<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 1997
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Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 For the transition period from _________ to_________.
Commission file number 2-79192 .
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HAMPSHIRE FUNDING, INC.
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(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0277842
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE GRANITE PLACE, CONCORD, NEW HAMPSHIRE 03301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 226-5000
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Not Applicable
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Former name, former 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At April 30, 1997 there were 50,000 shares of the issuers common stock
outstanding, all of which are owned by the Parent Company, Chubb Life Insurance
Company
DOCUMENTS INCORPORATED BY REFERENCE
The exhibit index appears on pages 5 and 6
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements. See pages 7 through 9.
Item 2 - Management's Discussion and Analysis of Financial Conditions
and results of Operations.
Liquidity and Capital Resources
- -------------------------------
The Company offers investment programs (the "Programs") which coordinate the
acquisition of mutual fund shares and insurance over a period of ten years.
Under the Programs, purchasers of the program ("Participants") purchase life and
health insurance from affiliated insurance companies (the "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. Each loan made by the
Company must initially be secured by mutual fund shares which have a value of at
least 250% of the loan, except for the initial premium loan of Programs using
certain no-load funds, where the collateral requirement is 1800%. In addition,
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 Company's indebtedness,
the Company will terminate the Programs and liquidate shares sufficient to repay
the indebtedness.
Collateral loans receivable from Participants were $53,492,564 at March 31,
1997. Annual amounts due to the Company were as follows:
1997 1998 1999 2000 2001 2002-2008
---- ---- ---- ---- ---- ---------
Collateral loans receivable $2.4 $2.8 $3.8 $6.4 $8.7 $29.4
(in millions)
The Company's funds for financing the Programs are currently obtained through a
Revolving Credit Agreement with a non-affiliated bank, SunTrust Bank of Atlanta,
Georgia ("SunTrust"). The Company entered into this Revolving Credit Agreement
on October 23, 1996 which provides for advances up to $60,000,000 and expires on
October 22, 2001. The Revolving Credit Agreement contains restrictions on
equity and indebtedness with other non-affiliates. All indebtedness and
obligations of the Company under the Revolving Credit Agreement, are guaranteed
by the Company's parent, Chubb Life Insurance Company of America ("Chubb Life").
The Revolving Credit Agreement with SunTrust replaced the Company's loan
agreements with its affiliates, Chubb Life and Chubb Colonial Life Insurance
Company ("Colonial"), which provided for advances not to exceed $20,000,000 and
$29,000,000, respectively. As all advances under affiliated loan agreements
became due during October and November of 1996, the Company borrowed amounts
under the new Revolving Credit Agreement with SunTrust and paid Chubb Life and
Colonial the outstanding principal and interest. At March 31, 1997, the Company
had no loans outstanding to affiliates. The interest rate on advances made
under the SunTrust Revolving Credit Agreement is variable and based on short-
term interest rates.
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The continuance of the Program is dependent upon the Company's ability to
provide, or arrange for the financing of insurance premiums for Participants.
Prior to its Revolving Credit Agreement with SunTrust, such financing was
available from its affiliates, Colonial and Chubb Life. The Company expects
that it will be able to obtain this financing for the foreseeable future from
non-affiliates or affiliates.
If the Company is unable to borrow funds in the future or continue to borrow
funds under its credit agreement for the purpose of financing loans to
Participants for the payment of insurance premiums, it may not be able to
continue the sale of the Programs.
Although the Company's present financing arrangement with its lender does not
include the assignment of a Participant's mutual fund shares to the lender as
security, the Company is authorized to assign a Participant's mutual funds
shares to a lender as collateral security for the Company's indebtedness
pursuant to any financing arrangements. If any such assignment takes place and
the Company subsequently defaults on an obligation for which the Participants
mutual fund shares have been pledged as security, the mutual fund shares may be
redeemed by the lender to whom the obligation is owed. A lender may cease to
provide financing if the Company is in default under its credit agreement. In
this case, Programs will be termination on their renewal dates.
At March 31, 1997 the Company had borrowed $50,500,000 under its Credit
Agreement with SunTrust. At March 31, 1996 the Company had borrowed $46,000,000
($26,000,000 under its loan agreement with Colonial and $20,000,000 under its
loan agreement with Chubb Life). The increase in amounts borrowed by the
Company year to year was used to fund additional premium loans.
In addition to loans payable, the Company has other short-term amounts due to
affiliates related to insurance premium payments and expense reimbursements to
the Service Company.
The Service Company, a wholly-owned subsidiary of the Parent Corporation, is a
management service company which provides employee services and office
facilities to the Company and its affiliates under a Service Agreement. The
Company pays the Service Company a monthly fee 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 the applicable duties.
