SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995
Commission File Number 1-8538
WESTBRIDGE CAPITAL CORP.
(Exact name of Registrant as specified in its Charter)
DELAWARE 73-1165000
(State of Incorporation) (I.R.S. Employer Identification No.)
777 Main Street, Fort Worth, Texas 76102
(Address of Principal Executive Offices) (Zip Code)
817-878-3300
(Registrant's Telephone Number, including Area Code)
Not Applicable
(Former Name, Address and Former Fiscal Year, if changed since Last Report)
Indicate, by check mark whether the Registrant (l) 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_____
Common Stock - Par Value $.10 5,948,758 Shares Outstanding at May 12, 1995
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Form 10-Q
Company or group of companies for which report is filed:
WESTBRIDGE CAPITAL CORP.
This quarterly report, filed pursuant to Rule 13a-13 and 15d-13 of the
General Rules and Regulations under the Securities Exchange Act of l934,
consists of the following information as specified in Form 10-Q:
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Page(s)
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Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements.
1. Consolidated Balance Sheets at March 31, 1995,
December 31, 1994 and March 31, 1994. 3-4
2. Consolidated Statements of Operations for the
Three Months Ended March 31, 1995 and 1994. 5
3. Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994. 6-7
4. Notes to Consolidated Financial Statements. 8-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-16
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings. 17
Item 6 - Exhibits and Reports on Form 8-K. 17
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<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
<S> <C> <C> <C>
Investments:
Fixed maturities:
Available-for-sale, at market
value (amortized cost $11,187,
$11,310 and $15,047) $ 11,051 $ 10,787 $15,509
Held-to-maturity, at amortized
cost (market value $77,806,
$75,238 and $36,515) 80,113 80,377 36,551
Equity securities, at market 470 469 466
Investment in Freedom Holding Company,
on the equity basis 5,915 5,945 5,685
Mortgage loans on real estate 749 768 832
Investment real estate 141 141 141
Policy loans 287 291 285
Short-term investments 6,609 7,189 179
------- ------- ------
Total Investments 105,335 105,967 59,648
Cash 1,010 2,871 1,226
Notes receivable from related parties - - 37
Accrued investment income 1,703 1,924 1,085
Receivables from agents, net of
allowance for doubtful accounts 9,239 7,353 5,167
Deferred policy acquisition costs 61,610 58,654 31,847
Leasehold improvements and equipment, at
cost, net of accumulated depreciation
and amortization 1,490 1,215 565
Other assets 9,974 9,597 3,993
------- ------- -------
Total Assets $190,361 $187,581 $103,568
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
<S> <C> <C> <C>
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 63,200 $ 62,893 $ 34,684
Claims 40,355 41,387 11,389
------- ------- -------
103,555 104,280 46,073
Accumulated policyholders' funds 362 372 364
Other liabilities 7,870 8,678 6,718
Deferred income taxes 2,968 3,231 2,817
Senior subordinated debentures,
net of unamortized discount - 24,665 24,480
Senior subordinated notes, net of
unamortized discount due, 2002 19,206 - -
------- ------- ------
Total Liabilities 133,961 141,226 80,452
Redeemable Preferred Stock 20,000 20,000 -
Stockholders' Equity:
Common stock, ($.10 par value, 30,000,000
shares authorized; 5,949,758, 4,430,458
and 4,315,373 shares issued) 595 443 432
Capital in excess of par value 29,125 19,328 19,541
Unrealized appreciation (depreciation) of
investments carried at market value 45 (147) 501
Retained earnings 6,805 6,901 2,812
------ ------ ------
36,570 26,525 23,286
Less - Aggregate of shares held in
treasury and investment by affiliate
in Westbridge Capital Corp. common
stock (28,600 shares at March 31, 1995,
December 31, 1994 and March 31, 1994,)
at cost (170) (170) (170)
------- ------- -------
Total Stockholders' Equity 36,400 26,355 23,116
Total Liabilities, Redeemable Preferred
Stock and Stockholders' Equity $190,361 $187,581 $103,568
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
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WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Revenues:
Premiums:
First-year $ 5,959 $ 2,755
Renewal 21,975 14,446
------ ------
27,934 17,201
Net investment income 1,820 872
Fee and service income 432 445
Net realized gains (losses) on investments (61) 62
Other income 6 3
------ ------
30,131 18,583
------ ------
Benefits, claims and expenses:
Benefits and claims 16,328 8,255
Amortization of deferred policy acquisition costs 2,890 1,509
