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 September 30, 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)
800-437-8690
(Registrant's Shareholder and Investor Relations
Toll Free Telephone Number)
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 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 November 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:
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<CAPTION>
Pages(s)
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Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements.
1. Consolidated Balance Sheets at September 30, 1995,
December 31, 1994 and September 30, 1994. 3-4
2. Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1995
and 1994. 5
3. Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 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. 11-18
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings. 19
Item 6 - Exhibits and Reports on Form 8-K. 19
</TABLE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Investments:
Fixed maturities:
Available-for-sale, at market
value (amortized cost $11,052
$11,310 and $11,488) $ 11,571 $ 10,787 $ 11,183
Held-to-maturity, at amortized
cost (market value $77,442,
$75,238 and $79,400) 76,026 80,377 82,391
Equity securities, at market 538 469 463
Investment in Freedom Holding
Company, on the equity basis 6,086 5,945 5,858
Mortgage loans on real estate 654 768 786
Investment real estate 141 141 141
Policy loans 282 291 285
Short-term investments 3,154 7,189 10,476
------- ------- -------
Total Investments 98,452 105,967 111,583
Cash 105 2,871 1,394
Accrued investment income 1,546 1,924 1,772
Receivables from agents, net of
allowance for doubtful accounts 13,360 7,353 6,176
Deferred policy acquisition costs 52,435 58,654 61,679
Leasehold improvements and equipment,
at cost, net of accumulated
depreciation and amortization 1,583 1,215 1,026
Other assets 11,826 9,597 7,764
------- ------- -------
Total Assets $179,307 $187,581 $191,394
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 46,217 $ 62,893 $ 63,704
Claims 37,755 41,387 42,263
------- ------- -------
83,972 104,280 105,967
Accumulated policyholders' funds 367 372 366
Other liabilities 13,619 8,678 7,495
Deferred income taxes 2,814 3,231 7,875
Senior subordinated debentures,
net of unamortized discount - 24,665 24,600
Senior subordinated notes, due 2002,
net of unamortized discount 19,244 - -
------- ------- -------
Total Liabilities 120,016 141,226 146,303
------- ------- -------
Redeemable Preferred Stock 20,000 20,000 20,000
------- ------- -------
Stockholders' Equity:
Common stock, ($.l0 par value,
30,000,000 shares authorized;
5,986,458, 4,430,458, and 4,422,608
shares issued) 599 443 442
Capital in excess of par value 29,124 19,328 19,321
Unrealized appreciation (depreciation)
of investments carried at market value 544 (147) (9)
Retained earnings 9,194 6,901 5,507
------- ------- -------
39,461 26,525 25,261
Less - Aggregate of shares held in
treasury and investment by affiliate
in Westbridge Capital Corp. common
stock (28,600 at September 30, 1995,
December 31, 1994 and September 30, 1994),
at cost (170) (170) (170)
------- ------- -------
Total Stockholders' Equity 39,291 26,355 25,091
------- ------- -------
Total Liabilities, Redeemable Preferred
Stock and Stockholders' Equity $179,307 $187,581 $191,394
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Premiums:
First-year $ 9,653 $ 3,984 $23,109 $10,135
Renewal 20,901 23,712 64,255 61,525
------ ------ ------ ------
30,554 27,696 87,364 71,660
Net investment income 1,722 1,610 5,306 3,942
Fee and service income 666 445 1,556 1,269
Net realized gains (losses) on investments 37 127 (35) 320
Other income (1) 4 4 37
------ ------ ------ ------
32,978 29,882 94,195 77,228
------ ------ ------ ------
Benefits, claims and expenses:
Benefits and claims 17,128 15,102 50,637 38,198
Amortization of deferred
policy acquisition costs 2,789 3,091 8,737 7,157
Commissions 2,825 2,919 8,639 8,284
General and administrative expenses 6,085 4,566 15,696 12,313
Taxes, licenses and fees 991 827 3,057 2,404
Interest expense 568 797 1,858 2,266