Working capital in 1997 and 1996 was provided by Participants' loan repayments,
administrative fees for the placement and maintenance of Programs and interest
earned on investments.
Loan schedule as of March 31, 1997:
Loan Face Days to Maturity
Source Date (mils) Rate Maturity Date
- ------- --------- ------ -------- -------- --------
SunTrust 10/23/96 $ 10.5 5.775% 180 04/21/97
03/27/97 1.0 5.900% 90 06/25/97
01/28/97 2.3 5.838% 181 07/28/97
01/27/97 13.0 5.838% 182 07/28/97
02/06/97 23.7 5.779% 180 08/05/97
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$ 50.5
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Results of Operations
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The Company concluded the quarter ended March 31, 1997 with net operating income
of $115,167 as compared to net operating income of $35,251 for the same period
in 1996.
Total revenues through March 31, 1997 were $1,318,723 versus $1,190,216 in 1996.
These revenues include interest on collateral loans receivable, program fees,
interest on investments and partnership income. The largest source of revenue
was represented by interest on collateral loans receivable.
The growth in collateral loan interest resulted from the increase in collateral
loans receivable year to year. Collateral loans receivable as of March 31, 1997
were $53,492,564 as compared to $49,021,825 as of March 31, 1996. Comparatively,
collateral loan interest was $1,150,187 and $1,036,658 for the three months
ended March 31, 1997 and 1996. The average interest rate charged to each
Participant's outstanding loan balance was 8.95% for the the three months ended
March 31, 1997 and 1996.
The Company's collateral loans receivable, collateral loan interest and average
interest rate charged to each Participant's loan balance at March 31, 1997 and
1996 are summarized as follows:
1997 1996
---- ----
Collateral loans receivable $53,492,564 $49,021,825
Collateral loan interest income $ 1,150,187 $ 1,036,658
Average Participant interest rate 8.95% 8.95%
Interest expense on the Loan Agreements increased each year due to amounts
borrowed by the Company. The Company's outstanding loans payable, interest
expense and average cost of borrowings for the three months ended March 31 are
summarized as follows:
1997 1996
---- ----
Loans payable $50,858,259 $45,855,996
Interest expense $ 726,720 $ 718,199
Average loan interest rate 5.76% 6.65%
The Company's ability to achieve and maintain a spread between its cost of funds
necessary to finance premium loans and the lending rate charged to Program
Participants may impact its future operating results. The interest rate spread
is intended to provide sufficient revenue to offset the Company's general and
administrative expenses. General and administrative expenses (including state
taxes), arising from normal operating activities through March 31, 1997, were
$414,823 as compared to $417,784 in 1996.
The Company may increase the interest rate charged to Participants to a maximum
of the prime interest rate plus 3% as its cost of borrowing increases. If the
Company's cost of borrowing were to rise significantly above the prime interest
rate, its ability to maintain an adequate interest rate spread would be
difficult and future earnings could be adversely impacted.
Program fees include placement, administrative and termination fees as well as
charges for special services. At March 31, 1997 and 1996 the number of Programs
administered by the Company were 5,950 and 6,453, respectively.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - Not Applicable
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Item 2 - Changes in securities - Not Applicable
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Item 3 - Defaults upon senior securities - Not Applicable
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Item 4 - Submission of matters to vote of security holders - Not Applicable
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Item 5 - Other Information
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On May 13, 1997, Jefferson-Pilot Corporation acquired Chubb Life
Insurance Company of America and its subsidiaries from The Chubb
Corporation for $875 million. It is not known at this time whether the
acquisition will have any effect on the regular operations of the
Company.
Item 6 - Exhibits and Reports on Form 8-K.
--------------------------------
(a) Pursuant to Rule 12b-23 and General Instruction G, the following
exhibits required to be filed with this Report pursuant to the
Instructions for Item 16 above are incorporated by reference from the
reference source cited in the table below.
Reg. S-K
Item 601
Exhibit
Table No. Document Reference Source
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(1) Distribution Agreement Form 10-K, filed
between the Company and March 15, 1990, for the
Chubb Securities Corporation year ended December 31,
dated March 1, 1990 1989, pp. 23-24
(3) (i) Articles of Incorporation Form 10-K, filed
of Company March 15, 1990, for the
year ended December 31,
1989, pp. 25-27
(ii) By-Laws of Company Form 10-K filed
March 15, 1990 for the
year ended December 31,
1989, pp. 28-46
(22) Subsidiaries of The Registrant Form 10-K, filed
March 15, 1990, for the
year ended December 31,
1989, p. 66
(4) (i) Agency Agreement and Form 10-K, filed
Limited Power of Attorney March 19, 1997, for the
year ended December 31,
1996, pp. 24-26
(ii) Change in Participant in Form 10-K filed
Program March 19, 1997, for the
year ended December 31,
1996, pp. 27-28
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Reg. S-K
Item 601
Exhibit
Table No. Document Reference Source
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(iii) Disclosure Statement Form 10-K filed
March 19, 1997, for the
year ended December 31,
1996, p. 29
(10) (a) Revolving Credit Agreement Form 10-K filed
between the Company and March 19, 1997, for the
SunTrust Bank, dated year ended December 31,
October 23, 1996 1996, pp. 30-44
(b) Revolving Credit Note Form 10-K filed
between the Company and March 19, 1997, for the
SunTrust Bank, dated year ended December 31,
October 23, 1996 1996, pp. 45-46
(c) Guaranty between Chubb Life Form 10-K filed
and SunTrust Bank, dated March 19, 1997, for the
October 23, 1996 year ended December 31,
1996, pp. 47-53
Reg S-K (ii) filed by enclosure
Item 601
(27) Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1997.
