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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2005
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: 0-19704
REGAN HOLDING CORP.
(Exact name of registrant as specified in its charter)
California 68-0211359
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2090 Marina Avenue, Petaluma, CA 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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
As of August 5, 2005, there were 23,668,000 shares of Common Stock-Series A
outstanding and 553,000 shares of Common Stock-Series B outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
June 30, December 31,
2005 2004
------------ ------------
(Unaudited)
Assets
Cash and cash equivalents $ 979,000 $ 4,348,000
Trading investments 6,197,000 7,900,000
Receivable from SCOR Life U. S. Re Insurance Company 3,309,000 --
Option to purchase Investors Insurance Company -- 2,975,000
Accounts receivable, net of allowance of $317,000 and $569,000
at June 30, 2005 and December 31, 2004 1,639,000 1,496,000
Income taxes receivable 756,000 755,000
Prepaid expenses and deposits 686,000 705,000
Deferred taxes -- 772,000
------------ ------------
Total current assets 13,566,000 18,951,000
------------ ------------
Net fixed assets 24,062,000 27,675,000
Intangible assets, net 85,000 122,000
Notes receivable 899,000 672,000
Other assets 151,000 198,000
------------ ------------
Total non current assets 25,197,000 28,667,000
------------ ------------
Total assets $ 38,763,000 $ 47,618,000
============ ============
Liabilities, redeemable common stock, and shareholders' equity
Liabilities
Accounts payable and accrued liabilities $ 6,171,000 $ 5,243,000
Current portion of notes and loan payable 1,823,000 199,000
------------ ------------
Total current liabilities 7,994,000 5,442,000
------------ ------------
Deferred compensation payable 7,526,000 7,748,000
Deferred tax liabilities -- 1,242,000
Other liabilities 156,000 854,000
Notes payable, less current portion 9,614,000 9,708,000
------------ ------------
Total non current liabilities 17,296,000 19,552,000
------------ ------------
Total liabilities 25,290,000 24,994,000
------------ ------------
Redeemable common stock, Series A and B 6,373,000 7,486,000
------------ ------------
Shareholders' equity
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: 20,956,000 shares
and 20,912,000 shares at June 30, 2005 and December 31, 2004 3,916,000 3,847,000
Paid-in capital 6,530,000 6,522,000
Retained earnings (deficit) (3,346,000) 4,769,000
------------ ------------
Total shareholders' equity 7,100,000 15,138,000
------------ ------------
Total liabilities, redeemable common stock, and shareholders' equity $ 38,763,000 $ 47,618,000
============ ============
See notes to financial statements.
2
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
------------------------------ ------------------------------
June 30, June 30,
------------------------------ ------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue
Marketing allowances and commission overrides $ 3,527,000 $ 5,511,000 $ 7,214,000 $ 12,950,000
Trailing commissions 1,038,000 1,212,000 2,129,000 2,490,000
Administrative fees 2,310,000 2,743,000 4,594,000 5,712,000
Other revenue 268,000 644,000 543,000 919,000
------------ ------------ ------------ ------------
Total revenue 7,143,000 10,110,000 14,480,000 22,071,000
------------ ------------ ------------ ------------
Expenses
Selling, general and administrative 8,301,000 9,570,000 17,913,000 20,835,000
Depreciation and amortization 1,218,000 1,151,000 2,204,000 2,206,000
Goodwill impairment losses -- 679,000 -- 679,000
Internal use software impairment loss 2,939,000 -- 2,939,000 --
Other 710,000 536,000 1,274,000 1,172,000
------------ ------------ ------------ ------------
Total expenses 13,168,000 11,936,000 24,330,000 24,892,000
------------ ------------ ------------ ------------
Operating loss (6,025,000) (1,826,000) (9,850,000) (2,821,000)
------------ ------------ ------------ ------------
Other income
Investment income, net 384,000 135,000 414,000 252,000
Interest expense (10,000) (2,000) (13,000) (5,000)
------------ ------------ ------------ ------------
Total other income, net 374,000 133,000 401,000 247,000
------------ ------------ ------------ ------------
Loss before income taxes (5,651,000) (1,693,000) (9,449,000) (2,574,000)
Provision for (benefit from) income taxes 3,000 (644,000) (463,000) (1,005,000)
------------ ------------ ------------ ------------
Net loss before reduction of redeemable
common stock (5,654,000) (1,049,000) (8,986,000) (1,569,000)
Reduction of redeemable common stock 871,000 29,000 871,000 29,000
------------ ------------ ------------ ------------
Net loss available for common shareholders $ (4,783,000) $ (1,020,000) $ (8,115,000) $ (1,540,000)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.20) $ (0.04) $ (0.33) $ (0.06)
Weighted average shares outstanding used to
compute basic and diluted net loss per share 24,317,000 23,892,000 24,318,000 23,963,000
See notes to financial statements.
3
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
(Unaudited)
Retained
Series A Common Stock Paid-in Earnings
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
Balance December 31, 2004 20,912,000 $ 3,847,000 $ 6,522,000 $ 4,769,000 $15,138,000
Net loss (8,986,000) (8,986,000)
Exercise of stock options 44,000 69,000 69,000
Reduction to redemption value of
redeemable common stock 871,000 871,000
Producer stock option expense 8,000 8,000
-
----------- ----------- ----------- ----------- -----------
Balance June 30, 2005 (unaudited) 20,956,000 $ 3,916,000 $ 6,530,000 $(3,346,000) $ 7,100,000
=========== =========== =========== =========== ===========
See notes to financial statements.
