<PAGE>
UNITED STATES
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 March 31, 1996.
/ / 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 April 30, 1996.
<PAGE>
SUMMIT SECURITIES, INC.
Part I - Financial Information: Index
Item 1: Financial Statements
Condensed Consolidated Balance Sheets --
March 31, 1996 (unaudited)
and September 30, 1995
Condensed Consolidated Statements of Operations--
Three and Six Months Ended March 31, 1996 and
1995 (Unaudited)
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1996 and
1995 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
<PAGE>
PART I - FINANCIAL INFORMATION
SUMMIT SECURITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 3,023,027 $ 2,979,362
Investments in Affiliated Company 3,022,425 3,022,425
Held-to-Maturity Securities,
at Amortized Cost (Market
Value $7,130,358 and $8,071,465) 7,292,021 8,315,750
Real Estate Contracts and Mortgage
Notes and Other Receivables,
Net of Unrealized Discounts
and Allowance For Losses 87,731,903 77,013,121
Real Estate Held For Sale 909,667 836,291
Deferred Acquisition Costs 4,332,727 3,582,202
Other Assets, Net 949,492 597,421
---------- ----------
TOTAL ASSETS $ 107,261,262 $ 96,346,572
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Insurance Annuity Reserves $ 57,047,281 $ 49,559,589
Investment Certificates and Accrued
Interest 40,339,890 38,545,896
Debt Payable 1,993,460 104,636
Accounts Payable and Accrued Expenses 2,339,081 2,938,182
Accrued Income Taxes Due Parent 1,434,211 1,291,202
---------- -----------
TOTAL LIABILITIES 103,153,923 92,439,505
---------- -----------
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:
36,603 and 35,622 Shares Issued and
Outstanding (Liquidation Preference
$3,660,330 and $3,562,220,
respectively) 366,033 356,222
Additional Paid-In Capital 1,876,853 1,786,991
Retained Earnings 1,777,231 1,675,738
Net Unrealized Losses on Investments (12,778) (11,884)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,107,339 3,907,067
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 107,261,262 $ 96,346,572
=========== ===========
</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 Six Months Ended
March 31, March 31,
1995 1994 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Interest and Earned Discounts $ 2,191,497 $ 904,022 $ 4,318,113 $ 1,813,581
Insurance Premiums Earned 7,800 15,600
Realized Net Gains on Sales of
Investment Securities 583
Realized Net Gains on Sales of
Receivables 49,103
Real Estate Sales 414,000 342,500 627,000 511,500
Dividend Income 46,653 93,208 95,276 152,078
Fees, Commissions, Service and
Other Income 687,876 814,768 1,489,461 843,427
--------- --------- --------- ---------
TOTAL REVENUES 3,347,826 2,154,498 6,546,033 3,369,689
--------- --------- --------- ---------
EXPENSES:
Insurance Annuity Benefits 902,402 1,763,766
Interest 925,654 777,923 1,843,334 1,536,182
Cost of Real Estate Sold 407,851 334,223 621,201 503,258
Provision for Losses on Real
Estate Contracts and Real
Estate Held 60,373 78,092 280,416 167,821
Salaries and Employee Benefits 439,802 228,772 847,829 228,772
Commissions to Agents 383,676 399,236 813,038 399,236
Other Operating and Underwriting
Expenses 386,729 151,467 784,619 216,443
Less Increase in Deferred Acquisition
Costs (265,964) (683,519)
--------- --------- --------- ---------
TOTAL EXPENSES 3,240,523 1,969,713 6,270,684 3,051,712
--------- --------- --------- ---------
Income Before Income Taxes 107,303 184,785 275,349 317,977
Provision for Income Taxes 23,581 (77,126) (23,982) (108,877)
--------- --------- --------- ---------
NET INCOME 130,884 107,659 251,367 209,100
Preferred Stock Dividends (78,878) (80,648) (149,874) (156,991)
--------- --------- --------- ---------
Income Applicable to Common
Shareholder $ 52,006 $ 27,011 $ 101,493 $ 52,109
========= ========= ========= =========
