FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 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 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.)
929 WEST SPRAGUE AVENUE, SPOKANE, WASHINGTON 99201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (509)838-3111
Former name, former address and former fiscal year, if changed since last
report: N/A.
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: N/A.
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 / / N/A.
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.
Common: 10,000 shares at April 30, 1998.
SUMMIT SECURITIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
As of March 31, 1998 and September 30, 1997 (unaudited)
Condensed Consolidated Statements of Income
Three Months and Six Months Ended March 31, 1998 and 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1998 and 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
______________ ______________
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,731,549 $ 8,461,101
Investments in affiliated company 4,522,425 4,522,425
Trading securities, at market 3,271,537 1,743,836
Available-for-sale securities, at
market 5,623,975 5,959,470
Held-to-maturity securities, at
amortized cost (market value:
$6,236,992 and $7,206,543) 6,399,624 7,403,983
Real estate contracts and mortgage
notes and other receivables, net
of unrealized discounts and
allowances for losses 138,134,222 124,211,930
Real estate held for sale 2,462,979 2,819,845
Deferred acquisition costs, net 7,963,003 7,634,699
Other assets, net 2,971,453 3,596,781
______________ ______________
TOTAL ASSETS $176,080,767 $166,354,070
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Annuity reserves $110,870,905 $105,339,688
Investment certificates and accrued
interest 52,342,627 50,406,991
Debt payable 205,622 200,992
Accounts payable and accrued
expenses 2,350,464 1,302,945
Deferred income taxes 1,551,373 1,346,811
______________ ______________
TOTAL LIABILITIES 167,320,991 158,597,427
______________ ______________
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,
57,399 and 53,817 shares issued
and outstanding (liquidation
preference $5,739,910 and
$5,381,690, respectively) 573,991 538,169
Additional paid-in capital 3,630,908 3,326,007
Retained earnings 4,408,933 3,741,613
Net unrealized gains on
Investments, net of income taxes 45,944 50,854
______________ ______________
TOTAL STOCKHOLDERS' EQUITY 8,759,776 7,756,643
______________ ______________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $176,080,767 $166,354,070
============== ==============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
____________ ____________ ____________ ____________
<S> <C> <C> <C> <C>
REVENUES
Interest and earned discounts $ 4,084,008 $ 2,923,662 $ 8,067,127 $ 5,665,750
Annuity fees and charges 38,346 29,696 78,133 41,696
Realized investment gains 157,886 346,328
Realized net gains (losses) on sales of
receivables (11,110) 64,919 615,054 382,138
Real estate sales 1,156,908 267,500 2,622,636 686,800
Dividend income 45,491 69,671 113,229 121,504
Fees, commissions, service and other
income 1,430,289 1,052,304 2,499,064 1,717,547
____________ ____________ ____________ ____________
TOTAL REVENUES 6,901,818 4,407,752 14,341,571 8,615,435
____________ ____________ ____________ ____________
EXPENSES
Annuity benefits 1,682,759 1,093,875 3,372,624 2,109,272
Interest 1,151,524 1,067,611 2,317,894 2,103,473
Cost of real estate sold 921,572 248,900 2,560,137 666,918
Provision for losses on real estate
Contracts and real estate held 548,280 241,649 948,066 471,175
Salaries and employee benefits 528,879 481,138 1,038,276 914,547
Commissions to agents 1,103,796 1,146,928 1,833,226 1,505,439
Other operating and underwriting
expenses 373,705 542,399 935,445 1,056,581
Less increase in deferred
acquisition costs (177,327) (710,768) (292,811)
(970,271)
____________ ____________ ____________ ____________
TOTAL EXPENSES 6,133,188 4,111,732 12,712,857 7,857,134
____________ ____________ ____________ ____________
Income before income taxes 768,630 296,020 1,628,714 758,301
Provision for income taxes (172,822) (61,545) (372,861)
(130,405)
____________ ____________ ____________ ____________
NET INCOME 595,808 234,475 1,255,853 627,896
Preferred stock dividends (119,786) (108,161) (242,264)
(211,347)
____________ ____________ ____________ ____________
Income applicable to common stockholders $ 476,022 $ 126,314 $ 1,013,589 $ 416,549
============ ============ ============ ============
Basic and diluted income per share
Applicable to common stockholder $ 47.60 $ 12.63 $ 101.36 $ 41.65