4
REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
----------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss $(8,986,000) $(1,569,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,204,000 2,206,000
Losses on write-off of fixed assets 3,034,000 62,000
Impairment of goodwill -- 679,000
Reduction of allowance for doubtful accounts (252,000) (243,000)
Losses (gains) on trading securities, net 63,000 (360,000)
Other 8,000 (6,000)
Changes in operating assets and liabilities:
Sales (purchases) of trading securities, net 1,640,000 (431,000)
Receivable from SCOR Life U.S. Re Insurance Company (334,000) --
Accounts receivable 109,000 2,732,000
Prepaid expenses and deposits 19,000 (159,000)
Income taxes receivable (1,000) (871,000)
Deferred taxes (470,000) (150,000)
Accounts payable and accrued liabilities 928,000 (5,100,000)
Deferred compensation payable (222,000) 749,000
Other operating assets and liabilities (651,000) 947,000
----------- -----------
Net cash used in operating activities: (2,911,000) (1,514,000)
----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale securities -- (78,000)
Proceeds from sales and maturities of available-for-sale securities -- 3,320,000
Purchases of fixed assets (1,588,000) (5,727,000)
Proceeds from (issuance of) notes receivable, net (227,000) 39,000
Option to purchase Investors Insurance Company -- (375,000)
----------- -----------
Net cash used in investing activities: (1,815,000) (2,821,000)
----------- -----------
Cash flows from financing activities:
Proceeds from notes and loan payable 1,618,000 5,025,000
Payments of notes payable (88,000) (2,416,000)
Repurchases of redeemable common stock (242,000) (523,000)
Stock option exercises 69,000 --
Voluntary repurchases of common stock -- (145,000)
----------- -----------
Net cash provided by financing activities: 1,357,000 1,941,000
----------- -----------
Net decrease in cash and cash equivalents (3,369,000) (2,394,000)
Cash and cash equivalents, beginning of period 4,348,000 9,908,000
----------- -----------
Cash and cash equivalents, end of period $ 979,000 $ 7,514,000
=========== ===========
See notes to financial statements.
5
REGAN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying Consolidated Financial Statements are prepared in
conformity with accounting principles generally accepted in the United
States of America and include the accounts of Regan Holding Corp. (the
"Company") and its wholly owned subsidiaries. All intercompany transactions
have been eliminated.
The Consolidated Financial Statements are unaudited but reflect all
adjustments, consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair statement of the Company's
consolidated financial position and results of operations. The results for
the three months and six months ended June 30, 2005, are not necessarily
indicative of the results to be expected for the entire year. These
unaudited Consolidated Financial Statements should be read in conjunction
with the audited Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2004, which was
filed by the Company with the Securities and Exchange Commission on March
31, 2005.
2. Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement No. 154, "Accounting Changes and Error Corrections, a replacement
of Accounting Principles Board ("APB") Opinion No. 20 and FASB Statement
No. 3" ("FAS 154"). FAS 154 provides guidance on the accounting for, and
reporting of, a change in accounting principle, in the absence of explicit
transition requirements specific to a newly adopted accounting principle.
Previously, most voluntary changes in accounting principles were required
to be recognized by way of a cumulative effect adjustment within net income
during the period of the change. FAS 154 requires retrospective application
to prior periods' financial statements, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of
the change. FAS 154 is effective for accounting changes made in fiscal
years beginning after December 15, 2005. The Company does not believe that
the adoption of FAS 154 will have a material effect on its consolidated
financial position, results of operations or cash flows.
3. Stock Options
The Company has a stock-based employee compensation plan and accounts for
this plan under the recognition and measurement principles of APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. No stock-based employee compensation cost is reflected in
the net loss, as all options granted under the plan had an exercise price
equal to the fair market value of the underlying common stock on the date of
grant.
The following table illustrates the effect on net loss and loss per share if
the Company had applied the fair value recognition provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation:
6
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net loss available for common shareholders, as reported $(4,783,000) $(1,020,000) $(8,115,000) $(1,540,000)
Deduct: Total stock-based employee
compensation expense determined under the fair
value method for all awards, net of related tax effects (16,000) (68,000) (33,000) (137,000)
----------- ----------- ----------- -----------
Pro forma net loss available for common shareholders $(4,799,000) $(1,088,000) $(8,148,000) $(1,677,000)
=========== =========== =========== ===========
Loss per share:
Basic and diluted - as reported $ (0.20) $ (0.04) $ (0.33) $ (0.06)
Basic and diluted - pro forma $ (0.20) $ (0.05) $ (0.34) $ (0.07)
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment",
which establishes standards for transactions in which an entity exchanges
its equity instruments for goods or services. This standard requires a
public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award. This eliminates the exception to account for such awards using the
intrinsic method previously allowable under APB Opinion No. 25. In April
2005, the Securities and Exchange Commission adopted a rule that delayed the
compliance dates for adoption of SFAS 123R, which the Company had previously
been required to adopt no later than July 1, 2005. The SEC's rule allows
companies to implement SFAS 123R at the beginning of their next fiscal year.
As a result, the Company intends to adopt SFAS 123R effective January 1,
2006. The Company continues to assess the potential impact of the adoption
of SFAS No. 123R on its financial position, results of operations or
statement of cash flows.
4. Loss per Share
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net loss $ (5,654,000) $ (1,049,000) $ (8,986,000) $ (1,569,000)
Reduction of redeemable common stock 871,000 29,000 871,000 29,000
------------ ------------ ------------ ------------
Net loss available for common shareholders $ (4,783,000) $ (1,020,000) $ (8,115,000) $ (1,540,000)
============ ============ ============ ============
Weighted average shares used to compute basic and
diluted net loss per share 24,317,000 23,892,000 24,318,000 23,963,000
============ ============ ============ ============
Basic and diluted net loss per share $ (0.20) $ (0.04) $ (0.33) $ (0.06)
============ ============ ============ ============
As the Company incurred net losses in the periods presented, options to
purchase 8.1 million and 14.1 million shares of the Company's common stock
as of June 30, 2005 and 2004 were excluded from the computation of diluted
net loss per share, as the effect would have been antidilutive.
