(3) Calculated by adding the redeemable preferred stock balance to stockholders' equity and dividing the resultant sum by the period-end shares outstanding plus the number of common shares issuable upon conversion of the redeemable preferred stock as if converted at the end of the period.
(5) On February 28, 1995, the Company issued $20.0 million principal amount of its 11% Senior Subordinated Notes due 2002 and issued 1,500,000 additional shares of Common Stock. The proceeds of these offerings were used, in part, to redeem the Senior Subordinated Debentures due 1996, on March 30, 1995.
(6) On April 29, 1997, the Company issued $65.0 million principal amount of its 7-1/2% Convertible Subordinated Notes ("Convertible Notes") due 2004. On May 16, 1997, the Company completed the sale of an additional $5.0 million of its Convertible Notes in connection with the underwriters' over allotment option.
(7) At December 31, 1997 consists of 19,000 shares of Series A Preferred Stock, which were convertible, at the option of the holders thereof, into an aggregate of 2,259,214 shares of Common Stock at a conversion price of $8.41 per share of Common Stock.
In order to preserve capital and maintain flexibility while it considers its strategic alternatives, the Company has suspended its scheduled debt service payments on its Senior Subordinated Notes and Convertible Notes since November 1997 and suspended its dividend payments on its outstanding Series A Preferred Stock since October 1997. The failure to make the scheduled interest payments constituted payment defaults under the Indentures relating to such Notes and became events of default thereunder as of November 17, 1997. In addition, the failure to make such interest payments also resulted in an event of default under its Credit Agreement with a bank. Other covenant defaults are also existing under the Credit Agreement and the Indenture relating to the Senior Subordinated Notes (See NOTE 7 - FINANCING ACTIVITIES). As a result of the foregoing events of defaults, the holders of such indebtedness may declare the outstanding principal amount thereof, together with accrued and unpaid interest thereon, to be due and payable immediately. If such indebtedness were to be accelerated, the Company does not have the ability to repay the indebtedness under the outstanding Convertible Notes, the Senior Subordinated Notes and the Credit Agreement. There can be no assurance that the Company will resume such interest and dividend payments in the future.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Westbridge Capital Corp. and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
WESTBRIDGE CAPITAL CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands. except share data)
WESTBRIDGE CAPITAL CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, ----------------------- 1997 1996 --------- --------- Liabilities: Policy liabilities and accruals: Future policy benefits $ 55,811 $ 54,204 Claims 51,784 39,186 --------- --------- 107,595 93,390 Accounts payable and accruals 8,034 2,496 Commission advances payable 4,702 4,368 Other liabilities 6,396 1,700 Deferred income taxes, net - 10,299 Notes payable 13,100 21,210 Convertible subordinated notes due 2004 70,000 - Senior subordinated notes, net of unamortized discount, due 2002 19,447 19,350 --------- ---------
Less - Aggregate of shares held in treasury and investment by affiliate in Westbridge Capital Corp. common stock, at cost (28,600 at December 31, 1996) - (170) --------- ---------
Nature of Operations. The Company, through its subsidiaries and affiliates, is licensed to market medical expense and supplemental health insurance products and managed care health plans in 38 states and the District of Columbia. The major underwritten product lines currently being marketed by the Company are Medical Expense products and Critical Care and Specified Disease products. In the past, the Company also underwrote a significant amount of Medicare Supplement products. The Company also markets certain managed care health plans, which are underwritten by health maintenance organizations ("HMO's") and other non-affiliated managed care organizations.
Investments. The Company's fixed maturity portfolio is classified as available-for-sale and is carried at estimated market value. Equity securities (common and nonredeemable preferred stocks) are also carried at estimated market value. Changes in aggregate unrealized appreciation or depreciation on fixed maturities and equity securities are reported directly in stockholders' equity, net of applicable deferred income taxes and, accordingly, have no effect on current operations. The Company's 40% equity investment in FHC was accounted for on the equity basis (i.e., cost adjusted for equity in post-acquisition earnings and amortization of excess cost) until May 31, 1996 and on a consolidated basis for the periods subsequent to the acquisition of the remaining 60% of FLICA's parent FHC. Mortgage loans on real estate and policy loans are carried at the unpaid principal balance. Realized gains and losses on sales of investments are recognized in current operations on the specific identification basis.
