<PAGE>
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 December 31, 1999
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 0-29075
SUMMIT SECURITIES, INC.
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(Exact name of registrant as specified in its charter)
IDAHO 82-0438135
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 W. 1st AVENUE, SPOKANE, WASHINGTON 99201
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(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.
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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 January 31, 2000.
<PAGE>
SUMMIT SECURITIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Condensed Consolidated Balance Sheets
As of December 31, 1999 and September 30, 1999 (unaudited)
Condensed Consolidated Statements of Income
Three Months Ended December 31, 1999 and 1998 (unaudited)
Consolidated Statements of Comprehensive Income
Three Months Ended December 31, 1999 and 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,380,987 $ 42,242,161
Investments in affiliated companies 4,522,425 4,522,425
Trading securities, at market 25,029,688 11,117,556
Available-for-sale securities, at market 76,012,613 76,474,251
Held-to-maturity securities, at amortized cost (market
value: $1,486,094 and $1,504,766) 1,500,835 1,499,914
Real estate contracts and mortgage notes and other
receivables, net of unrealized discounts and allowances
for losses 159,814,933 140,841,347
Real estate held for sale 1,367,179 2,654,284
Deferred acquisition costs, net 11,351,403 11,553,751
Income taxes 562,115 381,850
Other assets, net 3,418,082 3,109,284
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TOTAL ASSETS $293,960,260 $294,396,823
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Annuity reserves $198,336,194 $201,331,111
Investment certificates and accrued interest 72,004,012 71,806,904
Debt payable 279,329 279,792
Accounts payable and accrued expenses 2,025,424 1,874,061
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TOTAL LIABILITIES 272,644,959 275,291,868
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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, 195,121 and 155,747 shares issued and
outstanding (liquidation preference $19,512,080 and
$15,574,690, respectively) 1,951,208 1,557,469
Additional paid-in capital 15,329,014 11,988,926
Retained earnings 6,411,401 7,397,310
</TABLE>
<PAGE>
Accumulated other comprehensive loss (2,476,322) (1,938,750)
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TOTAL STOCKHOLDERS' EQUITY 21,315,301 19,104,955
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $293,960,260 $294,396,823
============= ==============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
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<S> <C> <C>
REVENUES
Interest and earned discounts $ 6,914,874 $ 5,194,109
Annuity fees and charges 66,440 21,752
Realized investment gains (losses) 286,588 (53,222)
Realized net gains on sales of receivables 300,523 1,491,686
Real estate sales 1,422,933 849,066
Dividend income 58,066 47,359
Fees, commissions, service and other income 1,263,544 887,307
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TOTAL REVENUES 10,312,968 8,438,057
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EXPENSES
Annuity benefits 2,953,233 2,527,670
Interest 1,645,221 1,317,861
Cost of real estate sold 1,406,122 832,356
Provision for losses on real estate contracts and real estate 592,891 517,789
held
Salaries and employee benefits 631,097 602,859
Commissions to agents 1,280,344 2,059,323
Other operating and underwriting expenses 920,047 796,541
Decrease (increase) in deferred acquisition costs, net of 142,204 (1,307,736)
amortization
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TOTAL EXPENSES 9,571,159 7,346,663
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Income before income taxes 741,809 1,091,394
Provision for income taxes (310,056) (226,953)
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NET INCOME 431,753 864,441
Preferred stock dividends (417,662) (138,051)
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Income applicable to common stockholder $ 14,091 $ 726,390
============ ============
Basic and diluted income per share $1.41 $72.64
applicable to common stockholder
Weighted average number of shares of common 10,000 10,000
stock outstanding
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
December 31,
1999 1998
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NET INCOME $ 431,753 $864,441
OTHER COMPREHENSIVE INCOME (LOSS):
Change in unrealized gains (losses) on
investments (814,503) 33,582
Deferred income tax (provision) benefit 276,931 (4,669)
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Net other comprehensive income (loss) (537,572) 28,913
