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 Quarterly Period Ended June 30, 1995
Commission File Number 1-8538
WESTBRIDGE CAPITAL CORP.
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(Exact name of Registrant as specified in its Charter)
DELAWARE 73-1165000
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(State of Incorporation) (I.R.S. Employer Identification No.)
777 Main Street, Fort Worth, Texas 76102
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(Address of Principal Executive Offices) (Zip Code)
817-878-3300
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(Registrant's Telephone Number, including Area Code)
800-437-8690
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(Registrant's Shareholder and Investor Relations Toll Free Telephone Number)
Not Applicable
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(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 l934 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 $.l0
5,986,458 Shares Outstanding at August 10, 1995
<PAGE>
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:
<TABLE>
<CAPTION>
Pages(s)
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements.
1. Consolidated Balance Sheets at June 30, 1995,
December 31, 1994 and June 30, 1994. 3-4
2. Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1995 and 1994. 5
3. Consolidated Statements of Cash Flows for the
Three and Six Months Ended June 30, 1995 and 1994. 6-7
4. Notes to Consolidated Financial Statements. 8-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11-17
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings. 18
Item 4 - Results of Votes of Security Holders. 18
Item 6 - Exhibits and Reports on Form 8-K. 18
</TABLE>
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<TABLE>
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
<S> <C> <C> <C>
Investments:
Fixed maturities:
Available-for-sale, at market
value (amortized cost $11,149
$11,310 and $12,620) $ 11,617 $ 10,787 $ 12,546
Held-to-maturity, at amortized
cost (market value $78,024
$75,238 and $75,322) 76,882 80,377 77,289
Equity securities, at market 547 469 465
Investment in Freedom Holding Company,
on the equity basis 6,001 5,945 5,771
Mortgage loans on real estate 732 768 806
Investment real estate 141 141 141
Policy loans 289 291 286
Short-term investments 3,192 7,189 15,005
------- ------- -------
Total Investments 99,401 105,967 112,309
Cash 92 2,871 2,662
Accrued investment income 1,771 1,924 2,102
Receivables from agents, net of
allowance for doubtful accounts 11,150 7,353 5,482
Deferred policy acquisition costs 48,214 58,654 61,365
Leasehold improvements and equipment,
at cost, net of accumulated depreciation
and amortization 1,576 1,215 555
Other assets 12,383 9,597 7,294
-------- -------- --------
Total Assets $174,587 $187,581 $191,769
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
<S> <C> <C> <C>
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 45,412 $ 62,893 $ 63,771
Claims 39,248 41,387 43,179
-------- -------- --------
84,660 104,280 106,950
Accumulated policyholders' funds 360 372 372
Other liabilities 9,134 8,678 8,149
Deferred income taxes 3,326 3,231 7,646
Senior subordinated debentures,
net of unamortized discount - 24,665 24,538
Senior subordinated notes, due 2002
net of unamortized discount 19,225 - -
-------- -------- --------
Total Liabilities 116,705 141,226 147,655
Redeemable Preferred Stock 20,000 20,000 20,000
Stockholders' Equity:
Common stock, ($.l0 par value, 30,000,000
shares authorized; 5,950,258, 4,430,458
and 4,328,873 shares issued) 595 443 433
Capital in excess of par value 29,126 19,328 19,567
Unrealized appreciation (depreciation) of
investments carried at market value 520 (147) 146
Retained earnings 7,811 6,901 4,138
-------- -------- --------
38,052 26,525 24,284
Less - Aggregate of shares held in
treasury and investment by affiliate
in Westbridge Capital Corp. common
stock (28,600 shares at June 30, 1995,
December 31, 1994 and June 30, 1994),
at cost (170) (170) (170)
-------- -------- --------
Total Stockholders' Equity 37,882 26,355 24,114
Total Liabilities, Redeemable
