<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE AT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number 33-36775
SUMMIT SECURITIES, INC.
(Exact name of registrant as specified in its charter)
IDAHO 82-0438135
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization) Identification No.)
W. 929 Sprague Avenue, Spokane, WA 99204
(Address of principal executive offices)(Zip Code)
(509)838-3111
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
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 / /
Applicable only to issuers involved in bankruptcy proceedings during
the preceding five years: (Not Applicable)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes / / No / /
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
10,000 SHARES - Common at July 31, 1995.
<PAGE>
SUMMIT SECURITIES, INC.
INDEX
Page No.
Part I - Financial Information:
Condensed Consolidated Balance Sheets --
June 30, 1995 (unaudited)
and September 30, 1994
Condensed Consolidated Statements of Operations--
Three and Nine Months Ended June 30,
1995 and 1994 (Unaudited)
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1995 and
1994 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II - Other Information
<PAGE>
PART I - FINANCIAL INFORMATION
SUMMIT SECURITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 10,752,298 $ 3,608,764
Investments in Affiliated Company 3,022,425 3,022,425
Investments, at Amortized Cost (Market
Value $9,042,412) 9,440,569
Real Estate Contracts and Mortgage
Notes and Other Receivables,
Net of Unrealized Discounts
and Allowance For Losses 59,892,878 27,282,991
Real Estate Held For Sale 837,148 452,700
Deferred Acquisition Costs 3,506,733 705,994
Other Assets, Net 885,247 29,114
---------- ----------
TOTAL ASSETS $ 88,337,298 $ 35,101,988
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Insurance Annuity Reserves $ 45,504,327
Investment Certificates and Accrued
Interest 36,873,548 $ 31,092,830
Debt Payable 64,112 119,888
Accounts Payable and Accrued Expenses 913,499 416,262
Accrued Income Taxes Due Parent 1,308,873 151,778
---------- -----------
TOTAL LIABILITIES 84,664,359 31,780,758
---------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $10 Par Value:
2,000,000 Shares Authorized:
10,000 Shares Issued and Outstanding 100,000 100,000
Preferred Stock, $10 Par Value:
10,000,000 Shares Authorized:
35,203 and 31,719 Shares Issued and
Outstanding
(Liquidation Preference $3,520,300 and
$3,171,940, respectively) 352,030 317,194
Additional Paid-In Capital 1,698,284 1,454,063
Retained Earnings 1,535,621 1,449,973
Net Unrealized Losses on Investments (12,996)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,672,939 3,321,230
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 88,337,298 $ 35,101,988
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
SUMMIT SECURITIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES:
Interest and Earned Discounts $ 1,306,545 $ 897,902 $ 3,120,126 $ 2,312,155
Insurance Premiums Earned 25,000 25,000
Realized Net Gains on Sales of
Investment Securities 4,252
Realized Net Gains on Sales of
Receivables 35,065 84,168 36,494
Real Estate Sales 325,500 14,000 837,000 88,000
Dividend Income 54,311 206,389
Fees, Commissions, Service and
Other Income 824,569 14,034 1,667,996 43,854
--------- --------- --------- ---------
TOTAL REVENUES 2,570,990 925,936 5,940,679 2,484,755
--------- --------- --------- ---------
EXPENSES:
Insurance Annuity Benefits 259,337 259,337
Interest 832,301 662,203 2,368,483 1,837,474
Cost of Real Estate Sold 324,829 13,530 828,087 76,273
Provision for Losses on Real
Estate Contracts and Real
Estate Held 74,202 49,912 242,023 99,643
Salaries and Employee Benefits 322,145 550,917
Commissions to Agents 393,927 793,163
Other Operating and Underwriting
Expenses 237,652 53,898 454,095 188,469
Less Increase in Deferred Acquisition
Costs (48,950) (48,950)
--------- --------- --------- ---------
TOTAL EXPENSES 2,395,443 779,543 5,447,155 2,201,859
--------- --------- --------- ---------
Income Before Income Taxes 175,547 146,393 493,524 282,896
Provision for Income Taxes (62,768) (51,622) (171,645) (98,832)
--------- --------- --------- ---------
NET INCOME 112,779 94,771 321,879 184,064
