UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period endedMarch 31, 2005 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [no fee required] |
For the transition period from _________________ to ________________. |
Commission file number2-79192. |
HAMPSHIRE FUNDING, INC.
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE | 02-0277842 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
ONE GRANITE PLACE, CONCORD, NEW HAMPSHIRE | 03301 |
(Address of principal executive offices) | (Zip Code) |
(603) 226-5000
(Registrant's telephone number, including area code)
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.
YESx NOo
Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock as of April 1, 2005: 50,000 shares, all of which are owned by Jefferson-Pilot Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
The exhibit index appears on page 10
Hampshire Funding, Inc.
Index
Part I. Financial Information | Page | ||
Item 1. | Financial Statements (Unaudited) | ||
Statements of Financial Condition - March 31, 2005 and December 31, 2004 | 3 | ||
Statements of Income -Three-months ended March 31, 2005 and 2004 | 4 | ||
Statements of Stockholder's Equity- Three-months ended March 31, 2005 and 2004 | 5 | ||
CondensedStatements of Cash Flows - Three-months ended March 31, 2005 and 2004 | 6 | ||
Notesto Unaudited Condensed Financial Statements - March 31, 2005 | 7 | ||
Item 2. | Management's Discussionand Analysis of Financial Condition and Results of Operations | 8 | |
Item 3. | Quantitativeand Qualitative Disclosure of Market Risk | 9 | |
Item 4. | Controlsand Procedures | 9 | |
Part II. Other Information | |||
Item 1. | LegalProceedings | 10 | |
Item 2. | Changes in Securities and Use of Proceeds | 10 | |
Item 3. | Defaults upon Senior Securities | 10 | |
Item 4. | Submission of Matters to a Vote of Security Holders | 10 | |
Item 5. | Other Information | 10 | |
Item 6. | Exhibitsand Reports on Form 8-K | 10-13 | |
Signature | 10 |
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2 | ||
Hampshire Funding, Inc.
Statements of Financial Condition
March 31, | December 31, | ||||||
2005 | 2004 | ||||||
(Unaudited) | (Note A) | ||||||
Assets | |||||||
Cash and cash equivalents | $ | 8,951 | $ | 194,347 | |||
Collateralized loans | 10,769,495 | 12,303,907 | |||||
Accrued interest receivable | 368,693 | 416,296 | |||||
Other | 25,879 | 21,983 | |||||
Total assets | $ | 11,173,018 | $ | 12,936,533 | |||
Liabilities and stockholder's equity | |||||||
Liabilities: | |||||||
Due to parent | $ | 1,336,772 | $ | 3,201,853 | |||
Due to affiliates | 111,219 | 26,704 | |||||
Accrued expenses and other liabilities | 236,364 | 320,807 | |||||
Total liabilities | 1,684,355 | 3,549,364 | |||||
Stockholder's equity: | |||||||
Common stock, par value $1 per share; authorized 100,000 shares; issued and outstanding 50,000 shares | 50,000 | 50,000 | |||||
Additional paid-in capital | 789,811 | 789,811 | |||||
Retained earnings | 8,648,852 | 8,547,358 | |||||
Total stockholder's equity | 9,488,663 | 9,387,169 | |||||
Total liabilities and stockholder's equity | $ | 11,173,018 | $ | 12,936,533 |
See accompanying notes.
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3 | ||
Hampshire Funding, Inc.
Statements of Income
(Unaudited)
Three months ended March 31, | |||||||
2005 | 2004 | ||||||
Operating revenues: | |||||||
Loan sales and servicing | $ | - | $ | 336,824 | |||
Interest on collateralized loans | 232,883 | 16,088 | |||||
Program participant fees | 10,044 | 15,651 | |||||
Interest on cash sweep account | - | 2,511 | |||||
242,927 | 371,074 | ||||||
Operating expenses: | |||||||
Administrative expenses | 66,976 | - | |||||
Interest on affiliate borrowings | 13,207 | 5,744 | |||||
80,183 | 5,744 | ||||||
Income before income taxes | 162,744 | 365,330 | |||||
Income tax expense | 61,250 | 139,484 | |||||
Net income | $ | 101,494 | $ | 225,846 |
See accompanying notes.
4 | ||
Hampshire Funding, Inc.