Commissions 3,099 2,334
General and administrative expenses 5,052 3,618
Taxes, licenses and fees 1,080 592
Interest expense 720 681
------ ------
29,169 16,989
------ ------
Income before income taxes, equity in earnings of
Freedom Holding Company and extraordinary item 962 1,594
Provision for income taxes 327 533
Equity in Freedom Holding Company 89 85
------ ------
Net income before extraordinary item 724 1,146
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $210 407 -
------ ------
Net income $ 317 $ 1,146
====== ======
Preferred stock dividends 413 -
Income (loss) applicable to common stockholders $ (96) $ 1,146
====== ======
Earnings per common share:
Primary:
Income before extraordinary item $ .06 $ .25
Extraordinary item (.08) -
------ ------
Net earnings (loss) $ (.02) $ .25
====== ======
Fully diluted:
Income before extraordinary item $ .10 $ .25
Extraordinary item (.06) -
------ ------
Net earnings $ .04 $ .25
====== ======
Weighted average shares outstanding:
Primary 5,125,000 4,625,000
Fully diluted 7,444,000 4,625,000
<FN>
The accompanying notes are an integral part of these financial statements.
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WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 317 $ 1,146
Adjustments to reconcile net income to cash
used for operating activities:
Decrease in policy liabilities and accruals (725) (2,224)
Amortization of deferred policy acquisition costs 2,890 1,509
Additions to deferred policy acquisition costs (5,846) (1,867)
Increase (decrease) in deferred income taxes (263) 334
Depreciation expense 111 63
Increase in receivables from agents (1,886) (217)
Increase in other assets (377) (653)
Equity in earnings of Freedom Holding Company 30 (85)
Decrease in other liabilities (808) (953)
Other, net (31) 271
----- -----
NET CASH USED FOR OPERATING ACTIVITIES (6,588) (2,676)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from investments sold:
Fixed maturities, classified as
hold-to-maturity, called or matured 248 -
Fixed maturities, classified as
available-for-sale, called or matured 13 1,175
Fixed maturities, classified as
available-for-sale, sold 952 2,933
Short-term investments, sold or matured 2,934 1,473
Other investments, sold or matured 24 34
Cost of investments acquired (3,207) (8,204)
Notes receivable from related parties - 1,344
Additions to leasehold improvements and
equipment, net of retirements (386) (64)
----- -----
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 578 (1,309)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (retirement) of debentures, at par (25,000) 5,000
Issuance of subordinated notes 19,200 -
Issuance of common stock 9,949 82
Purchase and cancellation of common stock - (19)
------ ------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,149 5,063
------ ------
INCREASE (DECREASE) IN CASH DURING PERIOD (1,861) 1,078
CASH AT BEGINNING OF PERIOD $ 2,871 $ 148
------ -----
CASH AT END OF PERIOD $ 1,010 $ 1,226
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for (in thousands):
Interest $ 1,778 $ 1,200
Income taxes $ 3 $ -
<FN>
The accompanying notes are an integral part of these financial statements.
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WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental Schedule Of Non-Cash Investing Activities:
The Company purchased a block of supplemental health insurance in the first
quarter of 1994. This purchase resulted in the Company disbursing assets and
assuming the liabilities as follows:
<S> <C>
Investments $ 545,000
Policy reserves $2,626,000
<FN>
The accompanying notes are an integral part of these financial statements.
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WESTBRIDGE CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements for Westbridge
Capital Corp. ("Westbridge" and, together with its consolidated subsidiaries,
the "Company") have been prepared in accordance with the instructions to Form
10-Q and do not include all of the information and footnotes required by
generally accepted accounting principles ("GAAP") for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1995 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1995. The financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
In the normal course of their business operations, National Foundation Life
Insurance Company ("NFL"), National Financial Insurance Company ("NFI"), and
American Insurance Company of Texas ("AICT"), Westbridge's primary insurance
subsidiaries, are involved in various claims and other business related
disputes. In the opinion of management, the disposition of these matters
will have no material adverse effect on the Company's consolidated financial
position.