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Comprehensive income (loss) $(105,819) $893,354
========== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1999 1998
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<S> <C> <C>
CASH USED IN OPERATING ACTIVITIES $ (9,763,579) $ (1,122,833)
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Cash flows from investing activities:
Proceeds from sales of available-for-sale investments 7,494,375 2,991,773
Purchase of available-for-sale investments (9,228,870) (8,673,819)
Proceeds from investment maturities 885,739 152,558
Principal payments on real estate contracts and mortgage 16,724,688 5,084,293
notes and other receivables
Purchase of real estate contracts and mortgage notes and (40,236,134) (42,556,419)
other receivables
Proceeds from real estate sales 1,397,801 412,057
Additions to real estate held for sale (164,348) (479,371)
Proceeds from sale of receivables 4,942,630 52,291,885
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NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (18,184,119) 9,222,957
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CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from annuity products 8,384,990 6,327,029
Withdrawals of annuity products (7,397,322) (3,390,210)
Redemption and retirement of preferred stock (2,044) (332)
Proceeds from issuance of investment certificates 2,288,730 6,011,303
Repayment of investment certificates (2,484,281) (1,985,937)
Repayment to banks and others (368) (259)
Debt issuance costs (154,926) (248,141)
Issuance of preferred stock 3,735,871 839,905
Reinsurance of annuity products to/from reinsurers, net (6,866,464) 30,044,835
Cash dividends on preferred and common stock (1,417,662) (138,051)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,913,476) 37,460,142
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Net change in cash and cash equivalents (31,861,174) 45,560,266
Cash and cash equivalents, beginning of period 42,242,161 14,168,191
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,380,987 $ 59,728,457
============== ==============
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
NON CASH INVESTING AND FINANCING
ACTIVITIES OF COMPANY:
Real estate acquired through foreclosure $ 312,283 $ 790,327
Receivables originated to facilitate the sale of real 25,132 437,009
estate
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
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 December 31, 1999, the results
of operations for the three months ended December 31, 1999 and 1998 and
changes in cash flows for the three months ended December 31, 1999 and
1998. The results of operations for the three month periods ended December
31, 1999 and 1998 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, 1999 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 1999 Form 10-K.
2. The principal amount of receivables as to which payments were in arrears
more than three months was $9,001,000 at December 31, 1999 and $7,747,000
at September 30, 1999.
3. Summit Securities, Inc. had no outstanding material legal proceedings other
than normal proceedings associated with receivable foreclosures.
4. In November, 1998, the Company and its subsidiaries, and with Metropolitan
Mortgage & Securities Co., Inc (Metropolitan), its former parent company,
and Metropolitan subsidiaries participated in a receivable securitization
sponsored by Metropolitan Asset Funding Inc., II, an affiliated company.
Approximately $194.4 million of receivables, with $12.0 million provided by
the Company and its subsidiaries, were sold in the securitization. The
Company and its subsidiaries recorded approximately $934,000 in pre-tax
gains from their portion of the sale. In December, 1998, the Company
participated as one of the two co-sellers in a structured settlement
securitization sponsored by Select Asset Funding Corporation, an affiliated
company. Approximately $37.7 million in structured settlements at amortized
costs, with $16.0 million provided by the Company, were sold in the
securitization. The Company recorded approximately $546,000 in pre-tax
gains from their portion of the sale.
5. The preparation of financial statements in conformity with generally
accepted accounting principles requires management
<PAGE>
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.
6. The Company principally operates in three industry segments which
encompasses: (1) the investing in real estate contracts and mortgage notes
receivable, other receivables and investment securities with funds
generated from issuance of investment certificates and preferred stock; (2)
annuity operations; and (3) a property development division, which provides
services related to the selling, marketing, designing, subdividing and
coordinating activities of real estate development properties.