Weighted average number of shares of common 10,000 10,000 10,000 10,000
stock outstanding
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1998 1997
______________ ______________
<S> <C> <C>
CASH PROVIDED BY
OPERATING ACTIVITIES $ 4,936,332 $ 4,352,973
______________ ______________
Cash flows from investing activities:
Proceeds from sales of available-for-
sale investments 348,346
Purchase of available-for-sale
investments (1,230,442)
Proceeds from maturities of held-to-
maturity investments 1,000,000 500,000
Purchase of held-to-maturity
investments (995,469)
Principal payments on real estate
contracts and mortgage notes and
other receivables 14,310,098 4,028,882
Purchase of real estate contracts
and mortgage notes and other
receivables (36,704,645) (25,753,415)
Proceeds from real estate sales 1,228,601 342,002
Additions to real estate held for sale (1,603,992) (1,390,948)
Proceeds from sale of receivables 9,486,911 12,495,596
______________ ______________
NET CASH USED IN INVESTING
ACTIVITIES (11,934,681) (12,003,794)
______________ ______________
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from annuity products 9,702,109 15,686,395
Withdrawals of annuity products (7,465,382) (4,198,199)
Proceeds from issuance of investment
certificates 5,716,188 6,439,769
Repayment of investment certificates (4,120,332) (2,574,252)
Repayment to banks and others (12,153) (3,805,767)
Debt issuance costs (303,823) (302,212)
Contingent purchase price paid on
subsidiary purchased from
related party (135,569) (249,721)
Issuance of preferred stock 340,723 566,378
Cash dividends on preferred and common
Stock (452,964) (211,347)
______________ ______________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 3,268,797 11,351,044
______________ ______________
Net change in cash and cash equivalents (3,729,552) 3,700,223
Cash and cash equivalents, beginning
of period 8,461,101 4,461,315
______________ ______________
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,731,549 $ 8,161,538
============== ==============
NON CASH INVESTING AND FINANCING
ACTIVITIES OF COMPANY:
Assumption of other debt payable in
conjunction with purchase of real
estate contracts and mortgage notes $ 16,942 $ 51,098
Real estate acquired through
foreclosure 839,812 821,747
Receivables originated to facilitate
the sale of real estate 1,394,035 344,798
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 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, 1998, the results
of operations for the three months ended March 31, 1998 and 1997 and
changes in cash flows for the six months ended March 31, 1998 and 1997.
The results of operations for the three and six month periods ended
March 31, 1998 and 1997 are not necessarily indicative of the results to
be expected for the full year. As provided for in regulations
promulgated by the Securities and Exchange Commission, all financial
statements included herein are unaudited; however, the condensed
consolidated balance sheet at September 30, 1997 has been derived from
the audited consolidated balance sheet. These financial statements
should be read in conjunction with the consolidated financial statements
including notes thereto included in the Company's fiscal 1997 Form 10-K.
2. The principal amount of receivables as to which payments were in arrears
more than three months was $4,615,000 at March 31, 1998 and $4,586,000
at September 30, 1997.
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 income 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. In September 1997 and November 1996, Summit entered into securitization
transactions with its subsidiaries, and with Metropolitan Mortgage &
Securities Co., Inc. (Metropolitan), its former parent company, and
Metropolitan subsidiaries. In September 1997 and November 1996,
proceeds from the securitization transactions were approximately $8.3
million and $9.6 million and resulted in gains of approximately $465,000
and $298,000, respectively. The gains included approximately $58,000
and $146,000, respectively, associated with the estimated fair value of
the mortgage servicing rights retained on the pools. The servicing
rights associated with the securitization transactions were subsequently
sold to an affiliated entity at the Company's carrying value.
6. In December 1997, Summit sold $8.8 million of receivables to Western
United Life Assurance Company (Western United), a subsidiary of
Metropolitan, at fair value of $9.3 million recognizing a gain of $0.5
million.
7. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
8.