------ ------ ------ ------
30,386 27,302 88,624 70,622
------ ------ ------ ------
Income before income taxes, equity in
earnings of Freedom Holding Company
and extraordinary item 2,592 2,580 5,571 6,606
Provision for income taxes 881 886 1,894 2,246
Equity in Freedom Holding Company 85 87 261 258
------ ------ ------ ------
Net income before extraordinary item 1,796 1,781 3,938 4,618
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $210 - - 407 -
------ ------ ------ ------
Net Income $ 1,796 $ 1,781 $ 3,531 $ 4,618
====== ====== ====== ======
Preferred stock dividends 413 412 1,238 777
Income applicable to common stockholders $ 1,383 $ 1,369 $ 2,293 $ 3,841
====== ====== ====== ======
Earnings per common share:
Primary:
Income before extraordinary item $ .23 $ .30 $ .47 $ .83
====== ====== ====== ======
Extraordinary item - - (.07) -
------ ------ ------ ------
Net Earnings $ .23 $ .30 $ .40 $ .83
====== ====== ====== ======
Fully diluted:
Income before extraordinary item $ .21 $ .26 $ .49 $ .76
====== ====== ====== ======
Extraordinary item - - (.05) -
------ ------ ------ ------
Net Earnings $ .21 $ .26 $ .44 $ .76
====== ====== ====== ======
Weighted average shares outstanding:
Primary 6,063 4,606 5,756 4,614
Fully diluted 8,441 6,912 8,114 6,056
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,796 $ 1,781 $ 3,531 $ 4,618
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Decrease in policy liabilities and accruals (688) (984) (2,308) (5,014)
Amortization of deferred policy acquisition costs 2,789 3,091 8,737 7,157
Additions to deferred policy acquisition costs (9,010) (3,405) (20,518) (8,485)
Increase (decrease) in deferred income taxes (512) 229 (417) 981
Depreciation expense 126 75 360 208
Increase in receivables from agents (2,210) (694) (6,007) (1,226)
Increase (decrease) in other assets 557 (469) (2,229) (4,423)
Equity in earnings of Freedom Holding Company (85) (87) (141) (258)
Net realized (gains) losses on investments (37) (127) 35 (320)
Increase (decrease) in other liabilities 6,491 (308) 4,935 176
Other, net (210) (283) (984) (309)
------ ------ ------ ------
NET CASH USED BY OPERATING ACTIVITIES (993) (1,181) (15,006) (6,895)
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NFI and AICT - - - (20,178)
Proceeds from investments sold:
Fixed maturities, classified as
held-to-maturity, called or matured 873 1,218 1,392 2,358
Fixed maturities, classified as
available-for-sale, called or matured 94 - 171 1,368
Fixed maturities, classified as
held-to-maturity, sold - - - -
Fixed maturities, classified as
available-for-sale, sold - 2,117 3,939 7,275
Short-term investments, sold or matured 84 5,144 10,614 40,201
Other investments, sold or matured 86 25 124 85
Cost of investments acquired - (7,808) (7,424) (48,532)
Notes receivable from related parties - - - 1,381
Additions to leasehold improvements
and equipment, net of retirements (133) (546) (728) (670)
------ ------ ------ ------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 1,004 150 8,088 (16,712)
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (retirement) of senior
subordinated debentures, at par - - (25,000) 5,000
Issuance of subordinated notes - - 19,200 -
Issuance of redeemable preferred stock - - - 20,000
Issuance of common stock 148 269 10,098 378
Purchase and cancellation of common stock (146) (506) (146) (525)
------ ------ ------ ------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 2 (237) 4,152 24,853
------ ------ ------ ------
INCREASE (DECREASE) IN CASH DURING PERIOD 13 (1,268) (2,766) 1,246
CASH AT BEGINNING OF PERIOD 92 2,662 2,871 148
------ ------ ------ ------
CASH AT END OF PERIOD $ 105 $ 1,394 $ 105 $ 1,394
====== ====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for (in thousands):
Interest $ 549 $ 1,467 $ 2,892 $ 2,674
Income taxes $ 322 $ 650 $ 650 $ 1,065
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
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:
Assets $61,293,000
Liabilities $72,199,000
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:
Investments $ 545,000
Policy liabilities $ 2,626,000
The accompanying notes are an integral part of these financial statements.
