SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1997, 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 0-4366
Regan Holding Corp.
(Exact Name of Registrant as Specified in Its Charter)
California 68-0211359
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1179 N. McDowell Blvd., Petaluma, California 94954
(Address of Principal Executive Offices) (Zip Code)
(707) 778-8638
(Registrant's Telephone Number, Including Area Code)
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
.......... ..........
The number of shares outstanding of the registrant's common stock, as of
April 30, 1997 was:
Common Stock-Series A 26,351,194
Common Stock-Series B 609,574
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1997 1996
(Unaudited) (Audited)
ASSETS:
Cash and cash equivalents $ 1,472,610 $ 2,202,596
Investments 7,501,257 7,947,207
Accounts receivable 615,343 511,710
Prepaid expenses 536,070 361,950
Marketing supplies inventory 213,169 251,979
Income taxes receivable 103,315 179,746
------------ ------------
Total Current Assets 10,441,764 11,455,188
Net fixed assets 1,914,831 1,741,388
Organization costs-net 25,318 23,820
Deferred tax assets 1,579,476 1,600,150
Other assets 484,378 604,356
------------ ------------
TOTAL ASSETS $ 14,445,767 $ 15,424,902
============ ============
LIABILITIES, REDEEMABLE COMMON STOCK,
AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable $ 215,967 $ 170,738
Accrued liabilities 1,151,333 2,032,387
------------ ------------
Total Current Liabilities 1,367,300 2,203,125
------------ ------------
Loan payable 132,285 132,285
Deferred incentive compensation 73,612 184,456
------------ ------------
Total Non Current Liabilities 205,897 316,741
------------ ------------
TOTAL LIABILITIES 1,573,197 2,519,866
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 2) -- --
REDEEMABLE COMMON STOCK (Note 3) 12,268,860 12,343,001
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 100,000,000
shares authorized, no shares issued or
outstanding -- --
Series A common stock, no par value,
45,000,000 shares authorized, 20,628,014
and 20,800,791 shares issued and
outstanding at March 31, 1997 and
December 31, 1996, respectively 3,396,693 3,532,071
Paid-in capital from acquisition and
retirement of common stock 370,374 310,110
Accumulated deficit (3,130,214) (3,332,887)
Net unrealized gains (losses) on investments (33,143) 52,741
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 603,710 562,035
------------ ------------
TOTAL LIABILITIES, REDEEMABLE COMMON
STOCK & SHAREHOLDERS' EQUITY $ 14,445,767 $ 15,424,902
============ ============
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Income Statements
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------
1997 1996
---- ----
INCOME:
Marketing allowances $ 2,242,679 $ 2,511,343
Commission income 1,046,343 1,101,727
Administrative fees 685,390 857,785
Investment income 192,621 134,426
Other income 67,655 22,103
----------- -----------
TOTAL INCOME 4,234,688 4,627,384
----------- -----------
EXPENSES:
Salaries and related benefits 2,541,374 1,947,520
Sales promotion and support 423,682 449,460
Professional fees 208,817 226,818
Occupancy 167,729 148,152
Depreciation and amortization 142,727 108,619
Courier and postage 116,524 81,929
Equipment 86,671 68,545
Stationery and supplies 80,767 85,903
Travel and entertainment 37,152 17,317
Insurance 34,366 41,032
Other miscellaneous expenses 37,517 22,760
----------- -----------
TOTAL EXPENSES 3,877,326 3,198,055
----------- -----------
INCOME FROM OPERATIONS 357,362 1,429,329
PROVISION FOR INCOME TAXES 154,689 579,653
----------- -----------
NET INCOME $ 202,673 $ 849,676
=========== ===========
EARNINGS PER SHARE:
Weighted average shares outstanding 27,012,519 27,616,573
Earnings per share from operations $ .01 $ .05
Provision for income taxes -- .02
----------- -----------
Earnings per share $ .01 $ .03
----------- -----------
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Paid-in Capital
from Retirement
Series A Common Stock of Accumulated Unrealized
Shares Amount Common Stock Deficit Gains/(Losses) Total
------ ------ ------------ ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance
January 1, 1997 20,800,791 $3,532,071 $310,110 $(3,332,887) $ 52,741 $562,035
Net income for the
three months ended
March 31, 1997 202,673 202,673
Redemption and
retirement of common
stock (172,777) (135,378) 60,264 (75,114)
Unrealized losses on
investments (143,467) (143,467)
Deferred taxes on
unrealized losses 57,583 57,583
---------- ---------- -------- ----------- -------- --------
Balance
March 31, 1997 20,628,014 $3,396,693 $370,374 $(3,130,214) $(33,143) $603,710
========== ========== ======== =========== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 202,673 $ 849,676
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation and amortization of fixed assets 141,191 107,655
Amortization of organization costs 1,536 964
Amortization/accretion of investments (4,274) (6,192)
Realized gain on sale of investment (12,726) --
Net change in accounts receivable (103,633) 927,544
Net change in prepaid expenses (174,120) (199,471)
Net change in marketing supplies inventory 38,810 42,385
Net change in income taxes receivable and payable 76,431 356,923
Net change in deferred tax assets 78,257 192,732