8. In February 1997, Statement of Financial Accounting Standards
No. 128 (SFAS 128), "Earnings per Share" was issued. SFAS 128
establishes standards for computing and presenting earnings per share
(EPS) and simplifies the existing standards. This standard replaces
the presentation of primary EPS with a presentation of basic EPS. It
also requires the dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15,
1997, including interim periods and requires restatement of all prior-
period EPS data presented. Accordingly, the Company applied this new
standard during the quarter ended December 31, 1997 and all prior-
period EPS data has been restated. The application of this standard
did not have a material effect on the presentation of the Company's
EPS disclosures as the Company did not and does not have potentially
diluted securities.
9.
9. In April, 1998, Summit entered into a securitization transaction with
its subsidiaries, and with Metropolitan and its subsidiaries. Proceeds
from the transaction were approximately $22.7 million and resulted in
pre-tax gains of approximately $1.4 million. Gains included
approximately $150,000 from sale of servicing rights associated with
securitized loans.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
These discussions may contain some forward-looking statements. A
forward-looking statement may contain words such as "will continue to be,"
"will be," "continue to," "expect to," "anticipates that," "to be," or "can
impact." Management cautions that forward-looking statements are subject to
risks and uncertainties that could cause the Company's actual results to
differ materially from those projected in forward-looking statements.
Significant Transactions:
On January 31, 1995, the Company consummated an agreement with
Metropolitan Mortgage & Securities Co., Inc. (Metropolitan), the Company's
former parent company (and currently affiliated through common control),
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
(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 approximated the actuarial appraised
valuation of OSL. As of March 31, 1998, the Company has paid approximately
$385,000 contingent consideration to Metropolitan.
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 Insurance Company, (AZL), an insurance company domiciled
in Arizona, was sold to a wholly owned subsidiary of Summit. The cash
purchase price was approximately $1.2 million, which approximated the book
value of AZL at the date of purchase. AZL held licenses to engage in
insurance sales in seven states and the purchase price included approximately
$268,000 in value assigned to these state licenses. AZL is in the business of
acquiring receivables using funds derived from the sale of annuities and funds
derived from receivable cash flows. At the 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.
In September 1997 and November 1996, Summit entered into securitization
transactions with its subsidiaries, Metropolitan and Metropolitan's
subsidiaries. The receivables sold into the securitization are structured into
classes by credit rating and transferred to a trust, which sells pass-through
certificates to third parties. These securitizations are recorded as sales of
receivables and gains, net of transaction expenses, are recorded in the
consolidated statements of income as each class is sold. In September 1997
and November 1996, proceeds from the securitization transactions were
approximately $8.3 million and $9.6 million and resulted in gains of
approximately $465,000 and $298,000, respectively. The gains included
approximately $58,000 and $146,000, respectively, associated with the
estimated fair value of the mortgage servicing rights retained on the pools.
The servicing rights associated with the securitization transactions were
subsequently sold to an affiliated entity at the Company's carrying value.
In April, 1998, Summit entered into a securitization transaction with
its subsidiaries, and with Metropolitan and its subsidiaries. Proceeds from
the transaction were approximately $22.7 million and resulted in pre-tax gains
of approximately $1.4 million. Gains included approximately $150,000 from
sale of servicing rights associated with securitized loans.
Western United Life Assurance Company (Western United), a company
affiliated through common control, entered into a reinsurance agreement with
OSL whereby Western United reinsured 75% of the risk on six different annuity
products through OSL. This agreement became effective January 23, 1997 and
continued through September 30, 1997. The amount of deferred annuity contracts
reinsured through OSL totaled approximately $27.9 million at March 31, 1998.
Effective October 1, 1997, the agreement was suspended and is expected to be
reinstated in June, 1998 retroactive to April, 1998.