NOTE 3 - ACQUISITION OF NFI AND AICT
On April 12, 1994, Westbridge consummated the acquisition (the "Acquisition")
of all of the outstanding capital stock of NFI and its wholly owned
subsidiary AICT. NFI and AICT are health insurers domiciled in the state of
Texas. The Acquisition has been accounted for under the purchase method and,
accordingly, the operating results of NFI and AICT have been included in the
consolidated operating results since the date of acquisition.
NOTE 4 - FINANCING ACTIVITY
On February 28, 1995, the Company issued 1,500,000 shares of its Common Stock
in an underwritten public offering. The shares of Common Stock were issued
at a price of $7.00 per share, less an underwriting discount of $.42 per
share.
Also on February 28, 1995, the Company issued $20,000,000 aggregate principal
amount of its 11% Senior Subordinated Notes due 2002 (the "Notes"), in an
under-written public offering. The Notes were issued at par, less an
underwriting discount of 4%.
The Company may redeem the Notes at any time on or after March 1, 1998, upon
30 days' written notice, at par plus accrued interest. Upon the death of any
holder of the Notes, the Company will repay such holder's Notes at par plus
accrued interest. The Company is not obligated to redeem more than $50,000
in principal amount per holder per calendar year or in aggregate for all
<PAGE>
holders more than $250,000 in principal amount per calendar year. The Notes
contain certain covenants which limit the Company's ability to, (i) incur
certain types of indebtedness, (ii) pay dividends or make distributions to
holders of the Company's equity securities, or (iii) consolidate, merge, or
transfer all or substantially all of the Company's assets. The Notes also
contain covenants which require the Company to maintain, (i) a minimum amount
of liquid assets, (ii) a minimum consolidated net worth, and (iii) a minimum
fixed charge ratio.
Concurrent with the Common Stock and Note offerings, on February 28, 1995 the
Company placed funds in escrow sufficient to cover all remaining principal
and interest payments on its outstanding 11.7% Senior Subordinated Debentures
due 1996, which were called for redemption on March 30, 1995. The redemption
price was par plus accrued interest. This redemption prior to scheduled
maturity resulted in a loss from early extinguishment of debt. The loss
related to amortization of the remaining original issue discount and write-
off of deferred financing costs, offset in part by interest earned on the
funds in escrow. This loss is reported, net of tax, as an extraordinary item
on the accompanying statement of operations.
As a result of the issuance of the Common Stock, the conversion rate of the
Series A Preferred Stock has been adjusted. The Series A Preferred Stock is
now convertible into 2,378,120 shares of Common Stock.
NOTE 5 - EARNINGS PER SHARE
Primary income before extraordinary item. Calculated by dividing net income
before extraordinary item, less preferred stock dividends, by primary
weighted average shares outstanding. Primary weighted average shares
outstanding do not assume the conversion to Common Stock of the Series A
Preferred Stock
Fully diluted income before extraordinary item. Calculated by dividing net
income before extraordinary item by fully diluted weighted average shares
outstanding. The preferred stock dividend is not deducted from income for the
fully diluted calculation, but the fully diluted averages shares outstanding
number is larger. The fully diluted calculation assumes the conversion of
the Series A Preferred Stock to Common Stock at the beginning of the period.
Were such a conversion to occur a) preferred dividends would not be paid,
and are therefore not deducted from earnings for the calculation and b) there
would be a greater number of shares of Common Stock outstanding as a result
of the conversion.
At March 31, 1995, the Series A Preferred Stock was convertible to Common
Stock at a conversion price of $8.41, which would result in 2,378,120
additional shares of Common Stock upon conversion.