Preferred Stock Dividends (79,240) (236,231)
--------- --------- --------- ---------
Income Applicable to Common
Shareholder $ 33,539 $ 94,771 $ 85,648 $ 184,064
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUMMIT SECURITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1995 1994
Restated
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 1,148,736 $ 1,506,645
---------- ----------
INVESTING ACTIVITIES:
Purchase of Subsidiaries Net of Cash
Received 1,406,873
Proceeds from Advances from Parent
and Affiliate Companies (1,432,844)
Principal Payments on Real Estate
Contracts and Mortgage Notes 6,080,098 2,326,057
Purchase of Real Estate Contacts
And Mortgage Notes (18,327,907) (15,581,464)
Proceeds From Real Estate Sales 143,108 6,200
Additions to Real Estate Held (114,910) (82,753)
Proceeds from Sale of Receivables 12,130,431 6,711,624
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,317,693 (8,053,180)
---------- ----------
FINANCING ACTIVITIES:
Receipts from Annuity Products 1,609,678
Withdrawals of Annuity Products (900,967)
Proceeds From Sale of Investment
Certificates 6,716,772 6,799,446
Repayment of Investment Certificates (2,194,601) (2,051,190)
Repayment to Banks and Others (191,206) (45,718)
Insurance and Debt Issuance Costs (458,130) (341,482)
Issuance of Preferred Stock 331,790 66,825
Cash Dividends (236,231) (732)
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 4,677,105 4,427,149
---------- ----------
NET INCREASE (DECREASE)IN CASH
AND CASH EQUIVALENTS 7,143,534 (2,119,386)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,608,764 3,594,472
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 10,752,298 $ 1,475,086
========== ==========
NON CASH INVESTING AND FINANCING
ACTIVITIES OF THE COMPANY:
Assumption of Other Debt Payable in
Conjunction With Purchase of Real
Estate Contracts and Mortgage Notes $ 120,230 $ 40,119
Real Estate Held for Sale and
Development Acquired Through
Foreclosure $ 875,909 $ 363,447
Loans to Facilitate the Sale of
Real Estate $ 693,892 $ 81,800
Assumption of Other Debt Payable in
Conjunction with Acquisition of
Real Estate Held for Sale $ 15,528 $ 63,650
Increase In Assets and Liabilities
Associated with Purchase of
Subsidiaries:
Investments $ 9,401,577
Real Estate Contracts and Mortgage
Notes and Other Receivables 32,080,899
Real Estate Held for Sale 503,298
Deferred Acquisition Costs 2,620,571
Other Assets 199,711
Insurance Annuity Reserves 44,558,959
Accounts Payable and Other 1,653,970
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial position as
of June 30, 1995 and the results of operations and change in cash
flow for the three and nine months ended June 30, 1995 and 1994.
The results of operations for the three and nine month period
ended June 30, 1995 and 1994 are not necessarily indicative of
the results to be expected for the full year.
2. The principal amount of receivables as to which payments were in
arrears more than three months was $2,750,000 at June 30, 1995
and $1,085,000 at September 30, 1994. Included in the June 30,
1995 amount is $1,225,000 associated with receivables acquired in
conjunction with the acquisition of Old Standard Life Insurance
Company as detailed in Note 6.
3. Summit Securities, Inc. is a wholly-owned subsidiary of National
Summit Corp. The Company files consolidated federal income tax
returns with its parent. The Company is allocated a current and
deferred tax provision from National Summit Corp. as if the
Company filed a separate tax return.
4. Summit Securities, Inc. had no outstanding material legal
proceedings other than normal proceedings associated with
receivable foreclosures.
5. Certain amounts in the prior years' condensed financial statements
have been reclassified to conform with the current years'
presentation. The prior years' condensed statement of cash flows
has been restated to include purchases and sales of available-
for-sale securities in operating activities. In the prior year
these transactions were reported as investing activities. The
effect of this restatement was an increase of $4,293 in cash
provided by operating activities and a similar reduction in net
cash provided by investing activities for the nine months ended
June 30, 1995.
