<PAGE>
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 September 30, 1995
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
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 203-843-8213
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 November 10, 1995 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)
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HL FUNDING COMPANY, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Statements of Income -
Quarter and Nine Months Ended September 30, 1995 and 1994.........3
Balance Sheets -September 30, 1995 and
December 31, 1994.................................................4
Statements of Cash Flows - Nine Months
Ended September 30, 1995 and 1994.................................5
Notes to Financial Statements......................................6
Item 2. Management's Narrative Analysis of
Results of Operations*
Quarter and Nine Months Ended September 30, 1995 and 1994............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)
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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)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Net Interest Income from Hartford
Liquid Asset Trust $ 3,966 $ (18) $ 10,128 $ 20
Other Income 1,407 0 3,870 0
-------- --------- --------- -------
5,373 (18) 13,998 20
Expenses:
Accounting and Administrative
Services 51,788 410,573 155,363 410,573
Legal and State Fees 0 85,380 11,950 85,380
17,011 80,143 51,078 80,143
-------- ------- ------- --------
Total Expenses 68,799 576,096 218,391 576,096
-------- ------- ------- --------
Income (Loss) before tax (63,426) (576,114) (204,393) (576,076)
Income Tax Expense (Benefit) (22,200) (201,640) (71,538) (201,626)
-------- ------- ------- --------
Net Income (Loss) $(41,226) $(374,474) $(132,855) $(374,450)
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
(3)
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HL FUNDING COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31,
1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 1,721 $ 3,641
Investment in Hartford Liquid Asset Trust 232,575 617,866
Premium loans receivable 56,010 18,473
Prepaid SEC registration fees 23,275 23,438
Interest receivable on loans 2,967 177
Intercompany receivable 20,847 0
Organizational costs 47,139 67,939
Federal income tax receivable 189,705 115,288
Deferred tax asset 13,123 16,002
--------- -----------
Total Assets $ 587,362 $ 862,824
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Intercompany payable $ 157,731 $ 337,874
Intercompany Loan Payable 56,010 18,473
Federal income tax payable 0 0
--------- ----------
Total Liabilities 213,741 356,347
--------- ----------
Common stock, 100 shares authorized,
$1 par value, issued and
outstanding 100 shares 100 100
Capital surplus 749,900 749,900
Retained earnings (deficit) (376,379) (243,523)
--------- ----------
Total Stockholder's Equity 373,621 506,477
--------- ----------
Total Liabilities and Stockholder's Equity $ 587,362 $ 862,824
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
(4)
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HL FUNDING COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
--------- ---------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(132,855) $(374,450)
Adjustments to net income:
Amortization of organizational costs 20,800 0
Decrease (Increase) in intercompany accounts (200,991) 15,734
Decrease (Increase) in other assets and
liabilities (2,628) 0
Decrease (Increase) in Federal income tax
receivable (74,417) (201,627)
Decrease (Increase) in deferred tax asset 2,879 0
Increase (Decrease) in Federal income tax payable 0 0
-------- ----------
Cash and cash equivalents (used for) provided by
operating activities (387,212) (560,343)
-------- ----------
INVESTING ACTIVITIES:
Premium loans (37,537) 0
Organizational costs 0 42,536
-------- ----------
Cash and cash equivalent (used for) provided by
investing activities (37,537) 42,536
-------- ----------
FINANCING ACTIVITIES:
Intercompany loans 37,538 506,971
Hartford Life capital contribution 0 650,000
-------- ----------
Cash and cash equivalent (used for) provided by
financing activities 37,538 1,156,971
Net increase in cash and cash equivalents (387,211) 639,164
Cash and cash equivalent at beginning of period 621,507 4,641
-------- ----------
Cash and cash equivalent at end of period $ 234,296 $ 643,805
-------- ----------
-------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
(5)
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HL FUNDING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
NOTE 1 - ORGANIZATION
HL Funding Company, Inc. (HLFC) is a corporation 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 Group Inc., a subsidiary of ITT Corporation (ITT). On March 26,
1993 HLFC issued 100 shares ($1 par) of stock to HLIC for $1,000. On May 28,
1993, and September 30, 1994, additional capital contributions of $99,000 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. 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 program conclusion, loan balances and accrued
interest become due.
The administrative costs of issuing and maintaining the programs are expected to
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 September 30,
1995, eight 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 are 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 include software development and are amortized over a three
year period.
INVESTMENT IN HARTFORD LIQUID ASSET TRUST
Investment in Hartford Liquid Asset Trust is considered a cash equivalent.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
HLIC provides administrative services to HLFC, including use of its facilities
and personnel, and will allocate a portion of its expense to HLFC.
HLFC invested the capital contributions in the Hartford Liquid Asset Trust.
Pursuant to the terms of 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 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
principle contributions.
HLFC's funds for financing the programs are currently obtained through a
promissory note agreement with HLIC. The agreement allows HLIC to advance to
HLFC funds in an amount of up to $7,000,000. The interest rate for the note is
equal to the 90 day LIBOR plus 125 basis points. The rate was 7.19% at
September 30, 1995.
(6)
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NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
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's consolidated U.S. Federal income tax return and remits
to (receives from) ITT a current income tax provision (benefit) computed in
accordance with the tax sharing arrangements between ITT and its subsidiaries.
The effective tax rate in 1995 and 1994 approximated the U.S. Statutory tax rate
of 35%. The provision (benefit) for income taxes was as follows:
September 30, 1995 1994
------------------ ----
Current $(74,417) $(115,288)
Deferred 2,879 (16,002)
------------------ ----------
$(71,538) $(131,290)
------------------ ----------
------------------ ----------
The deferred tax asset at September 30, 1995, was due to expenses capitalized
for tax purposes until the start of business of HLFC. Income taxes paid were
$162 and $0 in 1994 and 1993, respectively.
(7)
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Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1995 AND 1994
OPERATING RESULTS
Net income for HL Funding Company, Inc. (the Company or HL Funding) for the
third quarter of 1995 was a loss of $41,226 compared to a net loss of $374,474
for the third quarter of 1994. Although two programs were sold during the third
quarter of 1995, operating expenses still exceed short term interest and premium
principal loans for the third quarter of 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
OPERATING RESULTS
For the nine months ended September 30, 1995, HL Funding had a net loss of
$132,855 compared to a net loss of $374,450 for the first nine months of 1994.
During the third quarter of 1994, general operating expenses were recorded
creating a large loss. The loss for the nine months ended September 30, 1995,
was due to general operating expenses of HLFC exceeding short term interest and
interest income from premium principal loans. For the nine months ended
September 30, 1995, five programs were sold by the Company.
(8)
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) None.
(9)
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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______________________________
George R. Jay
Secretary and Director
November 10, 1995
(10)
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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)
<TABLE> <S> <C>
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<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 353,066
<CASH> 234,296
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 587,362
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 213,741
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 100
0
0
<OTHER-SE> 373,521
<TOTAL-LIABILITY-AND-EQUITY> 587,362
0
<INVESTMENT-INCOME> 0
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 5,373
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 68,799
<INCOME-PRETAX> (63,426)
<INCOME-TAX> (22,200)
<INCOME-CONTINUING> (41,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,226)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
