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, 1996
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 (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO_____
Common Stock - Par Value $.10 5,993,458 Shares Outstanding at August 13, 1996
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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 1934, 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 June 30, 1996, December 31, 1995
and June 30, 1995. 3-4
2. Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 1996 and 1995. 5
3. Consolidated Statements of Cash Flows for the Three and Six Months
Ended June 30, 1996 and 1995. 6-7
4. Notes to Consolidated Financial Statements. 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9-14
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS 15
Item 4 - RESULTS OF VOTES OF SECURITY HOLDERS 15
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K 15-16
</TABLE>
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WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Investments:
Fixed Maturities:
Available-for-sale, at market value
(amortized cost $86,383, $83,160
and $11,149) $ 86,563 $ 86,780 $ 11,617
Held-to-maturity, at amortized cost
(market value $0, $0, and $78,024) -- -- 76,882
Equity securities, at market 1,747 539 547
Investment in Freedom Holding Company,
on the equity basis -- 6,173 6,001
Mortgage loans on real estate 609 639 732
Investment real estate 141 141 141
Policy loans 273 285 289
Short-term investments 10,067 14,946 3,192
-------- -------- --------
Total Investments 99,400 109,503 99,401
Cash 3,585 2,013 92
Accrued investment income 1,823 1,711 1,771
Receivables from agents, net of allowance
for doubtful accounts 20,128 16,706 11,150
Deferred policy acquisition costs 73,395 56,977 48,214
Leasehold improvements and equipment, at
cost, net of accumulated depreciation and
amortization 1,503 1,590 1,576
Other assets 14,771 12,499 12,383
-------- -------- --------
Total Assets $214,605 $200,999 $174,587
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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WESTBRIDGE CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
(UNAUDITED) (AUDITED) (UNAUDITED)
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Liabilities:
Policy Liabilities and Accruals:
Future policy benefits $ 55,267 $ 46,620 $ 45,412
Claims 38,527 39,063 39,248
--------- --------- ---------
93,794 85,683 84,660
Accumulated policyholders' funds 381 373 360
Other liabilities 12,691 11,226 9,134
Deferred income taxes 6,849 5,841 3,326
Notes payable 18,538 15,807 --
Senior subordinated notes, net of unamortized
discount, due 2002 19,306 19,264 19,225
--------- --------- ---------
Total Liabilities 151,559 138,194 116,705
--------- --------- ---------
Redeemable Preferred Stock 20,000 20,000 20,000
--------- --------- ---------
Stockholders' Equity:
Common stock, ($.10 par value, 30,000,000
shares authorized; 5,993,458, 5,992,458
and 5,950,258 shares issued) 599 599 595
Capital in excess of par value 29,210 29,208 29,126
Unrealized appreciation of investments carried
at market value, net of tax 87 2,593 520
Retained earnings 13,320 10,575 7,811
--------- --------- ---------
43,216 42,975 38,052
Less - Aggregate of shares held in treasury and
investment by affiliate in Westbridge Capital Corp.