Information about the Company's separate business segments and in total as
of and for the quarters ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
As of and for the quarter ended December 31, 1999
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Property
Development
Investing Operations Operations Total
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<S> <S> <C> <C> <C>
Revenues $ 4,394,293 $ 5,393,859 $524,816 $ 10,312,968
Income (loss) from operations 1,286,047 (509,126) (35,112) 741,809
Identifiable assets, net 55,672,328 238,111,547 176,385 293,960,260
Depreciation and amortization 220,816 692,259 4,198 917,273
Capital expenditures - 13,902 698 14,600
</TABLE>
<TABLE>
<CAPTION>
As of and for the quarter ended December 31, 1998
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Property
Development
Investing Operations Operations Total
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<S> <C> <C> <C> <C>
Revenues $ 3,772,294 $ 4,180,130 $485,633 $ 8,438,057
Income (loss) from operations (150,719) 1,287,274 (45,161) 1,091,394
Identifiable assets, net 41,857,783 205,829,546 350,908 248,038,237
Depreciation and amortization 153,812 107,047 3,742 264,601
Capital expenditures - 2,732 36,007 38,740
</TABLE>
<PAGE>
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 First Quarter Transactions:
The Company had no significant or unusual transactions during the
quarter ended December 31, 1999.
Financial Condition and Liquidity:
As of December 31, 1999, the Company had cash or cash equivalents of
approximately $10.4 million and liquid investments (trading or available-for-
sale securities) of $101.0 million compared to $42.2 million and $87.6 million
at September 30, 1999. Management anticipates that cash generated from
operations, current cash 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. Total
cash and investments at December 31, 1999, including held-to-maturity securities
and investments in affiliates, were $117.4 million as compared to $135.9 million
at September 30, 1999. During the three months ended December 31, 1999,
approximately $9.8 million were used in operating activities. Funds used in
investing activities of $18.2 million were primarily the result of sale proceeds
and collections of receivables of $21.7 million, proceeds from the sale of real
estate of $1.4 million and sales and maturities of investments of $8.4 million,
being exceeded by the $40.2 million of new receivable acquisitions, additions to
real estate held of $0.2 million and purchase of available-for-sale securities
of $9.2 million. Funds used in financing activities of $3.9 million were
primarily the result of the net outflow of ceded annuity products with
reinsurers of $6.9 million, a net outflow from investment certificate maturities
less sales of $0.2 million, cash dividends of $1.4 million and other debt issue
costs of $0.2 million which exceeded the cash inflow, net of redemptions, of
$3.7 million from the sale of preferred stock and reinvested dividends and $1.0
million net cash inflow from annuity products.
The receivable portfolio increased $19.0 million to $159.8 million at
December 31, 1999 from $140.8 million at September 30,
<PAGE>
1999. For the three months ended December 31, 1999, the increase was primarily
the result of the acquisition of receivables of $40.2 million which exceeded the
principal collections on receivables of $16.7 million, a reduction for the cost
basis of receivables sold of $4.6 million and an increase in allowance for
losses of $0.6 million.
Real estate held for sale decreased $1.3 million to $1.4 million at
December 31, 1999 from $2.7 million at September 30, 1999. For the three months
ended December 31, 1999, the cost of real estate sold of $1.4 million exceeded
the real estate additions of $0.2 million.
Annuity policy reserves decreased $3.0 million to $198.3 million at
December 31, 1999 from $201.3 million at September 30, 1999. For the three
months ended December 31, 1999, the decrease resulted primarily from $5.9
million net cash outflows from annuity products, including reinsurance
transactions which exceeded credited earnings of $3.0 million.
Investment certificates outstanding increased slightly to $72.0 million at
December 31, 1999 from $71.8 million at September 30, 1999. For the three
months ended December 31, 1999, credited interest of $0.4 million exceeded the
net cash outflow from maturities of investment certificates less issuances of
$0.2 million. Additionally, the Company had cash inflow, net of redemptions, of
approximately $3.7 million from the sale of preferred stock and reinvestment of
preferred stock dividends during the three months ended December 31, 1999.
Total assets were $294.0 million at December 31, 1999 compared to $294.4
million at September 30, 1999. Total stockholders' equity was $21.3 million or
7.2% of total assets at December 31, 1999 compared to $19.1 million or 6.5% of
total assets at September 30, 1999. At December 31, 1999, the Company had net
unrealized losses on available-for-sale securities in the amount of $2.5 million
as compared to net unrealized losses of $1.9 million at September 30, 1999. Net
unrealized losses on available-for-sale securities are presented as a component
of accumulated other comprehensive loss in stockholders' equity.