<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 nine month period
ended September 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 lia-bility 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, in accordance with Statement of Financial Accounting
Standard No. 38 "Accounting for Preacquisition Contingencies of
Purchased Enterprises".
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 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 September 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.
NOTE 6 - DEFERRED POLICY ACQUISITION COSTS
During the quarter ended September 30, 1995, the Company refined
its method of estimating deferred policy acquisition costs by
implementing the factor method of calculating deferred policy
acquisition costs and related amortization. The Company previously
used the worksheet method of amortization, which, in the Company's
opinion, approximated the amortization which would result if the
"factor method" was used. The adoption of the factor method did
not have a material impact on the calculation of deferred policy
acquisition costs.
<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.
* 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 nine months ended September 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.
The following table shows the premiums received by the Company
through internal sales and through acquisitions during the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Company-Issued Policies:
First-year premiums $ 9,292 $ 3,982 $22,748 $10,109
Renewal premiums 9,251 8,447 27,022 25,834
------ ------ ------ ------
Total Company-issued policies 18,543 12,429 49,770 35,943
------ ------ ------ ------
Acquired Policies:
American Integrity 2,351 3,096 7,631 10,276
Life and Health 506 610 1,627 1,956
Dixie National Life 822 899 2,635 3,002
NFI and AICT 8,332 10,662 25,701 20,483
Total acquired policies 12,011 15,267 37,594 35,717
------ ------ ------ ------
Total Premiums $30,554 $27,696 $87,364 $71,660
====== ====== ====== ======
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Three months and nine months ended September 30, 1995 compared with
three months and nine months ended September 30, 1994
Premiums. Premiums increased $2.9 million or 10.5% for the third
quarter of 1995, from $27.7 million to $30.6 million. This
increase was due primarily to an increase in first-year premiums
for Company-issued policies of $5.3 million, or 133.4%, offset, in
part, by a decrease in total acquired policy premiums of $3.3
million, or 21.3%.
Premiums increased $15.7 million for the first nine months of 1995,
or 21.9% from $71.7 million to $87.4 million. This increase was
due primarily to an increase in first-year premiums for Company-
issued policies of $12.6 million, or 125.0%, and an increase in
total acquired policy premiums of $1.9 million, or 5.3%.
The decrease in total acquired policy premiums for the third
quarter of 1995 when compared to the third quarter of 1994 was due
primarily to decreases of $2.3 million, or 21.9%, in premiums from
policies obtained in the acquisition of NFI and AICT and $745,000,
or 24.1%, in premiums on the block of policies acquired from
American Integrity in September, 1992.
The increase in total acquired policy premiums for the first nine
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 nine
months, while the prior year period included the operations from
April 12, 1994.
The increase in first-year premiums for the third quarter of 1995
when compared to the third quarter of 1994 was due primarily to
increases of $2.0 million, or 174.3%, in first-year Medicare
Supplement premium generated for NFL by SBL, $1.5 million in first-
year Medical expense premiums, and $194,000 of first-year Medicare
Supplement premiums written in NFI and AICT which were not present
in the prior year period, $463,000, or 67.8%, in first-year Cancer
and Specified Disease products reinsured from FLICA and $1.5
million, or 82.1%, in first-year Medical Expense premium generated
by LMG. These increases were offset, in part, by a decrease of
$94,000, or 26.3% in first-year premium for Cancer and Specified
Disease Products written directly by NFL.
The increase in first-year premiums for the first nine months of
1995 when compared to same period in 1994 was due primarily to
increases of $6.4 million, or 312.1%, in first-year Medicare
Supplement premium generated for NFL by SBL, $2.0 million, or
139.5%, in first-year premiums assumed by NFL from FLICA, $2.5
million in first-year Medical expense premiums, and $343,000 of
first-year Medicare Supplement premiums written in NFI and AICT
which were not present in the prior year period, and $1.8 million,
or 33.4%, in first-year Medical Expense premiums generated by LMG.