common stock (28,600 at June 30 1996,
December 31, 1995 and June 30, 1995), at cost (170) (170) (170)
--------- --------- ---------
Total Stockholders' Equity 43,046 42,805 37,882
--------- --------- ---------
Total Liabilities, Redeemable Preferred
Stock and Stockholders' Equity $ 214,605 $ 200,999 $ 174,587
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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WESTBRIDGE CAPITAL CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data, unaudited)
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<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
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Revenues:
Premiums:
First-year $ 16,480 $ 7,497 $ 30,880 $ 13,456
Renewal 22,560 21,379 43,570 43,354
-------- -------- -------- --------
39,040 28,876 74,450 56,810
Net investment income 2,191 1,764 4,307 3,584
Fee and service income 2,014 458 3,789 890
Net realized gain (loss) on investments 116 (11) 201 (72)
Other income 3 (1) 5 5
-------- -------- -------- --------
43,364 31,086 82,752 61,217
-------- -------- -------- --------
Benefits, claims and expenses:
Benefits and claims 22,632 17,181 44,546 33,509
Amortization of deferred policy
acquisition costs 6,026 3,058 10,355 5,948
Commissions 1,809 2,715 3,746 5,814
General and administrative expenses 7,133 4,559 13,699 9,611
Taxes, licenses and fees 1,721 986 3,064 2,066
Interest expense 1,013 570 1,964 1,290
-------- -------- -------- --------
40,334 29,069 77,374 58,238
-------- -------- -------- --------
Income before income taxes, equity
in earnings of Freedom Holding
Company and extraordinary item 3,030 2,017 5,378 2,979
Provision for income taxes 1,060 686 1,882 1,013
Equity in Freedom Holding Company 27 87 74 176
-------- -------- -------- --------
Income before extraordinary item 1,997 1,418 3,570 2,142
-------- -------- -------- --------
Extraordinary loss from early
extinguishment of debt -- -- -- 407
-------- -------- -------- --------
Net income $ 1,997 $ 1,418 $ 3,570 $ 1,735
======== ======== ======== ========
Preferred stock dividends 412 412 825 825
-------- -------- -------- --------
Income applicable to common stockholders $ 1,585 $ 1,006 $ 2,745 $ 910
======== ======== ======== ========
Earnings per common share:
Primary:
Income before extraordinary item $ .26 $ .17 $ .45 $ .24
Extraordinary item -- -- -- (08)
-------- -------- -------- --------
Net earnings $ .26 $ .17 $ .45 $ .16
======== ======== ======== ========
Fully diluted:
Income before extraordinary item $ .23 $ .17 $ .42 $ .27
Extraordinary item -- -- -- (.05)
-------- -------- -------- --------
Net earnings $ .23 $ .17 $ .42 $ .22
======== ======== ======== ========
Weighted average shares outstanding:
Primary 6,113 6,079 6,109 5,602
Fully diluted 8,532 8,457 8,508 7,951
</TABLE>
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)
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<CAPTION>
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
----------------------- ---------------------
1996 1995 1996 1995
----------------------- ---------------------
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Cash Flows From Operating Activities:
Income applicable to common stockholders $ 1,585 $ 1,006 $ 2,745 $ 910
Adjustments to reconcile net income to cash
used for operating activities:
Increase (decrease) in policy liabilities and accruals 1,513 (895) 3,399 (1,620)
Amortization of deferred policy acquisition costs 6,026 3,058 10,355 5,948
(Increase) in deferred income taxes (313) 358 258 95
Additions to deferred policy acquisition costs (11,153) (5,662) (21,878) (11,508)
Depreciation expense 130 123 261 234
Increase (decrease) in receivables from agents 911 (1,911) (3,188) (3,797)
Increase in other assets (891) (2,409) (2,272) (2,786)
Equity in earnings of Freedom Holding Company (27) (86) (74) (56)
Increase (decrease) in other liabilities (475) (748) 1,155 (1,556)
Other, net (113) (259) 750 123
-------- -------- -------- --------
Net Cash Used For Operating Activities (2,807) (7,425) (8,489) (14,013)
-------- -------- -------- --------
Cash Flows From Investing Activities:
Acquisition of Freedom Holding Company (net of cash
acquired of $2,366) (3,970) -- (3,970) --
Proceeds From Investments Sold:
Fixed maturities, classified as held-to-maturity,
called or matured -- 271 -- 519
Fixed maturities, classified as available-for-sale,
called or matured 600 64 5,188 77
Fixed maturities, classified as available-for-sale, sold 29,430 2,987 30,463 3,939
Short-term investments, sold or matured 12,020 7,596 55,999 10,530
Other investments, sold or matured 183 14 255 38
Cost of investments acquired (33,800) (4,217) (80,433) (7,424)
Additions to leasehold improvements and equipment,
net of retirements (99) (209) (174) (595)
-------- -------- -------- --------
Net Cash Provided By Investing Activities 4,364 6,506 7,328 7,084
-------- -------- -------- --------
Cash Flows From Financing Activities:
Retirement of senior subordinated debentures, at par -- -- -- (25,000)
Issuance of notes payable 494 -- 2,731 --
Issuance of subordinated notes -- -- -- 19,200
Issuance of common stock -- 1 2 9,950
-------- -------- --------
Net Cash Provided By Financing Activities 494 1 2,733 4,150
-------- -------- -------- --------
Increase (Decrease) In Cash During Period 2,051 (918) 1,572 (2,779)
Cash At Beginning Of Period 1,534 1,010 2,013 2,871
-------- -------- -------- --------
Cash At End Of Period $ 3,585 $ 92 $ 3,585 $ 92
======== ======== ======== ========
Supplemental Disclosures Of Cash Flow Information:
Cash Paid During The Periods For:
Interest $ 721 $ 560 $ 1,617 $ 2,338
Income taxes $ 30 $ 325 $ 32 $ 328
</TABLE>
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 NONCASH INVESTING ACTIVITIES
The Company purchased the outstanding capital stock of an insurance holding
company in the second quarter of 1996 for a cash purchase price of $6.3 million.
