-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OZhtYUkb2fG2j/q2wZtL+/5SXfqealLdr74/+2V+2uevo9CSW3Wz255Kni+v+bGb FXgbeXY/rbD6aw2VJJAucQ== 0000898080-98-000094.txt : 19980518 0000898080-98-000094.hdr.sgml : 19980518 ACCESSION NUMBER: 0000898080-98-000094 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAN HOLDING CORP CENTRAL INDEX KEY: 0000870069 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 680211359 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19704 FILM NUMBER: 98625648 BUSINESS ADDRESS: STREET 1: 1179 N MCDOWELL BLVD CITY: PETALUMA STATE: CA ZIP: 94954 BUSINESS PHONE: 7077788638 MAIL ADDRESS: STREET 1: 1179 N MCDOWELL BLVD CITY: PETALUMA STATE: CA ZIP: 94954 10-Q 1 FORM 10-Q 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, 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 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 May 13, 1998, was: Common Stock-Series A 26,015,841 Common Stock-Series B 600,398 Page 1 of 12 PART I FINANCIAL INFORMATION Item 1. Financial Statements REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Balance Sheets
March 31, December 31, 1998 1997 (unaudited) ASSETS: Cash and cash equivalents $ 2,787,275 $ 5,194,332 Investments 11,857,124 7,692,279 Accounts receivable 1,411,089 1,239,306 Prepaid expenses 520,770 572,932 Marketing supplies inventory 196,910 228,853 Deferred income taxes-current 624,512 488,437 ------- ------- Total Current Assets 17,397,680 15,416,139 ---------- ---------- Net fixed assets 2,644,586 2,610,324 Deferred income taxes-non current 546,431 783,477 Other assets 513,650 471,001 ------- ------- Total Non Current Assets 3,704,667 3,864,802 --------- --------- TOTAL ASSETS $21,102,347 $19,280,941 =========== =========== LIABILITIES, REDEEMABLE COMMON STOCK, AND SHAREHOLDERS' EQUITY: LIABILITIES: Accounts payable $ 293,206 $ 344,071 Accrued liabilities 2,914,903 2,605,854 Income taxes payable 589,064 389,561 ------- ------- Total Current Liabilities 3,797,173 3,339,486 --------- --------- Loan payable 132,285 132,285 Deferred incentive compensation 118,141 149,609 ------- ------- Total Non Current Liabilities 250,426 281,894 ------- ------- TOTAL LIABILITIES 4,047,599 3,621,380 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 2) -- -- REDEEMABLE COMMON STOCK (Note 3) 11,784,431 11,842,651 ---------- ---------- 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, 20,605,974 and 20,614,014 shares issued and outstanding at March 31, 1998, and December 31, 1997, respectively 3,374,874 3,382,914 Paid-in capital from redemption and retirement of common stock 641,181 611,559 Paid-in capital from non-employee stock options 6,300 -- Retained earnings (accumulated deficit) 1,223,483 (182,433) Net unrealized gains on investments 24,479 4,870 --------- --------- TOTAL SHAREHOLDERS' EQUITY 5,270,317 3,816,910 --------- --------- TOTAL LIABILITIES, REDEEMABLE COMMON STOCK & SHAREHOLDERS' EQUITY $21,102,347 $19,280,941 =========== ===========
See accompanying notes to consolidated financial statements. Page 2 of 12 REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Income Statements (Unaudited) For the Three Months Ended March 31, 1998 1997 INCOME: Marketing allowances $ 4,380,278 $ 2,242,679 Commission income 2,140,484 1,046,343 Administrative fees 1,349,216 685,390 Investment income 215,043 192,621 Seminar income 40,883 58,113 Other income 18,355 9,542 ------ ----- TOTAL INCOME 8,144,259 4,234,688 --------- EXPENSES: Salaries and related benefits 3,486,726 2,541,374 Sales promotion and support 1,021,107 423,682 Professional fees 280,909 208,817 Occupancy 238,620 167,729 Depreciation and amortization 204,867 157,212 Courier and postage 162,756 116,524 Equipment 108,673 86,671 Stationery and supplies 124,790 80,767 Travel and entertainment 84,802 37,152 Insurance 39,557 34,366 Other miscellaneous expenses 37,707 23,032 ------ ------ TOTAL EXPENSES 5,790,514 3,877,326 --------- INCOME FROM OPERATIONS 2,353,745 357,362 PROVISION FOR INCOME TAXES 947,829 154,689 ------- ------- NET INCOME $1,405,916 $202,673 ========== ======== EARNINGS PER SHARE: Weighted average shares outstanding--basic and diluted 26,694,872 27,012,519 Basic earnings per share $.05 $.01 Diluted earnings per share $.05 $.01 See accompanying notes to consolidated financial statements. Page 3 of 12 REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Statement of Shareholders' Equity (Unaudited)
Paid-in Capital Paid-in from Retained Capital from Non-Employee Earnings/ Series A Common Stock Retirement of Stock (Accumulated Unrealized Shares Amount Common Stock Options Deficit) Gains Total ------ ------------ ------------ ------------ ---------- ----- Balance January 1, 1998 20,614,014 $3,382,914 $611,559 $ -- $(182,433) $4,870 $3,816,910 Net income for the three months ended March 31, 1998 1,405,916 1,405,916 Redemption and retirement of common stock (8,040) (8,040) 29,622 21,582 Non-employee stock options granted 6,300 6,300 Net unrealized gains on investments 32,594 32,594 Deferred tax on net unrealized gains (12,985) (12,985) ---------- ---------- -------- ------ ---------- -------- Balance March 31, 1998 20,605,974 $3,374,874 $641,181 $6,300 $1,223,483 $24,479 $5,270,317 ========== ========== ======== ====== ========== ======== ==========