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WESTBRIDGE CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND COMPARABILITY OF PERIODS
Westbridge Capital Corp. ("Westbridge" and, together with its consolidated
subsidiaries, the "Company") through its subsidiaries and affiliated
companies, principally underwrites and sells specialized health insurance
products to supplement medical expense coverage usually provided by employers
and government programs. The Company's insurance subsidiaries and affiliates
include the following:
* National Foundation Life Insurance Company ("NFL") - A wholly-owned
subsidiary of the Company which is engaged primarily in the sale of
accident and health insurance.
* National Financial Insurance Company ("NFI") and its wholly-owned
subsidiary, American Insurance Company of Texas ("AICT") - These
companies were acquired by the Company in April, 1994 (the
"Acquisition"). NFI and AICT are engaged in the sale of new
policies and the administration of blocks of insurance business
which are substantially similar to the business administered by NFL.
* Freedom Holding Company ("FHC") - The Company owns a 40% interest
in FHC, which in turn, owns 100% of Freedom Life Insurance Company
of America ("FLICA"). FLICA is engaged primarily in the sale of
Cancer and Specified Disease Products.
The Company's major product lines are Cancer and Specified Disease Products,
Medical Expense Products and Medicare Supplement Products. Cancer and
Specified Disease Products include policies designed to provide daily
indemnity for hospital confinement and convalescent care for treatment of
specified diseases, as well as "event specific" policies designed to provide
daily indemnity for confinement in an intensive care unit or to provide a
fixed benefit in the case of accidental death. Medical Expense Products
include policies providing reimbursement for various costs of medical and
hospital care, catastrophic nursing care and home health care. Medicare
Supplement Products are designed to reimburse for the expenses not covered by
the Medicare program.
The Company also derives revenue through fee and service income from other
insurance related activities. The Company's marketing subsidiaries include
the following:
* LifeStyles Marketing Group, Inc. ("LMG") - LMG is an insurance
marketing joint venture which derives fee income in the form of
commissions on sales of Medical Expense Products primarily for NFL
but also for non-affiliated insurance carriers. LMG is 51% owned by
the Company.
* Senior Benefits, LLC ("SBL") - SBL is an insurance marketing joint
venture which derives fee income in the form of commissions on sales
of Medicare Supplement Products for NFL. SBL was formed in
November, 1993.The Company holds a 50% ownership interest in SBL.
<PAGE>
* American Senior Security Plans, LLC ("ASSP") - ASSP is an insurance
marketing joint venture which derives fee income in the form of
commissions on sales of Medicare Supplement Products for NFI. ASSP
was formed in November, 1994. The Company holds a 50% ownership
interest in ASSP.
Due to the size and the timing of the Acquisition, the Company's results of
operations for the three months ended March 31, 1995 compared to the
corresponding period in the prior year show significant increases in certain
revenues and expenses. Generally, as a result of the acquisition of policies
in force, and the transfer of assets and liabilities relating thereto, the
Company receives higher revenues in the form of premiums, net investment
income and net realized gains on investments, and experiences higher expenses
in the form of benefits and claims, amortization of DPAC, commissions and
general and administrative expenses. The Company expects that the levels of
premiums, net investment income, net realized gains on investments, benefits
and claims, amortization of DPAC, commissions and general and administrative
expenses attributable to these acquired policies will continue to decline
over time as the acquired businesses run off.
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The following table shows the premiums received by the Company through
internal sales and through acquisitions during the periods indicated.