This purchase resulted in the Company receiving assets and assuming liabilities
as follows:
Assets $13,542,000
Liabilities $ 5,780,000
Adjustments to reconcile net income to cash used for operating activities in the
Company's Consolidated Statements of Cash Flows exclude increases relating to
the acquired assets and liabilities of FHC. Accordingly, these adjustments do
not correspond to the changes in the related line items on the Company's
Consolidated Balance Sheets.
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 and six month periods ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. 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, 1995.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
In the normal course of their business operations, National Foundation Life
Insurance Company ("NFL"), National Financial Insurance Company ("NFIC"),
American Insurance Company of Texas ("AICT"), and Freedom Life Insurance Company
of America ("FLICA"), 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 - EARNINGS PER SHARE
PRIMARY INCOME BEFORE EXTRAORDINARY ITEM. Calculated by dividing 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 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 average 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, 1996, 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 4 - ACQUISITION OF FREEDOM HOLDING COMPANY
On May 31, 1996, the Company completed the acquisition of the 60% of Freedom
Holding Company ("FHC") it did not already own. FHC is a holding company which
owns 100% of FLICA, a Mississippi domiciled insurer licensed in 34 states. The
purchase price was $6.3 million in cash, and was accounted for under the
purchase method. Prior to the acquisition, the Company accounted for its 40%
investment in FHC using the equity method. Beginning June 1, 1996, the results
of operations of FHC have been reflected in the Company's Consolidated
Statements of Income and Cash Flows. The present value of future profits
associated with the purchase are being amortized in relation to premium revenues
over the remaining life of the business. The acquisition did not have a material
pro-forma impact on operations.
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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, 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 ("NFIC") and its wholly-owned
subsidiary, American Insurance Company of Texas ("AICT") - These
companies were acquired by the Company in April, 1994. NFIC 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 of NFL.
* Freedom Holding Company ("FHC") and its wholly-owned subsidiary,
Freedom Life Insurance Company of America ("FLICA") - The Company
held a 40% interest in FHC until May 1996, at which time the
Company acquired the remaining 60% of FHC. 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 primary 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
subsidiary 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 held a 50% ownership interest in SBL
until June 1996, at which time the company exercised an option in
the joint venture agreement to acquire the remaining 50% of SBL.
* American Senior Security Plans, LLC ("ASSP") - ASSP is an
insurance marketing subsidiary which derives fee income in the
form of commissions on sales of Medicare Supplement Products for
NFIC. ASSP was formed in November, 1994. The Company held a 50%
ownership interest in ASSP until April 1996, at which time the
Company acquired the remaining 50% of ASSP.
* Health Care-One Insurance Agency, Inc. ("HCO") - HCO is an
insurance marketing joint venture which derives fee income in the
form of commissions on sales of HMO products and PPO products,
for non-affiliated companies. HCO was formed in September, 1995.
The Company holds a 50% ownership interest in HCO.
