-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EJFtlcanokNhSd6K8h6RJNL4I0SHq8ihSPyKb5e8uwCGtzxbmvKoYLzMzetWcubX ORJ38B7cGWVGCzPUDhvyaA== 0000703701-96-000007.txt : 19960816 0000703701-96-000007.hdr.sgml : 19960816 ACCESSION NUMBER: 0000703701-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTBRIDGE CAPITAL CORP CENTRAL INDEX KEY: 0000703701 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 731165000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08538 FILM NUMBER: 96614445 BUSINESS ADDRESS: STREET 1: 777 MAIN ST STREET 2: STE 900 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8178783300 MAIL ADDRESS: STREET 1: 777 MAIN ST STE 900 CITY: FORT WORTH STATE: TX ZIP: 76102 10-Q 1 6/96 10-Q 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 1 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:
PAGE(S) 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
2 WESTBRIDGE CAPITAL CORP. CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS
June 30, December 31, June 30, 1996 1995 1995 (UNAUDITED) (AUDITED) (UNAUDITED) 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 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 3 WESTBRIDGE CAPITAL CORP. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
June 30, December 31, June 30, 1996 1995 1995 (UNAUDITED) (AUDITED) (UNAUDITED) 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 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 WESTBRIDGE CAPITAL CORP. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data, unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) 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
The accompanying notes are an integral part of these financial statements. 5 WESTBRIDGE CAPITAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended Six Months Ended JUNE 30, JUNE 30, ----------------------- --------------------- 1996 1995 1996 1995 ----------------------- --------------------- 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
The accompanying notes are an integral part of these financial statements. 6 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. 7 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. 8 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 9 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.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 ------------------ ------------------ 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 ======= ======= ======= =======
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 10 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 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 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 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 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 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 EX-27 2 ARTICLE 7 FDS FOR 10-Q
7 1000 6-MOS DEC-31-1996 JUN-30-1996 86,563 0 0 1,747 609 141 99,400 3,585 0 73,395 214,605 93,794 0 0 381 37,844 20,000 0 599 42,447 214,605 74,450 4,307 201 3,794 44,546 10,355 13,699 5,378 1,882 3,570 0 0 0 2,745 0.45 0.42 0 0 0 0 0 0 0
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