</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>
Six Months Ended
March 31,
1996 1995
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 617,480 $ 1,546,061
---------- ----------
INVESTING ACTIVITIES:
Purchase of Subsidiaries Net of Cash
Received (761,739)
Proceeds from Sale of Available-
for-Sale Securities 999,790
Proceeds from Maturities of Held-to-
Maturity Investments 500,000
Principal Payments on Real Estate
Contracts and Mortgage Notes
and Other Receivables 8,206,491 3,051,587
Purchase of Real Estate Contacts
And Mortgage Notes and Other
Receivables (18,108,629) (14,206,670)
Proceeds From Real Estate Sales 105,338 136,050
Additions to Real Estate Held (73,870) (54,650)
Proceeds from Sale of Receivables 5,305,602
---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES (9,132,619) (5,768,081)
---------- ----------
FINANCING ACTIVITIES:
Receipts from Annuity Products 8,385,682
Withdrawals of Annuity Products (2,675,888)
Proceeds From Sale of Investment
Certificates 4,199,871 3,341,937
Repayment of Investment Certificates (2,904,930) (1,334,906)
Borrowings from Brokers and Banks 1,950,000
Repayment to Banks and Others (88,538) (188,625)
Debt Issuance Costs (257,192) (240,833)
Issuance of Preferred Stock 99,673 268,142
Cash Dividends (149,874) (156,991)
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,558,804 1,688,724
---------- ----------
NET INCREASE (DECREASE)IN CASH
AND CASH EQUIVALENTS 43,665 (2,533,296)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 2,979,362 3,608,764
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,023,027 $ 1,075,468
========== ==========
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 $ 26,823 $ 120,230
Real Estate Held for Sale and
Development Acquired Through
Foreclosure 717,511 518,629
Loans to Facilitate the Sale of
Real Estate 521,662 375,450
Increase In Assets and Liabilities
Associated with Purchase of
Subsidiaries:
Investments 493,695
Other Assets 268,044
</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 March 31, 1996, the results of operations for the three and
six months ended March 31, 1996 and 1995 and changes in cash
flows for the six months ended March 31, 1996 and 1995. The
results of operations for the six month period ended March 31,
1996 and 1995 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 $2,550,000 at March 31, 1996
and $2,675,000 at September 30, 1995.
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.
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. On December 28, 1995, the Company
consummated an agreement with ILA Financial Services, Inc.
whereby it acquired Arizona Life, an insurance company domiciled
in Arizona, at a purchase price of $1,234,031, which approximated
the book value of Arizona Life at date of purchase. Arizona Life
holds licenses to engage in insurance sales in seven states and
the purchase price included approximately $268,000 in value
assigned to these state licenses.
<PAGE>
Item 2: 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.
On December 28, 1995, Summit and ILA Financial Services Inc.
(ILA) completed a purchase/sale transaction whereby 100% of the
outstanding common stock of Arizona Life (AZL), an insurance company
domiciled in Arizona, was sold to a wholly owned subsidiary of
Summit. The cash purchase/sale price was approximately $1,234,000,
which approximated the book value of AZL at date of purchase. AZL
holds licenses to engage in insurance sales in seven states and the
purchase/sale price included approximately $268,000 in value assigned
to these state licenses. AZL is anticipated to be in the business of
acquiring receivables using funds derived from the sale of annuities
and funds derived from receivable cash flows. At date of purchase,
AZL had no outstanding insurance business or other liabilities. The
addition of AZL had no affect on total assets or liabilities of
Summit.