Deferred Policy Acquisition Costs ("DPAC"). Policy acquisition costs consisting of commissions and other policy issue costs, which vary with and are primarily related to the production of new business, are deferred and amortized over periods not to exceed the estimated premium-paying periods of the related policies. Also included in DPAC is the cost of insurance purchased on acquired business. The amortization of these costs is based on actuarially estimated future premium revenues, and the amortization rate is adjusted monthly to reflect actual experience. Projected future levels of premium revenue are estimated using assumptions as to interest, mortality, morbidity and withdrawals consistent with those used in calculating liabilities for future policy benefits.
Future Policy Benefits and Claims. Liabilities for future policy benefits not yet incurred are computed primarily using the net level premium method including actuarial assumptions as to investment yield, mortality, morbidity and withdrawals. Claim reserves represent the estimated liabilities on claims reported plus claims incurred but not yet reported. These liabilities are subject to the impact of future changes in claim experience and, as adjustments become necessary, they are reflected in current operations.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes. The Company records income taxes based on the asset and liability approach, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequence of temporary differences between the carrying amounts and the tax basis of assets and liabilities.
For the year ended December 31, 1995, the Series A Preferred Stock was antidilutive and has been excluded from the calculation of diluted earnings per share.
In order to preserve capital and maintain flexibility while it considers its strategic alternatives, the Company has suspended its scheduled debt service payments on its Senior Subordinated Notes and Convertible Notes since November 1997 and suspended its dividend payments on its outstanding Series A Preferred Stock effective October 1997. The failure to make the scheduled interest payments constituted payment defaults under the Indentures relating to such Notes and became events of default thereunder as of November 17, 1997. In addition, the failure to make such interest payments also resulted in an event of default under its Credit Agreement with a bank. Other covenant defaults are also existing under the Credit Agreement and the Indenture relating to the Senior Subordinated Notes. As a result of the foregoing events of defaults, the holders of such indebtedness may declare the outstanding principal amount thereof, together with accrued and unpaid interest thereon, to be due and payable immediately. If such indebtedness were to be accelerated, the Company does not have the ability to repay the indebtedness under the outstanding Convertible Notes, the Senior Subordinated Notes and the Credit Agreement. There can be no assurance that the Company will resume such interest and dividend payments in the future.
Year Ended December 31, --------------------------- 1997 1996 1995 ------- ------- ------- (in thousands)
Fixed maturities $ 535 $(146) $ 185 Equity securities (385) 238 - Short-term investments and certificates of deposit - - (3) Other (66) 4 - ===== ===== ===== Realized gains on investments $ 84 $ 96 $ 182 ===== ===== =====
Year Ended December 31, ----------------- 1997 1996 ------- ------- (in thousands)
Balance at beginning of year $ 1,057 $ 2,593 Unrealized appreciation (depreciation), net of tax, on fixed maturities available-for-sale 2,816 (1,328) Unrealized appreciation (depreciation), net of tax, on equity securities and other investments 776 (208) ======= ======= Balance at end of year $ 4,649 $ 1,057 ======= =======
Estimated market values represent the closing sales prices of marketable securities. The amortized cost and estimated market values of investments in fixed maturities at December 31, 1997 and 1996, are summarized by category as follows:
Due in one year or less $ 3,492 $ 3,500 Due after one year through five years 22,309 22,907 Due after five years through ten years 40,902 42,737 Due after ten years 45,900 49,131 Mortgage-backed securities 10,237 10,474 -------- -------- $122,840 $128,749 ======== ========
Amortized cost $122,840 $ 90,370 Estimated market value 128,749 91,947 -------- -------- Excess of market value to amortized cost 5,909 1,577 Estimated tax 2,068 552 -------- -------- Unrealized appreciation, net of tax $ 3,841 $ 1,025 ======== ========
Included in fixed maturities at December 31, 1997 and 1996, are high-yield, unrated or less than investment grade corporate debt securities comprising less than 1.6% and 1.5% of total cash and invested assets at December 31, 1997 and 1996, respectively.