6. On January 31, 1995 the Company consummated an agreement with
Metropolitan Mortgage & Securities Co., Inc. (Metro), the
Company's former parent company, whereby it acquired Metropolitan
Investment Securities, Inc. (MIS) effective January 31, 1995, at
a purchase price of $288,950, which approximated the book value
of MIS at date of purchase. On May 31, 1995, the Company
consummated an agreement with Metropolitan, whereby it acquired
Old Standard Life Insurance company (OSL) effective May 31, 1995,
at a purchase price of $2,722,000, which approximated the current
book value of OSL at date of purchase, with future contingency
payments based on the earnings of OSL. The purchase price plus
estimated future contingency payments approximate the actuarial
appraised valuation of OSL.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Completed Transactions:
On January 31, 1995, Summit Securities, Inc. (Summit or the
Company) and Metropolitan Mortgage & Securities Co., Inc. (Metro)
completed a purchase/sale transaction whereby 100% of the outstanding
common stock of Metropolitan Investment Securities, Inc. (MIS) was
sold to Summit. The cash purchase/sale price was $288,950, the
approximate net book value of MIS at closing. MIS is a limited-
purpose broker dealer and the exclusive broker/dealer for the
securities sold by Summit and Metro. It is anticipated that this sale
will not materially affect the future business operations of MIS.
Additionally, by agreement, effective January 31, 1995, Metro
discontinued its property development division, which consisted of a
group of employees experienced in real estate development. On the
same date, Summit commenced the operation of a property development
subsidiary employing those same individuals who had previously been
employed by Metro. Summit Property Development Corporation, a 100%
owned subsidiary of Summit, has negotiated an agreement with Metro to
provide future property development services.
On May 31, 1995, Summit and Metro completed a purchase/sale
transaction whereby 100% of the outstanding common stock of Old
Standard Life Insurance Company (OSL) was sold to Summit. The cash
purchase/sale price was $2,722,000, the approximate net book value of
OSL at closing, with future contingency payments based on the earnings
of OSL. The purchase/sale price plus estimated future contingency
payments approximated the actuarial appraised valuation of OSL. OSL
is engaged in the business of acquiring receivables using funds
derived from the sale of annuities and funds derived from receivable
cash flows. The purchase of OSL increased total assets by
approximately $48.9 million while total liabilities increased by
approximately $46.2 million. Significant assets acquired included
cash and cash equivalents of $4.1 million, investments of $9.4
million, receivables of $32.1 million, real estate of $.5 million,
deferred acquisition costs of $2.6 million and other assets of $.2
million. Significant liabilities assumed included insurance annuity
reserves of $44.5 million and accounts payable and other liabilities
of $1.7 million.
Financial Condition and Liquidity:
As of June 30, 1995, the Company had cash or cash equivalents of
approximately $10.8 million as compared to $1.1 million at March 31,
1995, $1.2 million at December 31, 1994 and $3.6 million at September
30, 1994. Management believes that cash, cash equivalents and
liquidity provided by other investments are adequate to meet planned
asset additions, debt retirements or other business requirements
during the next twelve months. At June 30, 1995, the receivable
portfolio totaled approximately $59.9 million as compared to $33.2
million at March 31, 1995, $31.7 million at December 31, 1994 and
$27.3 million at September 30, 1994. Real estate held for sale,
acquired through receivable foreclosures, totaled $837,148 at June 30,
1995 compared to $400,050 at March 31, 1995, $509,700 at December 31,
1994 and $452,700 at September 30, 1994.
Sales of Investment Certificates and Preferred Stock generated
approximately $4.9 million net cash flow during the nine months ended
June 30, 1995, while sales of insurance annuity products generated
approximately $700,000 net cash flow during the Company's first month
of insurance operations after the purchase of OSL on May 31, 1995.
Sales of receivables and principal payments on receivables added
additional cash flow of approximately $18.2 million during the nine
month period. The cash flows from these sources, along with cash
provided by operating activities were used to invest approximately
$18.3 million in receivables during the nine months ended June 30,
1995.
Results of Operations:
Net income was $322,000 on revenues of approximately $5.9 million
for the nine months ended June 30, 1995. For the similar period in
the prior year, the Company reported net income of $184,000 on
revenues of approximately $2.5 million. The increase in income of
approximately $138,000 resulted primarily from: (1) a $43,000 increase
in the spread between interest/insurance income and interest/insurance
expense, due principally to the increased investment in receivables;
(2) dividend income of $206,000 from investments in affiliated
companies; (3) a $41,000 increase in the net gains from the sales of
investments, receivables and real estate; and (4) an increase in
earnings of approximately $63,000 generated from fees, commissions,
service and other income less the related operating expenses; all of
which were partially offset by (5) an increase in the charge for
provision for loss on receivables and real estate of approximately
$143,000; and (6) a resulting increase in the provision for income
taxes of approximately $73,000.