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Company-Issued Policies:
First-year premiums $ 5,922 $ 2,750
Renewal premiums 8,700 8,838
------ ------
Total Company-issued policies 14,622 11,588
------ ------
Acquired Policies:
American Integrity 2,881 3,963
Life and Health 552 653
Dixie National Life 927 997
NFI and AICT 8,952 -
------ ------
Total acquired policies 13,312 5,613
------ ------
Total Premiums $27,934 $17,201
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During the three months ended March 31, 1995, the Company incurred an
extraordinary loss of $407,000, or $.06 per fully diluted share, as a result
of the Company's early redemption of its 11.7% Senior Subordinated
Debentures. In addition, the Company experienced significantly lower net
income before the extraordinary item from the prior year period. The decrease
in net income before the extraordinary item resulted primarily from an
increase in expenses due to the Company's increased marketing efforts. The
Company has recently expanded its agency network from four to ten agencies
and, in anticipation of increased premiums, incurred expenses relating to
marketing activities. Due to the normal lag between the incurrence of these
expenses and the expected additional premiums, overall expenses as a
percentage of revenue increased significantly during the quarter. The
Company expects to receive additional premiums sufficient to offset these
increased expenses by the end of 1995, however no assurance can be given that
sufficient premiums will be received.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 Compared With Three Months Ended March 31,
1994
Premiums. Premiums increased $10.7 million, or 62.4%, from $17.2 to $27.9
million. This increase was due primarily to an increase in total acquired
policy premiums of $7.7 million, or 137.2%, and an increase in first-year
premiums for Company-issued policies of $3.2 million, or 115.3%
The increase in total acquired policy premiums resulted from premiums of $9.0
million from the policies obtained in the Acquisition, offset by decreases in
other acquired blocks of $1.3 million, or 22.3%, due to policy lapses or
cancellations.
The increase in first-year premiums resulted primarily from increases of
$2.2 million, or 785.6%, in first-year Medicare Supplement premiums generated
by Senior Benefits and $850,000, or 340.0%, in first-year premiums on
policies reinsured from FLICA, and $207,000 of first-year Medical Expense
premiums written in NFI and AICT.
The decrease in renewal premiums (excluding renewal premiums on policies
acquired in acquisitions) was primarily due to a decrease of $235,000, or
30.6%, for pre-1987 Medical Expense Products, and a decrease of $143,000, or
4.1%, for Cancer and Specified Disease Products written directly by the
Company. These decreases were offset, in part, by an increase of $226,000,
or 10.1%, in renewal premiums for Medical Expense Products sold by LifeStyles
Marketing.
Net Investment Income. Net investment income increased $948,000, or 108.7%,
from $872,000 to $1.8 million due primarily to investment income of $937,000
earned on the investment assets acquired in the Acquisition.
Fee and Service Income. Fee and service income remained relatively
consistent with the comparable 1994 period.
Benefits and Claims. Benefits and claims increased $8.1 million, or 97.8%,
from $8.3 million to $16.3 million. This increase was due primarily to
benefits and claims of $6.2 million on the policies acquired in the
Acquisition, and $2.4 million on the Medicare Supplement Products marketed by
Senior Benefits which was insignificant in the corresponding period in 1994.
Also contributing was an increase in benefits and claims of $1.0 million, or
414.4%, for Cancer and Specified Disease Products reinsured from FLICA.
These increases were offset, in part, by decreases in benefits and claims of
$857,000, or 27.6%, for the previously acquired Medicare Supplement Products,
and $1.0 million, or 71.6%, for Cancer and Specified Disease Products issued
directly by the Company.
Amortization of DPAC. Amortization of DPAC increased $1.4 million, or 91.5%,
from $1.5 million to $2.9 million. This increase was due primarily to $1.1
million of amortization expense attributable to the policies acquired in the
Acquisition, which was not present in the corresponding period in 1994. Also
contributing were increases in amortization of DPAC of $138,000 or 113.1% for
Cancer and Specified Disease Products reinsured from FLICA, $100,000 or 20.1%
for LifeStyles Products, and $97,000 or 178.4% for Medicare Supplement
Products marketed by Senior Benefits.
Commissions. Commissions increased $765,000, or 32.8%, from $2.3 million to
<PAGE>
$3.1 million due primarily to $747,000 of commissions on the policies
acquired in the Acquisition, and to an increase of $18,000, or 0.8% in other
commissions.
Before elimination of intercompany revenues and expenses in consolidation,
commissions increased $147,000, or 5.2%, in NFL and increased $5,000, or
0.1%, in LifeStyles Marketing. An increase of $13,000, or 0.1%, in
commissions paid to LifeStyles Marketing by NFL was eliminated in
consolidation.