Financial Condition and Liquidity:
As of March 31, 1998, the Company had cash or cash equivalents of
approximately $4.7 million and liquid investments (trading or available-for-
sale securities) of $8.9 million compared to $9.7 million in cash and cash
equivalents and $9.3 million in liquid investments at December 31, 1997 and
$8.5 million in cash and cash equivalents and $7.7 million in liquid
investments at September 30, 1997. Management anticipates that cash generated
from operations, and 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, 1998, total cash and investments, including held-to-maturity
securities and investments in affiliates, were $24.5 million compared to $30.9
million at December 31, 1997 and 28.1 million at September 30, 1997. During
the six months ended March 31, 1998, funds generated by operating activities
totaled $4.9 million. Funds provided by financing activities were 3.3 million,
which included a $1.6 million net cash inflow from the sale of preferred stock
and investment certificates, less repayments, and net cash inflow from annuity
products of $2.2 million which were offset by payments of preferred and common
stock dividends of $453,000. Funds used in investing activities of $11.9
million, which included $1.3 million net cash inflow from investment
maturities and sales, $23.8 million net cash inflow from whole loan sale
proceeds, securitization proceeds and collections of receivables, and $1.2
million net cash inflow from real estate sales were used to fund new
receivable acquisitions of $36.7 million, and additions to real estate held of
$1.6 million.
The receivable portfolio totaled $138.1 million at March 31, 1998,
compared to $126.0 million at December 31, 1997 and $124.2 million at
September 30, 1997. During the six months ended March 31, 1998, the change
resulted from the acquisition of receivables totaling $17.9 million, the
origination of commercial loans of $18.8 million plus an additional $1.4
million in loans to facilitate the sale of real estate being partially offset
by the cost basis of receivables sold and collections of principal of $23.2
million and $840,000 in reductions due to foreclosed receivables. Real estate
held for sale totaled $2.5 million at March 31, 1998, compared to $2.3 million
at December 31, 1997 and $2.8 million at September 30, 1997.
Insurance annuity reserves totaled $110.9 million at March 31, 1998,
compared to $107.5 million at December 31, 1997 and $105.3 million at
September 30, 1997. The increase of $5.6 million for the six months ended
March 31, 1998 resulted from credited earnings of $3.3 million, and a $2.3
million net cash inflow as receipts from the sales of annuity products of $9.7
million exceeded the withdrawals of $7.4 million. The Company had outstanding
investment certificate liabilities of $52.3 million at March 31, 1998,
compared to $51.1 million at December 31, 1997 and $50.4 million at September
30, 1997. For the six months ended March 31, 1998, net cash inflow from
issuance less maturities of debentures was $1.6 million plus an additional
$340,000 increase in credited interest held.
Total assets were $176.1 million at March 31, 1998, compared to $170.2
million at December 31, 1997 and $166.4 million at September 30, 1997. Total
liabilities were $167.3 million, at March 31, 1998 compared to $161.7 million
at December 31, 1997 and $158.6 million at September 30, 1997. Total
stockholders' equity was $8.8 million or 5.0% of total assets at March 31,
1998, compared to $8.4 million or 5.0% of total assets at December 31, 1997
and $7.8 million or 4.7% of total assets at September 30, 1997.
Results of Operations:
The Company recorded net income before preferred dividends for the six
months ended March 31, 1998 of $1.3 million on revenues of $14.3 million. For
the similar period in the prior year, the Company reported net income before
preferred dividends of $628,000 on revenues of $8.6 million.
Income for the comparative six month periods has increased as a result
of improvements from (1) an increased spread between interest sensitive income
and interest sensitive expense, due principally to the increased investment in
the receivable portfolio, (2) market value adjustments on trading securities
of $316,000, (3) an increase in overall gains from the sale of investments,
receivables and real estate, and (4) an increase in fees, commissions and
service revenues; which were only partially offset by (1) an increase in
operating expenses and (2) an increase in the provision for losses on
receivables and other real estate assets.
For the six months ended March 31, 1998, the net interest spread was
$2.5 million while in the prior year's period the spread was $1.5 million.
The increase of $1.0 million is the result of additional investments in the
receivable portfolio coupled with a slight decrease in the weighted average
interest rates on the outstanding Investment Certificates issued by the
Company and insurance annuity funds generated by OSL.
During the six months ended March 31, 1998, the Company realized gains
on the sale of real estate of $62,000 and gains on the sale of receivables of
$615,000. In the prior year's period, the Company realized gains from the
sales of real estate of $20,000 and gains from the sale of receivables of
$382,000. The current year's gain on the sale of receivables is primarily
from Summit's sale of $8.8 million of receivables to Western United, while the
prior year's gain was primarily from the sale of receivables into a
securitization sponsored by Metropolitan Asset Funding, Inc. In December 1996,
Summit purchased 733 weekly intervals in Pono Kai, an existing timeshare
development located on the island of Kauai in Hawaii. Sales operations
commenced in September 1997. During the six months ended March 31, 1998, total
sales were $1.6 million while cost of sales (including start up costs related
to the timeshare interval sales program) totaled $1.6 million.
