earnings
of affiliates (563,789) (1,057,470) (1,435,918)
Provision for
income taxes 114,346 124,254 (99,514)
Change in assets and
liabilities:
Accounts receivable (90,600) 86,403 103,006
Other assets (396) 202 (74)
Accounts payable and
accrued expenses 4,697 31,046 431,735
Other liabilities 263,926 (43,732) (7,134)
--------- --------- ---------
Net cash provided by
operating activities 504,068 460,288 254,199
Cash flows from investing
activities:
Purchase of short-term
investments (11,737) (96,039) (212,051)
Proceeds from sale of
short term investments -- 91,750 208,000
Note receivable from
affiliate (1,000,000) -- --
Investment in
subsidiaries (5,250,000) (75,000) 121,002
----------- --------- ----------
Net cash (used in)
provided by
investing activities (6,261,737) (79,289) 116,951
Cash flows from financing
activities:
Proceeds from advances
from affiliates 200,000 -- --
Payments of advances
to affiliates (200,000) -- --
Payments of notes and
contracts payable (398,353) (386,799) (410,271)
Purchase of treasury
stock -- -- (1,000)
Sale of treasury stock -- 44,994 --
Proceeds from borrowings
on notes and
contracts payable 6,246,400 -- --
Net cash (used in)
provided by
financing activities 5,848,047 (341,805) (411,271)
----------- ---------- ---------
Net change in cash 90,378 39,194 (40,121)
Cash at beginning of year 28,353 (10,841) 29,280
----------- ---------- ---------
Cash at end of year $ 118,731 $ 28,353 $ (10,841)
=========== ========== ===========
</TABLE>
See accompanying notes to parent company only financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Schedule II (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
Notes to Parent Company Only Financial Statements
1) Bank Loans Payable
Bank loans payable are summarized as follows:
December 31,
1998 1997
<S> <C> <C>
$6,250,000 revolving line
of credit at bank prime
rate less 1%, (6.75% at
December 31, 1998) interest
only to December 1999
thereafter interest and
principal, collateralized by
15,000 shares of Security
National Life Insurance
Company stock, due December
2005 $6,246,400 --
Bank prime rate plus 1/2%
(8.25% at December 31,
1998) note payable in
monthly installments
of $36,420 including
principal and interest,
collateralized by 15,000
shares of Security
National Life stock, due
December 1999. 1,974,898 2,221,394
---------- -----------
Total bank loans 8,221,298 2,221,394
Less current installments 2,358,684 245,041
----------- ----------
Bank loans, excluding
current installments $5,862,614 $1,976,353
========== ==========
</TABLE>
<TABLE>
<CAPTION>
2) Notes and Contracts Payable
Notes and contracts are summarized as follows:
December 31,
1998 1997
<S> <C> <C>
10 year notes due April 16, 1999,
1% over U.S. Treasury 6 month
bill rate $ 28,187 $ 28,187
Due to former stockholders of
Civil Service Employees Life
Insurance Company resulting from
the acquisition of such entity.
7% note payable in seven annual
principal payments of $151,857
due December 2003 607,429 759,286
Other 1,275 1,275
-------- ---------
Total notes and contracts 636,891 788,748
Less current installments 181,319 181,319
-------- --------
Notes and contracts,
excluding current
installments $455,572 $607,429
======== ========
</TABLE>
<PAGE>
Schedule II (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION
Notes to Parent Company Only Financial Statements
The following tabulation shows the combined maturities of bank
loans payable and notes and contracts payable:
1999 $2,540,003
2000 968,023
2001 1,026,502
2002 1,089,172
2003 1,004,473
Thereafter 2,230,016
----------
Total $8,858,189
==========
3) Advances from Affiliated Companies
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Non-interest bearing advances
from affiliates:
Cemetery and Mortuary
subsidiary $1,126,527 $1,126,527
Mortgage subsidiary -- 200,000
Life Insurance subsidiary 654,591 454,591
---------- ----------
$1,781,118 $1,781,118
========== ==========
</TABLE>
4) Dividends
No dividends have been paid to the registrant for each of the
last three years by any subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
Schedule IV
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Reinsurance
Percentage
Ceded to Assumed of Amount
Direct Other from Other Net Assumed
Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
1998
Life Insurance
in force ($000) $1,554,286 $352,777 $569,448 $1,770,957 32.15%
========== ======== ======== ========== =====
Premiums:
Life Insurance $5,544,015 $ 251,271 $161,562 $5,454,306 2.96%
Accident and
Health Insurance 371,585 22,924 4,905 353,566 1.39%
---------- --------- -------- ---------- ----
Total premiums $5,915,600 $ 274,195 $166,467 $5,807,872 2.87%
========== ========= ======== ========== ====
1997
Life Insurance
in force ($000) $ 602,652 $ 61,629 $ 46,254 $ 587,277 7.88%
========== ========= ======== ========== ====
Premiums:
Life Insurance $5,575,024 $237,830 $276,086 $5,613,280 4.92%
Accident and
Health Insurance 426,529 25,367 6,953 408,115 1.70%
Total premiums $6,001,553 $263,197 $283,039 $6,021,395 4.70%
1996
Life Insurance
in force ($000) $ 493,705 $ 73,822 $ 52,508 $ 472,391 11.12%
========== ======== ======== ========== =====
Premiums:
Life Insurance $5,135,007 $315,967 $310,378 $5,129,418 6.05%
Accident and
Health Insurance 473,807 41,895 6,920 438,832 1.58%
---------- -------- -------- ---------- -----
Total premiums $5,608,814 $357,862 $317,298 $5,568,250 5.70%
========== ======== ======== ========== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule V
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Balance Additions Deductions, Balance
at Charged Disposals at
Beginning to Costs and End of
of Year and Expenses Write-offs Year
For the Year Ended December 31, 1998
- ------------------------------------
<S> <C> <C> <C> <C>
Accumulated depreciation
on real estate $2,049,346 $332,411 $ (883) $2,380,874
Accumulated depreciation on
property, plant and equipment 4,728,036 584,755 -- 5,312,791
Allowance for doubtful accounts 1,679,090 175,750 (278,172) 1,576,668
For the Year Ended December 31, 1997
- ------------------------------------
Accumulated depreciation
on real estate $1,868,187 $300,058 $(118,899) $2,049,346
Accumulated depreciation on
property, plant and equipment 4,218,591 515,919 (6,474) 4,728,036
Allowance for doubtful accounts 1,862,599 129,502 (313,011) 1,679,090
For the Year Ended December 31, 1996
- ------------------------------------
Accumulated depreciation
on real estate $1,560,107 $308,080 $ -- $1,868,187
Accumulated depreciation on
property, plant and equipment 3,313,032 905,559 -- 4,218,591
Allowance for doubtful accounts 2,311,450 197,239 (646,090) 1,862,599
</TABLE>
<PAGE>
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
- ------------------------------------
None
PART III
Item 10. Directors and Executive Officers
- ------------------------------------------
The Company's Board of Directors consist of nine persons,
six of whom are not employees of the Company. All the
Directors of the Company are also directors of its
subsidiaries. There is no family relationship between or
among any of the directors, except that Scott M. Quist is
the son of George R. Quist. The following table sets forth
certain information with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Position(s)
Name Age Director Since with the Company
- ----------------- ------ ---------------- ------------------
<S> <C> <C> <C>
George R. Quist(2) 78 October 1979 Chairman of the
Board, President
and Chief
Executive
Officer
William C. Sargent(2) 70 February 1980 Senior Vice
President,
Secretary and
Director
Scott M. Quist(1) 45 May 1986 First Vice
President,
General Counsel,
Treasurer and
Director
Charles L.
Crittenden(2) 79 October 1979 Director
Sherman B. Lowe(2) 84 October 1979 Director
R.A.F. McCormick(1) 85 October 1979 Director
H. Craig Moody(1) 45 September 1995 Director
Norman Wilbur(2) 60 October 1998 Director
Robert G. Hunter(2) 39 October 1998 Director
</TABLE>
(1) These directors were elected by the holders of Class
A Common Stock voting as a class by themselves.
(2) These directors were elected by the holders of Class
A and Class C Common Stock voting together.
Committees of the Board of Directors include an executive
committee, on which Messrs. George Quist, Scott Quist,
Sargent and Moody serve; an audit committee, on which
Messrs. Crittenden, Lowe, Moody, and Wilbur serve; and a
Compensation committee, on which Messrs. Crittenden, Lowe
and George Quist serve.
<PAGE>
The following is a description of the business experience of
each of the directors.
George R. Quist, age 78, has been Chairman of the Board,
President and Chief Executive Officer of the Company since
October 1979. Mr. Quist is also Chairman of the Board,
President and Chief Executive Officer of Southern Security
Life Insurance Company and has served in this position
since December 1998. From 1960 to 1964, he was Executive
Vice President and Treasurer of Pacific Guardian Life
Insurance Company. From 1946 to 1960, he was an agent,
District Manager and Associate General Agent for various
insurance companies. Mr. Quist also served from 1981 to
1982 as the President of The National Association of Life
Companies, a trade association of 642 life insurance
companies, and from 1982 to 1983 as its Chairman of the
Board.
William C. Sargent, age 70, has been Senior Vice President
of the Company since 1980, Secretary since October 1993,
and a director since February 1980. Mr. Sargent is also
Senior Vice President, Secretary and Director of Southern
Security Life Insurance Company and has served in this
position since December 1998. Prior to that time, he was
employed by Security National as a salesman and agency
superintendent.
Scott M. Quist, age 45, has been General Counsel of the
Company since 1982, First Vice President since December
1990, Treasurer since October 1993, and a director since
May 1986. Mr. Quist is also First Vice President,
Treasurer and General Counsel and Director of Southern
Security Life Insurance Company and has served in this
position since December 1998. From 1980 to 1982, Mr. Quist
was a tax specialist with Peat, Marwick, Mitchell, & Co.,
in Dallas, Texas. From 1986 to 1991, he was treasurer and
director of The National Association of Life Companies, a
trade association of 642 insurance companies until its
merger with the American Council of Life Companies. Mr.