5. Comprehensive Loss
Total comprehensive loss for the three and six months ended June 30, 2005,
was $5,654,000 and $8,986,000. For the three and six months ended June 30,
2004, total comprehensive loss was $1,118,000 and $1,594,000.
6. Option to Purchase Investors Insurance Corporation
On July 1, 2002, the Company entered into a Purchase Option Agreement with
SCOR Life U.S. Re Insurance Company ("SCOR"), a 100% owner of the
outstanding capital stock of Investors Insurance Corporation ("Investors
Insurance"). Pursuant to the terms of the agreement, SCOR granted the
Company the right to purchase the outstanding capital stock of Investors
Insurance in exchange for annual option fees. The Company had the right to
7
exercise the option at any time on or prior to June 30, 2005, or terminate
the Option Agreement in accordance with its terms before such date if the
A.M. Best rating of Investors Insurance declined below a specified level.
The A.M. Best rating of Investors Insurance fell below the specified level.
On June 22, 2005, the Company terminated the Option Agreement. SCOR will
repay the option fees paid by the Company pursuant to the Option Agreement,
including interest, totaling approximately $3.3 million as of June 30, 2005,
in three installments. The Company had received a total of $2,242,000 of
this amount as of August 1, 2005.
7. Notes and Loan Payable
The Company has a mortgage on its office building in Petaluma, California.
Payment in full of this note is due on August 1, 2012. Payments are due on
the note based on a 25-year amortization schedule. On August 1, 2012, the
Company must pay the remaining principal due on the note. Prior to August 1,
2006, the interest rate on the note is 6.95%. Thereafter, the interest rate
will be equal to LIBOR plus 2.55%, adjusted semi-annually, subject to a
maximum semi-annual 1.00% increase/decrease in the interest rate. The
maximum interest rate is 10.50%. As of June 30, 2005, the balance due on the
note was $7.0 million.
The Company also has a mortgage on its office building in Rome, Georgia. The
note has a variable interest rate indexed to the 30-day LIBOR plus 1.9% and
is payable over ten years in monthly installments of principal, amortized on
the basis of a 20-year term, and interest. At the end of the ten years, the
Company must pay the balance of the principal due on the note. The
outstanding balance of the note as of June 30, 2005, was $2.8 million. To
manage interest expense, the Company entered into an interest rate swap
agreement with a notional amount equal to the principal balance of the note,
which modifies its interest expense from a variable rate to a fixed rate.
The April 2004 swap agreement involves the exchange of interest obligations
from April 2004 through April 2014 whereby the Company pays a fixed rate of
6.8% in exchange for a variable rate indexed to the 30-day LIBOR plus 1.9%.
During the six months ended June 30, 2005, the Company obtained a loan from
its investment broker. The loan bears interest at the lender's base lending
rate plus a surcharge based on the amount of the loan (7.25% at June 30,
2005), and is collateralized by the Company's investment portfolio. As of
June 30, 2005, $1.6 million remained payable under this arrangement.
8. Income Taxes
The rate of benefit for income taxes for the three months and six months
ended June 30, 2005, differs from the federal and state statutory rate
primarily due to the establishment of a valuation allowance against existing
deferred tax assets in the amount of $2.2 million and $3.3 million.
9. Derivative Financial Instruments
The Company accounts for derivative financial instruments in accordance with
the provisions of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires the Company to measure all derivatives at fair value and
to recognize them in the balance sheet as an asset or liability. For
derivatives designated as cash flow hedges, changes in fair value of the
derivative are reported as other comprehensive income and are subsequently
reclassified into earnings when the hedged transaction affects earnings.
Changes in fair value of derivative instruments not considered hedging
instruments and ineffective portions of hedges are recognized in earnings in
the current period.
In April 2004 the Company entered into an interest rate swap agreement with
a current notional amount of $2.8 million to hedge the interest expense
associated with its LIBOR-based borrowings. The Company designated the
interest rate swap as a qualifying cash flow hedge under SFAS 133.
10. Impairment of Goodwill
During the second quarter of 2004, due to the failure of Values Financial
Network, Inc. ("VFN") to produce revenues as projected, particularly in the
corporate arena, management decided to cease actively marketing to the
corporate market. As a result, management lowered its expectations for
future sales. This event met the criteria of a "triggering event" for
testing the recoverability of long-lived assets as required by Statement of
Financial Accounting Standards No. 144 ("SFAS 144") "Accounting for the
Impairment or Disposal of Long-Lived Assets". Accordingly, the
8
Company compared the carrying amount of VFN's long-lived assets to the
projected sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset group. Based on the fact that the sum
of the undiscounted cash flows exceeded VFN's assets, the Company concluded
no impairment had occurred to the long-lived assets.
As a result of performing the impairment tests required under SFAS 144, the
Company was then required under the provisions of SFAS 142 to perform a
goodwill impairment test using the revised cash flows forecast discounted at
an appropriate cost of capital. The results of this test indicated that the
Company's goodwill was not recoverable. Accordingly, the Company recorded a
goodwill impairment loss of $679,000 during the second quarter of 2004.
11. Impairment of Internal Use Software
In 1998, the Company began a project intending to replace its existing
policy administration system with new licensed software after the vendor of
the existing policy administration system required the Company to migrate
from the existing system to an alternative platform. In late 2002, the
Company learned from its vendor that it might be able to retain its existing
system. Modification and customization of the licensed software was
suspended in December of 2002. As a result of an evaluation of the
Company-wide technological needs, which included an assessment of the
viability of the existing system, it was concluded that the Company would
use both systems. In the fourth quarter of 2003 the Company recorded a
write-off of $1.1 million associated with the abandoned components of the
software costs.
In 2004, the Company began the process of creating a new technology
architecture, the intent of which was to implement a multi-tiered structure
that would allow the Company to continue to use its existing administration
system to administer its current business while using the new administration
system for new products and carriers.
