-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WR9PEOKmeNOX3QpLEQnHpEKDfgAF83+mwFC/7Og4ygV1QEDwUvhKcontl2OtjSpq SLFdAqmNWT3wbUGCSHqHrw== 0000912057-02-020060.txt : 20020514 0000912057-02-020060.hdr.sgml : 20020514 ACCESSION NUMBER: 0000912057-02-020060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAMPSHIRE FUNDING INC CENTRAL INDEX KEY: 0000205422 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 020277842 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-36140 FILM NUMBER: 02644856 BUSINESS ADDRESS: STREET 1: ONE GRANITE PL CITY: CONCORD STATE: NH ZIP: 03301 BUSINESS PHONE: 8002583648 MAIL ADDRESS: STREET 1: ONE GRANITE PLACE CITY: CONCORD STATE: NH ZIP: 03301 10-Q 1 a2079956z10-q.txt 10-Q 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, 2002 / / 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 __________. Commission file number 2-79192. ------- HAMPSHIRE FUNDING, INC. ----------------------- (Exact name of registrant as specified in its charter) NEW HAMPSHIRE 02-0277842 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE GRANITE PLACE, CONCORD, NEW HAMPSHIRE 03301 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (603) 226-5000 ----------------------- Registrant's telephone number, including area code Not Applicable ----------------------- 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 / / ----- ---- Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock as of March 31, 2002: 50,000 shares, all of which are owned by Jefferson-Pilot Corporation. DOCUMENTS INCORPORATED BY REFERENCE The exhibit index appears on page 10 1 INDEX HAMPSHIRE FUNDING, INC. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Condensed Statements of Financial Condition - March 31, 2002 and December 31, 2001 Condensed Statements of Income - Three months ended March 31, 2002 and 2001 Condensed Statements of Stockholder's equity - Three months ended March 31, 2002 and 2001 Condensed Statements of Cash Flows - Three months ended March 31, 2002 and 2001 Notes to condensed financial statements - March 31, 2002 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosure of Market Risk PART II. OTHER INFORMATION ITEM 1. Legal Proceedings ITEM 2. Changes in Securities and Use of Proceeds ITEM 3. Defaults upon Senior Securities ITEM 4. Submission of Matters to a Vote of Security Holders ITEM 5. Other Information ITEM 6. Exhibits and Reports on Form 8-K SIGNATURES 2 HAMPSHIRE FUNDING, INC. CONDENSED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31, 2002 2001 (UNAUDITED) (NOTE A) ----------------------------- ASSETS Cash and cash equivalents $ 2,314,679 $ 1,719,904 Interests retained from loan sales, at fair value 8,688,950 8,114,505 Servicing asset (fair value of $220,306 at March 31, 2002 and $275,558 at December 31, 2001) 302,830 212,879 Other 141,614 322,306 ----------------------------- Total assets $ 11,448,073 $10,369,594 ============================= LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Due to affiliates $ 1,841,684 $ 1,642,394 Due to parent 1,060,282 845,571 Accounts payable 1,307,859 861,212 Accrued expenses and other liabilities 256,270 510,046 ----------------------------- Total liabilities 4,466,095 3,859,223 ----------------------------- 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 789,811 789,811 Retained earnings 5,334,381 5,160,127 Accumulated other comprehensive income 807,786 510,433 ----------------------------- Total stockholder's equity 6,981,978 6,510,371 ----------------------------- Total liabilities and stockholder's equity $ 11,448,073 $ 10,369,594 =============================
SEE ACCOMPANYING NOTES. 3 HAMPSHIRE FUNDING, INC. CONDENSED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED MARCH 31, 2002 2001 ---------------------------- Revenues: Loan sales and servicing $ 243,625 $ 206,003 Interest 44,761 84,463 Program participant fees 37,012 54,085 ---------------------------- 325,398 344,551 Operating expenses: Interest on affiliate borrowings 3,017 3,282 ---------------------------- Income before income taxes 322,381 341,269 Income tax expense 148,127 138,874 ---------------------------- Net income $ 174,254 $ 202,395 ============================
SEE ACCOMPANYING NOTES. 4 HAMPSHIRE FUNDING, INC. STATEMENTS OF STOCKHOLDER'S EQUITY (Unaudited)
ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE COMMON PAID-IN RETAINED INCOME STOCK CAPITAL EARNINGS (LOSS) TOTAL -------- ---------- ---------- ------------- ---------- Balance at December 31, 2001 $ 50,000 $ 789,811 $5,160,127 $510,433 $6,510,371 Net income 174,254 174,254 Change in unrealized gain on securities available for sale, net of tax of $160,113 297,353 297,353 ---------- -------- ---------- Comprehensive income 174,254 297,353 471,607 -------- --------- ---------- -------- ---------- Balance at March 31, 2002 $ 50,000 $ 789,811 $5,334,381 $807,786 $6,981,978 ======== ========= ========== ======== ========== Balance at December 31, 2000 $ 50,000 $ 789,811 $4,405,257 $(68,109) $5,176,959 Net income 202,395 202,395 Change in unrealized loss on securities available for sale, net of tax of $43,350 80,506 80,506 ---------- -------- ---------- Comprehensive income 202,395 80,506 282,901 -------- --------- ---------- -------- ---------- Balance at March 31, 2001 $ 50,000 $ 789,811 $4,607,652 $ 12,397 $5,459,860 ======== ========= ========== ======== ==========
SEE ACCOMPANYING NOTES. 5 HAMPSHIRE FUNDING, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, 2002 2001 ---------------------------- CASH AND CASH EQUIVALENTS FROM OPERATIONS $ 434,329 $ 670,733 FINANCING ACTIVITIES Proceeds from sale of collateral notes receivable 1,031,031 1,289,300 Loans originated (1,085,296) (1,357,158) Repayment of proceeds from affiliated loan agreements, net 214,711 317,790 ---------------------------- Net cash provided by financing activities 160,446 249,932 ---------------------------- Increase in cash and cash equivalents 594,775 920,665 Cash and cash equivalents at beginning of period 1,719,904 1,737,684 ---------------------------- Cash and cash equivalents at end of period $ 2,314,679 $ 2,658,349 ============================
