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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 June 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 August 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 -
Six Months Ended June 30, 1997 and 1996.......................... 3
Balance Sheets June 30, 1997 and
December 31,1996................................................. 4
Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1996..................................... 5
Notes to Financial Statements..................................... 6
Item 2. Management's Narrative Analysis of
Results of Operations*
Six Months Ended June 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 SIX MONTHS
ENDED JUNE 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
(Unaudited)
Revenues:
Interest income........................................................................... $ 6,915 $ 2,062
Program income............................................................................ 0 9,631
--------- ---------
Total revenues.......................................................................... 6,915 11,693
Less: Interest on borrowings.............................................................. 0 6,964
--------- ---------
Net interest and program income......................................................... 6,915 4,729
--------- ---------
Noninterest expenses:
Accounting and administrative services.................................................... 0 90,450
Legal and state fees...................................................................... 0 11,235
Other operating expenses.................................................................. 12,482 23,876
--------- ---------
Total expenses.......................................................................... 12,482 125,561
--------- ---------
Loss before tax......................................................................... -5,567 -120,832
Income tax benefit.......................................................................... -1,949 -42,291
--------- ---------
Net gain/(loss)......................................................................... $ -3,618 $ -78,541
--------- ---------
--------- ---------
</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
As of December
June 30, 31,
Assets 1997 1996
----------- -----------
<S> <C> <C>
(unaudited)
Cash and cash equivalents............................................ $ 221,645 $ 351,564
Premium loans receivable............................................. 199,098 320,611
Prepaid SEC registration fees........................................ 23,112 23,086
Interest and administrative fees receivable on loans................. 18,167 29,205
Organizational costs................................................. 0 12,472
Federal income tax receivable........................................ 64,435 0
Deferred tax asset................................................... 6,403 8,323
---------- ----------
Total assets..................................................... $ 532,860 $ 745,261
---------- ----------
Liabilities and Stockholder's Equity
Intercompany loan payable............................................ $ 199,098 $ 320,611
Payable to program participants...................................... 0 0
Other intercompany payables.......................................... 140,568 206,427
Federal income tax payable........................................... 0 21,410
---------- ----------
Total liabilities................................................ 339,666 548,448
---------- ----------
Common stock, 100 shares authorized, $1 par value, issued and
outstanding 100 shares............................................. 100 100
Capital surplus...................................................... 749,900 749,900
Retained earnings (deficit).......................................... -556,806 -553,187
---------- ----------
Total stockholder's equity....................................... 193,194 196,813
---------- ----------
Total liabilities and stockholder's equity........................... $ 532,860 $ 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 Six Months
Ended June 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
(Unaudited)
Operating Activities:
Net loss........................................................... $ -3,618 $ -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.................................. -65,859 30,723
Decrease (increase) in other assets............................... 11,012 -9,597
Decrease in Federal income tax receivable......................... -64,435 140,012
Decrease in Federal income tax payable............................ -21,410 0
Decrease in deferred tax asset.................................... 1,920 17,922
Increase in payable to program participants....................... 0 0
--------- ---------
Cash used for operating activities..................................... -129,919 114,386
--------- ---------
Investing Activities:
Premium loans...................................................... 121,513 -31,472
Organizational costs............................................... 0 0
--------- ---------
Cash used for investing activities..................................... 121,513 -31,472
--------- ---------
Financing Activities:
Intercompany loans................................................. -121,513 31,472
Capital contribution and stock issuance............................ 0 0
--------- ---------
Cash provided by financing activities.................................. -121,513 31,472
--------- ---------
Net increase (decrease) in cash........................................ -129,919 114,386
Cash at beginning of period............................................ 351,564 68,582
--------- ---------
Cash at end of period.................................................. $ 221,645 $ 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
June 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 ITT Hartford Group, Inc.
(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. Eleven programs were
terminated between January and June 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 managements' plan to terminate the program, no participant
related revenues or expenses were recognized or recorded during the period from
January 1, 1997 through June 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 ($198,167 and $341,722 as of June 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 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 will file 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:
June 30, 1997 December 31, 1996
------------- -----------------
Current $ ( 3,869) $ (78,490)
Deferred 1,920 3,840
----------- -----------
$ ( 1,949) $ (74,650)
----------- -----------
----------- -----------
As of June 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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Operating Results
For the six months ended June 30, 1997, HL Funding Company, Inc. (the Company)
had a net loss of $3,618 compared to a net loss of $78,541 for the six months
ended June 30, 1996. Pursuant to the Company's plan to terminate the program,
operating results for the period January 1 through June 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.
August 13, 1997 HL Funding Company, Inc.
Date (Registrant)
By: /s/ George R. Jay
----------------------
George R. Jay
Secretary
10
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EXHIBIT INDEX
<TABLE>
Exhibit
Number Description Location
- ------- ----------- --------
<S> <C> <C>
(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
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<CIK> 0000897998
<NAME> HL FUNDING CO. INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 221,645
<RECEIVABLES> 311,215
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 0
<TOTAL-ASSETS> 532,860
<SHORT-TERM> 0
<PAYABLES> 339,666
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 100
<OTHER-SE> 193,094
<TOTAL-LIABILITY-AND-EQUITY> 532,860
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 6,915
<COMMISSIONS> 0
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 12,482
<INCOME-PRETAX> (5,567)
<INCOME-PRE-EXTRAORDINARY> (5,567)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,618)
<EPS-PRIMARY> (3,618)
<EPS-DILUTED> 0
</TABLE>