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Hampshire Funding, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION> MARCH 31, DECEMBER 31,
1997 1996
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ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,439,257 $ 1,771,795
Accounts receivable from customers 17,993 12,915
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Total current assets 1,457,250 1,784,710
Collateral notes receivable (including
accrued interest of $1,269,900 in
1997 and $1,365,191 in 1996) 53,492,564 52,979,267
--------------------------
Total assets $54,949,814 $54,763,977
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LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Due to affiliates $ 1,357,736 $ 1,397,478
Accrued expenses and other liabilities 224,244 120,473
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Total current liabilities 1,581,980 1,517,951
Loans payable (including accrued
interest of $358,259 in 1997 and
$351,618 in 1996) 50,858,259 50,851,618
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Total liabilities 52,440,239 52,369,569
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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 550,000 550,000
Retained earnings 1,909,575 1,794,408
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Total stockholder's equity 2,509,575 2,394,408
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Total liabilities and stockholder's
equity $54,949,814 $54,763,977
==========================
</TABLE>
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Hampshire Funding, Inc. and Subsidiary
Consolidated Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
THREE MONTHS ENDING MARCH 31,
1997 1996
-----------------------------
<S> <C> <C>
Revenues:
Interest on collateral notes receivable $1,150,187 $1,036,658
Program participant fees 114,031 140,063
Interest on investments 27,675 13,495
Partnership fees 26,830 0
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1,318,723 1,190,216
Operating expenses:
Interest on affiliated loan agreements 726,720 718,199
General and administrative 386,262 403,687
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1,112,982 1,121,886
Income before income taxes 205,741 68,330
Federal and state income tax:
Federal 62,013 18,982
State tax 28,561 14,097
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90,574 33,079
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Net income 115,167 35,251
Retained earnings at
beginning of year 1,794,408 1,480,110
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Retained earnings at end of period $1,909,575 $1,515,361
=============================
</TABLE>
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Hampshire Funding, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDING MARCH 31,
1997 1996
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 115,167 $ 35,251
Adjustments to reconcile
net income to net cash
used in operating activities:
Increase in accounts
receivable from customers (5,078) (25,577)
Increase in accrued
expenses and other liabilities 103,771 11,953
Increase (decrease) in
due to affiliates (39,742) 195,551
Increase in collateral
notes receivable (513,297) (1,961,928)
Change in income taxes
payable recoverable - 27,982
Change in prepaid interest and
interest accrued on loan agreements 6,641 156,323
-----------------------------
Net cash used in operating activities (332,538) (1,560,445)
FINANCING ACTIVITIES
Proceeds from non-affiliated loan agreements 40,000,000 -
Proceeds from affiliated loan agreements - 16,275,000
Principal payments on loan agreements (40,000,000) (14,475,000)
-----------------------------
Net cash provided by financing activities - 1,800,000
-----------------------------
Increase (decrease) in cash and cash
equivalents (332,538) 239,555
Cash and cash equivalents at beginning
of year 1,771,795 289,918
-----------------------------
Cash and cash equivalents at end of period $ 1,439,257 $ 529,473
=============================
</TABLE>
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SIGNATURE
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.
-----------------------
Registrant
\\John A. Weston\\
Date May 14, 1997
- --------------------
John A. Weston
Treasurer, Principal Financial and Accounting
Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,439,257
<SECURITIES> 0
<RECEIVABLES> 53,510,557
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,457,250
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,949,814
<CURRENT-LIABILITIES> 1,581,980
<BONDS> 50,858,259
0
0
<COMMON> 50,000
<OTHER-SE> 2,459,575
<TOTAL-LIABILITY-AND-EQUITY> 54,949,814
<SALES> 0
<TOTAL-REVENUES> 1,318,723
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,112,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 205,741
<INCOME-TAX> 90,574
<INCOME-CONTINUING> 115,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,167
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 0
</TABLE>