The increase in commissions paid by NFL resulted primarily from an increase
of $253,000 on Medicare Supplement Products marketed by Senior Benefits,
which was not significant in the comparable 1994 period, and by an increase
of $162,000 or 48.6% on Cancer and Specified Disease Products reinsured from
FLICA. These increases were offset, in part, by decreases of $170,000 or
26.4% on the previously acquired Medicare Supplement Products, and $46,000 or
4.8% on Cancer and Specified Disease Products issued directly by the Company.
General and Administrative Expenses. General and administrative expenses
increased $1.4 million, or 39.6%, from $3.6 million to $5.1 million due
primarily to the costs associated with the administration of the policies
acquired in the Acquisition and to costs associated with increased marketing
operations.
Taxes, Licenses and Fees. Taxes, licenses and fees increased $488,000, or
82.4%, from $592,000 to $1.1 million due primarily to the additional taxes on
the premiums associated with the policies acquired in the Acquisition.
Interest Expense. Interest expense remained relatively consistent with the
comparable 1994 period. The remaining 1995 periods should reflect lower
interest expense as a result of issuing $20,000,000 of 11% debt, and retiring
$25,000,000 of 11.7% debt in the first quarter of 1995.
Provision for Income Taxes. The provision for income taxes decreased
$206,000, or 38.6%, from $533,000 to $327,000 due primarily to the decrease
in pre-tax income.
<PAGE>
FINANCIAL CONDITION
Liquidity and Capital Resources
Westbridge
Westbridge is a holding company which conducts its principal operations
through its insurance subsidiaries. Westbridge's primary assets consist of
the outstanding capital stock of NFL and NFI, of which it is the sole
stockholder. NFL also owns a 40% interest in Freedom Holding Company. AICT
is a wholly-owned subsidiary of NFI. Westbridge's primary sources of funds
are dividends from its insurance subsidiaries, advances due from
subsidiaries, principal and interest payments on a surplus certificate issued
by NFL to Westbridge, lease payments on fixed assets and tax contributions
under a tax sharing agreement among Westbridge and its subsidiaries.
Additional cash is periodically provided from the sale of short-term
investments. Management expects that Westbridge may, for the foreseeable
future, rely to a significant extent on dividends from its insurance
subsidiaries to meet its obligations. Westbridge's obligations consist
primarily of interest payments on the Senior Subordinated Notes, dividends on
the Series A Preferred Stock and taxes. The Senior Subordinated Notes mature
in March 2002 and the Series A Preferred Stock is subject to mandatory
redemption in April, 2004.
Dividend payments from Westbridge's principal insurance subsidiaries, NFL,
NFI and AICT are regulated by the insurance laws of their domiciliary states.
NFL is domiciled in Delaware. Under the Delaware Insurance Code, an insurer
domiciled in Delaware may not declare or pay a dividend or other distribution
from any source other than "earned surplus" without the state insurance
commissioner's prior approval. NFI and AICT are domiciled in Texas. An
insurer domiciled in Texas may pay dividends only out of "surplus profits
arising from its business." Moreover, insurers domiciled in either Delaware
or Texas may not pay "extraordinary dividends" without first providing the
state insurance commissioner with 30-days prior notice, during which time
such commissioner may disapprove the payment.
In September 1994, NFL paid to Westbridge an extraordinary dividend in the
amount of $2.0 million. The Company does not believe that receipt of this
dividend is an indication of, and the Company is not in a position to assess,
the likelihood of obtaining approval for the payment of extraordinary
dividends in the future.
As of December 31, 1994, NFL had negative earned surplus as a result of
historical losses. Regardless of this negative earned surplus, for the fore-
seeable future, NFL must seek the approval of the Delaware insurance
commissioner prior to making any dividend payments. As of December 31, 1994,
AICT had the ability to pay to NFI, without prior regulatory approval,
$641,000 in dividends during 1995, none of which has been paid. As of
December 31, 1994, NFI has the ability to pay Westbridge, without prior
regulatory approval, $1.1 million in 1995, none of which has been paid.
Westbridge believes that its near-term cash requirements, including interest
payments on the Senior Subordinated Notes and dividend payments on the Series
A Preferred Stock will be met through operating cash flows, repayments of
advances due from subsidiaries, payments relating to the surplus certificate
and dividends received from the Insurance Subsidiaries.