On May 31, 1996, the Company completed its acquisition of the remaining 60% equity interest in Freedom Holding Company ("FHC"). FHC is a holding company which owns 100% of FLICA, a Mississippi domiciled insurer licensed in 33 states. The purchase price was $6.3 million in cash, and the transaction was accounted for under the purchase method. Prior to the acquisition, the Company accounted for its 40% investment in FHC using the equity method. The Company's portion of FHC's earnings prior to the acquisition in 1996 accounted for using the equity method was $74,000 in 1996 and $348,000 in 1995. The Company received a $120,000 dividend in 1995 from FHC.
Beginning June 1, 1996, the results of operations of FHC have been reflected in the Company's Consolidated Statements of Operations and of 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. At the time of the acquisition, the Company, through NFL, reinsured the majority of business underwritten by FLICA. Subsequent to the acquisition of the remaining interest of FHC, the coinsurance agreements between FLICA and NFL were cancelled. The acquisition did not have a material pro-forma impact on operations.
The Company provides financing to LifeStyles Marketing. LifeStyles Marketing's revenues and expenses during 1997 approximated $11.9 million and $10.7 million, respectively. Revenues and expenses were $13.3 million and $12.4 million in 1996 and $9.1 million and $8.4 million in 1995, respectively. Of the revenues received, $7.8 million were derived from NFL in the form of commission income on insurance products sold for NFL during 1997, $11.1 million in 1996 and $7.7 million in 1995.
In February 1996, the Company formed HCO Marketing. The Company owns 80% of HCO Marketing which commenced operations in March 1996. In 1997, HCO Marketing broke even and its operations were not significant in 1996. Through December 31, 1997, the Company had advanced $0.8 million at December 31, 1997 to HCO Marketing to fund operations. These advances will be repaid in the future through positive cash flows generated from renewal commissions, from advanced commissions from non-affiliated insurance carriers, and if and when profits are recognized from continuing operations.
Future policy benefits have been calculated using assumptions (which generally contemplate the risk of adverse deviation) for withdrawals, interest, mortality and morbidity appropriate at the time the policies were issued. The more material assumptions are as follows:
Withdrawals Standard industry tables are used for issues through 1975. Company experience is used for issues subsequent to 1975.
Interest Level 4% for issues through 1965; level 4.5% for 1966 through 1969 issues, and 6% graded to 4.5% in 25 years for 1970 through 1981 issues. Issues for 1982 through 1987 are 10% graded to 7% at year 10. ART issues in 1988 and later are 8.5% for 5 years graded to 7.5% in year 20. Participating policies are 4.5% for issues through 1965; 5% for 1966 through 1969 issues, and graded from 6% to 5% in 25 years for issues subsequent to 1969; 1995 and later issues are 6% level.
On February 28, 1995, the Company issued 1.5 million 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. As a result of the issuance of the Common Stock, the conversion rate of the Series A Preferred Stock has been adjusted. See NOTE 9 - REDEEMABLE PREFERRED STOCK.
Since November 1997, the Company suspended the scheduled monthly interest payments on these Senior Subordinated Notes. At December 31, 1997, approximately $0.5 million has been accrued on such Senior Subordinated Notes. See further discussion herein regarding covenant defaults.
In March 1986, the Company completed a public offering of 25,000 Units consisting of $25.0 million principal amount of 11.70% Senior Subordinated Debentures due 1996 (the "Debentures") and warrants to purchase 800,000 shares of the Company's Common Stock (the "Warrants") at $12.25 per share. The Warrants expired unexercised on March 15, 1991.
In August 1987, NFL purchased, in an open market transaction, $5 million par value of the Debentures. For GAAP reporting purposes, the purchased Debentures were no longer treated as part of the Company's consolidated debt.