See accompanying notes to consolidated financial statements. Page 4 of 12 REGAN HOLDING CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,405,916 $ 202,673 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation and amortization of fixed assets 187,579 141,191 Non-employee stock option expense 6,300 -- Amortization/accretion of investments (17,217) (4,274) Realized gains on sales of investments -- (12,726) Net change in accounts receivable (171,783) (103,633) Net change in prepaid expenses 52,162 (174,120) Net change in marketing supplies inventory 31,943 38,810 Net change in deferred tax assets 87,986 78,257 Net change in accounts payable (50,865) 45,229 Net change in accrued liabilities 309,049 (881,054) Net change in income taxes receivable and payable 199,503 76,431 Net change in other assets and liabilities (74,117) 7,636 ------- ----- Net cash provided by (used in) operating activities 1,966,456 (585,580) --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (5,687,309) (528,811) Proceeds from sales and maturities of investments 1,572,275 848,295 Purchases of fixed assets (221,841) (314,635) -------- --------- Net cash (used in) provided by investing activities (4,336,875) 4,849 ---------- ----- CASH FLOWS FROM FINANCING ACTIVITIES: Redemption and retirement of common stock (36,638) (149,255) ------- -------- Net cash used in financing activities (36,638) (149,255) ------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (2,407,057) (729,986) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,194,332 2,202,596 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $2,787,275 $1,472,610 ========== ==========
See accompanying notes to consolidated financial statements. Page 5 of 12 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 ("LMG"), 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 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The results for the three months ended March 31, 1998, 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, 1997, for additional disclosure. 2. Contingencies In December, 1996, LMG and American National Insurance Company 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 Insurance Company and marketed by LMG. The outcome of the lawsuit cannot be determined at this time. However, the Company's management believes that the suit is without merit and intends to defend the Company 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 three months ended March 31, 1998, redeemable common stock was redeemed and retired as follows:
Series A Redeemable Series B Redeemable Total Redeemable Common Stock Common Stock Common Stock Carrying Carrying Carrying (Issuance) (Issuance) (Issuance) Shares Amount Shares Amount Shares Amount --------- ----------- -------- ---------- --------- ----------- Balance December 31, 1997 5,507,326 $10,040,068 600,861 $1,802,583 6,108,187 $11,842,651 Redemption and retirement of common stock (35,337) (57,491) (243) (729) (35,580) (58,220) ---------- ----------- -------- ----------- ----------- ----------- Balance March 31, 1998 5,471,989 $9,982,577 600,618 $1,801,854 6,072,607 $11,784,431 ========== =========== ======== =========== ========== ============
4. Reclassification For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on the Company's net income or shareholders' equity. 5. Comprehensive Income In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period resulting from transactions and other events and circumstances from non-owner sources. The Company's comprehensive income for the three month period ended March 31, 1998, and March 31, 1997, includes unrealized gains, net of deferred tax, of $19,609 and unrealized losses, net of deferred tax, of $85,884, respectively. 6. Internal Use Software Cost Page 6 of 12 In April 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 for determining whether computer software is internal-use software and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company has not yet determined the impact, if any, of adopting SOP 98-1, which will be effective for the Company's year ending December 31, 1999. Page 7 of 12 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 -- The Company's net income for the first quarter increased approximately $1.2 million, or 593.7%, from the corresponding quarter in 1997. This increase is attributable primarily to increases in revenue, as discussed below. Income -- The Company's major sources of income are marketing allowances, commission overrides and administrative fees from sales and administration of annuity and life insurance products on behalf of the two insurance companies for which the Company markets and administers policies (the "Carriers"). Levels of marketing allowances and commission overrides are directly related to the volume of sales of such products. Administration fees are a function not only of product sales, but also administration of policies inforce and producer appointments. Total income increased approximately $3.9 million, or 92.3%, during the three months ended March 31, 1998, compared to the three months ended March 31, 1997. This increase resulted primarily from increases in sales volume, as discussed below. Marketing allowances and commission income, combined, increased approximately $3.2 million, or 98.3%, in the first quarter of 1998, compared to the first quarter of 1997. This increase is due primarily to increases in volume of sales by the Company's distribution network on behalf of the Carriers. Premium placed inforce for the Carriers totaled approximately $278.3 million during the three months ended March 31, 1998, compared to $146.6 million during the same period in 1997, representing an 89.8% increase. Also contributing to increases in income during the first quarter were shifts in 1998 to sales of products which yield higher marketing allowances and commission income. Administrative fees increased approximately $644,000, or 96.9%, in the first quarter of 1998, compared to the same period in 1997. These increases are due primarily to increases in the number of policies sold and administered