Preferred Stock and Stockholders'
Equity $174,587 $187,581 $191,769
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1995 1994
------------------ ----------------
<S> <C> <C> <C> <C>
Revenues:
Premiums:
First-year $ 7,497 $ 3,396 $13,456 $ 6,151
Renewal 21,379 23,367 43,354 37,813
------- ------- ------- -------
28,876 26,763 56,810 43,964
Net investment income 1,764 1,460 3,584 2,332
Fee and service income 458 379 890 824
Net realized gains (losses) on investments (11) 131 (72) 193
Other income (1) 30 5 33
------- ------- ------- -------
31,086 28,763 61,217 47,346
------- ------- ------- -------
Benefits, claims and expenses:
Benefits and claims 17,181 14,841 33,509 23,096
Amortization of deferred
policy acquisition costs 3,058 2,557 5,948 4,066
Commissions 2,715 3,031 5,814 5,365
General and administrative expenses 4,559 4,129 9,611 7,747
Taxes, licenses and fees 986 985 2,066 1,577
Interest expense 570 788 1,290 1,469
------- ------- ------- -------
29,069 26,331 58,238 43,320
------- ------- ------- -------
Income before income taxes, equity in
earnings of Freedom Holding Company
and extraordinary item 2,017 2,432 2,979 4,026
Provision for income taxes 686 827 1,013 1,360
Equity in Freedom Holding Company 87 86 176 171
------- ------- ------- -------
Net income before extraordinary item 1,418 1,691 2,142 2,837
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $210 - - 407 -
------- ------- ------- -------
Net Income $ 1,418 $ 1,691 $ 1,735 $ 2,837
======= ======= ======= =======
Preferred stock dividends 412 365 825 365
Income applicable to common stockholders $ 1,006 $ 1,326 $ 910 $ 2,472
======= ======= ======= =======
Earnings per common share:
Primary:
Income before extraordinary item $ .17 $ .29 $ .24 $ .53
Extraordinary item - - (.08) -
------- ------- ------- -------
Net Earnings $ .17 $ .29 $ .16 $ .53
======= ======= ======= =======
Fully diluted:
Income before extraordinary item $ .17 $ .26 $ .27 $ .50
Extraordinary item - - (.05) -
------- ------- ------- -------
Net Earnings $ .17 $ .26 $ .22 $ .50
======= ======= ======= =======
Weighted average shares outstanding:
Primary 6,079 4,619 5,602 4,622
Fully diluted 8,457 6,628 7,951 5,632
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1995 1994 1995 1994
------------------- -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,418 $ 1,691 $ 1,735 $ 2,837
Adjustments to reconcile net income
to cash used for operating activities:
Decrease in policy liabilities and accruals (895) (1,806) (1,620) (4,030)
Amortization of deferred policy
acquisition costs 3,058 2,557 5,948 4,066
Additions to deferred policy
acquisition costs (5,662) (3,213) (11,508) (5,080)
Increase in deferred income taxes 358 418 95 752
Depreciation expense 123 70 234 133
Increase in receivables from agents (1,911) (315) (3,797) (532)
Increase in other assets (2,409) (3,301) (2,786) (3,954)
Equity in earnings of Freedom Holding Company (86) (86) (56) (171)
Net realized (gains) losses on investments 14 (131) 72 (193)
Increase (decrease) in other liabilities (748) 1,437 (1,556) 484
Other, net (685) (359) (774) (26)
------ ------ ------ ------
NET CASH USED FOR OPERATING ACTIVITIES (7,425) (3,038) (14,013) (5,714)
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NFI and AICT - (20,178) - (20,178)
Proceeds from investments sold:
Fixed maturities, classified as
hold-to-maturity, called or matured 271 1,140 519 1,140
Fixed maturities, classified as
available-for-sale, called or matured 64 193 77 1,368
Fixed maturities, classified as
available-for-sale, sold 2,987 2,225 3,939 5,158
Short-term investments, sold or matured 7,596 33,584 10,530 35,057
Other investments, sold or matured 14 26 38 60
Cost of investments acquired (4,217) (32,520) (7,424) (40,724)
Notes receivable from related parties - 37 - 1,381
Additions to leasehold improvements
and equipment, net of retirements (209) (60) (595) (124)
------ ------ ------ ------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES 6,506 (15,553) 7,084 (16,862)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (retirement) of debentures, at par - - (25,000) 5,000
Issuance of subordinated notes - - 19,200 -