For the nine months ended June 30, 1995, the interest spread was
$517,000, while in the prior year's period the spread was $474,000.
The increase of $43,000 is the result of additional investment in
receivables coupled with a slight decrease in the weighted average
interest rate on the outstanding Investment Certificates issued by the
Company. Going forward, the addition of OSL is expected to add to the
net interest spread as the cost of funds generated through the sales
of annuity products is lower than the funds generated from the sale of
Investment Certificates.
In the current period, the Company received approximately $206,000
in dividends from its preferred and common stock investment in Metro.
The Company acquired this investment in September 1994 through the
exchange of its own preferred stock for a similar preferred and common
stock investment in Metro. While this transaction has increased net
income to the Company, the resulting benefit to common stockholders is
not significant as a similar preferred stock dividend is now paid by
the Company to its preferred stockholders.
During the nine months ended June 30, 1995, the Company sold
approximately $12.1 million in receivables for a gain of approximately
$84,000 compared to sales of $6.7 million for a gain of $36,000 in the
prior year. This year to year gain was partially offset by reduced
gains from the sale of investments and real estate. The current year
gains resulted primarily from the sales of receivables to Western
United Life Assurance Company, an affiliated company to Summit. These
sales of financial instruments were priced at current market value at
the various dates of sale.
Commencing January 31, 1995, with the purchase of MIS and the
creation of a property development subsidiary, the Company has began
to generate significant fee revenues along with increased operating
expenses associated with these revenues. During the nine months ended
June 30, 1995 the Company generated $1.67 million of fee revenues
offset by $1.75 million of operating expense. In the prior year the
Company realized $44,000 of fee revenues offset by $189,000 of total
operating expenses. To date, the purchase of MIS and the creation of
the property development subsidiary has had a positive affect on the
consolidated operating profits of the Company as the company has been
able to generate profits from these subsidiaries which has
successfully offset the fixed operating costs of the parent company.
In conjunction with the increased investments in receivables,
along with the valuation of foreclosed real estate, the Company
provided a provision for the loss on receivables and real estate of
approximately $242,000 in the current year's period compared to
approximately $100,000 in the prior year's period.
New Accounting Rules:
In May 1993, Statement of Financial Accounting Standards No.114
(SFAS No.114) "Accounting by Creditors for Impairment of a Loan" was
issued. Additionally, in October 1994, Statement of Financial
Accounting Standards No.118 (SFAS No.118) "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures" (an amendment
to SFAS No.114) was issued. SFAS No.114 (as amended by SFAS No.118)
requires that certain impaired loans be measured based on the present
value of expected cash flows discounted at the loans' effective
interest rate or the fair value of the collateral. The Company is
required to adopt this new standard by October 1, 1995. This adoption
of SFAS No.114 and SFAS No.118 is expected to have no material effect
on the consolidated financial statements.
In October 1994, Statement of Financial Accounting Standards
No.119 (SFAS No.119) "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" was issued. SFAS
No.119 requires certain disclosures regarding derivative instruments
held by the Company effective for financial statements issued for
their fiscal year ending September 30, 1995. This statement does not
require application for the interim financial statements before this
date.
<PAGE>
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUMMIT SECURITIES, INC.
(Registrant)
/S/ JOHN TRIMBLE
Date ____________________________________
John Trimble, President
/S/ ERNEST JURDANA
Date
_______________________________________
_
Ernest Jurdana
Chief Financial Officer
/S/ STEVEN CROOKS
Date ____________________________________
Steven Crooks, Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 10,752
<SECURITIES> 12,463
<RECEIVABLES> 60,552
<ALLOWANCES> 659
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 88,337
<CURRENT-LIABILITIES> 0
<BONDS> 36,938
<COMMON> 100
0
352
<OTHER-SE> 3,221
<TOTAL-LIABILITY-AND-EQUITY> 88,337
<SALES> 0
<TOTAL-REVENUES> 5,941
<CGS> 0
<TOTAL-COSTS> 2,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 242
<INTEREST-EXPENSE> 2,368
<INCOME-PRETAX> 494
<INCOME-TAX> 172
<INCOME-CONTINUING> 322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 322
<EPS-PRIMARY> 8.56
<EPS-DILUTED> 8.56
</TABLE>