The Company has purchased several significant blocks of business over the past
four years. Generally, as a result of the acquisition of policies in force, and
the transfer of assets and liabilities relating thereto, the Company
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receives higher revenues in the form of premiums and net investment income, and
experiences higher expenses in the form of benefits and claims, amortization of
deferred policy acquisition costs ("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.
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
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Company-Issued Policies:
First-year premiums $16,433 $ 7,534 $30,833 $13,456
Renewal premiums 12,009 9,071 22,174 17,771
------- ------- ------- -------
Total Company-issued policies 28,442 16,605 53,007 31,227
------- ------- ------- -------
Acquired Policies:
American Integrity 2,114 2,399 4,340 5,280
Life and Health 464 569 942 1,121
Dixie National Life 752 886 1,526 1,813
FLICA 388 -- 388 --
NFIC and AICT 6,880 8,417 14,247 17,369
------- ------- ------- -------
Total acquired policies 10,598 12,271 21,443 25,583
------- ------- ------- -------
Total Premiums $39,040 $28,876 $74,450 $56,810
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SAME PERIODS ENDED
JUNE 30, 1995
PREMIUMS. Premiums increased from $28.9 million to $39.0 million for the second
quarter of 1996, an increase of $10.1 million or 34.9%. This increase was
attributable to first-year and renewal premiums on Company-issued policies
increasing $8.9 million and $2.9 million, or 118.7% and 31.9%, respectively,
offset by decreases in premiums from acquired policies of $1.7 million or 13.8%.
Premiums increased $17.6 million or 31%, for the first six months of 1996, from
$56.8 million to $74.3 million. This increase is attributable to first-year and
renewal premiums on Company-issued policies increasing $17.3 million and $4.4
million, or 128.1% and 24.9%, respectively, offset by decreases in premiums from
acquired policies of $4.2 million or 16.4%.
The increase in first-year premiums for the second quarter was primarily due to
increases of $1.3 million, or 46.4%, in Medicare Supplement premiums produced by
SBL for NFL, $3.4 million, or 147.8%, in Medical Expense premiums produced by
LMG for NFL and $4.5 million in Medicare Supplement and Medical Expense premiums
produced by non-affiliated agencies for NFIC and AICT.
The increase in first-year premiums for the first six months of 1996 when
compared to the same period in 1995, was principally due to increases of $3.3
million, or 63.5%, in Medicare Supplement premiums produced by SBL for NFL, $6.6
million, or 161%, in Medical Expense premiums produced by LMG for NFL and $8
million in Medicare Supplement and Medical Expense premiums produced by
non-affiliated agencies for NFIC and AICT.
The increase in renewal premiums for the second quarter of 1996 was primarily
due to increases in Medicare Supplement premiums marketed by SBL for NFL of $1.8
million, Medicare Supplement and Medical Expense premiums marketed by
non-affiliated agencies for NFIC and AICT of $621,000 and Cancer and Specified
Disease
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premiums reinsured by NFL from FLICA of $657,000. These increases were offset in
part by decreases in renewal premium from acquired policies of $1.6 million or
18.8% from the NFIC and AICT block of business and $285,000 from the American
Integrity Insurance Company block of business.
For the first six months of 1996, renewal premiums increased $216,000 as a
result of $4.4 million in higher premiums from Company-issued policies
offsetting $4.2 million in lower premiums from acquired policies. Decreases in
renewal premium consisted primarily of $3.3 million on polices acquired from
NFIC and AICT and $940,000 on policies acquired from American Integrity
Insurance Company. Offsetting these decreases, in part, were increases in
Medicare Supplement premiums marketed by SBL for NFL of $2.9 million, and Cancer
and Specified Disease premiums reinsured by NFL from FLICA of $1.3 million.
NET INVESTMENT INCOME. Net investment income increased $400,000, or 22.2%, for
the second quarter of 1996 from $1.8 million to 2.2 million. The increase was
attributable to $385,000 of interest charged on receivables from agents, which
was not present in the prior year period.
Net investment income increased $700,000, or 19.4%, for the first six months of
1996 from $3.6 million to $4.3 million. The increase was attributable to
$780,000 of interest charged on receivables from agents, which was not present
in the prior year period.