Issuance of redeemable preferred stock - 20,000 - 20,000
Issuance of common stock 1 27 9,950 109
Purchase and cancellation of common stock - - - (19)
------ ------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1 20,027 4,150 25,090
------ ------ ------ ------
INCREASE (DECREASE) IN CASH DURING PERIOD (918) 1,436 (2,779) 2,514
CASH AT BEGINNING OF PERIOD 1,010 1,226 2,871 148
------ ------ ------ ------
CASH AT END OF PERIOD $ 92 $ 2,662 $ 92 $ 2,662
====== ====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for (in thousands):
Interest $560 $ 7 $2,338 $1,207
Income taxes $325 $415 $ 328 $ 415
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
The Company purchased the outstanding capital stock of a health
insurer and its subsidiary in the second quarter of 1994 for a cash
purchase price of $20.1 million. This purchase resulted in the
Company receiving tangible assets and assuming liabilities as
follows:
<S> <C>
Assets $61,293,000
Liabilities $72,199,000
</TABLE>
<TABLE>
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 liabilities as follows:
<S> <C>
Investments $ 545,000
Policy liabilities $ 2,626,000
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
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 six month period
ended June 30, 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.
Effective April 1, 1995, the Company recorded an adjustment to the
liability for future policy benefits relating to insurance policies
obtained in the Acquisition. The effect of this adjustment was to
reduce the liability for future policy benefits and to reduce
deferred policy acquisition costs by approximately $18,500,000.
The adjustment resulted from calculating the liability using
current actuarial assumptions rather than the historical actuarial
assumptions which were present at the time of the Acquisition. The
difference is accounted for as an adjustment to the purchase price
as it falls within the one-year "look-back" period following the
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.
<PAGE>
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 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 an aggregate of 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 June 30, 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.
<PAGE>
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 and administration 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 six months ended June 30, 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.
<TABLE>
The following table shows the premiums received by the Company
through internal sales and through acquisitions during the periods
indicated.
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Company-Issued Policies:
First-year premiums $ 7,534 $ 3,377 $13,456 $ 6,127
Renewal premiums 9,071 8,549 17,771 17,387
------ ------ ------ ------
Total Company-issued policies 16,605 11,926 31,227 23,514
------ ------ ------ ------
Acquired Policies:
American Integrity 2,399 3,217 5,280 7,180
Life and Health 569 693 1,121 1,346
Dixie National Life 886 1,106 1,813 2,103
NFI and AICT 8,417 9,821 17,369 9,821
------ ------ ------ ------
Total acquired policies 12,271 14,837 25,583 20,450
------ ------ ------ ------
Total Premiums $28,876 $26,763 $56,810 $43,964
====== ====== ====== ======
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Three months and six months ended June 30, 1995 compared with three
months and six months ended June 30, 1994
Premiums. Premiums increased $2.1 million or 7.9% for the second
quarter of 1995, from $26.8 million to $28.9 million. This
increase was due primarily to an increase in first-year premiums
for Company-issued policies of $4.2 million, or 123.1%, offset, in
part, by a decrease in total acquired policy premiums of $2.6
million, or 17.3%.
Premiums increased $12.8 million for the first six months of 1995,
or 29.2%, from $44.0 million to $56.8 million. This increase was
due primarily to an increase in first-year premiums for Company-
issued policies of $7.3 million, or 119.6%, and an increase in
total acquired policy premiums of $5.1 million, or 25.1%.