Concurrent with the Common Stock and Note offerings, on February 29, 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 as an extraordinary item in the accompanying consolidated statements of operations.
In May 1997, the Company used a portion of the proceeds from the public offering of its Convertible Subordinated Notes to repay the amounts outstanding, including accrued interest, under this Senior Note. The loss on this early extinguishment of debt was immaterial for the year ending December 31, 1997.
On April 29, 1997, the Company completed the sale of $65.0 million aggregate principal amount of its 7-1/2% Convertible Subordinated Notes Due 2004 (the "Convertible Notes") in an underwritten public offering. On May 16, 1997, the Company completed the sale of an additional $5.0 million of its Convertible Notes in connection with the underwriters' over-allotment option. The net proceeds of the transaction approximated $68.0 million after deducting underwriting commissions and other expenses incurred in connection with the sales. Each $1,000 principal amount of the Convertible Notes is convertible into 91.575 shares of Westbridge Common Stock (6,410,250 shares in the aggregate) at an initial conversion price of $10.92 per share, subject to certain anti-dilution adjustments. Also, at the initial closing for the sale of the Convertible Notes, Westbridge sold to the underwriters, for nominal consideration, warrants to purchase 297,619 shares of Common Stock in the aggregate at an exercise price of $10.92 per share, subject to certain anti-dilution provisions. The warrants are exercisable for a period of four years commencing on April 29, 1998.
The Company finances the majority of its obligations to make commission advances through Westbridge Funding Corporation ("WFC"), an indirect wholly-owned subsidiary of Westbridge. On June 6, 1997, WFC entered into a Credit Agreement dated as of such date with LaSalle National Bank (the "Credit Agreement"). See NOTE 16 - EXTRAORDINARY ITEM. This Credit Agreement provides WFC with a three-year, $20.0 million revolving loan facility (the "Receivables Financing"), the proceeds of which are used to purchase agent advance receivables from the Insurance Subsidiaries and certain affiliated marketing companies. WFC's obligations under the Credit Agreement are secured by liens upon substantially all of WFC's assets. As of December 31, 1997, $13.1 million was outstanding under the Credit Agreement (interest rate of 9%). The Company incurs a commitment fee on the unused portion of the Credit Agreement at a rate of 0.50% per annum. The Credit Agreement terminates on June 5, 2000, at which time the outstanding principal and interest thereunder will be due and payable. As referred to herein, there is currently an event of default as well as certain technical defaults existing under the Credit Agreement. The Company is in discussions with LaSalle National Bank concerning these defaults.
During 1996, the Company borrowed approximately $10.5 million from a reinsurer in connection with a Coinsurance Funds Withheld Reinsurance Agreement (See NOTE 14 - REINSURANCE). The borrowing was to be repaid, inclusive of interest at 12.5%, as statutory profits emerged on the reinsured block of business. As of December 31, 1996, $8.6 million in ceding allowance was due to this reinsurer. On May 1, 1997, Westbridge contributed approximately $7.0 million of the net proceeds from the sale of the Convertible Notes to recapture this block of business. This contribution was comprised of approximately $9.0 million in total recapture costs calculated at an interest rate of 15% less approximately $2.0 million in unearned premium reserves due to NFL and FLICA. See NOTE 16 EXTRAORDINARY ITEM.
Year Ended December 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (in thousands)
Balance at January 1 (Gross) $ 39,186 $ 39,063 $ 41,387 Less: reinsurance recoverables on claim reserves 1,456 3,419 1,457 -------- -------- -------- Net balance at January 1 37,730 35,644 39,930 Incurred related to: Current year 111,459 80,821 67,239 Prior years 22,512 14,242 2,698 -------- -------- -------- Total incurred 133,971 95,063 69,937 -------- -------- -------- Current year reserves acquired - 788 - Paid related to: Current year 77,168 68,199 46,755 Prior years 45,704 25,297 27,468 Current year acquired business - 269 - -------- -------- -------- Total paid 122,872 93,765 74,223 -------- -------- -------- Balance at December 31 48,829 37,730 35,644 Plus: reinsurance recoverables on claim reserves 2,955 1,456 3,419 -------- -------- -------- Balance at December 31 (Gross) $ 51,784 $ 39,186 $ 39,063 ======== ======== ========
The Series A Preferred Stock were convertible into 2,259,214 shares of Common Stock as of December 31, 1997.