Offsetting these increases was a decrease of $303,000, 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 third quarter of 1995
when compared to the third quarter of 1994 was primarily due to an
increase of $878,000 in renewal Medicare Supple-ment premiums
generated by SBL, an increase of $204,000, or 8.8%, in Medical
Expense renewal premiums generated by LMG, and an increase of
$313,000, or 32.0%, in renewal premiums assumed by NFL from FLICA.
These increases were offset, in part, by a decrease of $238,000, or
7.1%, in renewal premiums 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 first nine months of
1995 when compared to the first nine months of 1994 were due
primarily to $1.5 million in renewal premiums for Medicare
Supplement Products produced for NFL by SBL, $775,000, or 11.3%, in
renewal Medical Expense premiums generated by LMG, and $520,000, or
17.8%, in renewal premiums assumed by NFL from FLICA. These
increases were offset, in part, by a decrease of $580,000, or
27.8%, in renewal premiums for Pre-1987 Medical Expense Products,
$464,000, or 4.3%, in renewal premiums for Cancer and Specified
Disease Products written directly by NFL, and $355,000, or 16.2% in
renewal premiums for Pre-1987 Medicare Supplement Products.
Net Investment Income. Net investment income increased $112,000,
or 7.0%, in the quarter ended September 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 portion of the 1994 third
quarter.
Net investment income increased $1.4 million, or 34.6%, in the nine
months ended September 30, 1995, when compared to the nine 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 $221,000,
or 33.2%, and $287,000, or 22.6%, respectively, in the three and
nine month periods ended September 30, 1995, compared to the same
periods in 1994. These increases resulted primarily from increased
commissions received by LMG from non-affiliated insurers, and sales
of telemarketing services to independent insurance agencies.
Benefits and Claims. Benefit and claim expense increased $2.0
million, or 13.4%, in the third quarter of 1995 when compared to
the third quarter of 1994. This increase principally resulted from
$3.0 million, or 674.4%, in benefit and claim expense for Medicare
Supplement Products produced by SBL, $1.4 million, or 309.2%, for
Cancer and Specified Disease Products assumed from FLICA, $475,000,
or 21.3%, for LMG Medical Expense Products and $502,000, or 24.9%,
for Acquired Medicare Supplement Products. Also contributing to
the increase was $1.7 million of benefit and claim expense relating
principally to Medical Expense policies written in NFI and AICT
during 1995. Offsetting these increases was a decrease of $4.9
million, or 73.7%, in acquired products for NFI and AICT. This
decrease is principally the result of a reduction in claim reserves
on the acquired disability income policies due to rigorous case
management and settlement work relating to the block of policies in
benefit status.
Benefit and claim expense increased $12.4 million, or 32.6%, in the
first nine months of 1995 when compared to the first nine months of
1994. Of this increase, $1.0 million 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 nine months, while the prior
year period included the operations from April 12, 1994. The
effect of this increase was lessened by the third quarter 1995
reduction in claim reserves on the acquired disability income
policies, as explained above. Benefit and claim expenses increased
an additional $1.4 million relating principally to Medical Expense
policies written in NFI and AICT during 1995. Benefit and claim
expenses for NFL increased $10.0 million, or 39.8%, in the first
nine months of 1995 compared to the same period in 1994. This
resulted from an increase of $7.6 million, or 1048.8%, for Medicare
Supplement Products produced by SBL, $3.0 million, or 262.8%, for
Cancer and Specified Disease Products assumed from FLICA, and
$785,000, or 13.3%, for LMG products. Offsetting these increases
were decreases of $1.1 million, or 26.4%, for Direct Cancer and
Specified Disease Products, and $388,000, or 64.0%, in Cancer and
Specified Disease Products assumed by NFL from Paramount.
Amortization of DPAC. Amortization of deferred policy acquisition
costs decreased $302,000, or 9.8%, in the third quarter of 1995
when compared to the third quarter of 1994. Of this decrease,
$537,000 related to the Acquired business of NFI and AICT, which
was offset, in part, by an increase of $235,000 related to NFL.