The decrease in total acquired policy premiums for the second
quarter of 1995 when compared to the second quarter of 1994 was due
primarily to decreases of $1.4 million, or 14.3%, in premiums from
policies obtained in the acquisition of NFI and AICT and $818,000,
or 25.4%, in premiums on the block of policies acquired from AII in
September, 1992.
The increase in total acquired policy premiums for the first six
months of 1995 when compared to the same period in 1994 was due
primarily to the acquisition of NFI and AICT in April, 1994. The
1995 period included the operations of NFI and AICT for a full six
months, while the prior year period included the operations from
April 12, 1994.
The increase in first-year premiums for the second quarter of 1995
when compared to the second quarter of 1994 was due primarily to
increases of $2.2 million, or 361.3%, in first-year Medicare
Supplement premium generated for NFL by SBL, $1 million in first-
year Medical expense premium written in NFI and AICT which was not
present in the prior year period, $672,000, or 137.1%, in first-
year Cancer and Specified Disease products reinsured from FLICA and
$387,000, or 20.4%, in first-year Medical Expense premium generated
by LMG. These increases were offset, in part, by a decrease of
$114,000, or 29.2% in first-year premium for Cancer and Specified
Disease Products written directly by NFL.
The increase in first-year premiums for the first six months of
1995 when compared to same period in 1994 was due primarily to
increases $4.4 million, or 495.3%, in first-year Medicare
Supplement premium generated for NFL by SBL, $1.5 million, or
205.7%, in first-year premiums assumed by NFL from FLICA, $1.2
million in first-year Medical expense premiums written in NFI and
AICT which were not present in the prior yar period, and $380,000,
or 10.2%, in first-year Medical Expense premiums generated by LMG.
Offsetting these increases was a decrease of $209,000, or 26.3%, in
first-year premium for Cancer and Specified Disease Products
written directly by NFL.
The increase in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) for the second quarter of 1995
when compared to the second quarter of 1994 was primarily due to an
increase of $439,000 in renewal Medicare Supplement premiums
generated by SBL and $345,000, or 15.2%, in Medical Expense renewal
premiums generated by LMG.
<PAGE>
The increase in renewal premiums (excluding renewal premiums on
policies acquired in acquisitions) for the first six months of 1995
when compared to the first six months of 1994 were due primarily to
$644,000 in renewal premiums for Medicare Supplement Products
produced for NFL by SBL and $571,000, or 12.6%, in renewal Medical
Expense premiums generated by LMG. These increases were offset, in
part, by a decrease of $272,000, or 16.8%, in renewal premiums for
Pre-1987 Medicare Supplement Products.
Net Investment Income. Net investment income increased $304,000,
or 20.8%, in the quarter ended June 30, 1995, compared to the same
period in 1994. This increase was due primarily to the acquired
invested assets of NFIC and AICT being held in lower yielding
short-term investments during a significant portion of the 1994
second quarter.
Net investment income increased $1.3 million, or 53.7%, in the six
months ended June 30, 1995, when compared to the six months of 1994
due primarily to investment income earned on invested assets
acquired in the acquisition of NFI and AICT in the second quarter
of 1994.
Fee and Service Income. Fee and service income increased $79,000,
or 20.8%, and $66,000, or 8.0%, respectively, in the three and six
month periods ended June 30, 1995, compared to the same periods in
1994. These increases resulted primarily from increased
commissions received by LMG from non-affiliated insurers.
Benefits and Claims. Benefit and claim expense increased $2.3
million, or 15.8%, in the second quarter of 1995 when compared to
the second quarter of 1994. This increase resulted from $2.2
million, or 978.6%, benefit and claim expense for Medicare
Supplement Products produced by SBL, $588,000, or 132.7%, for
Cancer and Specified Disease Products assumed from FLICA, $424,000,
or 28.4%, for LMG Medical Expense Products and $371,000, or 14.2%,
for Acquired Medicare Supplement Products. Offsetting these
increases were decreases of $606,000, or 9.5%, in Acquired Products
for NFI and AICT and $580,000, or 57.7%, for Cancer and Specified
Disease policies acquired from Dixie.