Results of Operations:
The Company recorded net income before preferred stock dividends for the
three months ended December 31, 1999 of approximately $432,000 compared to
$864,000 in the prior year's similar period. Comparing the current year's three
month period with the prior year's similar period, the decrease in net income is
primarily due to a decrease of $1.2 million in net gains on sales of receivables
and a net increase of $0.8 million in other
<PAGE>
operating expenses, salaries, commissions and benefits after related adjustments
for deferred acquisition costs. These increases were partially offset by an
increase of $1.0 million in net interest spread, an increase of $0.3 million in
realized gains on sale of investments and an increase of $0.4 million in fees
commissions and service income.
For the three month period ended December 31, 1999, the Company reported a
positive spread on its interest sensitive assets and liabilities of $2.4 million
as compared to $1.4 million in the prior year's similar period. The increase
was primarily the result of additional earning assets funded, at a positive
spread, by increased sales of annuity products and sales of investment
certificates.
During the three months ended December 31, 1999, the Company realized net
gains on sales of receivables of $0.3 million as compared to $1.5 million in the
prior year's similar period. The current year gains resulted primarily from
sales of real estate receivables to affiliates, while in the prior period, the
Company participated in a real estate receivable securitization in November 1998
and the securitization of structured settlements in December 1998.
During the three months ended December 31, 1999, the Company realized net
gains on investments of approximately $0.3 million, including mark-to-market
adjustments on trading securities, compared to net losses of approximately $0.1
million in the prior year's similar period. The gains in the current period
were primarily the result of $1.5 million in mark-to-market gains which exceeded
$1.2 million of realized losses on the sale of investments. The mark-to-market
gains in the current period resulted from investments that the Company has made
in certain limited partnership interests. The limited partnerships generally
invest funds in both publicly and privately traded small and microcapitalization
equity securities. During the current period, the value of the equity
securities increased, thereby increasing the value of the Company's investment.
The prior year's loss was the result of higher interest rates and increased
spreads to treasuries, thus decreasing the value of certain trading securities.
During the three months ended December 31, 1999, the Company realized gains
of $17,000 on sales of $1.4 million of real estate as compared to gains of
$17,000 on sales of $0.8 million in the prior year's similar period. It is the
policy of management to actively market real estate in order to return the
investment to an earning asset.
<PAGE>
In the three months ended December 31, 1999, the Company made provisions
for losses on receivables and real estate assets of approximately $0.6 million
as compared to $0.5 million in the prior year's similar period. The changes in
reserves and valuation accounts were based upon updated appraisals on delinquent
receivables and appraisals or fair market valuations of newly acquired
repossessed properties.
In the three months ended December 31, 1999, the Company has incurred
increases of approximately $0.8 million in other operating expenses, salaries,
commissions and benefits after related adjustments for deferred acquisition
costs. In addition to the expense increase, the Company has recorded an
increase in fee, service and commission income of approximately $0.4 million
with the current year revenues at $1.3 million compared to $0.9 million in the
prior year primarily due to an increase in the average receivables balances.
New Accounting Rules:
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SOP 97-3"). SOP 97-3 applies
to all entities that are subject to guaranty-fund and other insurance-related
assessments. Assessments covered by this SOP include any charge mandated by
statute or regulatory authority that is related directly or indirectly to
underwriting activities (including self-insurance), except for income taxes and
premium taxes. SOP 97-3 is effective for financial statements for fiscal years
after December 15, 1998. The Company adopted this standard effective October 1,
1999 with no material effect on its consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance
on accounting for the costs of computer software by identifying the
characteristics of internal-use software. The Company adopted this standard
effective October 1, 1999 with no material effect on its consolidated financial
statements
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), was
issued. SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as "Derivatives") and for
<PAGE>
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. In June 1999, Statement of Financial Accounting
Standards No. 137,"Accounting for Derivative Instruments and Hedging Activities-
Deferral of Effective Date of SFAS 133" ("SFAS No. 137") was issued. SFAS No.
137 amends SFAS No. 133 to become effective for all quarters of fiscal years
beginning after June 15,2000. however, earlier application is encouraged as of
the beginning of any fiscal quarter. The Company has not yet determined the
effect of the application of this statement on its consolidated financial
statements.