Financial Condition and Liquidity:
As of March 31, 1996, the Company had cash or cash equivalents
of approximately $3.0 million as compared to $7.9 million at
December 31, 1995 and $3.0 million at September 30, 1995. Management
believes that cash, cash equivalents and liquidity provided by other
investments are adequate to meet planned asset additions, required
debt retirements or other business requirements during the next
twelve months. At March 31, 1996, the Company's receivable portfolio
totaled $87.7 million as compared to $76.1 million at December 31,
1995 and $77.0 million at September 30, 1995. The receivable
portfolio totaled $33.2 million at March 31, 1995, however, this
portfolio was significantly increased by approximately $32.1 million
with the addition of OSL in May 1995. Real estate held for sale,
acquired through receivable foreclosures, totaled $909,700 at March
31, 1996 as compared to $794,600 at December 31, 1995 and $836,300 at
September 30, 1995.
Sales of Investment Certificates and Preferred Stock generated
approximately $1.4 million net cash flow during the six months ended
March 31, 1996, while sales of insurance annuity products generated
approximately $5.7 million net cash flow during the same period.
Sales and maturities of investments, along with principal payments on
receivables added additional cash flow of approximately $9.7 million
during the six month period ended March 31, 1996. The cash flows from
these sources along with cash of over $600,000 provided by operating
activities and cash from broker borrowings of approximately $2.0
million were used to invest approximately $18.1 million in
receivables and the net cash expended of approximately $762,000 for
the acquisition of AZL. For the six month period ended March 31,
1996, cash inflows exceeded outflows by approximately $44,000 and
resulted in a cash and cash equivalent balance of approximately $3.0
million at March 31, 1996.
Results of Operations:
Net income was $251,000 on revenues of approximately $6.5
million for the six months ended March 31, 1996. For the similar
period in the prior year, the Company reported net income of $209,000
on revenues of approximately $3.4 million. Current period revenues as
compared to the prior year's have significantly increased as the
result of the MIS and OSL acquisitions in 1995, however, net income
has remained relatively flat, an increase of approximately $42,000,
as these acquisitions were financed with existing capital.
Net income for the comparative six month periods has remained
comparatively stable with improvements from (1) an increased spread
between interest sensitive income and interest sensitive expense, due
principally to the increased investment in the receivable portfolio
and (2) a reduced effective income tax rate due primarily to the
effects of the dividend exclusion benefits and the small life
insurance tax benefits; which were almost totally offset by (1) a
reduction in overall gains from the sale of investments, receivables
and real estate, (2) a reduction in dividend income on its common
stock and variable rate preferred stock investments, with the
reduction on the preferred principally due to the declining interest
rate environment, (3) an increase in other operating expenses, in
particular the amortization of insurance policy acquisition costs, in
excess of the increase in other operating income items, and (4) an
increase in the provision for loss on receivables and other real
estate assets.
For the six months ended March 31, 1996, the interest spread was
$727,000, while in the prior year's period the spread was $277,000.
The increase of $450,000 is the result of additional investment in
the receivable portfolio, primarily from the acquisition of OSL,
coupled with a slight decrease in the weighted average interest rate
on the outstanding Investment Certificates issued by the Company and
the lower cost of insurance annuity funds generated by OSL.
During the six months ended March 31, 1996, the Company realized
gains on the sale of investments of $600, gains on the sale of real
estate of $5,800 and had no sales of receivables. In the prior year's
period, the Company realized gains of $8,200 on the sale of real
estate and realized gains of $49,100 on the sale of receivables. The
prior year's gain on receivables resulted from the sale of
approximately $5.3 million in receivables to Western United Life
Assurance Company, which is a subsidiary of Metro, Summit's former
parent company. The sale of financial instruments was priced at the
current market value at date of sale.
In the current year's period, the Company received approximately
$95,000 in dividends from its common and preferred stock investment
in Metro compared to approximately $152,000 in the prior year's
period. In the current year the Company has not received any common
dividends compared to approximately $35,000 in the prior year. 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.