On or after April 12, 1995, the Series A Preferred Stock may, at the option of the Company, be exchanged for an amount of Convertible Subordinated Notes due April 12, 2004, equal to the aggregate liquidation preference of the Series A Preferred Stock being exchanged. The Convertible Subordinated Notes would bear interest at 8.25% and be convertible into Common Stock at a price of $8.41 per share, in each case, subject to certain adjustments.
The Company is required to redeem all shares of Series A Preferred Stock, or any Convertible Subordinated Notes outstanding on April 12, 2004.
The cost of insurance purchased in 1996 is related to the acquisition of the remaining 60% ownership interest in FHC and its wholly-owned insurance subsidiary, FLICA. This amount is being amortized in relation to premium revenue over the remaining life of the business. Interest accrues on the unamortized balance at 7% per year. Amortization of this cost of insurance purchased was approximately $0.6 million and $0.3 million in 1997 and 1996, respectively, net of interest accretion of $0.2 million and $0.2 million.
In connection with the Company's acquisition of NFIC and AICT in 1994, the related cost of insurance purchased is being amortized in relation to premium revenues over the remaining life of the business. Interest accrues on the unamortized balance at 7% per year. Amortization of this cost of insurance purchased was approximately $1.5 million, $1.8 million and $2.3 million in 1997, 1996 and 1995, respectively, net of the respective interest accretion of $0.3 million, $0.5 million and $1.3 million.
The (benefit from) provision for income taxes is calculated as the amount of income taxes expected to be payable for the current year plus (or minus) the deferred income tax expense (or benefit) represented by the change in the deferred income tax accounts at the beginning and end of the year. The effect of changes in tax rates and federal income tax laws are reflected in income from continuing operations in the period such changes are enacted.
The tax effect of future taxable temporary differences (liabilities) and future deductible temporary differences (assets) are separately calculated and recorded when such differences arise. A valuation allowance, reducing any recognized deferred tax asset, must be recorded if it is determined that it is more likely than not that such deferred tax asset will not be realized.
The differences between the effective tax rate and the amount derived by multiplying the (loss) income before income taxes by the federal income tax rate for the Company's last three years was as follows:
Year Ended December 31, --------------------- 1997 1996 1995 --- --- --- (in thousands)
Statutory tax rate (34%) 34% 34% Unutilized loss carryforwards 22% - - Equity earnings of unconsolidated subsidiary - - (1%) Other items, net - 1% - --- --- --- Effective tax rate (12%) 35% 33% === === ===
Year Ended December 31, --------------------- 1997 1996 -------- -------- (in thousands)
Deferred Tax Liabilities Deferred policy acquisition costs $ - $ 18,581 Invested assets - 231 Unrealized gain on investments 2,410 553 Other deferred tax liabilities 1,118 1,822 -------- -------- Total deferred tax liability $ 3,528 21,187 -------- --------
Under the provisions of pre-1984 life insurance tax regulations, NFL was taxed on the lesser of taxable investment income or income from operations, plus one-half of any excess of income from operations over taxable investment income. One-half of the excess (if any) of the income from operations over taxable investment income, an amount which was not currently subject to taxation, plus special deductions allowed in computing the income from operations, were placed in a special memorandum tax account known as the policyholders' surplus account. The aggregate accumulation in the account at December 31, 1997, approximated $2.5 million. Federal income taxes will become payable on this account at the then current tax rate when and to the extent that the account exceeds a specific maximum, or when and if distributions to stockholders, other than stock dividends and other limited exceptions, are made in excess of the accumulated previously taxed income. The Company does not anticipate any transactions that would cause any part of the amount to become taxable and, accordingly, deferred taxes which would approximate $0.9 million have not been provided on such amount.
