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 ended March 31, 1996
[ ] 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...........
The registrant meets the conditions set forth in General Instruction H(1) (a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
Commission file number 33-58862
HL FUNDING COMPANY, INC.
Incorporated in the State of Connecticut 06-1362143
(I.R.S. Employer Identification No.)
P.O. Box 2999, Hartford, Connecticut 06104-2999
(Principal Executive Offices)
Telephone number 860-843-8213
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
As of May 10, 1996 there were outstanding 100 shares of common stock, $1 par
value per share, of the registrant, all of which were directly owned by
Hartford Life Insurance Company.
(1)
HL FUNDING COMPANY, INC.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Statements of Income - Quarter and
Three Months Ended March 31, 1996 and 1995.................. 3
Balance Sheets - March 31, 1996 and
December 31, 1995........................................... 4
Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995............................... 5
Notes to Financial Statements............................... 6
Item 2. Management's Narrative Analysis of
Results of Operations*
Three Months Ended March 31, 1996 and 1995................... 8
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K...................... 9
Signature...................................................... 10
Exhibit Index.................................................. 11
(*) Item prepared in accordance with General Instruction H (2) of Form 10-Q.
(2)
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The following unaudited financial statements reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, the results of operations
and the cash flows for the periods presented. Interim results are not
indicative of the results which may be expected for any other interim period
or the full year. For a description of accounting policies, see notes to
financial statements.
HL FUNDING COMPANY, INC.
STATEMENTS OF INCOME (LOSS)
For the Three Months Ended
March 31,
1996 1995
(Unaudited)
Revenues:
Interest income $ 585 $ 3,824
Program income 4,495 836
Total revenues 5,080 4,660
Less: Interest on borrowings 3,391 669
Net interest and program income 1,689 3,991
Noninterest expenses:
Accounting and administrative services 45,225 51,788
Legal and state fees 9,500 10,925
Other operating expenses 12,991 17,368
Total expenses 67,716 80,081
Loss before tax (66,027) (76,090)
Income tax benefit (23,109) (26,632)
Net loss $(42,918) $(49,458)
The accompanying notes are an integral part of these financial statements.
(3)
HL FUNDING COMPANY, INC.
BALANCE SHEETS
As of As of
March 31, December 31,
1996 1995
Assets (unaudited)
Cash and cash equivalents $ 2,173 $ 68,582
Premium loans receivable 206,299 189,361
Prepaid SEC registration fees 23,230 23,230
Interest and administrative fees receivable
on loans 11,680 7,185
Organizational costs 33,272 40,206
Intercompany receivable 175,911
Federal income tax receivable 35,063 195,216
Deferred tax asset 11,203 28,165
Total assets $498,831 $551,945
Liabilities and Stockholder's Equity
Intercompany payable $ 0 $ 27,134
Intercompany loan payable 206,299 189,361
Total liabilities 206,299 216,495
Common stock, 100 shares authorized,
$1 par value, issued and
outstanding 100 shares 100 100
Capital surplus 749,900 749,900
Retained earnings (deficit) (457,468) (414,550)
Total stockholder's equity 292,532 335,450
Total liabilities and stockholder's equity $498,831 $551,945
The accompanying notes are an integral part of these financial statements.
(4)
HL FUNDING COMPANY, INC.
STATEMENTS OF CASH FLOWS
As of As of
March 31, December 31,
1996 1995
(unaudited)
Operating Activities:
Net loss $ (42,918) $ (49,458)
Adjustments to reconcile net loss to
net cash used for operating activities:
Amortization of organizational costs 6,934 6,933
Decrease in intercompany payable (203,045) (341,588)
Increase in other assets (4,495) (760)
Decrease (increase) in Federal income
tax receivable 160,153 (27,592)
Decrease in deferred tax asset 16,962 960
Cash used for operating activities (66,409) (411,505)
Investing Activities:
Premium loans (16,938) (20,000)
Organizational costs 0 0
Cash used for investing activities (16,938) (20,000)
Financing Activities:
Intercompany loans 16,938 20,000
Capital contribution and stock issuance 0 0
Cash provided by financing activities 16,938 20,000
Net decrease in cash (66,409) (411,505)
Cash at beginning of period 68,582 621,507
Cash at end of period $ 2,173 $ 210,002
The accompanying notes are an integral part of these financial statements.
(5)
HL FUNDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - ORGANIZATION
HL Funding Company, Inc. (HLFC) was formed in the State of Connecticut on
February 8, 1993. HLFC is a wholly owned subsidiary of Hartford Life
Insurance Company (HLIC). All of the outstanding shares of HLIC are
ultimately owned by Hartford Fire Insurance Company (Hartford Fire), which is
owned by ITT Hartford Group, Inc. On March 26, 1993, HLFC issued 100 shares
($1 par) of stock to HLIC for $100. On May 28, 1993 and September 30, 1994,
additional capital contributions of $99,900 and $650,000, respectively, were
made by HLIC.
HLFC offers and administers programs whereby participants obtain life
insurance coverage from HLIC and Hartford Life and Accident Insurance
Company, an affiliate of HLIC. Under the programs, insurance premiums are
paid on behalf of participants through a series of loans from HLFC. Loans to
participants are secured by participants' ownership in shares of regulated
investment companies. Premium loans receivable are funded with proceeds from
a loan arrangement with HLIC. Programs can be up to ten years in length.