Quist has been a member of the Board of Governors of the
Forum 500 Section (representing small insurance companies)
of the American Council of Life Insurance. Mr. Quist has
also served as a regional director of Key Bank of Utah
since November 1993. Mr. Quist is currently a director and
vice president of the National Alliance of Life Companies,
a trade association of over 200 life companies.
Charles L. Crittenden, age 79, has been a director of the
Company since October 1979. Mr. Crittenden is also a
director of Southern Security Life Insurance Company and
has served in this position since December 1998. Mr.
Crittenden has been sole stockholder of Crittenden Paint &
Glass Company since 1958. He is also an owner of
Crittenden Enterprises, a real estate development company
and Chairman of the Board of Linco, Inc.
Sherman B. Lowe, age 84, has been a director of the Company
since October 1979. Mr. Lowe is also a director of
Southern Security Life Insurance Company and has served in
this position since December 1998. Mr. Lowe was formerly
President and Manager of Lowe's Pharmacy for over 30 years.
He is now retired. He is an owner of Burton-Lowe Ranches,
a general partnership.
R.A.F. McCormick, age 85, has been a director of the
Company since October 1979. Mr. McCormick is also a
director of Southern Security Life Insurance Company and
has served in this position since December 1998. He is a
past Vice President of Sales for Cloverclub Foods. He is
now retired.
H. Craig Moody, age 45, has been a director of the Company
since September 1995. Mr. Moody is also a director of
Southern Security Life Insurance Company and has served in
this position since December 1998. Mr. Moody is owner of
Moody & Associates, a political consulting and real estate
company. He is a former Speaker and House Majority Leader
of the House of Representatives of the State of Utah.
Norman Wilbur, age 60, has been a director of the Company
since October 1998. Mr. Wilbur is also a director of
Southern Security Life Insurance Company and has served in
this position since December 1998. Mr. Wilbur worked for
J.C. Penny's regional offices in budget and analysis. His
final position was Manager of Planning and Reporting for
J.C. Penny's stores. After 36 years with J.C. Penny's he
took an option of an early retirement in 1997. Mr. Wilbur
is a past board member of a homeless organization in Plano,
Texas.
Robert G. Hunter, M.D., age 39, has been a director of the
Company since October 1998. Dr. Hunter is also a director
of Southern Security Life Insurance Company and has served
in this position since December 1998. Dr. Hunter is
currently a practicing physician in private practice. Dr.
Hunter created the State Wide E.N.T. Organization (Rocky
Mountain E.N.T., Inc.) where he is currently a member of
the Executive Committee. He is Chairman of Surgery at
Cottonwood Hospital, a delegate to the Utah Medical
Association and a delegate representing Utah to the
American Medical Association, and a member of several
medical advisory boards.
Executive Officers
The following table sets forth certain information with
respect to the executive officers of the Company (the
business biographies set forth above):
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
George R. Quist(1) 78 Chairman of the Board, President
and Chief Executive Officer
William C. Sargent 70 Senior Vice President and Secretary
Scott M. Quist(1) 45 First Vice President, General
Counsel and Treasurer
</TABLE>
(1)George R. Quist is the father of Scott M. Quist.
The Board of Directors of the Company has a written
procedure which requires disclosure to the board of any
material interest or any affiliation on the part of any of
its officers, directors or employees which is in conflict
or may be in conflict with the interests of the Company.
No director, officer or 5% stockholder of the Company or
its subsidiaries, or any affiliate thereof has had any
transactions with the Company or its subsidiaries during
1998 or 1997 other than employment arrangements as
described above, and the loan made to George R. Quist on
April 29, 1998. See "Item 13. Certain Relationships and
Related Transactions."
<PAGE>
Each of the Directors of the Company are directors of
Southern Security Life Insurance Company, which has a class
of equity securities registered under the Securities
Exchange Act of 1934. In addition, Scott M. Quist is a
director of Key Bank of Utah. All directors of the Company
hold office until the next annual meeting of stockholders
and until their successors have been duly elected and
qualified.
<PAGE>
<TABLE>
<CAPTION>
Item 11. Executive Officer Compensation
The following table sets forth, for each of the last three fiscal
years, the compensation received by George R. Quist, the Company's
President and Chief Executive Officer, and all other executive
officers (collectively, the "Named Executive Officers") at December
31, 1998 whose salary and bonus for all services in all capacities
exceed $100,000 for the fiscal year ended December 31, 1998.