Commencing January 31, 1995, with the purchase of MIS and the
creation of a property development subsidiary, the Company began to
generate significant fee revenues along with increased operating
expenses associated with these revenues. Additionally, commencing May
28, 1995, with the purchase of OSL, and December 28, 1995, with the
purchase of AZL, the Company began to incur significant operating
expenses relative to its insurance operations. During the six months
ended March 31, 1996, the Company generated approximately $1.5
million of fee revenues while incurring $1.8 million in other
operating expenses. In the prior year, with limited operations at MIS
and the property development subsidiary, and prior to the
acquisitions of OSL and AZL, the Company realized $843,000 of fee
revenues offset by $844,000 of other operating expense. This
increased cost of approximately $272,000 is primarily the result of
costs associated with its insurance operations.
In conjunction with increased investments in its receivable
portfolio, along with the valuation of foreclosed real estate, the
Company expensed a provision for loss on receivables and real estate
assets of $280,000 in the current year's period as compared to
$169,000 in the prior year's period. At March 31, 1996, the Company's
carrying value for its receivable portfolio and its real estate held
for sale was approximately $88.6 million as compared to $33.6 million
at March 31, 1995.
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, 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 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 was required to adopt the new standard by
October 1, 1995. The adoption of SFAS No. 114 and SFAS No. 118 had no
material effect on the consolidated financial statements.
In December 1991, SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments" was issued. SFAS No. 107 requires disclosures
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. SFAS No. 107 is effective for financial
statements issued for fiscal years ending after December 31, 1995
(Summit's fiscal year ending September 30, 1996) for entities with
less than $150 million in total assets. This pronouncement does not
change any requirements for recognition, measurement or
classification of financial instruments in Summit's financial
statements.
The Company's subsidiary, OSL, adopted the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" on December 31, 1993. The effect of applying this new
standard was to decrease stockholders' equity by $59,300, which is
net of a $30,600 income tax effect. At December 31, 1995, the Company
had net unrealized losses on investments of $14,100. This amount is
reported as a reduction in stockholders' equity. Additionally, under
guidance issued by the Financial Accounting Standards Board for the
implementation of SFAS No. 115, the Company transferred approximately
$1.0 million in Held-to-Maturity investments to Available-for-Sale
investments during the three month period ending December 31, 1995.
These investments were sold during the period after the designated
transfer date.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings or actions pending or
threatened against Summit Securities, Inc., or to which its property
is subject.
Item 2. Changes in Securities
N/A
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
A. On March 28, 1996, the annual meeting of stockholders was
convened.
B. The meeting included the election of the following directors:
Tom Turner
Philip Sandifur
Greg Gordon
Robert Potter
The vote was unanimous. There are no other directors of the Company
whose term of office continued after the meeting.
C. There were no other matters voted upon at the meeting.
D. N/A
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
N/A
<PAGE>
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/TOM TURNER
Date:May 9, 1996 ____________________________________
Tom Turner
President/Director
/S/ PHILIP SANDIFUR
Date:May 9, 1996
Philip Sandifur
Vice President/Director
/S/ GREG GORDON
Date:May 9, 1996
Greg Gordon
Secretary/Treasurer/Director
/S/ STEVE CROOKS
Date:May 9, 1996
Steve Crooks
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,023
<SECURITIES> 10,314
<RECEIVABLES> 88,651
<ALLOWANCES> 919
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 107,261
<CURRENT-LIABILITIES> 0
<BONDS> 42,333
<COMMON> 100
0
366
<OTHER-SE> 3,641
<TOTAL-LIABILITY-AND-EQUITY> 107,261
<SALES> 0
<TOTAL-REVENUES> 6,546
<CGS> 0
<TOTAL-COSTS> 4,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 280
<INTEREST-EXPENSE> 1,843
<INCOME-PRETAX> 275
<INCOME-TAX> 24
<INCOME-CONTINUING> 251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 251
<EPS-PRIMARY> 10.15
<EPS-DILUTED> 10.15
</TABLE>