during the respective periods and to a shift in policies administered to those which generate higher administrative fees. During the first quarter of 1998, the Company marketed and administered insurance products for two Carriers, American National Insurance Company ("American National") and IL Annuity and Insurance Company ("IL Annuity"). During the first quarter of 1998, 17.9% and 76.2% of the Company's total revenue resulted from agreements with American National and IL Annuity, respectively, compared to 51.6% and 39.2%, respectively, during the first quarter of 1997. This fluctuation is attributable primarily to favorable market acceptance of IL Annuity's products. Expenses--Total expenses increased approximately $1.9 million, or 49.3%, during the three months ended March 31, 1998, compared to the three months ended March 31, 1997. This increase is attributable primarily to increases in compensation, sales promotion and support, and professional fees, as discussed below. As a service organization, the Company's primary expenses are salaries and related employee benefits, which increased approximately $945,000, or 37.2%, in the first quarter of 1998, compared to the same period in 1997. This increase resulted primarily from increases in the average number of full-time equivalent employees, which rose to 218 during the three months ended March 31, 1998, from 173 during the same period in 1997. This increase in employment was necessary to accommodate increases in sales volume, as discussed above. Salaries and benefits also increased during the first quarter of 1998 due to the addition of personnel at higher pay levels and to scheduled pay increases for existing employees. Sales promotion and support expense consists primarily of costs relating to the Company's annual national sales conventions and to various sales meetings and training activities. Also included in sales promotion and support expense is the cost of designing and printing sales brochures for use by Producers in the Company's sales distribution network. It is expected that these expenses will continue to be a major element of the Company's cost structure, as attendance at the national sales conventions increases, as the number of Producers marketing products for the Company increases, and as new products are introduced. This expense increased approximately $597,000, or 141.0%, during the first quarter of 1998 from the first quarter of 1997, due primarily to an increase in the accrual of costs associated with the Company's national sales conventions and to increased anticipated attendance at such conventions. Professional fees increased approximately $72,000, or 34.5%, during the three months ended March 31, 1998, compared to the three months ended March 31, 1997. This increase is attributable primarily to consulting costs incurred during the first quarter of 1998 related to ongoing re-programming of the Company's administrative information systems, including re-programming which is necessary in preparation for administration of new products. Page 8 of 12 Occupancy expense increased approximately $71,000, or 42.3%, during the first quarter of 1998, compared to the first quarter of 1997, due primarily to an increase in telephone expense, which is attributable to increases in employment and sales volume, as discussed above. Depreciation and amortization expense increased approximately $48,000, or 30.3%, during the three months ended March 31, 1998, compared to the three months ended March 31, 1997, due primarily to acquisitions of fixed assets between periods. These acquisitions consisted primarily of amounts paid for the improvement of newly leased office space and purchases of computer equipment to accommodate increases in employment, both of which are discussed above. Liquidity and Capital Resources The Company's ability to mobilize its assets remained strong, with cash and investments representing 69.4% of the Company's total assets as of March 31, 1998. 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, 1997, is incorporated herein by this reference. Item 6. Exhibits and Reports on Form 8-K (a) Index to Exhibits Exhibit 11 Statement re: Computation of Per Share Earnings--Basic and Diluted Exhibit 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended March 31, 1998. Page 9 of 12 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: 3/13/98 Signature: /s/ R. Preston Pitts -------------- -------------------------------------- R. Preston Pitts, President & Chief Operating Officer Date: 3/13/98 Signature: /s/ David A. Skup -------------- -------------------------------------- David A. Skup, Chief Financial Officer Page 10 of 12 Exhibit 11 Statement re: Computation of Per Share Earnings--Basic and Diluted
Three Months Ended March 31, 1998 1997 Common shares outstanding entire period 26,678,581 26,966,976 Weighted average common shares retired upon redemption 16,291 45,543 ----------- ----------- Total weighted average shares outstanding 26,694,872 27,012,519 Net income $ 1,405,916 $ 202,673 ----------- ----------- Earnings per share--basic and diluted $ 0.05 $ 0.01 =========== ===========
Page 11 of 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary information extracted from the unaudited financial statements contained in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1998, and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 2,787,275 11,857,124 1,411,089 0 196,910 17,397,680 4,640,177 (1,995,591) 21,102,347 3,797,173 0 11,784,431 0 3,374,874 1,895,443 5,270,317 8,144,259 8,144,259 0 5,790,514 0 0 0 2,353,745 947,829 0 0 0 0 1,405,916 .05 .05
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