Summary Compensation Table
Other
Annual
Name and Compen-
Principal Position Year Salary($) Bonus($) sation($)(2)
- ------------------- ------ --------- -------- ------------
<S> <C> <C> <C> <C>
George R. Quist (1)
Chairman of the Board, 1998 $137,454 $20,200 $2,400
President and Chief 1997 118,508 16,833 2,400
Executive Officer 1996 109,127 15,303 2,400
William C. Sargent
Senior Vice President, 1998 130,329 17,325 4,500
Secretary and 1997 108,685 16,500 4,500
Director 1996 103,915 15,000 4,500
Scott M. Quist (1)
First Vice President, 1998 119,025 18,770 7,200
General Counsel 1997 103,215 17,875 7,200
Treasurer and Director 1996 96,192 16,250 7,200
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 11. Executive Officer Compensation
The following table sets forth, for each of the last three fiscal
years, the compensation received by George R. Quist, the Company's
President and Chief Executive Officer, and all other executive
officers (collectively, the "Named Executive Officers") at December
31, 1998 whose salary and bonus for all services in all capacities
exceed $100,000 for the fiscal year ended December 31, 1998.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Restricted Securities Long-Term All Other
Name and Stock Underlying Incentive Compen-
Principal Position Year Awards($) Options/SARs(#) Payout($) sation($)(3)
- ------------------ ----- -------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
George R. Quist (1)
Chairman of
the Board, 1998 $0 50,000 $0 $12,084
President and
Chief 1997 0 50,000 0 11,094
Executive Officer 1996 0 0 0 8,218
William C. Sargent
Senior Vice
President, 1998 0 45,000 0 5,286
Secretary and 1997 0 45,000 0 5,224
Director 1996 0 0 0 4,320
Scott M. Quist (1)
First Vice
President, 1998 0 35,000 0 7,257
General Counsel 1997 0 35,000 0 6,490
Treasurer and
Director 1996 0 0 0 4,497
</TABLE>
<PAGE>
(1) George R. Quist is the father of Scott M. Quist.
(2) The amounts indicated under "Other Annual Compensation"
for 1998 consist of payments related to the operation of
automobiles by the Named Executive Officers. However, such
payments do not include the furnishing of an automobile by
the Company to George R. Quist, William C. Sargent and
Scott M. Quist nor the payment of insurance and property
taxes with respect to the automobiles operated by the Named
Executive Officers.
(3) The amounts indicated under "All Other Compensation"
for 1998 consist of (a) amounts contributed by the Company
into a trust for the benefit of the Named Executive
Officers under the Employee Stock Ownership Plan (for
fiscal 1998, such amounts were George R. Quist, $6,803;
William C. Sargent, $3,547; and Scott M. Quist, $6,620);
(b) matching contributions made by the Company pursuant to
the 401(k) Retirement Savings Plan in which all matching
contributions are invested in the Company's Class A Common
Stock (for fiscal 1998, such amounts were George R. Quist,
$-0-; William C. Sargent, $1,102; and Scott M. Quist, $-0-;
(c) insurance premiums paid by the Company with respect to
a group life insurance plan for the benefit of the Named
Executive Officers (for fiscal 1998, $1,911 was paid for
all Named Executive Officers as a group, or $637 each for
George R. Quist, William C. Sargent and Scott M. Quist);
and (d) life insurance premiums paid by the Company for the
benefit of the family of George R. Quist ($4,644). The
amounts under "All Other Compensation" do not include the
no interest loan in the amount of $172,000 that the Company
made to George R. Quist on April 29, 1998, to exercise
stock options. See "Item 13 Certain Relationships and
Related Transactions".
The following table sets forth information concerning the
exercise of options to acquire shares of the Company's
Common Stock by the Named Executive Officers during the
fiscal year ended December 31, 1998, as well as the
aggregate number and value of unexercised options held by
the Named Executive Officers on December 31, 1998.
Aggregated Option/SAR Exercised in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs In-the-Money
at Options/SARs at
December 31, December 31,
1998(#) 1998
Shares
Acquired
on
Exercise Value Exercis- Unexer- Exercis- Unexer-
Name (#) Realized able cisable able cisable
- ----- ---------- -------- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
George R.
Quist 63,814 $67,303 209,728 0 $0 $0
William C.
Sargent 0 $0 180,715 0 $0 $0
Scott M.
Quist 0 $0 75,338 0 $0 $0
</TABLE>
<PAGE>
Retirement Plans
George R. Quist, who has been Chairman, President and Chief
Executive Officer of the Company since 1979, has a Deferred
Compensation Agreement, dated December 8, 1988, with the
Company (the "Compensation Agreement"). This Compensation
Agreement provides upon Mr. Quist's retirement the Company
shall pay him $50,000 per year as an annual retirement
benefit for a period of 10 years from the date of
retirement; and upon his death, the remainder of such
annual payments shall be payable to his designated
beneficiary.
The Compensation Agreement further provides that the Board
of Directors may elect to pay the entire amount of deferred
compensation in the form of a single lump-sum payment or
other installment payments, so long as the term of such
payments do not exceed 10 years. However, in the event Mr.
Quist's employment with the Company is terminated for any
reason other than retirement, death or disability, the
entire deferred compensation shall be forfeited by him.
William C. Sargent, who has been Senior Vice President of
the Company since 1980, has a Deferred Compensation
Agreement dated April 15, 1994, with the Company (the
"Compensation Agreement"). This Compensation Agreement
provides upon Mr. Sargent's retirement the Company shall
pay him $50,000 per year as an annual retirement benefit
for a period of 10 years from the date of retirement; and
upon his death, the remainder of such annual payments shall
be payable to his designated beneficiary.
The Compensation Agreement further provides that the Board
of Directors may elect to pay the entire amount of deferred
compensation in the form of a single lump-sum payment or
other installment or disability, the entire deferred
compensation shall be forfeited by him.
Employment Agreement
The Company maintains an employment agreement with Scott M.