In 2005, the Company conducted further independent research, including
consultation with industry experts about software solutions currently
available in the marketplace and the benefits that companies, which are
employing these systems, are receiving. In the second quarter of 2005, the
Company concluded that the advances in technology and functionality that
these new designs have delivered, along with the associated financial
benefits, are greater than the Company would realize by completing its plans
to implement its new administration system. In addition, the vendor of the
Company's new administration system announced that they will no longer be
providing the appropriate updates for the system to the licensed users for
all future regulatory changes, and that it will be the responsibility of
each company that uses the system to modify the system for such changes. As
a result, management determined that the internal use software project
associated with the new administration system had been impaired, and in the
second quarter of 2005, the Company recorded a write-off of $2.9 million
associated with abandoned components of the internal use software project.
9
12. Segment Information
Total Revenue Net Loss
------------------------------------------------------ --------------------------------------------------------
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
-------------------------- -------------------------- --------------------------- ---------------------------
2005 2004 2005 2004 2005 2004 2005 2004
------------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
Legacy Marketing
Group $ 6,339,000 $ 9,317,000 $ 12,934,000 $ 20,408,000 $ (4,784,000) $ (397,000) $ (7,756,000) $ (584,000)
Legacy Financial
Services, Inc. 896,000 861,000 1,720,000 1,815,000 (75,000) (12,000) (127,000) (108,000)
Imagent Online, LLC 46,000 74,000 98,000 133,000 (662,000) (137,000) (907,000) (278,000)
Values Financial
Network, Inc. 1,000 10,000 4,000 20,000 (133,000) (503,000) (196,000) (599,000)
Intercompany
Eliminations (139,000) (152,000) (276,000) (305,000) -- -- -- --
------------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
Total $ 7,143,000 $ 10,110,000 $ 14,480,000 $ 22,071,000 $ (5,654,000) $ (1,049,000) $ (8,986,000) $ (1,569,000)
============ ============ ============ ============ ============ ============ ============ =============
Total Assets
--------------------------------
June 30, December 31,
2005 2004
------------ ------------
Legacy Marketing Group $ 41,459,000 $ 50,487,000
Legacy Financial Services, Inc. 1,453,000 1,512,000
Imagent Online, LLC 2,434,000 2,514,000
Values Financial Network, Inc. 1,944,000 2,069,000
Other 63,000 63,000
Intercompany Eliminations (8,590,000) (9,027,000)
------------ ------------
Total $ 38,763,000 $ 47,618,000
============ ============
In June 2005, management of the Company authorized the dissolution of its
Other segment, Legacy Reinsurance Company ("Legacy Re"). The dissolution
became effective in July 2005. Legacy Re did not have any results of
operations in the six months ended June 30, 2005 and 2004.
13. Subsequent Events
On July 25, 2005, the Company entered into a sale/leaseback agreement (the
"Agreement") with a potential buyer. Pursuant to the terms of the Agreement,
the Company will sell its office buildings in Petaluma, California, to the
potential buyer for a purchase price of $13.1 million. Concurrently with the
sale of the buildings, the Company and the potential buyer will enter into a
ten year lease agreement, whereby the Company will lease back (i) 71,612
square feet for a period not to exceed eighteen months and (ii) between
35,612 and 51,612 square feet for the remainder of the lease term. The
monthly base rent will be $1.30 per square foot and will increase annually
by three percent during the term of the lease, in addition to property taxes
and operating expenses. Pursuant to the terms of the lease, the Company will
initiate a standby letter of credit in the amount of $1.0 million, naming
the potential buyer as the beneficiary. The potential buyer will be allowed
to draw upon the letter of credit in the event of a default under the terms
of the lease. The extent of such draw by the potential buyer will be limited
to the amount necessary to cure the default. Additionally, the amount of the
letter of credit will be reduced if the Company meets certain profitability
criteria as specified in the Agreement and at the expiration of the lease
the remaining balance will be returned to the Company. The closing of the
sale/leaseback of the property is subject to the potential buyer obtaining a
financing commitment, within 45 days from the date of the Agreement, from a
lender with terms that are acceptable to the potential buyer. The closing is
also subject to a 30-day due diligence period, during which time the
potential buyer will inspect certain documents pertaining to the property.
The potential buyer has the right, at any time during the due diligence
period, to disapprove of the due diligence materials or other matters
relating to the property and terminate the Agreement. If the transactions
contemplated by the agreement are consummated, the Company will pay the
outstanding balance on, and all the amounts due under, the mortgage on the
property.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
Certain statements contained in this document, including Management's
Discussion and Analysis of Financial Condition and Results of Operations, that
are not historical facts, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance of Regan Holding
Corp. and its businesses to be materially different from those expressed or
implied by such forward-looking statements. These risks, uncertainties and
factors include, among other things, the following: general market conditions
and the changing interest rate environment; population growth rates and
demographic patterns; the interruption, deterioration, or termination of our
relationships with the insurance carriers who provide our products or the agents
who market and sell them; the ability to develop and market new products to keep
up with the evolving industry in which we operate; increased governmental
regulation, especially regulations affecting insurance, reinsurance, and holding
companies; the ability to attract and retain talented and productive personnel;
the ability to effectively fund our working capital requirements; the risk of
substantial litigation or insurance claims; and other factors referred to in
Management's Discussion and Analysis of Financial Condition and Results of
Operations located in our Annual Report on Form 10-K for the year ended December
31, 2004.
Regan Holding Corp. assumes no obligation to update forward-looking
statements to reflect actual results or changes in or additions to the factors
affecting such forward-looking statements.
Recent Industry Developments
During the past year, several federal, state and insurance self-regulatory
organization proposals have been made that could affect our business. As
discussed below, a few of these proposals have become effective, and others may
be made or adopted.