Statements of Stockholder's Equity
(Unaudited)
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total | ||||||||||||
Balance at December 31, 2004 | $ | 50,000 | $ | 789,811 | $ | 8,547,358 | $ | - | $ | 9,387,169 | ||||||
Net income | 101,494 | 101,494 | ||||||||||||||
Balance at March 31, 2005 | $ | 50,000 | $ | 789,811 | $ | 8,648,852 | $ | - | $ | 9,488,663 | ||||||
Balance at December 31, 2003 | $ | 50,000 | $ | 789,811 | $ | 6,818,516 | $ | 1,286,968 | $ | 8,945,295 | ||||||
Net income | 225,846 | 225,846 | ||||||||||||||
Change in unrealized gain on securities available for sale, net of tax of $163,011 | (302,735 | ) | (302,735 | ) | ||||||||||||
Total comprehensive income | 225,846 | (302,735 | ) | (76,889 | ) | |||||||||||
Balance at March 31, 2004 | $ | 50,000 | $ | 789,811 | $ | 7,044,362 | $ | 984,233 | $ | 8,868,406 |
See accompanying notes.
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5 | ||
Hampshire Funding, Inc.
Condensed Statements of Cash Flows(Unaudited)
Three months ended March 31, | |||||||
2005 | 2004 | ||||||
Cash and cash equivalents provided by operating activities | $ | 145,273 | $ | 609,322 | |||
Investing activity | |||||||
Net decrease in collateralized loans | 1,534,412 | - | |||||
Financing activities | |||||||
Repayment of affiliated loan agreement | (1,865,081 | ) | (248,586 | ) | |||
Proceeds from sales of collateral loans receivable | - | 421,621 | |||||
Loans originated | - | (443,812 | ) | ||||
Net cash used in financing activities | (1,865,081 | ) | (270,777 | ) | |||
Net (decrease) increase in cash and cash equivalents | (185,396 | ) | 338,545 | ||||
Cash and cash equivalents at beginning of period | 194,347 | 1,010,347 | |||||
Cash and cash equivalents at end of period | $ | 8,951 | $ | 1,348,892 |
See accompanying notes.
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6 | ||
Hampshire Funding, Inc.
Notes to Unaudited Condensed Financial Statements
March 31, 2005
Note A. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles 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-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in the Hampshire Funding, Inc. annual report on Form 10-K for the year ended December 31, 2004.
Note B. Termination of Financing Agreement
On December 31, 1997, the Company entered into a Receivables Purchase Agreement (the "Agreement") with Preferred Receivables Funding Corporation ("PREFCO"), a wholly owned subsidiary of Bank One, formerly First National Bank of Chicago, (the "Bank"). This Agreement provided for an initial purchase of the Company's collateral loans receivable by PREFCO in the amount of $52,994,767 and for ongoing periodic purchases. Over the life of the Agreement, cash flows related to the repayment of loans were used to satisfy the collateral loan receivables due to PREFCO. The Agreement renewed annually and was scheduled to renew again on July 21, 2004.
The collateral loan receivable due to PREFCO had declined to $3,686,674 as of June 30, 2004. Accordingly, on July 9, 2004, the Company elected not to extend the Agreement. Upon termination of the Agreement, the Company borrowed funds through its existing inter-company loan agreement with its parent Jefferson-Pilot Corporation and paid PREFCO its outstanding collateral loan receivable balance of $3,686,537, net of a $137 interest payment,and re-established its collateral loan receivable. The Company's Collateralized loans receivable from Participants is $10,769,495 at March 31, 2005.
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7 | ||
PART I - FINANCIAL INFORMATION (continued)
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Company Profile
Hampshire Funding, Inc. (the "Company") administers investment programs ("Programs") which coordinate the acquisition of mutual fund shares and insurance over a period of ten years. Under the Programs, Participants purchase life and health insurance from affiliated Insurance Companies and finance the premiums through a series of loans secured by mutual fund shares. Upon issuance of a policy by an Insurance Company, the Company makes a loan to the Participant in an amount equal to the selected premium mode. As each premium becomes due, if not paid in cash, a new loan equal to the next premium and administrative fee is made and added to the Participant's account indebtedness ("Account Indebtedness"). Thus, interest, as well as principal, is borrowed and mutual fund shares are pledged as collateral. The Program loa n percentage rate charged to Participants was 8.25% on March 31, 2005. The aggregate value of all mutual fund shares pledged as collateral must be at least 150% of the Participant's total Account Indebtedness. If the value of the shares pledged to the Company declines below 130% of the Account Indebtedness, the Company will terminate the Programs and liquidate shares sufficient to repay the indebtedness.
Effective March 31, 1998, the Company discontinued the sale of Programs. The Company, however, will continue to make premium loans to current Participants and administer all Programs until their stated maturity or termination dates.
Critical Accounting Policies
The financial statements are prepared in accordance with U.S. generally accepted accounting principles. The majority of assets and liabilities are financial in nature and the valuations of these assets and liabilities are critical to the financial position and results of operations. However, certain accounting policies are particularly important to the portrayal of the Company's financial position and results of operations, and require the Company's management to apply significant judgment; as a result are subject to an inherent degree of uncertainty. Management evaluated estimates and judgments based upon historical experience, which formed the basis for making judgments about the carrying values of assets and liabilities that were not readily apparent from other sources.