Quist. The agreement, which has a five year term, was
entered into in 1996, and renewed in 1997. Under the terms
of the agreement, Mr. Quist is to devote his full time to
the Company serving as its Treasurer, First Vice President,
and General Counsel at not less than his current salary and
benefits, and to include $500,000 of life insurance
protection. In the event of disability, Mr. Quist's salary
would be continued for up to 5 years at 50% of its current
level. In the event of a sale or merger of the Company,
and Mr. Quist were not retained in his current position,
the Company would be obligated to continue Mr. Quist's
current compensation and benefits for seven years following
the merger or sale.
Director Compensation
Directors of the Company (but not including directors who
are employees) are paid a director's fee of $8,400 per year
by the Company for their services and are reimbursed for
their expenses in attending board and committee meetings.
No additional fees are paid by the Company for committee
participation or special assignments.
<PAGE>
Employee 401(k) Retirement Savings Plan
In 1995, the Company's Board of Directors adopted a 401(k)
Retirement Savings Plan. Under the terms of the 401(k)
plan, effective as of January 1, 1995, the Company may make
discretionary employer matching contributions to its
employees who choose to participate in the plan. The plan
allows the board to determine the amount of the
contribution at the end of each year. The Board adopted a
contribution formula specifying that such discretionary
employer matching contributions would equal 50% of the
participating employee's contribution to the plan up to a
maximum discretionary employee contribution of 5% of a
participating employee's compensation, as defined by the
plan.
All persons who have completed at least one year's service
with the Company and satisfy other plan requirements are
eligible to participate in the 401(k) plan. All Company
matching contributions are invested in the Company's Class
A Common Stock. The Company's matching contributions for
1998, 1997, and 1996 were approximately $7,000, $-0-, and
$50,000 respectively. The trustees under the 401(k) plan
are Messrs. Sherman B. Lowe, Scott M. Quist and William C.
Sargent.
Employee Stock Ownership Plan
Effective January 1, 1980, the Company adopted an employee
stock ownership plan (the "Ownership Plan") for the benefit
of career employees of the Company and its subsidiaries.
The following is a description of the Ownership Plan, and
is qualified in its entirety by the Ownership Plan, a copy
of which is available for inspection at the Company's
offices.
Under the Ownership Plan, the Company has discretionary
power to make contributions on behalf of all eligible
employees into a trust created under the Ownership Plan.
Employees become eligible to participate in the Ownership
Plan when they have attained the age of 19 and have
completed one year of service (a twelve-month period in
which the Employee completes at least 1,040 hours of
service). The Company's contributions under the Ownership
Plan are allocated to eligible employees on the same ratio
that each eligible employee's compensation bears to total
compensation for all eligible employees during each year.
To date, the Ownership Plan has approximately 98
participants and had contributions payable to the Plan in
1998 of $59,613. Benefits under the Ownership Plan vest as
follows: 20% after the third year of eligible service by an
employee, an additional 20% in the fourth, fifth, sixth and
seventh years of eligible service by an employee.
Benefits under the Ownership Plan will be paid out in one
lump sum or in installments in the event the employee
becomes disabled, reaches the age of 65, or is terminated
by the Company and demonstrates financial hardship. The
Ownership Plan Committee, however, retains discretion to
determine the final method of payment. Finally, the
Company reserves the right to amend or terminate the
Ownership Plan at any time. The trustees of the trust fund
under the Ownership Plan are Messrs. R.A.F. McCormick,
George R. Quist, and William C. Sargent, all directors of
the Company.
<PAGE>
1987 Incentive Stock Option Plan
In 1987, the Company adopted the 1987 Incentive Stock
Option Plan (the 1987 Plan). The 1987 Plan provides that
shares of the Class A Common Stock of the Company may be
optioned to certain officers and key employees of the
Company. The Plan establishes a Stock Option Plan
Committee which selects the employees to whom the options
will be granted and determines the price of the stock. The
Plan establishes the minimum purchase price of the stock at
an amount which is not less than 100% of the fair market
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 terminated in 1997 and options granted are
non-transferable. The Plan 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.
1993 Stock Option Plan
On June 21, 1993, the Company adopted the Security National
Financial Corporation 1993 Stock Incentive Plan (the "1993
Plan"), which reserves shares of Class A Common Stock for
issuance thereunder. The 1993 Plan was approved at the
annual meeting of the stockholders held on June 21, 1993.
The 1993 Plan allows the Company to grant options and issue
shares as a means of providing equity incentives to key
personnel, giving them a proprietary interest in the
Company and its success and progress.
The 1993 Plan provides for the grant of options and the
award or sale of stock to officers, directors, and
employees of the Company. Both "incentive stock options,"
as defined under Section 422A of the Internal Revenue Code
of 1986 (the "Code"), and "non-qualified options" may be
granted pursuant to the 1993 Plan. The exercise prices for
the options granted are equal to or greater than the fair
market value of the stock subject to such options as of the
date of grant, as determined by the Company's Board of
Directors. The options granted under the 1993 Plan, were
to reward certain officers and key employees who have been
employed by the Company for a number of years and to help
the Company retain these officers by providing them with an
additional incentive to contribute to the success of the
Company.
<PAGE>
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.
In addition, the number of shares of Common Stock reserved
for purposes of the Plan shall be adjusted by the same
proportion. No options may be exercised for a term of more
than ten years from the date of grant.