In December 2004, the National Association of Insurance Commissioners (the
"NAIC") approved amendments to the NAIC's Producer Licensing Model Act (the
"Model Act"). Under the Model Act, producers, like Legacy Marketing's Producers,
who have been appointed by an insurer as its agent and do not receive
compensation from a customer, are not required to disclose the amount of
compensation received from the insurer. However, under the Model Act, producers
are required to disclose to the customer, prior to selling insurance to that
customer, that the producer will be receiving compensation from the insurer, or
that the producer represents the insurer and may provide services to the
customer for the insurer. At least one state has adopted a regulation based on
the Model Act and others are considering similar regulation or legislation.
In April 2005, California Insurance Commissioner John Garamendi released
for public review revised proposed regulations addressing broker conduct. As
currently drafted, the proposed regulations would, among other things, require
brokers to disclose whether they are acting on behalf of the insurer or the
customer, prohibit brokers who are acting on behalf of customers from accepting
compensation from third parties without the prior consent of the customer, and
require brokers to disclose whether they will seek quotes from one or more than
one insurer. If the broker were to seek quotes from more than one insurer, the
proposed regulations would also require the broker to disclose the number of
quotes obtained, the names of the insurers that provide the quotes, and the
compensation the broker could receive from each insurer if that insurer's bid
were accepted by the customer.
Also this year, the Securities and Exchange Commission informed certain
issuers of equity-linked annuities that it is examining whether such annuities
need to be registered under the Securities Act of 1933. On August 8, 2005, the
NASD issued guidance to its members indicating that broker-dealers regulated by
the NASD have certain responsibilities with respect to the offer and sale of
equity-linked annuities, including an obligation to determine the suitability of
such products for their customers, regardless of whether equity-linked annuities
are deemed to be securities. Finally, some state insurance regulators are
considering whether additional suitability regulations should be implemented
with respect to all sales of fixed annuities, particularly with respect to
senior citizens.
11
Our core business consists of selling fixed annuity products on behalf of
insurance carriers through a network of approximately 24,000 Producers. If
amendments to the Model Act, the regulations proposed by the California
Insurance Commissioner, or similar or additional regulations are adopted by
states in which we conduct business, the way in which we and the Producers
conduct business could be impacted. Similarly, if the initiatives undertaken by
states, the Securities and Exchange Commission or the NASD with respect to
equity-linked and other annuities result in new regulation or legislation, our
operations and those of our Producers could be adversely affected. We are unable
to predict whether or which of these initiatives will result in new laws or
regulations, or whether other new initiatives may affect our business and the
demand for fixed annuity products marketed by Legacy Marketing. It is possible,
however, that if such proposals or initiatives result in new regulation or laws,
they could have a material adverse effect on the insurance industry in general
or on our financial condition and results of operations.
Overview
On July 25, 2005, we entered into a sale/leaseback agreement (the
"Agreement") with a potential buyer. Pursuant to the terms of the Agreement, we
will sell our office buildings in Petaluma, California to the potential buyer
for a purchase price of $13.1 million. Concurrently with the sale of the
buildings, Regan Holding Corp. and the potential buyer will enter into a ten
year lease agreement, whereby we will lease back (i) 71,612 square feet for a
period not to exceed eighteen months and (ii) between 35,612 and 51,612 square
feet for the remainder of the lease term. The monthly base rent will be $1.30
per square foot and will increase annually by three percent during the term of
the lease, in addition to property taxes and operating expenses. Pursuant to the
terms of the lease, we will initiate a standby letter of credit in the amount of
$1.0 million, naming the potential buyer as the beneficiary. The potential buyer
will be allowed to draw upon the letter of credit in the event of a default
under the terms of the lease. The extent of such draw by the potential buyer
will be limited to the amount necessary to cure the default. Additionally, the
amount of the letter of credit will be reduced if we meet certain profitability
criteria as specified in the Agreement and at the expiration of the lease the
remaining balance will be returned to us. The closing of the sale/leaseback of
the property is subject to the potential buyer obtaining a financing commitment,
within 45 days from the date of the Agreement, from a lender with terms that are
acceptable to the potential buyer. The closing is also subject to a 30-day due
diligence period, during which time the potential buyer will inspect certain
documents pertaining to the property. The potential buyer has the right, at any
time during the due diligence period, to disapprove of the due diligence
materials or other matters relating to the property and terminate the Agreement.
If the transactions contemplated by the agreement are consummated, we will pay
the outstanding balance on, and all the amounts due under, the mortgage on the
property.
On June 14, 2005, we agreed with AmerUs Annuity Group Co. ("AmerUs"), the
parent company of IL Annuity, on the process to be followed for the Company to
provide reasonable assistance to AmerUs to transition to AmerUs the
administration of certain IL Annuity insurance contracts in accordance with the
provisions of the administrative agreement between Legacy Marketing and IL
Annuity. Legacy Marketing has been administering these products under the terms
of the administrative agreement since January 1, 1996. The administrative
agreement is scheduled to expire on December 31, 2005. We are in negotiations
with AmerUs with respect to the possible acceleration or deferral of the
expiration date of the administrative agreement. In the six months ended June
30, 2005, we received approximately $915,000 in gross revenue under the
administrative agreement. We are examining our expenses associated with this
block of business and evaluating the impact such termination or expiration is
likely to have on our net income. Termination of the administrative agreement
will not affect the commissions earned by Legacy Marketing on additional premium
received or assets under management with respect to the underlying IL Annuity
insurance contracts.
On July 1, 2002, we entered into a Purchase Option Agreement with SCOR Life
U.S. Re Insurance Company ("SCOR"), a 100% owner of the outstanding capital
stock of Investors Insurance Corporation ("Investors Insurance"). Pursuant to
the terms of the agreement, SCOR granted us the right to purchase the
outstanding capital stock of Investors Insurance in exchange for annual option
fees. We had the right to exercise the option at any time on or prior to June
30, 2005, or terminate the Option Agreement in accordance with its terms before
such date if the A.M. Best rating of Investors Insurance declined below a
specified level. The A.M. Best rating of Investors Insurance fell below the
specified level. On June 22, 2005, we terminated the Option Agreement. SCOR will
repay the option fees paid by us pursuant to the Option Agreement, including
interest, totaling approximately $3.3 million as of June 30, 2005, in three
installments. We received $2,242,000 of this amount as of August 1, 2005.