Net change in accounts payable 45,229 (17,008)
Net change in accrued liabilities (881,054) (548,170)
Net change in other assets and liabilities 9,134 (205,095)
__________ _________
Net cash (used in) provided by
operating activities (582,546) 1,501,943
__________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (528,811) (4,972,364)
Proceeds from sale and maturities of investments 848,295 2,993,395
Purchases of fixed assets (314,635) (65,435)
Payments for organization costs (3,034) --
__________ _________
Net cash provided by (used in)
investing activities 1,815 (2,044,404)
__________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable -- (75,385)
Redemption and retirement of common stock (149,255) --
__________ _________
Net cash used in financing activities (149,255) (75,385)
__________ _________
DECREASE IN CASH AND CASH EQUIVALENTS (729,986) (617,846)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,202,596 1,496,631
__________ _________
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,472,610 $ 878,785
__________ _________
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Financial Information
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles and include the
accounts of Regan Holding Corp. and its wholly-owned subsidiaries, Legacy
Marketing Group, Legacy Financial Services, Inc., and LifeSurance
Corporation. All intercompany transactions have been eliminated.
The statements are unaudited but reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the Company's financial position and
results of operations. The results for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for the
entire year. Users of these financial statements are encouraged to refer to
the Annual Report on Form 10-K for the year ended December 31, 1996 for
additional disclosure.
2. Contingencies
A report on Form 8-K was filed on January 21, 1997 to inform security
holders that in December, 1996, LMG and American National (collectively,
the "Co-defendants") were named in a lawsuit filed in the Circuit Court of
Jefferson County, Alabama, alleging misrepresentation and price
discrimination in connection with the sale of certain annuity products
issued by American National and marketed by LMG. The outcome of the lawsuit
cannot be determined. However, the Company's management believes that the
suit is without merit and intends to defend vigorously.
3. Redeemable Common Stock
The Company is obligated to repurchase certain of its shares of common
stock, pursuant to various agreements under which the stock was issued.
During the first quarter of 1997, 39,698 shares of redeemable Series A
common stock were redeemed for $27,789 and 752 shares of redeemable Series
B common stock were redeemed for $526. The redeemed shares were effectively
retired. The excess of original proceeds over the redemption value has been
reflected as additional paid-in capital in the accompanying financial
statements. At March 31, 1997, the number of remaining shares of redeemable
Series A and Series B common stock totaled 5,729,388 and 609,574,
respectively.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Except for historical information contained herein, the matters discussed in
this report contain forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially.
Results of Operations
Summary--During the quarter ended March 31, 1997, the Company recorded net
income of $203,000, or $.01 per share, compared with $850,000, or $.03 per
share, during the quarter ended March 31, 1996. The decrease between periods is
attributable to the combined effect of decreases in revenue and increases in
expenses, as discussed below.
Income--Total income decreased to $4,235,000 during the quarter ended March 31,
1997, from $4,627,000 during the corresponding quarter in 1996. This decrease is
due primarily to decreases in sales volume.
Sales by the Company's distribution network, for the two insurance companies for
which the Company markets and administers insurance policies (the "Carriers"),
resulted in premium placed inforce of approximately $146,600,000 during the
quarter ended March 31, 1997, compared with $158,000,000 during the quarter
ended March 31, 1996, representing a 7% decrease. This decrease is attributable
largely to changes in product strategies and lower than anticipated renewal
rates on products of one of the Carriers. As a result, marketing allowances and
commission income, combined, decreased to $3,289,000 during the first quarter of
1997, compared with $3,613,000 during the comparable period in 1996.
Administrative fees decreased 20% to $685,000 during the three months ended
March 31, 1997, from $858,000 during the three months ended March 31, 1996. This
decrease is due to a decrease in the number of policies issued and to a
reduction in certain administrative fees per policy under the Company's
processing agreement with one of the Carriers.
Investment income represents earnings from investments in marketable securities.
Such earnings increased 43% to $193,000 during the quarter ended March 31, 1997,
from $134,000 during the quarter ended March 31, 1996. This increase resulted
primarily from increases in the amount of assets invested and from changes in
the mix of investments to those which yielded a higher return.