During the six months ended March 31, 1998, the Company received
approximately $113,000 in dividends from its investments in companies
affiliated through common control, compared to approximately $122,000 in the
prior year's period. In the current year's period, approximately $94,000 were
dividends on its preferred stock investment in Metropolitan, its former
parent, and $19,000 were dividends on its common stock investment in Consumers
Group Holding Company, Inc., a subsidiary of Metropolitan. In the prior year,
approximately $103,000 were from dividends on its preferred stock and $19,000
were from dividends on its common stock.
During the six months ended March 31, 1998, the Company generated
approximately $2.5 million of fee revenues while incurring $3.5 million in
salaries, commissions and other operating expenses less increases in deferred
acquisition costs. In the prior year, the Company realized $1.7 million of
fee revenues offset by $2.5 million of other costs. This increased net cost
of approximately $200,000, is primarily the result of costs associated with
its insurance operations, which were only partially offset by an increase in
fees generated by its subsidiaries, MIS and Summit Property Development, Inc.
In conjunction with increased investments in its receivable portfolio,
along with the valuation of foreclosed real estate, the Company provided for
loss on receivables and real estate assets of $948,000 in the current year's
period as compared to $471,000 in the prior year's period.
In comparing the three months ended March 31, 1998 with the prior years
similar period the Company reported net income before preferred dividends of
$596,000 on revenues of $6.9 million as compared to $234,000 on revenues of
$4.4 million.
Income for the comparative three month periods has increased as a result
of improvements from (1) an increased spread between interest sensitive income
and interest sensitive expense, due principally to the increased investment in
the receivable portfolio, (2) market value adjustments on trading securities
of $127,000, (3) an increase in overall gains from the sale of investments,
receivables and real estate, and (4) an increase in fees, commissions and
service revenues; which were only partially offset by (1) an increase in other
operating expenses and (2) an increase in the provision for losses on
receivables and other real estate assets.
For the three months ended March 31, 1998, the net interest spread was
$1.3 million while in the prior year's period the spread was $800,000. The
increase of $500,000 is the result of additional investments in the receivable
portfolio coupled with a slight decrease in the weighted average interest
rates on the outstanding Investment Certificates issued by the Company and the
insurance annuity funds generated by OSL.
During the three months ended March 31, 1998, the Company realized gains
on the sale of real estate of $235,000 and losses on the sale of receivables
of $11,000. In the prior year's period, the Company realized gains from the
sales of real estate of $19,000 and gains from the sale of receivables of
$65,000. The current period gain on sale of real estate is primarily the
result of the Company's timeshare sales operation that commenced in September
1997.
During the three months ended March 31, 1998, the Company received
approximately $45,000 in dividends from its investments in companies
affiliated through common control, compared to approximately $70,000 in the
prior year's period. In the current year's period, all dividends were from its
preferred stock investment in Metropolitan, its former parent. In the prior
year, approximately $51,000 were from dividends on its preferred stock and
$19,000 were from dividends on its common stock investment in Consumers Group
Holding Company, Inc.
During the three months ended March 31, 1998, the Company generated
approximately $1.4 million of fee revenues while incurring $1.8 million in
salaries, commissions and other operating expenses less increases in deferred
acquisition costs. In the prior year, the Company realized approximately $1.1
million of fee revenues offset by $1.5 million of other costs. This increase
in costs of $300,000 is primarily the result of costs associated with its
insurance operations, which were offset by a $300,000 increase in fees
generated by its subsidiaries, MIS and Summit Property Development, Inc.
In conjunction with increased investments in its receivable portfolio,
along with the valuation of foreclosed real estate, the Company provided for
loss on receivables and real estate assets of $548,000 in the current year's
period as compared to $242,000 in the prior year's period.
New Accounting Rules:
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Comprehensive Income" (SFAS No. 130). SFAS No. 130 becomes
effective for fiscal years beginning after December 15, 1997 and requires
reclassification of earlier financial statements for comparative purposes.