FEE AND SERVICE INCOME. Fee and service income increased from $458,000 to $2.0
million in the second quarter of 1996, an increase of $1.5 million. The increase
is primarily due to $1.2 million of commission fees earned by HCO from
non-affiliated companies and $343,000 for telemarketing services to
non-affiliated companies. HCO began operations during the fourth quarter of
1995. Sales of telemarketing services to non-affiliated companies began during
the third quarter of 1995.
Fee and service income increased $2.9 million for the first six months of 1996
from $890,000 to $3.8 million. The increase was primarily due to $2.0 million of
commission fees earned by HCO, which began operations during the fourth quarter
of 1995, from non-affiliated companies. Additionally, $847,000 was provided by
sales of telemarketing services to non-affiliated companies.
BENEFITS AND CLAIMS. Benefits and claims increased $5.4 million, or 31.4%, from
$17.2 million to $22.6 million in the second quarter of 1996 when compared to
the second quarter of 1995. Benefits and claims from Company-issued policies
increased $7.0 million, or 90.9%, offset by decreases in benefits and claims
from acquired business of $1.6 million, or 16.8%. Reflective of the increase in
premiums, benefits and claims increased $2.1 million, or 87.5%, from Medicare
Supplement Products marketed by SBL for NFL, $2.2 million, or 115.8%, from
Medical Expense Products marketed by LMG for NFL and $2.5 million from Medicare
Supplement and Medical Expense Products marketed by non-affiliated agencies for
NFIC and AICT. Benefit and claims decreased $900,000, or 37.5 %, from policies
purchased from American Integrity Insurance Company and $700,000, or 11.5%, from
policies purchased from NFIC and AICT.
Benefits and claims increased from $33.5 million to $44.5 million in the first
six months of 1996, an increase of $11.0 million, or 32.8%. Benefits and claims
from Company-issued policies increased $12.2 million, or 81.9%, offset by
decreases from acquired policies of $1.2 million, or 6.5%. The increases in
benefits and claims can be attributed to $1.2, or 66.7%, from Cancer and
Specified Disease Products directly issued by NFL, $3.9 million, or 79.6%, from
Medicare Supplement Products produced by SBL for NFL, $3.6 million, or 90%, from
Medical Expense Products produced by LMG for NFL and $3.2 million from Medicare
Supplement and Medical Expense Products for NFIC and AICT. These increases were
offset, in part, by decreases from acquired policies, principally $1.2 million,
or 28.6%, from policies acquired from American Integrity Insurance Company.
COMMISSIONS. Commissions decreased $900,000, or 33.3%, in the second quarter of
1996 from $2.7 million to $1.8 million. Before elimination of intercompany
revenue and expense in consolidation, commissions decreased $500,000, or 18.5%,
in NFL and 376,000, or 45.8%, in NFIC and AICT. Offsetting these decreases were
increases in commissions of $900,000, or 81.8%, in LMG and $700,000 in HCO,
which began operations in the fourth quarter of 1995. An increase of $1.3
million in commissions paid to LMG from NFL was eliminated in consolidation
along with an increase of $700,000 in commissions paid to SBL by NFL.
For the first six months of 1996, commissions decreased $2.1 million or 36.2%.
Before elimination of inter-company revenue and expense in consolidation,
commissions decreased $1 million, or 17.5%, in NFL and $578,000, or 36.9 %, in
NFIC and AICT. Offsetting these decreases were increases in commissions of $1.9
million, or 95%, in LMG and $1.2 million in HCO, which began operations in the
fourth quarter of 1995. An increase of $2.8 million in commissions paid to LMG
from NFL and $1.3 million in commissions paid to SBL from NFL were eliminated in
consolidation.
The declining trend in commissions expense compared to the prior year periods,
is the result of a higher mix of products with lower ultimate commission rates.
