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 June 30, 1996, 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)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's common stock, as
of June 30, 1996 was:
Common Stock-Series A 26,982,595
Common Stock-Series B 610,688
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
1996 1995
____ ____
ASSETS: (Unaudited) (Audited)
Cash and cash equivalents $ 949,512 $1,496,631
Investments at market value 8,196,774 5,067,426
Accounts receivable 534,239 1,507,128
Prepaid expenses 255,988 106,539
Marketing supplies inventory 154,623 178,714
Income taxes receivable -- 5,687
__ _____
Total Current Assets 10,091,136 8,362,125
__________ _________
Net fixed assets 1,730,307 1,687,025
Organization costs-net 17,375 19,306
Deferred tax assets 1,899,184 2,097,660
Other assets 370,081 138,685
_______ _______
TOTAL ASSETS $14,108,083 $12,304,801
___________ ___________
LIABILITIES, REDEEMABLE COMMON STOCK,
AND SHAREHOLDERS' DEFICIT:
LIABILITIES:
Accounts payable $ 77,014 $ 77,569
Income taxes payable 63,702 --
Accrued liabilities 1,549,971 1,293,110
Notes payable-current portion -- 87,688
_________ ______
Total Current Liabilities 1,690,687 1,458,367
_________ _________
Loan payable 132,285 132,285
Deferred incentive compensation 151,691 172,272
_______ _______
Total Non-Current Liabilities 283,976 304,557
_______ _______
TOTAL LIABILITIES 1,974,663 1,762,924
_________ _________
COMMITMENTS -- --
REDEEMABLE COMMON STOCK (Note 2) 12,651,673 12,682,750
__________ __________
SHAREHOLDERS' DEFICIT:
Preferred stock, no par value:
Authorized: 100,000,000 shares
No shares issued or outstanding -- --
Series A common stock, no par value:
Authorized: 45,000,000 shares
Issued and outstanding:
26,982,595 and 27,005,885
shares at June 30, 1996 and
December 31, 1995,
respectively 3,802,071 3,802,071
Series B common stock,
no par value:
Authorized: 615,242 shares
Issued and outstanding:
610,688 shares -- --
Paid-in capital from retirement
of common stock 18,267 --
Accumulated deficit (4,251,095) (6,047,382)
Unrealized gains (losses)
on investments (net of taxes) (87,496) 104,438
_______ _______
TOTAL SHAREHOLDERS' DEFICIT (518,253) (2,140,873)
________ __________
TOTAL LIABILITIES, REDEEMABLE
COMMON STOCK AND SHAREHOLDERS'
DEFICIT $14,108,083 $12,304,801
___________ ___________
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Income Statements
(Unaudited)
For the Six Months Ended For the Three Months Ended
June 30, June 30,
________ ________
1996 1995 1996 1995
____ ____ ____ ____
INCOME:
Marketing allowance $ 5,556,717 $ 4,921,196 $ 3,045,374 $ 2,347,504
Commission income 2,343,543 1,968,131 1,241,816 1,092,395
Administrative fees 1,622,599 1,536,229 764,814 774,491
Investment income 317,208 145,532 182,782 88,453
Other income 24,816 38,468 2,713 22,034
______ ______ _____ ______
TOTAL INCOME 9,864,883 8,609,556 5,237,499 4,324,877
_________ _________ _________ _________
EXPENSES:
Salaries and related
benefits 3,968,528 2,741,427 2,021,008 1,404,549
Sales promotion and
support 1,385,573 651,564 936,113 406,238
Professional fees 281,940 198,687 55,122 92,225
Occupancy expense 278,075 261,459 129,923 142,653
Depreciation and
amortization 226,331 162,817 117,712 88,684
Courier and postage 169,329 119,562 87,400 59,988
Stationery and supplies 155,594 74,962 69,691 51,580
Equipment expense 141,237 111,678 72,692 78,317
Travel and entertainment 106,503 90,859 89,186 64,989
Interest expense 8,443 7,197 4,237 3,140
Other miscellaneous
expenses 116,643 45,021 57,057 13,513
_______ ______ ______ ______
TOTAL EXPENSES 6,838,196 4,465,233 3,640,141 2,405,876
_________ _________ _________ _________
INCOME FROM OPERATIONS 3,026,687 4,144,323 1,597,358 1,919,001
PROVISION FOR INCOME
TAXES 1,230,400 1,399,530 650,747 399,530
_________ _________ _______ _______
NET INCOME $ 1,796,287 $ 2,744,793 $ 946,611 $ 1,519,471
___________ ___________ _________ ___________
EARNINGS PER SHARE:
Weighted average
shares outstanding 27,613,502 27,518,797 27,610,431 27,518,797
Earnings per share
from operations $ .11 $ .15 $ .06 $ .07
Provision for income
taxes .04 .05 .02 .01
___ ___ ___ ___
Earnings per share $ .07 $ .10 $ .04 $ .06
__________ __________ __________ __________
See accompanying notes to consolidated financial statements.