Under applicable Delaware law, NFL must maintain minimum aggregate statutory capital and surplus of $550,000. Under applicable Texas law, NFIC and AICT must each maintain minimum aggregate statutory capital and surplus of $1.4 million. Under Mississippi law, FLICA is required to maintain minimum capital and surplus of $1.0 million. The State of Georgia requires licensed out-of-state insurers to maintain minimum capital of $1.5 million, and the Commonwealth of Kentucky requires minimum surplus of $2.0 million. These levels are higher than the requirements of any other states in which the Insurance Subsidiaries are currently licensed. Accordingly, the minimum aggregate statutory capital and surplus which NFL, NFIC and FLICA must each maintain is $3.5 million. AICT must maintain a minimum of $1.5 million. At December 31, 1997, aggregate statutory capital and surplus for NFL, NFIC, AICT and FLICA was $18.3 million, $3.3 million, $4.0 million and $12.0 million, respectively. Although NFIC's capital and surplus is below $3.5 million at December 31, 1997, NFIC voluntarily ceased writing new business effective December 15, 1997. Moreover, NFIC's capital and surplus exceeds the minimum requirements for its state of domicile, Texas. Statutory net losses for NFL, NFIC, AICT and FLICA for the year ended December 31, 1997, were $(28.9) million, $(20.4) million, $(4.2) million and $(3.1) million, respectively. FLICA through its parent FHC, is wholly-owned by NFL, and AICT is wholly-owned by NFIC. Accordingly, statutory capital and surplus of the parent includes the statutory capital and surplus of the respective subsidiary. Westbridge used proceeds from its public offering of Convertible Notes (See NOTE 7 - FINANCING ACTIVITIES) to contribute $30.2 million and $15.1 million to NFL and NFIC, respectively, during 1997.
In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or Health Insurers Model Act ("the Model Act"). The Model Act provides a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to its insurance and investment risks and whether there is a need for possible regulatory attention. The Model Act (or similar legislation or regulation) has been adopted in states where the Insurance Subsidiaries are domiciled.
In December 1990, the Company and NFL entered into an agreement under which NFL issued a surplus certificate to the Company in the principal amount of $2,863,000 in exchange for $2,863,000 of the Company's assets. The unpaid aggregate principal under the surplus certificate bears interest at an agreed upon rate not to exceed 10% and is repayable, in whole or in part, upon (i) NFL's surplus exceeding $7,000,000, exclusive of any surplus provided by any reinsurance agreements and (ii) NFL receiving prior approval for repayment from the Delaware State Insurance Commissioner. During 1993 and 1994, NFL received such approval and repaid $2,086,000 to the Company. No principal payments have been made subsequent to 1994. The unpaid aggregate principal under this surplus certificate totaled $777,000 as of December 31, 1997 and 1996.
The Company applies ABP Opinion No. 25 and related interpretations in accounting for its employee benefit plans, which are described below. Accordingly, compensation expense is not recognized for qualified stock option plans until such options are exercised. If compensation cost for the Company's stock option plans had been determined based on the estimated market value at the grant dates for awards under those plans consistent with the method provided by SFAS No. 123, the Company's net income and earnings per share would have been reflected by the following pro forma amounts for the years ended December 31, 1996 and 1995. There were no material grants of stock options during 1997.