Options intended as incentive stock options may be issued
only to employees, and must meet certain conditions imposed
by the code, including a requirement that the option
exercise price be no less than the fair market value of the
option shares on the date of grant. The 1993 Plan provides
that the exercise price for non-qualified options will be
not less than at least 50% of the fair market value of the
stock subject to such option as of the date of grant of
such options, as determined by the Company's Board of
Directors.
The 1993 Plan has a term of ten years. The Board of
Directors may amend or terminate the 1993 Plan at any time,
subject to approval of certain modifications to the 1993
Plan by the shareholders of the Company as may be required
by law or the 1993 Plan. On November 7, 1996 the Company
amended the Articles of Incorporation as follows: (i) to
increase the number of shares of Class A Common Stock
reserved for issuance under the Plan from 300,000 Class A
shares to 600,000 Class A shares; and (ii) to provide that
the stock subject to options, awards and purchases may
include Class C common stock.
<PAGE>
<TABLE>
<CAPTION>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth security ownership information of the Company's
Class A and Class C Common Stock as of March 20, 1999, (i) for persons who
own beneficially more than 5% of the Company's outstanding Class A or Class C
Common Stock, (ii) each director of the Company, and (iii) for all executive
officers and directors of the Company as a group.
Class A
Class A Class C and Class C
Common Stock Common Stock Common Stock
Amount Amount Amount
Name and Address of Beneficially Percent Beneficially Percent Beneficially Percent
Beneficial Owner Owned of Class Owned of Class Owned of Class
- ------------------- ------------- --------- ------------ -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
George R. Quist (1)(2)
4491 Wander Lane
Salt Lake City,
Utah 84124 130,812 3.3 208,059 3.9 338,871 3.6
George R. and Shirley C.
Quist Family
Partnership, Ltd.(6)
4491 Wander Lane
Salt Lake City,
Utah 84124 311,782 7.9 2,504,040 46.5 2,815,822 30.2
Employee Stock
Ownership Plan (4)
5300 S. 360 W., Suite 250
Salt Lake City,
Utah 84123 597,081 15.2 1,158,903 21.5 1,755,984 18.9
William C. Sargent (1)(2)(3)
4974 Holladay Blvd.
Salt Lake City,
Utah 84117 83,399 2.1 279,320 5.2 362,719 3.9
Scott M. Quist (3)
7 Wanderwood Way
Sandy, Utah 84092 87,667 2.2 65,306 1.2 152,973 1.6
Charles L. Crittenden
248 - 24th Street
Ogden, Utah 84404 1,515 * 178,811 3.3 180,326 1.9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class A
Class A Class C and Class C
Common Stock Common Stock Common Stock
Amount Amount Amount
Name and Address of Beneficially Percent Beneficially Percent Beneficially Percent
Beneficial Owner Owned of Class Owned of Class Owned of Class
- ------------------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sherman B. Lowe (3)
2197 South 2100 East
Salt Lake City,
Utah 84109 21,255 * 195,416 3.6 216,671 2.3
R.A.F. McCormick (1)
400 East Crestwood Road
Kaysville, Utah 84037 10,193 * 101,953 1.9 112,146 1.2
H. Craig Moody
1782 East Faunsdale Dr.
Sandy, Utah 84092 560 * -0- * 560 *
Norman G. Wilbur
2520 Horseman Drive
Plano, Texas 75025 294 * -0- * 294 *
Robert G. Hunter
#2 Ravenwood Lane
Sandy, Utah 84092 -0- * -0- * -0- *
Associated Investors (5)
5300 S. 360 W. Suite 250
Salt Lake City,
Utah 84123 79,251 2.0 489,227 9.1 568,478 6.1
All directors and
executive officers
(9 persons) 647,477 16.5 3,532,905 65.6 4,180,382 44.9
</TABLE>
* Less than one percent
<PAGE>
(1) Does not include 597,081 shares of Class A Common Stock
and 1,158,903 shares of Class C Common Stock owned by the
Company's Employee Stock Ownership Plan (ESOP), of which
George R. Quist, William C. Sargent and R.A.F. McCormick
are the trustees and accordingly, exercise shared voting
and investment powers with respect to such shares.
(2) Does not include 79,251 shares of Class A Common Stock
and 489,227 shares of Class C Common Stock owned by
Associated Investors, a Utah general partnership, of which
these individuals are the managing partners and,
accordingly, exercise shared voting and investment powers
with respect to such shares.
(3) Does not include 40,869 shares of Class A Common Stock
owned by the Company's 401(k) Retirement Savings Plan, of
which William C. Sargent, Scott M. Quist and Sherman B.
Lowe are the trustees and accordingly, exercise shared
voting and investment powers with respect to such shares.
(4) The trustees of the Employee Stock Ownership Plan
(ESOP) are George R. Quist, William C. Sargent and R.A.F.
McCormick, who exercise shared voting and investment
powers.
(5) The managing partners of Associated Investors are
George R. Quist and William C. Sargent, who exercise shared
voting and investment powers.
(6) This stock is owned by the George R. and Shirley C.
Quist Family Partnership, Ltd., of which Mr. Quist is the
general partner.
