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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, 1997
[ ] 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 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 November 10, 1997, there were outstanding 100 shares of common stock, $1
par value per share, of the registrant, all of which were directly owned by
Hartford Financial Services Corporation.
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HL FUNDING COMPANY, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Statements of Income -
Nine Months Ended September 30, 1997 and 1996........................ 3
Balance Sheets September 30, 1997 and
December 31,1996..................................................... 4
Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1996.................................... 5
Notes to Financial Statements......................................... 6
Item 2. Management's Narrative Analysis of
Results of Operations*
Nine Months Ended September 30, 1997, and 1996........................ 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>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
--------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Revenues:
Interest income......................................................................... $ 11,245 $ 5,276
Program income.......................................................................... 0 15,238
--------- -----------
Total revenues........................................................................ 11,245 20,514
Less: Interest on borrowings............................................................ 0 10,999
--------- -----------
Net interest and program income....................................................... 11,245 9,515
--------- -----------
Noninterest expenses:
Accounting and administrative services.................................................. 0 135,675
Legal and state fees.................................................................... 0 11,395
Other operating expenses................................................................ 14,066 31,240
--------- -----------
Total expenses........................................................................ 14,066 178,310
--------- -----------
Loss before tax....................................................................... (2,822) (168,795)
Income tax benefit........................................................................ (988) (59,079)
--------- -----------
Net gain/(loss)....................................................................... $ (1,834) $ (109,716)
--------- -----------
--------- -----------
</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>
AS OF
SEPTEMBER 30, AS OF
1997 DECEMBER 31,
Assets (UNAUDITED) 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents........................................................... $ 228,273 $ 351,564
Premium loans receivable............................................................ 87,740 320,611
Prepaid SEC registration fees....................................................... 23,112 23,086
Interest and administrative fees receivable on loans................................ 9,666 29,205
Organizational costs................................................................ 0 12,472
Federal income tax receivable....................................................... 64,434 0
Other Assets........................................................................ 6,524 0
Deferred tax asset.................................................................. 5,443 8,323
------------- ------------
Total assets...................................................................... $ 425,192 $ 745,261
------------- ------------
------------- ------------
Liabilities and Stockholder's Equity
Intercompany loan payable........................................................... $ 87,740 $ 320,611
Payable to program participants..................................................... 0 0
Other intercompany payables......................................................... 142,473 206,427
Federal income tax payable.......................................................... 0 21,410
------------- ------------
Total liabilities................................................................. 230,213 548,448
------------- ------------
------------- ------------
Common stock, 100 shares authorized, $1 par value, issued and outstanding 100
shares............................................................................ 100 100
Capital surplus..................................................................... 749,900 749,900
Retained earnings (deficit)......................................................... (555,021) (553,187)
------------- ------------
Total stockholder's equity........................................................ 194,979 196,813
------------- ------------
Total liabilities and stockholder's equity.......................................... $ 425,192 $ 745,261
------------- ------------
------------- ------------
</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>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net loss................................................................................ $ (1,834) $ (78,541)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization of organizational costs.................................................. 12,471 13,867
(Increase) in intercompany payable.................................................... (63,954) 30,723
Decrease (increase) in other assets................................................... 12,990 (9,597)
Decrease in Federal income tax receivable............................................. (64,434) 140,012
Decrease in Federal income tax payable................................................ (21,410) --
Decrease in deferred tax asset........................................................ 2,880 17,922
---------- ----------
Cash used for operating activities........................................................ (123,291) 114,386
---------- ----------
Investing Activities:
Premium loans........................................................................... 232,871 (31,472)
---------- ----------
Cash used for investing activities........................................................ 232,871 (31,472)
---------- ----------
Financing Activities:
Intercompany loans...................................................................... (232,871) 31,472
---------- ----------
Cash provided by financing activities..................................................... (232,871) 31,472
---------- ----------
Net increase (decrease) in cash........................................................... (123,291) 114,386
Cash at beginning of period............................................................... 351,564 68,582
---------- ----------
Cash at end of period..................................................................... $ 228,273 $ 182,968
---------- ----------
---------- ----------
</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, 1997
Note 1 - Organization
- ---------------------
HL Funding Company, Inc. (HLFC or the Company) was formed in the State of
Connecticut on February 8, 1993 as a wholly owned subsidiary of Hartford
Life Insurance Company (HLIC). On July 15, 1996, a reorganization took place
and the outstanding stock of HLFC was contributed to Hartford Financial Services
Corporation (HFSC) by HLIC. HFSC is a wholly owned subsidiary of HLIC. All of
the outstanding shares of HLIC are ultimately owned by Hartford Fire Insurance
Company (Hartford Fire), which is owned by Hartford Financial Services Group
(The Hartford). (Prior to December 19, 1995, The Hartford was a wholly owned
subsidiary of ITT Corporation. On December 19, 1995, ITT Corporation
distributed all of the outstanding shares of The Hartford to ITT Corporation
shareholders).
HLFC administers programs whereby participants have obtained 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.