Benefit and claim expense increased $10.4 million, or 45.1%, in the
first six months of 1995 when compared to the first six months of
1994. $5.6 million of this increase was due to the acquisition of
NFI and AICT in April, 1994. The 1995 period included the
operations of NFI and AICT for a full six months, while the prior
year period included the operations from April 12, 1994. Benefit
and claim expenses for NFL increased $4.8 million, or 28.8%, in the
first six months of 1995 compared to the same period in 1994. This
resulted from an increase of $4.6 million, or 1659.1%, for Medicare
Supplement Products produced by SBL, $1.6 million, or 232.5%, for
Cancer and Specified Disease Products assumed from FLICA, $327,000,
or 57.9%, for Pre-1987 Medical Expense Products and $310,000, or
8.5%, for LMG products. Offsetting these increases were decreases
of $1.1 million, or 38.4%, for Direct Cancer and Specified Disease
Products, $486,000, or 8.5%, in Acquired Medicare Supplement
Products and $304,000, or 71.0%, in Cancer and Specified Disease
Products assumed by NFL from Paramount.
Amortization of DPAC. Amortization of deferred policy acquisition
costs increased $501,000, or 19.6%, in the second quarter of 1995
when compared to the second quarter of 1994. This resulted from an
increase of $329,000, or 288.6%, for Medicare Supplement Products
produced for NFL by SBL, $279,000 for Cancer and Specified Disease
Products purchased by NFL from Dixie, $148,000, or 90.8%, for
Cancer and Specified Disease Products assumed from FLICA and
$130,000, or 200.0%, from Acquired Medicare Supplement Products.
Offsetting these increases were decreases of $375,000 from the
Acquired NFI and AICT business, and $132,000, or 29.9% from Direct
Cancer and Specified Disease Products.
<PAGE>
Amortization of deferred policy acquisition costs increased $1.9
million, or 46.3%, in the first six months of 1995 when compared to
the first six months of 1994. The acquisition of NFI and AICT in
the second quarter of 1994 resulted in an increase of $675,000 when
compared to the first six months of 1995. Amortization of deferred
policy acquisition costs for NFL increased $1.1 million, or 35.1%,
in the first six months versus the same period in 1994. The
primary factors were increases of $426,000, or 258.2%, in Medicare
Supplement Products produced for NFL by SBL, $286,000 for Cancer
and Specified Disease Products assumed from FLICA, $258,000, or
409.5%, for Cancer and Specified Disease policies acquired by NFL
from Dixie and $223,000, or 187.6%, from LMG Products.
Commissions. Commissions decreased $316,000, or 10.4%, in the
second quarter of 1995 when compared to the second quarter of 1994
due primarily to $417,000, or 78.1%, decrease in Acquired Medicare
Supplement Products. Before elimination of intercompany revenues
and expenses in consolidation, commission expenses decreased
$61,000, or 2.2%, in NFL, and increased $140,000, or 15.1%, in LMG.
An increase of $142,000, or 346.3%, in commissions paid to SBL from
NFL and $269,000, or 19.0%, in commissions paid to LMG from NFL
were eliminated in consolidation.
Commissions increased $449,000, or 8.4%, for the first six months
of 1995 compared to the first six months of 1994, due primarily to
an increase of $710,000, or 88.6%, in commissions on policies
acquired in the second quarter of 1994, which were not present in
the first quarter of 1994, and offset by decreases of $261,000, or
5.7%, in other commissions. Before elimination of intercompany
revenues and expenses in consolidation, commissions increased
$86,000, or 1.5%, in NFL, and increased $145,000, or 8.0% in LMG.