Upon a program's conclusion, the related loan balances and accrued interest
become due.
Management expects the administrative costs of issuing and maintaining the
programs will be offset by: a) fees charged to program participants, b)
interest charged to participants for insurance premium loans to the extent
that the interest charged exceeds the cost to HLFC of obtaining funds to
finance the programs, and c) interest income earned on investments held by
HLFC. Through March 31, 1996, fourteen programs were sold.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles.
REVENUES AND EXPENSES
Interest and fees from investments and premium loans receivable are
recognized as revenue when earned. Expenses, which are primarily allocated
from affiliates, are recognized when incurred.
ORGANIZATIONAL COSTS
Organizational costs are amortized over a three year period.
CASH AND CASH EQUIVALENTS
Cash equivalents include an investment ($ 0 and $66,408 as of March 31, 1996
and December 31, 1995 , respectively) in Hartford Liquid Asset Trust (see
Note 3).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(6)
NOTE 3 - TRANSACTIONS WITH AFFILIATES
HLIC provides administrative services to HLFC, including use of its
facilities and personnel, and allocates a portion of its expenses to HLFC.
HLFC initially invested the capital contributions in Hartford Liquid Asset
Trust, a short term investment pool of liquid securities, in which companies
of the ITT Hartford Insurance Group, Inc. participate. Pursuant to the terms
of the Trust Agreement, the purpose of the Trust is to invest funds in a less
costly manner in assets which achieve a high level of current income as well
as maintain liquidity and preserve capital. The Trust investments are
restricted to cash and investments having a stated maturity date of 12 months
or less from the date of purchase. Interest earned by the Trust is allocated
to each participant based on their pro-rata share of principal contributions.
HLFC's funds for financing the programs are obtained through a promissory
note agreement with HLIC. The agreement allows HLIC to advance to HLFC funds
in an amount up to $7,000,000. The interest rate for the note is equal to
the 90 day LIBOR plus 125 basis points. The interest rate was 6.875% at
March 31, 1996.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalent, interest, fees and tax receivable, premium loans
receivable and intercompany loan payable amounts reflected in the balance
sheet approximate fair value.
NOTE 5 - INCOME TAXES
HLFC is included in ITT Hartford Group, Inc.'s consolidated U.S. Federal income
tax return and remits to (receives from) ITT Hartford Group, Inc. a current
income tax provision (benefit) computed in accordance with the tax sharing
arrangements between ITT Hartford Group, Inc. and its subsidiaries. The
effective tax rate in 1996 and 1995 approximated the U.S. Statutory tax rate of
35%. The provision (benefit) for income taxes was as follows:
March 31, December 31
1996 1995
Current $ (24,070) $(195,216)
Deferred 961 (28,165)
--------- ---------
$ (23,109) $(223,381)
As of March 31, 1996 and December 31, 1995, the deferred tax asset was
primarily due to organizational expenses capitalized for tax return purposes
until the start of business of HLFC. Income taxes paid were $ 0, $162 and $
0 in 1995, 1994 and 1993, respectively.
NOTE 6 - PREMIUM LOANS
All premium loans to participants are secured by participants' shares of
mutual funds, which include open-end investment companies registered under
the Investment Company Act of 1940. When loans are originated, customers
must pledge mutual fund shares valued at 2.5 times the yearly premiums being
financed. During the life of the loan, the fair market value of the
collateralized mutual fund shares must equal at least 1.5 times the amount of
the total loan, or the participant must pledge additional shares to achieve
this level. The loan will be liquidated if the fair market value of the
collateral-to-loan ratio falls below 1.3. Effective January 1, 1995, HL
Funding Company, Inc. adopted Statement of Financial Accounting Standard Nos.
114 and 118, ""Accounting by Creditors for Impairment of a Loan.'' These
standards change the method by which the allowance for loan losses is
determined for impaired loans. Since all premium loans are secured by
collateral, with fair market value exceeding the loan value, there was no
impact to the financial position or future results of operations of HL
Funding Company, Inc. as a result of the adoption of the new accounting
standards on January 1, 1995.
(7)
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
OPERATING RESULTS
For the first quarter of 1996 HL Funding Company, Inc. (the Company) had a
net loss of $42,918 compared to a net loss of $49,458 for the first quarter
of 1995. Net losses in the comparative periods were principally due to
general operating expenses of the Company exceeding short term interest and
program income for the quarter. The decrease in the net loss between March
31, 1996 and 1995 was principally due to lower expenses in 1996, partially
offset by a decrease in interest income. Through March 31, 1996 fourteen
programs were sold by the Company.
(8)
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) None.
(9)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
H. L. Funding Company, Inc.
(Registrant)
by ________________________________
May 10, 1996 George R. Jay
Secretary and Director
(10)
EXHIBIT INDEX
Exhibit
Number Description Location
- ------- ----------- --------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession None
(4) Instruments defining the rights of security holders,
including indenture None
(11) Statement re computation of per share earnings None
(15) Letter re unaudited interim financial information None
(18) Letter re change in accounting principles None
(19) Previously unfiled documents None
(20) Report furnished to security holders None
(23) Published report regarding matters submitted to
vote of security holders None
(24) Consents of experts and counsel None
(25) Power of attorney None
(28) Additional exhibits None
(11)