The decrease related to the Acquired business of NFI and AICT
resulted from lower deferred policy acquisition costs recorded
effective April 1, 1995, (see Note 3 to the Consolidated Financial
Statements). The increase in NFL is principally the result of
higher production costs resulting from increased production in the
1995 period when compared to the 1994 period.
Amortization of deferred policy acquisition costs increased $1.6
million, or 22.1%, in the first nine months of 1995 when compared
to the first nine months of 1994. Of this increase, $136,000
related to the Acquired business of NFI and AICT, and $1.3 million
related to NFL. The increase related to the Acquired business of
NFI and AICT resulted from having a full nine months of
amortization in the 1995 period, while the 1994 period including
amortization from April 12, 1994. This increase was offset, in
part, by lower amortization resulting from the decrease in
deferred policy acquisition costs for the Acquired business of NFI
and AICT which was recorded effective April 1, 1995, (see Note 3 to
the Consolidated Financial Statements).
Commissions. Commissions decreased $94,000, or 3.2%, in the third
quarter of 1995 when compared to the third quarter of 1994. Before
elimination of inter-company revenues and expenses in
consolidation, commission expenses increased $415,000, or 15.8%, in
NFL, and increased $411,000, or 46.6%, in LMG. An increase of
$174,000, or 214.8%, in commissions paid to SBL from NFL and
$647,000, or 47.0%, in commissions paid to LMG from NFL were
eliminated in consolidation.
Commissions increased $355,000, or 4.3%, for the first nine months
of 1995 com-pared to the first nine months of 1994, due primarily
to an increase of $528,000, or 31.9%, 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 $173,000, or
2.6%, in other commissions. Before elimination of intercompany
revenues and expenses in consolidation, commissions increased
$501,000, or 6.1%, in NFL, and increased $556,000, or 20.6% in LMG.
An increase of $442,000, or 292.7%, in commissions paid to SBL from
NFL and $929,000, or 22.3%, increase in commissions paid to LMG
from NFL were eliminated in consolidation.
General and Administrative Expenses. General and administrative
expenses increased $1.5 million, or 33.3%, for the quarter ended
September 30, 1995, when compared to the same period in 1994. This
increase related to costs associated with increased marketing
operations.
General and administrative expenses increased $3.4 million, or
27.5%, for the nine months ended September 30, 1995, compared to
the first nine months of 1994. This increase resulted from
expenses associated with increased marketing operations and the
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.
Taxes, Licenses and Fees. Taxes, licenses and fees increased
$164,000, or 19.8%, and $653,000, or 27.2%, respectively, in the
three and nine month periods ended September 30, 1995, when
compared to the same periods in 1994.
Interest Expense. Interest expense decreased $229,000, or 28.7%,
for the third quarter of 1995, compared to the third quarter of
1994, and $408,000, or 18.0%, for the first nine months of 1995
when compared to the first nine 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 consolidated income tax rate
remained approximately the same for all periods presented.
<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 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. 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 "extra-ordinary
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.
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. 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 nine months
ended September 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
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.
Net cash used for operations aggregated $15.0 million in the first
nine months of 1995 compared to $6.9 million for the first nine
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 nine months ended
September 30, 1995, totaled $8.1 million, compared to net cash used
for investing activities of $16.7 million in the same 1994 period.
This difference was primarily attri-butable 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
nine months ended September 30, 1995, compared to $24.9 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 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 nine months, $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.
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. The Company is
pursuing the establishment of an agent balance financing facility
which will be used to finance additional marketing growth.
Additional capital may be necessary to consummate future growth
through acquisitions. There can be no assurance that 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 September 30, 1995 and it is the Company's policy
not to invest more than 5% of its holdings in such assets. Changes
in interest rates may affect the market value of the Company's
investment portfolio. Such changes should not impact the Company's
ability to meet its future policyholder benefit obligations.
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
Exhibit 27 - Financial Data Schedule, (included in
electronic filing only).
(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/ Patrick J. Mitchell
Patrick J. Mitchell
Vice President, Chief Financial
Officer and Treasurer
(On Behalf of the Registrant and
as Principal Financial and
Accounting Officer)
Dated at Fort Worth, Texas
November 14, 1995
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