<PAGE>
Insurance Subsidiaries
The primary sources of cash for the insurance subsidiaries are premiums,
income on investment assets and fee and service income. Additional cash is
periodically provided from the sale of short-term investment assets and
could, if necessary, be provided through the sale of long-term investment
assets. However, the Company's investment policy is to hold its long-term
securities to maturity. The insurance subsidiaries' primary uses for cash
are benefits and claims, commissions, general and administrative expenses and
taxes.
Consolidated
A significant portion of the Company's premiums for the three months ended
March 31, 1995 related to policies obtained through closed blocks of
insurance policies and through the Acquisition. Renewal premiums from these
closed blocks of business will decline over time due to policy run-off
resulting from lapses and cancellations. In order to offset such run-off,
the Company must issue new policies through its existing general agency
networks or through new agency networks, or acquire additional policies. In
an effort to expand the marketing of its products, the Company has had
discussions with other general agency networks. Any such expansion may
involve the creation of new subsidiaries, joint ventures or similar business
arrangements, and is expected to involve cash expenditures by the Company.
There can be no assurance that any such additional relationships will be
formed or, if formed, that they will result in increased sales or be
profitable for the Company.
Net cash used for operations aggregated $6.6 million in the first quarter of
1995 compared to $2.7 million for the first quarter of 1994. This increase
was primarily a result of increases to deferred policy acquisition costs and
receivables from agents resulting from higher levels of new business
production compared to the same period in the prior year.
Net cash provided by investing activities for the three months ended March
31, 1995, totaled $578,000, compared to net cash used for investing
activities of $1.3 million in the same 1994 period. This difference was
primarily the result of more cash generated from the sale or maturity of
investment assets in the 1995 period than was used for the purchase of
investment assets. In the comparable 1994 period, more cash was used for the
purchase of investment assets than was generated from the sale or maturity of
investment assets. This was partially offset, in 1994, by cash generated
from the repayment of notes receivable from related parties.
Net cash provided by financing activities was $4.1 million for the three
months ended September 30, 1994, compared to $5.1 million for the prior year
first quarter. In the 1995 first quarter, a total of $29.1 million of cash
was provided by the issuance of 1,500,000 shares of Common Stock, and $20.0
million principal amount of Senior Subordinated Subordinated Notes, due 2002.
Also in the 1995 first quarter, $25.0 million of cash was used to retire,
prior to maturity, the 11.7% Senior Subordinated Debentures due 1996. In the
1994 first quarter, $5.0 million of cash was provided from the sale by NFL,
to a non-affiliated party, of $5.0 million principal amount of Senior
Subordinated Debentures, which had previously been held by NFL in its
investment portfolio.
The Company believes that its near-term cash requirements will be met through
<PAGE>
a combination of operating and investing cash flows. The Company anticipates
that its longer-term cash requirements for the operation of the business will
also be met through a combination of operating and investing cash flows.
Additional capital may be necessary to consummate future growth through
acquisitions. There can be no assurance that opportunities for future
opportunities for acquisitions will arise or that additional capital to
consummate such acquisitions will be available.
The Company had no significant high-yield, unrated or less than investment
grade corporate debt securities in its investment portfolio as of March 31,
1995 and it is the Company's policy not to invest in such assets. Changes in
interest rates may affect the market value of the Company's investment
portfolio. The Company's policy is to hold its investments to maturity and,
therefore, absent redemptions of such investments prior to maturity, or loss
experience materially in excess of, or at times materially sooner than
expected, such changes should not impact the Company's ability to meet its
future policyholder benefit obligations.
<PAGE>
Part II
ITEM 1 - Legal Proceedings (see Part I - Note 2 to the Consolidated
Financial Statements)
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
No Form 8-K was required to be filed during the period.
<PAGE>
Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WESTBRIDGE CAPITAL CORP.
/s/ Michael C. Batte
Michael C. Batte
Vice President, Chief Financial
Officer and Treasurer
(On Behalf of the Registrant and as
Principal Financial and Accounting
Officer)
Dated at Fort Worth, Texas
May 15, 1995
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
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