Liquidity and Capital Resources
During 1998, the Company entered into an intercompany loan agreement with Jefferson-Pilot Corporation whereby it may borrow funds for working capital needs at short-term interest rates. At March 31, 2005 the Company had borrowed $1,336,772 compared to $3,201,853 at December 31, 2004.
The continuance of the Program is dependent upon the Company's ability to borrow funds from Jefferson-Pilot Corporation or provide for the financing of insurance premiums for Participants. The Company expects that it will be able to continue to borrow funds through its existing inter-company loan agreement with Jefferson Pilot for the foreseeable future.
If the Company is unable to borrow funds in the future for the purpose of financing loans to Participants for the payment of insurance premiums, the Programs may be subject to termination.
The Company’s liabilities include amounts due to affiliates for premium loans, due to parent, and due to JP Life for expense reimbursements. Working capital in the first quarter of 2005 was provided by loan proceeds from Jefferson-Pilot Corporation, Program loan repayments, administrative fees, and interest earned on investments. Working capital through March 31, 2004 was provided by servicing fees from collateral loans sold, loans from Jefferson-Pilot Corporation, and interest earned on investments.
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8 | ||
PART I - FINANCIAL INFORMATION (continued)
Results of Operations
The Company concluded the three-months ended March 31, 2005 with net income of $101,494, as compared to net income of $225,846 for the same period in 2004.
Total revenues for the three-months ended March 31, 2005 were $242,927 versus $371,074 for the same period in 2004. Prior to July 9, 2004, revenues were derived from income on its retained interest in the loans sold to PREFCO, a wholly owned subsidiary of Bank One (the”Bank”) and program fees. Subsequent to termination of the Agreement, the Company's revenues were derived from interest income on collateralized loans and program fees. Program fees include placement, administrative and termination fees as well as charges for special services. Program fees continue to decline as programs terminate and mature. As of March 31, 2005 and 2004 the number of Programs administered by the Company was 460 and 819, respectively.
The Company is responsible for servicing, managing and collecting all receivables and loan repayments and monitoring the underlying collateral. Prior to July 9, 2004, all activity was reported to the Bank for which it received an annual service fee (collected monthly in arrears) calculated as 2% of outstanding receivables. The Company received $34,878 in service fees for the period ended March 31, 2004. The service fee was eliminated upon termination of the Agreement when the Company purchased PREFCO’s remaining receivable balance of $3,686,537 and re-established its collateral loan receivable.
Interest expense on the Company’s intercompany loan agreement was $13,207 for the three-months ended March 31, 2005, and $5,744 for the same period in 2004. The average interest rates of 2.49% and 1.02% were paid on average outstanding loans due to affiliates of $2,156,995 and $2,220,342 for the three-months ended March 31, 2005 and 2004, respectively.
Employee services and office facilities are provided by JP Life under a Service Agreement with the Company. The Company pays JP Life a monthly fee (in arrears) for services in accordance with mutually agreed upon cost allocation methods, which the Companies believe reflect a proportional allocation of common expenses and are commensurate for the performance of its duties. The Company paid JP Life servicing expenses of $73,576 and $75,473 during the three-months ended March 31, 2005 and 2004, respectively.
Prior to July 9, 2004, the Company capitalized the present value of expected service fee income in excess of related servicing expenses, which was reported as a Servicing Asset. Subsequent to July 9, 2004, the Company’s allocation of expenses are reported as Administrative expenses. Administrative expenses for the period ended March 31, 2005 were $66,976.
Item 3 - Quantitative and Qualitative Disclosure of Market Risk
Not required because Hampshire Funding, Inc. qualifies as a small business issuer under Regulation S-B.
Item 4 - Controls and Procedures
Within the 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rule 13a-15. Based upon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed orsubmitted under the Exchange Act is recorded, pro cessed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
There have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date we carried out this evaluation.
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9 | ||
PART II - OTHER INFORMATION
Item 1 -Legal Proceedings- None
Item 2 - Changes in Securities and Use of Proceeds - None
Item 3 -Defaults upon Senior Securities - Not Applicable
Item 4 -Submission of Matters to Vote of Security Holders - None
Item 5 -Other Information - None
Item 6 -Exhibits and Reports on Form 8-K
(a) | Exhibits - | Exhibit 31.1: | Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13A-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 31.2: | Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13A-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
Exhibit 32: | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
(b) | Reports on Form 8-K | ||
No Reports on Form 8-K were filed by the Company during the quarter ended March 31, 2005. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HAMPSHIRE FUNDING, INC. | |
/s/ John A. Weston | |
John A. Weston | |
Treasurer |
May 6, 2005
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