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Deficit
(Unaudited)
Common Gains/
Shares Amount Stock Deficit (Losses) Total
______ ______ _____ _______ ________ _____
Balance
January 1,
1996 21,070,791 $3,802,071 $ -- $(6,047,382) $104,438 $(2,140,873)
Net income
for the
six
months
ended
June 30,
1996 1,796,287 1,796,287
Mandatory
redemption
and
retirement
of common
stock 18,267 18,267
Unrealized
losses on
investments (327,870) (327,870)
Deferred
taxes on
unrealized
losses 135,936 135,936
__________ ___________ ________ ____________ _________ __________
Balance
June 30,
1996 21,070,791 $3,802,071 $18,267 $(4,251,095) $ (87,496) $ (518,253)
__________ __________ _______ ____________ __________ ___________
See accompanying notes to consolidated financial statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited) For the Six For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
_____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,796,287 $ 2,744,793
Adjustments to reconcile
net income to cash provided by
operating activities:
Depreciation and amortization 224,400 146,160
Amortization of organization
costs 1,931 1,222
Net change in accounts receivable 972,889 (183,402)
Net change in income taxes
payable/receivable 69,389 (434,933)
Net change in prepaid expenses (149,449) (119,978)
Net change in marketing supplies
inventory 24,091 (32,788)
Net change in deferred tax assets 334,412 716,258
Net change in accounts payable (555) 24,860
Net change in accrued liabilities 256,861 189,297
Net change in other assets and
liabilities (251,977) 13,792
________ ________
Net cash provided by
operating activities 3,278,279 3,065,281
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (10,028,522) (3,799,477)
Proceeds from maturities
and sales of investments 6,571,304 1,019,010
Purchase of fixed assets (267,682) (539,589)
Purchase of organization costs -- (9,120)
__________ _______
Net cash used in investing
activities (3,724,900) (3,329,176)
__________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
common stock -- 1,067
Repayment of note payable (87,688) (139,999)
Mandatory redemption of
common stock (12,810) --
_______ __________
Net cash used in financing
activities (100,498) (138,932)
________ _________
Decrease in cash and cash
equivalents (547,119) (402,827)
Cash and cash equivalents,
beginning of period 1,496,631 651,189
_________ _______
Cash and cash equivalents,
end of period $ 949,512 $ 248,362
__________ __________
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,443 $ 7,197
Income taxes paid $ 826,600 $1,102,375
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 six months ended June
30, 1996 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, 1995 for
additional disclosure.
2. 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 six months ended June 30,
1996, 23,290 shares of redeemable Series A common stock
were redeemed for approximately $13,000. 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 June 30, 1996, the number of remaining
shares of redeemable Series A and Series B common stock
totaled 5,911,804 and 610,688, respectively.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Summary--During the quarter ended June 30, 1996, the Company
recorded net income of $947,000, or $.04 per share, compared with
$1,519,000, or $.06 per share, during the quarter ended June 30,
1995. During the six months ended June 30, 1996, the Company had
net income of $1,796,000, or $.07 per share, compared with
$2,745,000, or $.10 per share, during the six months ended June
30, 1995. These decreases between periods are attributable
primarily to increases in operating expenses, as discussed below.
The decrease in net income in the second quarter of 1996,
compared with the comparable period of 1995, is also attributable
to tax benefits recognized in the second quarter of 1995 related
to alternative minimum tax credits. No such tax benefits were
recognized during the second quarter of 1996.
Income--Sales by the Company's distribution network, for the
insurance companies with which the Company contracts, resulted in
premium placed inforce of approximately $183,221,000 during the
quarter ended June 30, 1996, compared with $174,825,000 during
the quarter ended June 30, 1995, representing a 5% increase.
Income from insurance sales activities also increased as a result
of a change in the mix of products sold to products which yielded
higher marketing allowances and commissions. Correspondingly,
income from insurance sales activities increased 25% to
$4,287,000 during the second quarter of 1996, compared with
$3,440,000 during the comparable period in 1995.
During the six months ended June 30, 1996, premium placed inforce
through the Company's distribution network totaled $341,627,000,
compared with approximately $320,192,000 during the six months
ended June 30, 1995, which represented a 7% increase. Income
from insurance sales activity also increased as a result of a
change in the sales mix to products which yielded higher
marketing allowances and commissions. Accordingly, income from
insurance sales activity increased 15% to $7,900,000 during the
six months ended June 30, 1996, from $6,889,000 during the six
months ended June 30, 1995.
Income from administration of insurance policies totaled $765,000
during the quarter ended June 30, 1996, compared with $775,000
during the quarter ended June 30, 1995. During the six months
ended June 30, 1996, administrative fee income totaled
$1,623,000, compared with $1,536,000 during the comparable period
in 1995. These fees did not increase proportionately with the
increase in the number of applications received and policies
administered, due primarily to a fee reduction for policy
maintenance activities performed by the Company under its
Processing Agreement with American National Insurance Company.
The reduced fee became effective on March 1, 1996.