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS ("DPAC"). Amortization of DPAC
increased from $3.1 million to $6 million in the second quarter of 1996, an
increase of $2.9 million, or 93.5%. The increase was primarily attributable to
$1.4 million from Medical Expense Products marketed by LMG for NFL and $1.2
million for products underwritten by NFIC and AICT, comprised of a $1.6 million
increase from Company-issued Medicare Supplement and Medical Expense Products
offset by a decrease of $438,000 in amortization from policies acquired from
NFIC and AICT.
Amortization of DPAC increased $4.5 million, or 76.3%, from $5.9 million to
$10.4 million for the first six months of 1996 when measured against the
comparable period of 1995. This increase was primarily due to $872,000, or
147.5%, from Medicare Supplement Products marketed by SBL for NFL, $1.9 million,
or 135.7%, from Medical Expense Products marketed by LMG for NFL, $1.1 million
from products underwritten by NFIC and AICT, comprised of a $2.6 million
increase from Company-issued Medicare Supplement and Medical Expense Products
offset by a decrease of $1.5 million in amortization from policies acquired from
NFIC and AICT, and $414,000, or 70.3% from Cancer and Specified Disease Products
directly written by NFL.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $2.5 million, or 54.3%, from $4.6 million to $7.1 million in the
second quarter of 1996 as a result of costs associated with expanding marketing
operations and servicing a growing base of policyholders.
Similarly, general and administrative expenses increased in the first six months
of 1996 from $9.6 million to $13.7 million, an increase of $4.1 million or 42.7%
due to expansion of marketing operations and policyholder count.
Included in general and administrative expenses for the quarter and six-months
ended June 30, 1996, is approximately $627,000 of expenses related to the
acquisition of the remaining interest in ASSP and SBL.
TAXES, LICENSES AND FEES. Taxes, licenses and fees increased $700,000, or 70.0%,
from $1 million to $1.7 million in the second quarter of 1996. The increase is
primarily due to growth in premium revenues along with examination fees paid to
state insurance departments.
For the first six months of 1996, taxes, licenses and fees increased $1 million,
or 47.6%, from $2.1 million to $3.1 million again primarily as a result of
increases in premiums coupled with examination fees paid to state insurance
departments.
INTEREST EXPENSE. Interest expense increased in the second quarter of 1996 from
$570,000 to $1 million, an increase of $430,000, or 75.4% due to interest of
$415,000 associated with a revolving line of credit which was not present in the
comparable 1995 period.
Interest expense increased during the first months of 1996 from $1.3 million to
$2 million, an increase of $700,000, or 53.8%. This increase is primarily due to
$769,000 of interest associated with a revolving line of credit which was not
present in the comparable 1995 period.
PROVISION FOR INCOME TAXES. The provision for income taxes increased $374,000,
or 54.5 %, from $686,000 to $1,060,000 in the second quarter of 1996 as a result
of pre-tax income increasing $953,000.
The provision for income taxes increased $900,000, or 90%, from $1 million to
$1.9 million for the first six months of 1996. This increase is primarily due to
pre-tax income increasing $2.3 million.
11
<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, NFIC, and FHC of which it is
the sole stockholder. AICT is a wholly-owned subsidiary of NFIC, and FHC owns
100% of FLICA. Westbridge's primary sources of funds are advances due and
dividends from marketing 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,
working capital requirements for its marketing subsidiaries, 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, NFIC,
AICT and FLICA 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. NFIC 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. FLICA is domiciled in Mississippi. Under Mississippi
Insurance Regulations, an insurer domiciled in Mississippi may pay dividends
limited to the lesser of 10% of statutory capital and surplus or 100% of
statutory net income for the preceding year, unless prior written approval of
the Commissioner is obtained.
As of December 31, 1995, NFL had negative earned surplus as a result of
historical losses. For the foreseeable future, NFL has agreed to seek the
approval of the Delaware Insurance Commissioner prior to making any dividend
payments. During 1996, AICT has the ability to pay to NFIC, without prior
regulatory approval, $835,000 in dividends, none of which has been paid. During
1996, NFIC has the ability to pay Westbridge, without prior regulatory approval,
$994,000 in dividends, none of which has been paid. FLICA is precluded from
making dividend payments in 1996 without prior approval from the Insurance
Commissioner due to net losses on a statutory basis in 1995.