In 1998, we began a project intending to replace our existing policy
administration system with new licensed software after the vendor of the
existing policy administration system required us to migrate from the existing
system to an alternative platform. In late 2002, we learned from the vendor that
we might be able to retain the existing system.
12
Modification and customization of the licensed software was suspended in
December of 2002. As a result of an evaluation of the Company-wide technological
needs, which included an assessment of the viability of the existing system, it
was concluded that we would use both systems. In the fourth quarter of 2003 we
recorded a write-off of $1.1 million associated with the abandoned components of
the software costs.
In 2004, we began the process of creating a new technology architecture,
the intent of which was to implement a multi-tiered structure that would allow
us to continue to use the existing administration system to administer our
current business while using the new administration system for new products and
carriers.
In 2005, we conducted further independent research, including consultation
with industry experts about software solutions currently available in the
marketplace and the benefits that companies, which are employing these systems,
are receiving. In the second quarter of 2005, we concluded that the advances in
technology and functionality that these new designs have delivered, along with
the associated financial benefits, are greater than we would realize by
completing our plans to implement the new administration system. In addition,
the vendor of the new administration system announced that they will no longer
be providing the appropriate updates for the system to the licensed users for
all future regulatory changes, and that it will be the responsibility of each
company that uses the system to modify the system for such changes. As a result,
management determined that the internal use software project associated with the
new administration system has been impaired, and in the second quarter of 2005,
we recorded a write-off of $2.9 million associated with abandoned components of
the internal use software project.
Regan Holding Corp. Consolidated
We had a consolidated net loss of $5.7 million during the three months
ended June 30, 2005, compared to a consolidated net loss of $1.0 million during
the same period in 2004. For the six months ended June 30, 2005, we had a
consolidated net loss of $9.0 million compared to a consolidated net loss of
$1.6 million during the same period in 2004. The increased losses of $4.7
million and $7.4 million were primarily due to higher net losses incurred by
Legacy Marketing Group ("Legacy Marketing").
Legacy Marketing
During the three months ended June 30, 2005, Legacy Marketing had a net
loss of $4.8 million, compared to a net loss of $397,000 during the same period
in 2004. For the six months ended June 30, 2005, Legacy Marketing had a net loss
of $7.8 million, compared to a net loss of $584,000 during the same period in
2004. The increased losses were primarily due to decreased revenue, internal use
software impairment losses and an increase in the valuation allowance associated
with the Company's deferred tax assets, partially offset by decreased selling,
general and administrative expenses. Excluding the effect of the internal use
software impairment losses and the increase in the deferred tax asset valuation
allowances, Legacy Marketing's net loss for the three months and six months
ended June 30, 2005, would have been $85,000 and $2.0 million.
During the three months and six months ended June 30, 2005, Legacy
Marketing's commissions and marketing allowances decreased $2.1 million (42%)
and $5.7 million (49%) compared to the same periods in 2004. The decrease was
primarily due to decreased sales of fixed annuities issued by Legacy Marketing's
carriers.
Legacy Marketing experienced a decrease in sales of fixed annuities issued
by Investors Insurance during the three months and six months ended June 30,
2005, compared to the same periods in 2004. We believe the decrease was
primarily attributable to a downgrade in the A.M. Best credit rating of
Investors Insurance from an A- rating to a B++ rating in September 2003. As a
result, sales of fixed annuities issued by Investors Insurance began to decline
significantly in the second quarter of 2004 and continued to decline through the
end of 2004. Revenues from the sales and administration of Investors Insurance
products decreased $786,000 and $2.8 million during the three months and six
months ended June 30, 2005, compared to the same periods in 2004. Revenue from
sales and administration of Investors Insurance products accounted for 21% and
23% of our total consolidated revenue during the three months and six months
ended June 30, 2005.
Legacy Marketing's annuity sales were also negatively affected by
Transamerica Life Insurance Company ("Transamerica") and Legacy Marketing
deciding to discontinue the marketing of Transamerica products that were
marketed exclusively by Legacy Marketing, effective May 3, 2004. The
discontinued products accounted for approximately 19% of our total consolidated
revenue for the three months and six months ended June 30, 2005, and
13
approximately 28% of our total consolidated revenue for the three months and six
months ended June 30, 2004. Revenues derived from sales and administration of
Transamerica products decreased $1.5 million and $3.3 million during the three
months and six months ended June 30, 2005, compared to the same periods in 2004.
Legacy Marketing continues to administer the discontinued products and to accept
additional premium payments, subject to applicable additional deposit rules for
these products.
The low interest rate environment has caused many carriers that issue
declared rate annuities, such as American National Insurance Company ("American
National"), to reduce crediting rates and compensation. As a result, sales of
the American National products in the second quarter and year-to-date of 2005
were lower than in the same periods of 2004. The affected products accounted for
approximately 8% and 9% of our total consolidated revenue for the three months
and six months ended June 30, 2004, and 3% of our total consolidated revenue for
the three months and six months ended June 30, 2005. Revenue derived from sales
and administration of American National products decreased $853,000 and $1.6
million during the three months and six months ended June 30, 2005, compared to
the same periods in 2004.
Administrative fees decreased $438,000 (16%) and $1.1 million (20%) during
the three months and six months ended June 30, 2005, compared to the same
periods in 2004, primarily due to decreased issuing and maintenance fees
resulting from decreased fixed annuity sales.
During the three months and six months ended June 30, 2005, Legacy
Marketing sold and administered products primarily on behalf of three
unaffiliated insurance carriers: American National, Transamerica and Investors
Insurance. As indicated below, the agreements with these carriers generated a
significant portion of our total consolidated revenue:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2005 2004 2005 2004
------ ------ ------ ------
American National 24% 25% 25% 24%
Transamerica 19% 28% 19% 28%
Investors Insurance
Corporation 21% 23% 23% 27%
Legacy Marketing also performs administrative services for products issued
by John Hancock Variable Life Insurance Company and IL Annuity and Insurance
Company.