Investment income represents earnings from investments in
marketable securities. Such earnings increased 107% to $183,000
during the quarter ended June 30, 1996, from $88,000 during the
quarter ended June 30, 1995. Likewise, investment income
increased 118% to $317,000 during the six months ended June 30,
1996, from $146,000 during the comparable period in 1995. These
increases resulted primarily from increases in the amount of
assets invested.
Expenses--Expenses totaled $3,640,000 during the quarter ended
June 30, 1996, compared with $2,406,000 during the quarter ended
June 30, 1995. During the six months ended June 30, 1996,
expenses totaled $6,838,000, compared with $4,465,000 during the
six months ended June 30, 1995. These increases are largely
attributable to planned increases in the number of Company
employees and expansion of the Company's infrastructure to
prepare for projected increases in sales of annuity, life
insurance and variable products.
As a service organization, the Company's predominant expense is
salaries and related employee benefits. Salaries and related
benefits increased 44% to $2,021,000 during the quarter ended
June 30, 1996, from $1,405,000 during the quarter ended June 30,
1996. Salaries and related benefits increased 45% to $3,969,000
during the six months ended June 30, 1996, from $2,741,000 during
the comparable period in 1995. These increases were due
primarily to increases in the average number of full-time
equivalent employees to 142 during the quarter ended June 30,
1996, from 104 during the comparable period in 1995, and to 138
during the six months ended June 30, 1996, from 94 during the
comparable period in 1995. Such increases were necessary to
accommodate increases in operating volume and also resulted from
efforts to create operating capacity for anticipated increases in
sales.
Sales promotion and support expense consists primarily of the
cost of sales promotion meetings, and design and printing of
sales brochures for use by producers throughout the Company's
distribution network. This expense totaled $936,000 during the
second quarter of 1996, or 18% of revenue, compared with $406,000
during the second quarter of 1995, or 9% of revenues. During the
six months ended June 30, 1996, this expense totaled $1,386,000,
or 14% of revenues, compared with $652,000, or 8% of revenues,
during the comparable period during 1995. These increases are
attributable primarily to accrual during 1996 for the cost of the
annual national sales convention to be held in May of 1997.
Professional fees, which include legal fees, outside accounting
fees and consulting fees, increased to $282,000 during the six
months ended June 30, 1996 from $199,000 during the six months
ended June 30, 1995. This increase is due largely to legal fees
incurred during the first quarter of 1996 in preparation for the
1996 Annual Meeting of Shareholders.
Provision for Income Taxes--The Company files consolidated
returns for federal income tax purposes.
The Company experienced both federal and state net operating
losses ("NOLs") in prior years that can be used to offset taxes
payable in current and future profitable years. In addition, the
Company has recorded federal and state alternative minimum tax
("AMT") credit carryforward benefits. Included in deferred tax
assets at June 30, 1996 are state NOL carryforwards of $2,480,000
and federal and state AMT credit carryforwards of $1,249,000 and
$300,000, respectively. The NOL carryforwards expire December
31, 1997. The AMT credit carryforwards have no expiration date.
Realization of the NOL carryforwards is dependent on generating
sufficient taxable income prior to 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 $651,000 and $400,000 for the
three months ended June 30, 1996 and 1995, respectively, and
$1,230,000 and $1,400,000 for the six months ended June 30, 1996
and 1995, respectively. The Company's effective tax rate was 41%
and 34% for the six months ended June 30, 1996 and 1995,
respectively, and 41% and 21% during the three months ended June
30, 1996 and 1995, respectively. The effective rates during the
three months and the six months ended June 30, 1995, were lower
than during comparable periods during 1996 due to recognition
during the second quarter of 1995 of federal AMT credit
carryforwards.
Financial Condition
During the six months ended June 30, 1996, the Company continued
to generate positive cash flows from operations, which resulted
in a 39% net increase in cash and investments to $9,146,000 at
June 30, 1996, from $6,564,000 at December 31, 1995.
Total liabilities increased to $1,975,000 at June 30, 1996, from
$1,763,000 at December 31, 1995, due primarily to accrual of
costs related to the 1997 national sales convention during the
producers' qualification period, and to increases in income taxes
payable resulting from timing differences between recognition and
payment.
Liquidity and Capital Resources
The Company's business is not capital intensive. Its cash flows
from operations totaled $3,278,000 during the six months ended
June 30, 1996 and were applied primarily to the purchase of
investments in U.S. Treasury securities and other marketable
securities backed by U.S. Government agencies. As a result, cash
and investments increased $2,582,000, or 39%, during the six
month period ended June 30, 1996. Such amounts represented 65%
of the Company's total assets at June 30, 1996.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 3 Bylaws and amendments thereto
Exhibit 27 Financial Data Schedule
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: August 14, 1996 Signature: /s/ Lynda Regan
Lynda Regan
President & Chief Executive
Officer
Date: August 14, 1996 Signature: /s/ R. Preston Pitts
R. Preston Pitts
Chief Financial Officer