Net income, as reported $ 8,261,000 $ 5,324,000 Net income, pro forma $ 8,037,000 $ 5,270,000 Basic earnings per share, as reported $ 1.11 $ 0.64 Basic earnings per share, pro forma $ 1.07 $ 0.64 Diluted earnings per share, as reported $ 0.97 $ 0.63 Diluted earnings per share, pro forma $ 0.95 $ 0.62
Dividend yield 0% Expected volatility 70.00% Risk-free rate of return 5.80% Expected life 5.0 years
The Company adopted, as of July 1, 1982, an employee incentive stock option plan (the "ISO Plan"). The ISO Plan authorizes the Company's Board of Directors to issue to key full-time employees of the Company, or any of its subsidiaries, non-transferrable options to purchase up to 580,000 (as adjusted to give effect for stock dividends paid in 1983) shares, in the aggregate, of the Company's Common Stock. Options granted under the ISO Plan are intended to qualify as either "incentive stock options" under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or as non-qualified stock options as defined under the Code. The ISO Plan provides that the option price per share will be no less than the estimated market value for a share of the Company's Common Stock on the date of grant. To date, all option prices have been equal to the estimated market value of the stock on the date of grant. The ISO plan also provides that shares available upon the exercise of options granted under the ISO Plan may be paid for with cash or by tendering shares of Common Stock owned by optionee(s), or a combination of the foregoing. All vested options outstanding are exercisable for a period not to exceed ten years from the date the option was granted, except that no option is exercisable until at least one year after its grant. In addition, the ISO Plan provides that no one owning 10% of the total combined voting power of all classes of the Company's stock, or of the stock of any subsidiary, is eligible to be awarded options under the ISO Plan.
Weighted average grant price: Non-employee directors $ 9.125 $ 6.75 Employees $ 9.060 - Agents $ 9.750 -
Information regarding the Company's stock option plans is summarized as follows:
In March 1990, NFL entered into a coinsurance treaty with Paramount Life Insurance Company ("Paramount"). Under the terms of the treaty, which was in effect from April 1, 1990 through May 31, 1995, NFL assumed 90% of the Critical Care and Specified Disease policies written by Paramount. The treaty effectively ended upon the purchase of this block of business by NFL from Paramount. For the year ended December 31, 1997, 1996 and 1995, $0, $0 and $0.6 million, respectively, of assumed premiums under this coinsurance treaty were recorded as revenue.
The Company's future minimum lease payments for non-cancelable operating leases, relating primarily to office facilities and data processing equipment having a remaining term in excess of one year, at December 31, 1997, aggregated $9.8 million. The amounts due by year are as follows: 1998-$2.6 million; 1999-$1.9 million; 2000-$1.5 million; 2001-$1.1 million, 2002-$1.1 million, and thereafter-$1.6 million. Aggregate rental expense included in the consolidated financial statements for all operating leases approximated $4.4 million, $4.2 million and $3.4 million in 1997, 1996 and 1995, respectively.
In the ordinary course of business, the Company has advanced commissions and made loans to agents collateralized by future commissions. First-year commission advances to agents are recorded as receivables from agents and totaled $20.5 million as of December 31, 1997. Westbridge holds a secured promissory note (the "Elkins Note"), from NFC Marketing, Inc. ("NFC"), an Arkansas corporation which is wholly-owned by Elkins. The balance of this note recorded on the books of the Company at December 31, 1997 is approximately $752,000. The note, which was renegotiated in October 1994, represents principal and accrued interest on a loan made by Westbridge to NFC for the purpose of expanding its marketing efforts. The Company collects $25,000 per month until this note and the related accrued interest is satisified. Payment of the principal and interest under the Elkins Note has been guaranteed by Elkins. In addition, under the terms of a Security Agreement delivered to Westbridge by NFC, following a default, Westbridge has the right to apply monies, balances, credit or collections which it may hold for NFC on deposit, or which might otherwise be payable to NFC by NFL (including, among other things, agents' commissions payable by NFL to NFC), to offset the unpaid balance of the Elkins Note.
For the year ended December 31, 1997, the Company recognized an aggregate of $1,007,000 in extraordinary losses, net of taxes. Of this amount, (i) $574,000 resulted from the recognition of unamortized financing fees associated with the prepayment and refinancing of the Company's revolving credit facility with Fleet National Bank (See NOTE 7 FINANCING ACTIVITIES); and (ii) $433,000 resulted from the termination and recapture of the block of reinsured insurance policies referred to in NOTE 14 - REINSURANCE.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT WESTBRIDGE CAPITAL CORP. (PARENT COMPANY) STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (in thousands)
(1) From early extinguishment of debt, net of income tax benefit of $85.
The condensed financial information should be read in conjunction with the Westbridge Capital Corp. December 31, 1997 consolidated financial statements and notes thereto.