An increase of $268,000, or 382.9%, in commissions paid to SBL from
NFL and $282,000, or 10.1%, increase in commissions paid to LMG
from NFL were eliminated in consolidation.
General and Administrative Expenses. General and administrative
expenses increased $430,000, or 10.4%, from $4.1 million to $4.6
million for the second quarter of 1995 when compared with the
second quarter of 1994, due primarily to costs associated with
increased marketing operations.
General and administrative expenses increased $1.9 million, or
24.1%, from $7.7 million to $9.6 million for the first six months
of 1995 compared to the six months of 1994, due primarily to costs
associated with the administration of policies acquired in the
second quarter of 1994 from NFI and AICT, which were not present in
the first quarter of 1994. Also contributing to the increase were
costs associated with increased marketing operations.
Taxes, Licenses and Fees. Taxes, licenses and fees remained
relatively constant with a slight increase of $1,000, or .1%, from
$985,000 to $986,000 for the second quarter of 1995 compared with
the second quarter of 1994.
<PAGE>
Taxes, licenses and fees increased $489,000, or 31.0%, from $1.6
million to $2.1 million for the first six months of 1995 compared
to the six months in 1994, due primarily to premium taxes
associated with the acquisition of NFI and AICT in the second
quarter of 1994, which were not present in the first quarter of
1994.
Interest Expense. Interest expense decreased $218,000, or 27.7%,
from $788,000 to $570,000 for the second quarter of 1995 compared
to the second quarter of 1994, and $179,000, or 12.2%, from $1.5
million to $1.3 million for the first six months of 1995 when
compared to the first six months of 1994. This was primarily due
to the issuance of $20.0 million of 11% debt and the retirement of
$25.0 million of 11.7% debt in the first quarter of 1995.
Provision for Income Taxes. The decrease in the provision for
income taxes for the three- and six-month periods ended June 30,
1994, is principally a result of the decrease in consolidated pre-
tax income in the comparable periods.
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 out-standing 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 fore-seeable 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.
<PAGE>
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.
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 six months
ended June 30, 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 cancel-
lations. 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.
Net cash used for operations aggregated $14.0 million in the first
six months of 1995 compared to $5.7 million for the first six months
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 six months ended
June 30, 1995, totaled $7.1 million, compared to net cash used for
investing activities of $16.9 million in the same 1994 period.
This difference was primarily attributable to the investing
activity associated with the purchase NFI and AICT in the 1994
period.
Net cash provided by financing activities was $4.2 million for the
six months ended June 30, 1995, compared to $25.1 million for the
prior year period. In 1995, 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 1995, $25.0 million of cash was used to
retire, prior to maturity, the 11.7% Senior Subordinated Debentures
due 1996. In the 1994 first half, $20.0 million of cash was
provided by the issuance of redeemable preferred stock, and $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.
<PAGE>
The Company believes that its near-term cash requirements will be
met through 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 June 30, 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 4 - Results of Votes of Security Holders.
Date of Meeting
The Annual Meeting of the Stockholders of Westbridge
Capital Corp. was held on Thursday, June 22, 1995.
Matters Subject to Vote
(1) Election of three directors of Westbridge Capital Corp.
(2) Ratification of the selection by the Board of Directors
of Price Waterhouse as independent accountants.
Results of Balloting
(1) In connection with the election of directors for the
Company, 5,341,056 shares were voted FOR each of those
persons nominated, with 89,415 shares WITHHOLDING
AUTHORITY in connection with their election.
(2) Regarding the selection of independent accountants,
5,414,922 shares were voted FOR, 10,783 shares were
voted AGAINST, and 4,766 shares ABSTAINED.
ITEM 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27-Financial Data Schedule.
(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/ James W. Thigpen
---------------------
James W. Thigpen
President and Chief Operating Officer
(On Behalf of the Registrant and as
Principal Financial and Accounting
Officer)
Dated at Fort Worth, Texas
August 14, 1995
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