In October 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" which requires that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking activities
classify the resulting mortgage-backed securities or other retained interests
based on its ability and intent to sell or hold those investments. This
statement conforms the subsequent accounting for securities retained after the
securitization of mortgage loans by a mortgage banking enterprise with the
subsequent accounting for securities retained after the securitization of other
types of assets by a non-mortgage banking enterprise. This statement was
effective for the first fiscal quarter beginning after December 15, 1998. On
January 1, 1999, the Company adopted this new standard and reclassified
approximately $16.7 million of securities that were retained after
securitizations from trading securities to available-for-sale securities.
Year 2000 Disclosure
The Consolidated Group is aware of the potential effect that the year 2000
and the new century may have on computer hardware, computer software and
applications and embedded micro-controllers in non-computer equipment
(collectively "Information Technology"). The problem is insuring that the
Consolidated Group is "Year 2000 Compliant" meaning that the Information
Technology is able to (i) process date and time data accurately and (ii)
calculate, compare and sequence from, into and between the twentieth and twenty-
first centuries, the years 1999, 2000 and leap years.
The Consolidated Group and its affiliates share many software, hardware,
facilities and other systems. Therefore, the Consolidated Group's Year 2000
efforts are a combined and coordinated effort among all companies within the
Consolidated
<PAGE>
Group and its affiliates. The following are statements regarding the Year 2000
compliance of the Consolidated Group. The information below has not been
independently verified by the Consolidated Group, other than statements relating
to the Consolidated Group.
State of Readiness
The Consolidated Group has established a Year 2000 task force which has
developed an action plan for addressing issues related to the Year 2000. The
plan, with the exception of the contingency plan, was completed by September 30,
1999. The contingency plan, including rollover planning was completed by
December 1, 1999, but has continued to be revised thereafter as needed in order
to maintain an effective contingency plan. The action plan included the
following phases:
Inventory - Identify all internal and external systems and services that
may utilize date sensitive information.
Assessment - Determine whether each system or service meets the
Consolidated Group's definition of Year 2000 Compliance and assess the
potential business impact of non-compliance.
Renovation - Modify and/or replace any systems or services that do not
satisfy the Consolidated Group's definition of Year 2000 Compliance.
Certification - Obtain certification that each system or service meets the
definition of compliance.
Training - Develop and implement any training and procedural changes to
ensure correct data-entry.
Contingency Planning - Develop and implement contingency plans against
possible failures.
The plan included a timeline for the completion of each of the phases and
components of the work within each phase. Many of the different phases had
overlapping timelines and, therefore, progressed simultaneously. The Year 2000
task force generally met weekly to coordinate its efforts as well as to monitor
progress.
The status of the Consolidated Group's Year 2000 efforts are regularly
monitored by the internal auditor. In addition, during the first quarter of
calendar 1999, the Consolidated Group intends to engage a third party to provide
an external evaluation of its Year 2000 action plan and the status of the
preparations of the Consolidated Group at that time.
<PAGE>
The Consolidated Group has completed the testing of its internally
supported software applications and its hardware. Testing to date did not
produce any results which were not able to be resolved. Newly acquired or
upgraded software, hardware and facilities systems will continue to be tested as
deemed necessary.
The Consolidated Group has requested vendor documentation certifying Year
2000 compliance with respect to third party software applications, third party
services, equipment and facilities related systems. Certain equipment and
facilities systems which were identified as higher priority were tested for
compliance, where testing is possible. The Consolidated Group has not received
any indication from any third party that a mission critical system or service
was not Year 2000 compliant.
Expected Costs of Remediation
Prior to fiscal 1998, the Consolidated Group did not track Year 2000
related costs. The Consolidated Group and its affiliates incurred $1.4 million
in Year 2000 related costs through December 31, 1999. The Consolidated Group
does not believe that remaining remediation costs will be significant. The
Consolidated Group will pay certain of these costs while the remainder of the
costs will be paid by or charged to the affiliated companies. The predominant
components of both past and future costs consist of soft costs related to
employee time and resource allocations rather than direct costs such as the
acquisition of new software.