Westbridge believes that its near-term cash requirements, including interest 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 and
dividends from marketing subsidiaries, and payments relating to the surplus
certificate.
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 also receive cash from
the sale of agent receivables to Westbridge Funding Corporation ("WFC"), a
wholly-owned subsidiary of Westbridge, under a Receivables Purchase Agreement.
Discontinuance of such sales to WFC would result in reduced liquidity and
decreases in statutory capital and surplus of the insurance subsidiaries. The
insurance subsidiaries' primary uses for cash are benefits and claims,
commissions, general and administrative expenses and taxes.
The Insurance Subsidiaries and other subsidiaries of Westbridge advance a
percentage of first year commissions payable to agents for policies sold by such
agents. In order to finance these advances, Westbridge's wholly-owned subsidiary
Westbridge Funding Corporation ("WFC") entered into a credit agreement dated as
of December 28, 1995 with Fleet National Bank (the "Credit Agreement") which
provides WFC with a two-year $20 million revolving loan facility, the proceeds
of which are used by WFC to purchase receivables evidencing agent advances.
WFC's obligations under the Credit Agreement are secured by liens upon
substantially all of WFC's assets. In addition, through an agreement with Fleet
National Bank dated December 28, 1995, Westbridge has guaranteed WFC's
obligations under the Credit Agreement and has agreed, subject to regulatory
approval, to pledge all of the issued and outstanding shares of the capital
stock of NFL, NFIC and WFC as collateral for its guaranty. As of June 30, 1996
$17.6 million was outstanding under the Credit Agreement. The termination date
12
<PAGE>
of the current agent receivable financing program is January 7, 1998.
CONSOLIDATED. A significant portion of the Company's premiums for the six months
ended June 30, 1996 related to policies obtained through closed blocks of
insurance business including the NFIC and AICT 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 was $8.5 million in the first six months of 1996
and $14 million for the comparable 1995 period. The decline in the amount of net
cash used for operations is the result of larger increases to cash inflows,
principally from premiums, relative to the increases in cash outflows,
principally from deferred policy acquisition costs and receivables from agents
associated with higher levels of new business production in 1996 when compared
to 1995.
Net cash provided by investing activities for the six months ended June 30,
1996, totaled $7.3 million, compared to net cash provided by investing
activities of $7.1 million in the comparable 1995 period. Proceeds from
investment activity for the six months of both 1996 and 1995 were utilized to
fund operating cash outflows with 1996 investment proceeds accounting for a
greater percentage of such funding in comparison to the investment proceeds in
1995.
Net cash provided by financing activities was $2.7 million for the six months
ended June 30, 1996, compared to $4.1 million for the prior year period. The
Company, through WFC, made net draws, including repayments of previous amounts
borrowed, of $2.7 million on the $20 million revolving loan facility during the
first six months of 1996. The outstanding balance was $17.6 million at June 30,
1996. The Company and WFC are subject to certain provisions and covenants under
the line of credit, including obtaining bank approval prior to paying any
dividend from WFC to Westbridge. For the comparable 1995 period, $29.1 million
was provided by the issuance of 1,500,000 shares of Common Stock and $20 million
principal amount of Senior Subordinated Notes, due 2002. Also in the first six
months of 1995, $25 million was disbursed to retire at par value, prior to
maturity, the 11.7% Senior Subordinated Debentures due 1996. The cash inflows
from financing activities were utilized to fund operations for the six months
ended June 30, 1996 and 1995.
The Company believes that its near-term cash requirements will be met through a
combination of operating, investing, and financing 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, investing, and
financing cash flows. The Company has established an agent balance financing
facility which will be used to finance additional marketing growth. Additional
capital may be necessary to consummate future growth. There can be no assurance
that opportunities for additional capital or for future growth will arise. In
addition, the ability of the company to issue new policies will be limited by
risk based capital guidelines as followed by various insurance regulators.