Our consolidated revenues were derived primarily from sales and
administration of the following annuity products:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2005 2004 2005 2004
------ ------ ------ ------
BenchMark(SM) series (sold on behalf of American National) 23% 24% 24% 23%
SelectMark(R) series (sold on behalf of Transamerica) 19% 28% 19% 28%
MarkOne(SM) series (sold on behalf of Investors Insurance
Corporation) 13% 19% 16% 26%
Excluding the $2.9 million impairment charge for internal use software,
Legacy Marketing's expenses decreased $1.2 million (12%) during the three months
ended June 30, 2005, and $2.9 million (14%) during the six months ended June 30,
2005, compared to the same periods in 2004, primarily due to decreases in
selling, general and administrative expenses. Selling, general and
administrative expenses decreased $1.2 million (14%) and $2.9 million (15%)
during the three months and six months ended June 30, 2005, compared to the same
periods in 2004, primarily due to a decrease in employee compensation as the
result of reduced employee headcount and temporary help.
Legacy Marketing has established a valuation allowance related primarily to
its federal and state deferred tax assets, which increased $1.8 million and $2.8
million for the three months and six months ended June 30, 2005.
14
Legacy Financial Services
During the second quarter of 2005, Legacy Financial Services ("Legacy
Financial") had a net loss of $75,000, compared to a net loss of $12,000 during
the same period in 2004. The increased losses in the second quarter of 2005 were
primarily due to an increase in the valuation allowance against Legacy
Financial's deferred tax assets. For the six months ended June 30, 2005, Legacy
Financial had a net loss of $127,000, compared to a net loss of $108,000 during
the same period in 2004, primarily due to decreased revenues and an increase in
the valuation allowance against Legacy Financial's deferred tax assets,
partially offset by decreased expenses.
Legacy Financial's revenue decreased $95,000 (5%) during the six months
ended June 30, 2005, compared to the same period in 2004, primarily due to a
decrease in administrative and advisory fees. Legacy Financial's expenses
decreased $199,000 (10%) during the six months ended June 30, 2005, compared to
the same period in 2004. The decrease in the expenses was primarily due to a
decrease in selling, general and administrative expenses. Selling, general and
administrative expenses decreased $211,000 (12%) primarily due to decreased
employee compensation expense resulting from reduced temporary help costs and
decreased professional fees.
Legacy Financial has established a valuation allowance related primarily to
its federal and state deferred tax assets, which increased $78,000 and $77,000
for the three months and six months ended June 30, 2005.
Imagent Online, LLC
Imagent Online, LLC ("Imagent") had a net loss of $662,000 during the three
months ended June 30, 2005, compared to a net loss of $137,000 during the same
period in 2004. During the six months ended June 30, 2005, Imagent had a net
loss of $907,000, compared to a net loss of $278,000 during the same period in
2004. The increased losses were primarily due to increased expenses and an
increase in the valuation allowance against Imagent's deferred tax assets.
Expenses went up $247,000 (83%) and $411,000 (69%) during the three months and
six months ended June 30, 2005, compared to the corresponding 2004 periods,
primarily due to increased employee compensation resulting from an increase in
headcount and increased depreciation expense.
Imagent has established a valuation allowance related to its federal and
state deferred tax assets, which increased $319,000 for the three months and six
months ended June 30, 2005.
Values Financial Network, Inc.
Values Financial Network, Inc. ("VFN") had a net loss of $133,000 during
the three months ended June 30, 2005, compared to a net loss of $503,000 during
the same period in 2004. During the six months ended June 30, 2005, VFN had a
net loss of $196,000, compared to a net loss of $599,000 during the same period
in 2004. The decreased losses were primarily due to higher expenses in the six
months ended June 30, 2004, largely as a result of goodwill impairment losses of
$679,000 recorded during that period. Other VFN operating expenses decreased
$75,000 (44%) and $128,000 (38%) during the three months and six months ended
June 30, 2005, compared to the same periods in 2004, primarily due to decreased
wages and professional fees.
During the second quarter of 2004, due to the failure of VFN to produce
revenues as projected, particularly in the corporate arena, management decided
to cease actively marketing to the corporate market. As a result, management
lowered its expectations for future sales. This event met the criteria of a
"triggering event" for testing the recoverability of long-lived assets as
required by Statement of Financial Accounting Standards No. 144 ("SFAS 144")
"Accounting for the Impairment or Disposal of Long-Lived Assets". Accordingly,
we compared the carrying amount of VFN's long-lived assets to the projected sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset group. Based on the fact that the sum of the
undiscounted cash flows exceeded VFN's assets, we concluded no impairment had
occurred to the long-lived assets.
As a result of performing the impairment tests required under SFAS 144, we
were then required under the provisions of SFAS 142 to perform a goodwill
impairment test using the revised cash flows forecast discounted at an
appropriate cost of capital. The results of this test indicated that the
goodwill was not recoverable. Accordingly, we recorded a goodwill impairment
loss of $679,000 during the second quarter of 2004.
15
Liquidity and Capital Resources
Net cash used in operating activities was $2.9 million for the six months
ended June 30, 2005, compared to net cash used in operating activities of $1.5
million for the same period in 2004. The change was primarily due to decreased
operating results, a smaller decrease in accounts receivable in the six months
ended 2005 compared to the same period in 2004, decreased deferred compensation
payable, and a decrease in other operating liabilities. These amounts were
partially offset by increased accounts payable and accrued liabilities and
proceeds from the sale of trading securities.