In January, 1997, management of the Company initiated an informal plan to
terminate the Company's program. The participants were notified of management's
intent to terminate the program and were given the following options; (1)
selling enough shares of registered investment companies to pay back the premium
loan, (2) use of life insurance policy cash value (or some portion of it) to pay
back the premium loan, (3) some combination of (1) and (2) and (4) use of other
personal assets to pay back the premium loan. Pursuant to the Company's plan to
terminate the program, the Company discontinued offering new contracts effective
January 1, 1997. At December 31, 1996 there were seventeen active programs.
Thirteen programs were terminated between January and September 30, 1997.
Note 2 - Significant Accounting Policies
- ---------------------------------------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles.
Certain reclassifications have been made to prior year financial statements to
conform to current year presentation.
Revenues and Expenses
In accordance with management's plan to terminate the program, no participant
related revenues or expenses were recognized or recorded during the period from
January 1, 1997 through September 30, 1997 (the period). Additionally,
operating expenses were not allocated to the Company from affiliates during the
period.
Organizational Costs
Organizational costs are amortized over three years; amortization expense
continued to be recognized during the period.
Cash and Cash Equivalents
Cash equivalents include an investment ($228,520 and $341,722 as of September
30, 1997 and December 31, 1996, respectively) in Hartford Liquid Asset Trust
(see Note 3).
6
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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.
Note 3 - Transactions with Affiliates
- -------------------------------------
HLIC provides administrative services to HLFC, including use of its
facilities and personnel. In accordance with plans to terminate the program,
HLIC did not allocate administrative expenses to HLFC during the period.
HLFC invests a portion of its assets in Hartford Liquid Asset Trust, a short
term investment pool of liquid securities, in which companies of The Hartford
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.
Pursuant to the pending termination of the program, HLFC discontinued
issuance of new participant programs as of January 1, 1997. HLFC's funds for
financing existing programs were obtained through a promissory note agreement
with HLIC. The agreement allowed HLIC to advance to HLFC funds in an amount
up to $7,000,000. The interest rate for the note equals the 90 day LIBOR
rate plus 1.25 %, and the note is payable on demand.
Note 4 - Income Taxes
- ---------------------
From inception of the Company through December 19, 1995, HLFC was included in
the consolidated filing of ITT Corporation. For the period December 20 - 31,
1995, HLFC participated in the consolidated filing of The Hartford's U.S.
Federal income tax return and received from The Hartford current income tax
benefits computed in accordance with the tax sharing arrangements between The
Hartford and its subsidiaries. Subsequent to the spin-off of The Hartford
from its former parent, ITT Corporation, HLFC will not be included in the
consolidated U.S. Federal income tax return of The Hartford and accordingly
since December 31, 1996, HLFC files as a member of a separate non-life
consolidated group with its immediate parent, HFSC. The effective tax rate
in 1997 and 1996 approximated the U.S. Statutory tax rate of 35%. The
provision (benefit) for income taxes was as follows:
September 30, 1997 December 31, 1996
------------------ -----------------
Current $ ( 3,868) $ (78,490)
Deferred 2,880 3,840
---------- ----------
$ ( 988) $ (74,650)
---------- ----------
---------- ----------
As of September 30, 1997 and December 31, 1996, 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 in 1996 and
1995.
7
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Note 5 - Fair Value of Financial Instruments
- --------------------------------------------
Cash and cash equivalents, interest, fees and tax receivable, premium loans
receivable and intercompany loan payable amounts reflected in the balance
sheet approximate fair value.
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Operating Results
- -----------------
For the nine months ended September 30, 1997, HL Funding Company, Inc. (the
Company) had a net loss of $1,834 compared to a net loss of $109,716 for the
nine months ended September 30, 1996. Pursuant to the Company's plan to
terminate the program, operating results for the period January 1 through
September 30, 1997 reflect discontinuance of recognition of revenues and
expenses associated with the program and discontinuance of operating expenses
allocated to the Company by affiliates. The only expense recognized during the
period was amortization related to organization costs. The prior year period's
net loss was primarily attributable to net operating expenses of the Company
exceeding short-term interest and program income.
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.
November 10, 1997 HL Funding Company, Inc.
- ----------------- (Registrant)
Date
by____________________________
George R. Jay
Secretary
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 None
vote of security holders
(24) Consents of experts and counsel None
(25) Power of attorney None
(28) Additional exhibits None
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<CIK> 0000897998
<NAME> HL FUNDING CO. INC
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 228,273
<RECEIVABLES> 196,919
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 425,192
<SHORT-TERM> 0
<PAYABLES> 230,213
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 100
<OTHER-SE> 194,879
<TOTAL-LIABILITY-AND-EQUITY> 425,192
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 11,245
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 14,066
<INCOME-PRETAX> (2,822)
<INCOME-PRE-EXTRAORDINARY> (2,822)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,834)
<EPS-PRIMARY> (1,834)
<EPS-DILUTED> 0
</TABLE>