Expenses--Expenses totaled $3,877,000 during the quarter ended March 31, 1997,
compared with $3,198,000 during the quarter ended March 31, 1996. This increase
is largely attributable to increases in salaries and related expenses, which
constitute the Company's predominant expense. Salaries and related benefits
increased 31% to $2,541,000 during the quarter ended March 31, 1997, from
$1,948,000 during the comparable period in 1996. This increase was due primarily
to an increase in the average number of full-time equivalent employees to 173
during the quarter ended March 31, 1997, from 136 during the comparable period
in 1996. Such expenses also increased due to the addition of key personnel at
higher pay levels. This increase in employment is largely attributable to
preparation for projected increases in sales of annuity, life, and variable
products. However, such projected increases in sales may not be realized if new
products are not introduced as planned or if market acceptance of such products
is not as favorable as anticipated.
Provision for Income Taxes--The Company files consolidated returns for federal
income tax purposes. In prior years, the Company experienced both federal and
state net operating losses ("NOLS") that can be used to offset taxes payable in
current and future profitable years. The federal NOL carryforwards were fully
utilized as of December 31, 1996. In addition, the Company has recorded federal
and state alternative minimum tax ("AMT") credit carryforward benefits. Included
in deferred tax assets at March 31, 1997 are state NOL carryforwards of
$2,137,502 and federal and state AMT credit carryforwards of $1,035,105 and
$323,109, respectively. The state NOL carryforwards expire December 31, 1997.
The AMT credit carryforwards have no expiration date. Realization of the state
NOL carryforwards is dependent on generating sufficient taxable income prior to
the expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered realized
could, however, be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
The provision for income taxes was $155,000 and $580,000 for the three months
ended March 31, 1997 and 1996, respectively. The Company's effective tax rate
was 43% and 41% for the three months ended March 31, 1997 and 1996,
respectively. The increase in the Company's effective tax rate was due to a
decrease in the future tax benefit of state NOLs as a result of a statutory
decrease in the applicable state tax rates.
Financial Condition
During the quarter under review, the Company's total assets decreased 6%
to $14,446,000 at March 31, 1997 from $15,425,000 at December 31, 1996. This
was primarily attributable to a 33% reduction in cash and cash equivalents to
$1,473,000 at March 31, 1997 from $2,203,000 at December 31, 1996, and a 6%
reduction in investments to $7,501,000 from $7,947,000 during the same period.
The decrease in cash and cash equivalents and investments were primarily
attributable to the payment of liabilities accrued during prior periods with
respect to the Company's annual sales convention held in May of 1997. As a
result of these payments, the Company's accrued liabilities decreased 43% to
$1,151,000 at March 31, 1997 from $2,032,000 at December 31, 1996 and the
Company's total liabilities decreased approximately 38% to $1,573,000 from
$2,520,000 during this period.
Liquidity and Capital Resources
The Company's business is not capital intensive. Cash flows used for operations
were provided by operating activities and through cash and investments on hand.
As a result, cash and investments decreased $1,176,000, or 12%, during the three
month period ended March 31, 1997. Cash and investments represented 62% of the
Company's total assets at March 31, 1997.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 3 of Part I of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 is incorporated herein by this reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1997.
A report on Form 8-K was filed on January 21, 1997 to disclose the
initiation of a legal proceeding in which the Company was named as a
codefendant. See Item 1 of this Part II - Legal Proceedings.
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.
REGAN HOLDING CORP.
Date: May 12, 1997 Signature: /s/ Lynda Regan
-------------------------- -------------------------------
Lynda Regan
Chief Executive Officer
Date: May 12, 1997 Signature: /s/ R. Preston Pitts
-------------------------- -------------------------------
R. Preston Pitts
President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements contained in the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,472,610
<SECURITIES> 7,501,257
<RECEIVABLES> 615,343
<ALLOWANCES> 0
<INVENTORY> 213,169
<CURRENT-ASSETS> 10,441,764
<PP&E> 3,290,653
<DEPRECIATION> (1,375,822)
<TOTAL-ASSETS> 14,445,767
<CURRENT-LIABILITIES> 1,367,300
<BONDS> 132,285
12,268,689
0
<COMMON> 3,396,693
<OTHER-SE> (2,792,983)
<TOTAL-LIABILITY-AND-EQUITY> 603,710
<SALES> 0
<TOTAL-REVENUES> 4,234,688
<CGS> 0
<TOTAL-COSTS> 3,877,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 357,362
<INCOME-TAX> 154,689
<INCOME-CONTINUING> 202,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,673
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