Risks
The Consolidated Group, as a financial institution, relies heavily upon
computers and information technology systems to acquire, service and sell
Receivables as well as for its securities and insurance sales activities. The
Consolidated Group faces extensive Year 2000 related risks. The order within
which these risks are presented is not intended as a prioritization of the
potential risks nor an exhaustive identification of the risks. These risks
include, but are not limited to the following:
unavailability of electrical power or telecommunication systems supplied by
third parties;
inability of obligors on the Receivables to access their funds to make
required payments;
<PAGE>
inability of the mail systems or wire transfer systems performed by third
parties to deliver such payments;
inability of banks to process those payments;
failure of any of the software/hardware systems which the Consolidated
Group uses to track insurance products, securities products or acquire,
service and sell Receivables;
inability of the Consolidated Group to access its own funds or to make wire
transfers or otherwise make payments on its obligations due to internal or
third party (generally banking) system failures; and
inability of the Consolidated Group to process data accurately or timely
for general business management purposes, regulatory reporting purposes or
other purposes.
Contingency Plans
The Consolidated Group developed a contingency plan which included plans for
mission critical items as the first and top priority. Where appropriate and
feasible, the plan also addressed alternatives for internally developed systems
as well as externally developed ones, and included steps to implement transition
to an alternative system. The plan included trigger dates for implementing
alternative solutions prior to the Year 2000, where system testing or third
party documentation indicates that a system was not and would not be compliant.
There can be no assurance that this contingency plan, or that the Year 2000
action plan will be able to prevent a material disruption of the Consolidated
Group's business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Consolidated Group is in a "liability sensitive" position in that it
interest sensitive liabilities reprice or mature more quickly than do its
interest sensitive assets. Consequently, in a rising interest rate environment,
the net return from interest sensitive assets and liabilities will tend to
decrease, thus rising interest rates will have a negative impact on results of
operations. Conversely, in a falling interest rate environment, the net return
from interest sensitive assets and liabilities will tend to improve, thus
falling interest rates will have a positive impact on results of operations. As
with the impact on operations from changes in interest rates, the Consolidated
Group's Net Present Value
<PAGE>
("NPV") of financial assets and liabilities is subject to fluctuations in
interest rates. The Consolidated Group continually monitors the sensitivity of
net interest income and NPV to changes in interest rates. NPV is calculated
based on the net present value of estimated cash flows utilizing market
prepayment assumptions and market rates of interest provided by independent
broker quotations and other public sources. Any computation of forecasted
effects of hypothetical interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, loan prepayments and
redemptions of certificates, and should not be relied upon as indicative of
actual future results.
The Consolidated Group believes that there has not been a material change
in its market risk since the end of its last fiscal year.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings or actions pending or threatened
against Summit Securities, Inc. and its subsidiaries or to which its property is
subject.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters 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
3.01. Articles of Incorporation of the Company (Exhibit 3(a) to
Registration No. 3-36775).
3.02. Bylaws of the Company (Exhibit 3(b) to Registration No. 33-
36775).
4.01. 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).
4.02. 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).
4.03. 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).
<PAGE>
4.04. Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock Series S-1
(Exhibit 4(c) to Registration No. 33-57619).
4.05. Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock Series S-2
(Exhibit 4(c) to Registration No. 333-115).
4.06. 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).
4.07. 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).
10.01. 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).
10.02. 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).
10.03. 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).
10.04. 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.
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed this 14th day of February
2000 on its behalf by the undersigned, thereunto duly authorized.
SUMMIT SECURITIES, INC.
/s/ TOM TURNER
----------------------------------------------
Tom Turner
President/Director
/s/ JULIE HANLEY
----------------------------------------------
Julie Hanley
Principal Accounting Officer
Principal Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 10,381
<SECURITIES> 107,066
<RECEIVABLES> 163,111
<ALLOWANCES> 3,296
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 293,960
<CURRENT-LIABILITIES> 0
<BONDS> 72,004
0
1,951
<COMMON> 100
<OTHER-SE> 19,264
<TOTAL-LIABILITY-AND-EQUITY> 293,960
<SALES> 0
<TOTAL-REVENUES> 10,313
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,333
<LOSS-PROVISION> 593
<INTEREST-EXPENSE> 1,645
<INCOME-PRETAX> 742
<INCOME-TAX> 310
<INCOME-CONTINUING> 432
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<EXTRAORDINARY> 0
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