The Company's officers and directors, as a group, own
beneficially approximately 44.9% of the outstanding shares
of the Company's Class A and Class C Common Stock.
Item 13. Certain Relationships and Related Transactions
The Company has made a loan in the amount of $172,000 to
George R. Quist, the Company's President and Chief
Executive Officer, without requiring the payment of any
interest. The loan was made under a Promissory Note dated
April 29, 1998 in order for Mr. Quist to exercise stock
options which were granted to him under the 1993 Plan. No
installment payments are required under the terms of the
note, but the note must be paid in full as of May 1, 2000.
Mr. Quist has the right to make prepayments on the note at
any time. As of March 31, 1999, the outstanding balance of
the note was $123,800. The loan was approved by the
Company's directors on March 12, 1999, with Mr. Quist
abstaining, at a Special Meeting of the Board of Directors.
The Company's Board of Directors has a written procedure
which requires disclosure to the Board of any material
interest or any affiliation on the part of any of its
officers, directors or employees which is in conflict or
may be in conflict with the interests of the Company.
No director, officer or 5% stockholder of the Company or
its subsidiaries, or any affiliate thereof, has engaged in
any business transactions with the Company or its
subsidiaries during 1997 or 1998 other than as described
herein.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a)(1)(2) Financial Statements and Schedules
See "Index to Consolidated Financial Statements and
Supplemental Schedules" under Item 8 above.
(a)(3) Exhibits
The following Exhibits are filed herewith pursuant
to Rule 601 of Regulation S-K or are incorporated by
reference to previous filings.
Exhibit
Table No Document
(a)(3) Exhibits:
3.A. Articles of Restatement of Articles of
Incorporation (8)
B. Bylaws (1)
4.A. Specimen Class A Stock Certificate (1)
B. Specimen Class C Stock Certificate (1)
C. Specimen Preferred Stock Certificate and
Certificate of Designation of Preferred Stock (1)
10.A. Restated and Amended Employee Stock Ownership Plan
and Trust Agreement (1)
B. Deferred Compensation Agreement with George R.
Quist (2)
C. 1993 Stock Option Plan (3)
D. Promissory Note with Key Bank of Utah (4)
E. Loan and Security Agreement with Key Bank of Utah
(4)
F. General Pledge Agreement with Key Bank of Utah (4)
G. Note Secured by Purchase Price Deed of Trust and
Assignment of Rents with the Carter Family Trust
and the Leonard M. Smith Family Trust (5)
H. Deed of Trust and Assignment of Rents with the
Carter Family Trust and the Leonard M. Smith
Family Trust (5)
I. Promissory Note with Page and Patricia Greer (6)
J. Pledge Agreement with Page and Patricia Greer (6)
K. Promissory Note with Civil Service Employees
Insurance Company (7)
L. Deferred Compensation Agreement with William C.
Sargent (8)
<PAGE>
M. Employment Agreement with Scott M. Quist. (8)
N. Acquisition Agreement with Consolidare
Enterprises, Inc., and certain shareholders of
Consolidare. (9)
O. Agreement and Plan of Merger between Consolidare
Enterprises, Inc., and SSLIC Holding Company. (10)
P. Administrative Services Agreement with Southern
Security Life Insurance Company. (11)
Q. Promissory Note with George R. Quist.
(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 Annual Report
on Form 10-K, as filed on March 31, 1994.
(4) Incorporated by reference from Report on Form
8-K, as filed on February 24, 1995.
(5) Incorporated by reference from Annual Report
on Form 10K, as filed on March 31, 1995.
(6) Incorporated by reference from Report on Form
8-K, as filed on May 1, 1995.
(7) Incorporated by reference from Report on Form
8-K, as filed on January 16, 1996.
(8) Incorporated by reference from Annual Report
on Form 10-K, as filed on March 31, 1998.
(9) Incorporated by reference from Report on Form
8-K, as filed on May 11, 1998.
(10) Incorporated by reference from Report on Form
8-K, as filed on January 4, 1999.
(11) Incorporated by reference from Report on Form
8-K, as filed on March 4, 1999.
<PAGE>
21. Subsidiaries of the Registrant
27. Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company
during the fourth quarter of 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SECURITY NATIONAL FINANCIAL CORPORATION
Dated: April 14, 1999 By: George R. Quist,
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934 as amended, this report has been signed by the
following persons in counterpart on behalf of the Company
on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <S> <C>
George R. Quist Chairman of the April 14, 1999
Board, President
and Chief Executive
Officer and (Principal
Executive Officer)
Scott M. Quist First Vice April 14, 1999
President, General
Counsel and
Treasurer and
Director (Principal
Financial and
Accounting Officer)
William C. Sargent Senior Vice April 14, 1999
President, Secretary
and Director
Charles L. Crittenden Director April 14, 1999
Sherman B. Lowe Director April 14, 1999
R.A.F. McCormick Director April 14, 1999
H. Craig Moody Director April 14, 1999
Norman G. Wilbur Director April 14, 1999
Robert G. Hunter Director April 14, 1999
</TABLE>
<PAGE>
Washington, D.C. 20549
FORM 10-K
Year Ended December 31, 1998
SECURITY NATIONAL FINANCIAL CORPORATION
Commission File No. 0-9341
E X H I B I T S
<PAGE>
Exhibit Index
Exhibit No. Document Name
10.R Promissory Note with George R. Quist
21. Subsidiaries of the Registrant
27. Financial Data Schedule
<PAGE>
EXHIBIT 10(R)
Promissory Note with George R. Quist
<PAGE>
Note
$172,000.00 April 29, 1998
George R. Quist
4491 Wander Lane
Salt Lake City, Utah 84124
1. Borrower's Promise to Pay. In return for the loan that
I have received, I promise to pay the sum of One Hundred
Seventy Two Thousand Dollars ($172,000.00) (this amount is
called the "principal") to the order of the Lender. The
Lender is Security National Financial Corporation. I
understand that the Lender may transfer this Note. The
Lender or anyone who takes this Note by transfer and who is
entitled to receive payments under this Note is called the
"Note Holder".