SFAS No. 130 requires that amounts of certain items, including foreign
currency translation adjustments and gains and losses on certain securities,
be included in comprehensive income in the financial statements. SFAS No. 130
does not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. Management has not
yet determined the effects, if any, of SFAS No. 130 on the consolidated
financial statements.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments for an Enterprise and Related Information" (SFAS No. 131). This
Statement will change the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued
to shareholders. It also requires entity-wide disclosures about the products
and services an entity provides, the material countries in which it holds
assets and reports revenues, and its major customers. The Statement is
effective for fiscal years beginning after December 15, 1997. Management has
not yet determined the effect, if any, of SFAS No. 131 on the consolidated
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not currently applicable. Pursuant to General Instructions to Item 305,
disclosures are applicable to the registrant in filings with the commission
that include financial statements for fiscal years ended after June 15, 1998.
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 & USE OF PROCEEDS
Recent Sales of Unregistered Securities: On October 15, 1996, Summit
issued to one accredited investor who is also an MIS Registered
Representative, in a private offering exempt from registration pursuant to the
Securities Act of 1933, as amended, $256,000 of Variable Rate Cumulative
Preferred Stock, Series S-RP. The underwriter was MIS. The consideration for
the transaction was residential real estate valued at $256,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 4, 1998, the Annual Meeting of Shareholders was held wherein
the stockholder unanimously elected the following Directors to serve until the
next annual meeting:
Greg Gordon, Robert K. Potter, Philip Sandifur, Tom Turner.
No other matters were submitted to a vote of security holders during the
reporting period.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a). Articles of Incorporation of the Company (Exhibit
3(a) to Registration No. 3-36775).
3(b). Bylaws of the Company (Exhibit 3(b) to Registration
No. 33-36775).
4(a). Indenture dated as of November 15, 1990 between
Summit and West One Bank, Idaho, N.A., Trustee
(Exhibit 4(a) to Registration No. 33-36775).
4(b). Tri-Party Agreement dated as of April 24, 1996
between West One Bank, First Trust and Summit,
appointing First Trust as successor Trustee (Exhibit
4(c) to Registration No. 333-19787).
4(c). First Supplemental Indenture between Summit and
First Trust dated as of December 31, 1997, with
respect to Investment Certificates, Series B.
(Exhibit 4(c) to Form 10-K filed January 7, 1998).
4(d). Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock Series S-1
(Exhibit 4(c) to Registration No. 33-57619).
4(e). Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock Series S-2
(Exhibit 4(c) to Registration No. 333-115).
4(f). Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock Series S-RP
(Exhibit 4(f) to Form 10-K file January 13, 1997).
4(g). Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock, Series S-3
(Exhibit 4(f) to Amendment 3 to Registration No. 333-
19787).
10(a). Receivable Management, Acquisition and Service
Agreement between Summit Securities, Inc. and
Metropolitan Mortgage & Securities Co., Inc. dated
September 9, 1994 (Exhibit 10(a) to Registration No.
33-57619).
10(b). Receivable Management, Acquisition and Service
Agreement between Old Standard Life Insurance
Company and Metropolitan Mortgage & Securities Co.,
Inc. dated December 31, 1994 (Exhibit 10(b) to
Registration No. 33-57619).
10(c). Receivable Management, Acquisition and Service
Agreement between Arizona Life Insurance Company and
Metropolitan Mortgage & Securities Co., Inc. dated
October 10, 1996 (Exhibit 4(c) to Registration No.
333-19787).
10(d). Reinsurance Agreement between Western United Life
Assurance Company and Old Standard Life Insurance
Company (Exhibit 10(d) to Form 10-K filed January 7,
1998.
11. Statement regarding Computation of Earnings Per
Common Share (See Financial Statements).
*27. Financial Data Schedule.
*Filed herewith
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed this 20th day of May, 1998
on its behalf by the undersigned, thereunto duly authorized.
SUMMIT SECURITIES, INC.
/s/ TOM TURNER
______________________________________________
Tom Turner
President/Director
/s/ STEVE CROOKS
______________________________________________
Steve Crooks
Principal Accounting Officer
Principal Financial Officer
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