The Company had less than 2% of its fixed maturity investments held in
high-yield, unrated or less than investment grade corporate debt securities in
its investment portfolio as of June 30, 1996, 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.
13
<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, May 30, 1996.
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 LLP as independent accountants.
(3) Approval of the Westbridge Capital Corp. 1996 Restricted Stock
Plan.
RESULTS OF BALLOTING
(1) In connection with the election of directors for the Company,
5,093,710 shares were voted "FOR" each of those persons
nominated, with 720,535 shares voting "WITHHOLD AUTHORITY" in
connection with their election.
(2) Regarding the selection of independent accountants, 5,797,945
shares were voted "FOR", 10,284 shares were voted "AGAINST",
and 6,016 shares were voted "ABSTAINED".
(3) In connection with the approval of the 1996 Restricted Stock
Plan, 5,029,796 shares were voted "FOR", with 771,879 shares
voting "AGAINST", and 12,570 shares were voted "ABSTAINED".
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.25- Master General Agent's Contract by and between American
Insurance Company of Texas and National Farm & Ranch Group,
Inc., effective as of the 1st day of September, 1994,
(incorporated by reference to Exhibit 10.25 to Amendment No.
2 to the Company's Registration Statement No. 33-81380 on
Form S-1, as filed on August 9, 1996).
10.26- Master General Agent's Contract by and between National
Financial Insurance Company and National Farm & Ranch Group,
Inc., effective as of the 1st day of June, 1995,
(incorporated by reference to Exhibit 10.26 to Amendment No.
2 to the Company's Registration Statement No. 33-81380 on
Form S-1, as filed on August 9, 1996).
10.27- Master General Agent's Contract by and between National
Foundation Life Insurance Company and National Farm & Ranch
Group, Inc., effective as of the 1st day of September, 1994,
(incorporated by reference to Exhibit 10.27 to Amendment No.
2 to the Company's Registration Statement No. 33-81380 on
Form S-1, as filed on August 9, 1996).
14
<PAGE>
10.28- Master General Agent's Contract by and between American
Insurance Company of Texas and Cornerstone National
Marketing Corporation effective, as of the 19th day of
October, 1994, (incorporated by reference to Exhibit 10.28
to Amendment No. 2 to the Company's Registration Statement
No. 33-81380 on Form S-1, as filed on August 9, 1996).
10.29- Master General Agent's Contract by and between National
Financial Insurance Company and Cornerstone National
Marketing Corporation, effective as of the 19th day of
October, 1994, (incorporated by reference to Exhibit 10.29
to Amendment No. 2 to the Company's Registration Statement
No. 33-81380 on Form S-1, as filed on August 9, 1996).
10.30- Master General Agent's Contract by and between National
Foundation Life Insurance Company and Cornerstone National
Marketing Corporation, effective as of the 19th day of
October, 1994, (incorporated by reference to Exhibit 10.30
to Amendment No. 2 to the Company's Registration Statement
No. 33-81380 on Form S-1, as filed on August 9, 1996).
10.31- Master General Agent's Contract by and between Freedom
Life Insurance Company of America and John P. Locke, d.b.a.
1ST MILLION, dated the 31st day of May, 1996, (incorporated
by reference to Exhibit 10.31 to Amendment No. 2 to the
Company's Registration Statement No. 33-81380 on Form S-1,
as filed on August 9, 1996).
10.33- Form of Pledge Agreement between Westbridge Capital Corp.
and Fleet National Bank of Connecticut, (incorporated by
reference to Exhibit 10.33 to Amendment No. 2 to the
Company's Registration Statement No. 33-81380 on Form S-1,
as filed on August 9, 1996).
(b) REPORTS ON FORM 8-K
No Form 8-K was required to be filed during the period.
15
<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
Executive Vice President, Chief Financial
Officer and Treasurer
(On Behalf of the Registrant and as
Principal Financial and Accounting Officer)
Dated at Fort Worth, Texas
August 14, 1996
16
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 86,563
<DEBT-CARRYING-VALUE> 0
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74,450
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