Net cash used in investing activities was $1.8 million for the six months
ended June 30, 2005, compared to net cash used in investing activities of $2.8
million for the six months ended June 30, 2004. The favorable change was
primarily due to reduced purchases of fixed assets, which was mainly
attributable to significant software purchases and construction costs related to
our servicing facility in Rome, Georgia during the first quarter of 2004. This
favorable change was partially offset by a decrease in proceeds from the sales
and maturities of available-for-sale securities in the six months ended June 30,
2005, compared to the same period in the previous year.
Net cash provided by financing activities was $1.4 million for the six
months ended June 30, 2005, compared to net cash provided by financing
activities of $1.9 million for the six months ended June 30, 2004. The decrease
was mainly due to net loan proceeds received in the six months ended 2004, which
were primarily related to the loan on our servicing facility in Rome, Georgia.
The decrease was partially offset by an increase in proceeds from loans received
from our investment broker in the six months ended June 30, 2005.
During 2003, we began construction of a new building in Rome, Georgia and
established a $2.7 million loan facility to finance construction costs. During
April 2004, we refinanced our construction loan, replacing it with a $2.9
million variable interest rate note indexed to the 30-day LIBOR plus 1.9%. The
note is payable over ten years in monthly installments of principal, amortized
on the basis of a 20-year term, and interest. At the end of the ten years, we
must pay the balance of the principal due on the note. The outstanding balance
of the note as of June 30, 2005, was $2.8 million. To manage interest expense,
we entered into an interest rate swap agreement with a notional amount equal to
the principal balance of the note, which modifies its interest expense from a
variable rate to a fixed rate. The April 2004 swap agreement involves the
exchange of interest obligations from April 2004 through April 2014 whereby we
pay a fixed rate of 6.8% in exchange for a variable rate indexed to the 30-day
LIBOR plus 1.9%.
We used $2.9 million of cash in our operations and incurred consolidated
net losses of $9.0 million during the six months ended June 30, 2005. If our
consolidated net losses continue, or if requests to repurchase redeemable common
stock increase significantly, a cash shortfall could ultimately occur. We
believe that existing cash and investment balances, together with anticipated
cash flow from operations, proceeds from the pending sale of our office
buildings in Petaluma, California, and the refund of option fees paid to SCOR
will provide sufficient funding for the foreseeable future. Furthermore, we have
lowered our cost structure by reducing our employee headcount and eliminating
consulting costs on several corporate initiatives. However, in the event that a
cash shortfall does occur, we believe that adequate financing could be obtained
to meet our cash flow needs. There can be no assurances that such financing
would be available on favorable terms.
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risk, interest rate risk,
credit risk, or equity price risk since December 31, 2004. Please see our Annual
Report on Form 10-K for the year ended December 31, 2004 for more information
concerning Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended) designed to ensure
that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and executed, can provide only
reasonable assurance of achieving the desired control objectives. As of June 30,
2005, our Chief Executive Officer and Chief Financial Officer evaluated, with
the participation of our management, the effectiveness of our disclosure
controls and procedures. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this report.
Our management, including the Chief Executive Officer and the Chief Financial
Officer, also evaluated our internal control over financial reporting to
determine whether any changes occurred during the quarter covered by this report
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. Based on that evaluation, there
have been no such changes during the period covered by this report.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not involved in any material pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer
Purchases of Equity Securities
As described in our Annual Report on Form 10-K for the year ended December 31,
2004, we are obligated to redeem certain shares of Series A Common Stock and
Series B Common Stock at the election of the holders of such shares upon the
receipt of such elections. During the second quarter of 2005, we purchased
shares as specified below. We have not publicly announced a plan or program to
buy back shares of our Common Stock and have no control over the amount or
timing of purchases we are required to make under the redemption provisions and
subject to applicable law. All purchases listed below were of redeemable Common
Stock we were obligated to purchase when holders of redeemable shares exercised
their right to put the shares to the Company in accordance with their terms.
ISSUER PURCHASES OF EQUITY SECURITIES
(c) Total
Number of (d) Maximum
Shares Number (or
Purchased as Approximate Dollar
(a) Total Part of Publicly Value) of Shares that
Number of (b) Average Announced May yet be Purchased
Shares Price Paid Plans or under the Plans or
Period Purchased per Share Programs (2) Programs (2)
- --------------------- ------------ -------------- ---------------- ---------------------
May 1, 2005
through
May 31, 2005 46,000 (1) $ 2.03 N/A N/A
June 1, 2005
through
June 30, 2005 46,000 (1) $ 2.03 N/A N/A
- --------------------- ------------ -------------- ---------------- ---------------------
Total 92,000 $ 2.03
(1) Purchased in satisfaction of our obligation to redeem redeemable
shares of Common Stock.
(2) Not applicable. We do not currently have in place any publicly
announced plans or programs to purchase our outstanding equity
securities.
18
Item 4. Submission of Matters to a Vote of Security Holders
The following matter was submitted to a vote of our shareholders at the
Annual Meeting of Shareholders held on June 13, 2005:
For Against Abstain/Withheld
--- ------- ----------------
1. Election of five (5)
Directors to hold office
until the Annual Meeting
of Shareholders in 2006
and until their
successors are duly
elected. The nominees are
listed as follows:
a. Lynda L. Regan 13,848,612 -- 19,912
b. R. Preston Pitts 13,846,345 -- 22,179
c. Ute Scott-Smith 13,739,375 -- 129,149
d. J. Daniel Speight, Jr. 13,844,950 -- 23,574
e. Dr. Donald Ratajczak 13,844,967 -- 23,557
Item 6. Exhibits
Exhibit 31.1 Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act.
Exhibit 31.2 Certification of Chief Financial Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
19
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 15, 2005 Signature: /s/ R. Preston Pitts
---------------------------
R. Preston Pitts
President, Chief Operating
Officer and Chief Financial
Officer
20
INDEX TO EXHIBITS
Number Description
- ------ -----------
Exhibit 31.1 Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act.
Exhibit 31.2 Certification of Chief Financial Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
21