2. Interest. There will be no interest for this loan.
3. Payments. No monthly payments will be required under
this Note. If, on May 1, 2000, I still owe amounts under
this Note, I will pay those amounts in full on that date,
which is called the "Maturity Date". I will make my payments
at 5300 South 360 West, Suite 200, Salt Lake City, Utah
84123, or at a different place if required by the Note
Holder. Payments can be made through the United States
mails.
4. Borrower's Right to Repay. I have the right to make
payments of principal at any time before they are due. A
payment of principal only is known as a "prepayment". When I
make a prepayment, I will tell the Note Holder in writing
that I am doing so. I may make a full prepayment or partial
prepayments without paying any prepayment charge. The Note
Holder will use all of my prepayments to reduce the amount
of principal that I owe under this Note. If I make a partial
prepayment, there will be no changes in the due date unless
the Note Holder agrees in writing to those changes.
5. Loan Charges. If a law, which applies to this loan and
which sets maximum loan charges, is finally interpreted so
that the interest or other loan charges collected or to be
collected in connection with this loan exceed the permitted
limits, then: (i) any such loan charge shall be reduced by
the amount necessary to reduce the charge to the permitted
limit; and (ii) any sums already collected from me which
exceeded permitted limits will be refunded to me. The Note
Holder may choose to make this refund by reducing the
principal I owe under this Note or by making a direct
payment to me. If a refund reduces principal, the reduction
will be treated as a partial prepayment.
6. Giving of Notices. Unless applicable law requires a
different method, any notice that must be given to me under
this Note will be given by delivering it or by mailing it by
first class mail to me at the Property Address above or at a
different address if I give the Note Holder a notice of my
different address. Any notice that must be given to the
Note Holder under this Note will be given by mailing it by
first class mail to the Note Holder at the address stated in
Section 3 above or at a different address if I am given a
notice of that different address.
<PAGE>
7. Waivers. I and any other person who has obligations
under this Note waive the rights of presentment and notice
of dishonor. "Presentment" means the right to require the
Note Holder to demand payment of amounts due. "Notice of
Dishonor" means the right to require the Note Holder to give
notice to other persons that amounts due have not been paid.
WITNESS THE HAND OF THE UNDERSIGNED.
__________________________________________
George R. Quist
<PAGE>
EXHIBIT 21
Subsidiaries of Security National
Financial Corporation
as of March 31, 1998
Exhibit 21
Subsidiaries of Security National Financial Corporation
(as of March 31, 1999)
Security National Life Insurance Company
Security National Mortgage Company
Memorial Estates, Inc.
Memorial Mortuary
Paradise Chapel Funeral Home, Inc.
California Memorial Estates, Inc.
Cottonwood Mortuary, Inc.
Deseret Memorial, Inc.
Holladay Cottonwood Memorial Foundation
Holladay Memorial Park, Inc.
Camelback Sunset Funeral Home, Inc.
Greer-Wilson Funeral Home, Inc.
Crystal Rose Funeral Home, Inc.
Hawaiian Land Holdings
Consolidare Enterprises, Inc.
Insuradyne Corporation
Southern Security Life Insurance Company
<PAGE>
Exhibit 27
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 28,675,440
<DEBT-CARRYING-VALUE> 44,984,882
<DEBT-MARKET-VALUE> 46,897,819
<EQUITIES> 5,146,059
<MORTGAGE> 12,523,395
<REAL-ESTATE> 7,866,151
<TOTAL-INVEST> 122,233,104
<CASH> 6,670,996
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 10,501,281
<TOTAL-ASSETS> 213,265,147
<POLICY-LOSSES> 131,545,290
<UNEARNED-PREMIUMS> 2,565,968
<POLICY-OTHER> 1,425,831
<POLICY-HOLDER-FUNDS> 1,928,749
<NOTES-PAYABLE> 22,886,500
0
0
<COMMON> 10,323,979
<OTHER-SE> 16,356,280
<TOTAL-LIABILITY-AND-EQUITY> 213,265,147
5,915,659
<INVESTMENT-INCOME> 7,458,743
<INVESTMENT-GAINS> 74,121
<OTHER-INCOME> 19,371,080
<BENEFITS> 6,931,921
<UNDERWRITING-AMORTIZATION> 1,273,394
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1,026,044
<INCOME-TAX> 254,815
<INCOME-CONTINUING> 771,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 771,229
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