SEE ACCOMPANYING NOTES. 6 HAMPSHIRE FUNDING, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2002 NOTE A. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Hampshire Funding, Inc. annual report on Form 10-K for the year ended December 31, 2001. 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES On December 31, 1997, the Company entered into a Receivables Purchase Agreement (the Agreement) with Preferred Receivables Funding Corporation (PREFCO), a wholly owned subsidiary of Bank One, formerly First National Bank of Chicago, (the Bank). The Agreement provides for the initial and periodic purchase of the Company's collateral loans receivable by PREFCO or other investors (for which the Bank serves as agent). On July 25, 2001 the Agreement was amended to extend the termination date to July 24, 2002 and decrease PREFCO's commitment from $50,000,000 to $39,715,230. On October 21, 2001 the Agreement was amended, increasing the Purchase Fee Percentage paid by the Company from 0.225% to 0.26%. Additionally, the Events of Default were amended, increasing the number of consecutive business days that Under Collateralized Receivables may exceed 1% and eliminating the restriction on the percentage of Collateral Deficient Receivables. The Company anticipates the termination date will be extended under the provisions of the Agreement. PREFCO finances purchases of the Company's collateral loans receivables through the issuance of commercial paper. As of March 31, 2002, the Company had sold aggregate loans of $37,689,316 and has retained a subordinated interest and servicing rights in the assets transferred aggregating $8,991,780. The cash flows related to the repayment of loans is first used to satisfy all principal and variable interest rate obligations due to PREFCO, investors or the Bank. The retained interest represents the fair value of the Company's future cash flows and obligations that it will receive after all investor obligations are met. The fair value of the Company's retained interest and servicing rights was $8,390,063 at December 31, 2001. The Company is responsible for servicing, managing and collecting all receivables and loan repayments, monitoring the underlying collateral and reporting all activity to the Bank for which it receives an annual service fee (collected monthly in arrears) calculated as 2% of outstanding receivables. The Company received $157,618 and $222,585 in service fees for the period ended March 31, 2002 and 2001, respectively. As servicing agent for the loans sold, the Company collected loan prepayments of $1,351,110 for the three months ended March 31, 2002 and $2,905,709 for the same period in 2001, which were paid to PREFCO (one month in arrears) to satisfy principal and variable interest obligation due. The Company originated new loans of $1,085,296 and $1,357,158 for the three months ended March 31, 2002 and 2001, respectively, which were sold to PREFCO. The Agreement includes a Performance Guarantee by Jefferson-Pilot Corporation that the Company will service the receivables sold and administer all aspects of the Programs in accordance with the terms and conditions of the Agreement. The Performance Guarantee contains restrictions on the debt of the Guarantor and the collateral value monitored by the Company. During 1998, the Company entered into an intercompany loan agreement with Jefferson-Pilot Corporation whereby it may borrow funds for working capital needs at short-term interest rates. At March 31, 2002 the company had borrowed $1,060,282 compared to $845,571 at December 31, 2001. The continuance of the Program is dependent upon the Company's ability to arrange for the sale of collateral notes receivable or provide for the financing of insurance premiums for Participants. The Company expects that it will be able to continue to sell its collateral notes receivables or arrange for other financing for the foreseeable future. If the Company is unable to sell its collateral notes receivable or borrow funds in the future for the purpose of financing loans to Participants for the payment of insurance premiums, the Programs may be subject to termination. If the Company subsequently defaults on its Agreement with PREFCO for which the Participant's mutual fund shares have been pledged as security, the mutual fund shares may be redeemed by PREFCO (or its agent) and the Programs will be terminated on their renewal dates. 8 The Company's liabilities include amounts due to affiliates for premium loans, due to parent, due to JP Life for expense reimbursements and pay downs due to PREFCO. JP Life, a wholly-owned subsidiary of Jefferson-Pilot Corporation, provides employee services and office facilities to the Company and its affiliates under a Service Agreement. The Company pays JP Life 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 the first quarter of 2002 and 2001 was provided by servicing fees from collateral loans sold, loans from Jefferson-Pilot Corporation and interest earned on investments. The Company changed certain of its assumptions supporting the valuation of its interests retained from loan sales. Effective January 1, 2002, the Company has increased its estimate of early terminations from 26% to 30% to better reflect the Company's actual experience. In 1999, the Company reduced the discount rate used to value its retained interests from 17% to 15%, which Management believes better reflects the risks associated with the securitized assets. Management continually evaluates the appropriateness of these assumptions in the light of current economic conditions and actual termination rates. RESULTS OF OPERATIONS The Company concluded the three months ended March 31, 2002 with net income of $174,254 as compared to net income of $202,395 for the same period in 2001. Total revenues for the three months ended March 31, 2002 were $325,398 versus $344,551 for the same period in 2001. The Company's revenues are derived from program fees; income on its retained interest in the loans sold to investors, and realized gains. Although the Company's retained interest and income on its retained interest has grown over the last four years, this increase has been partially offset by a decline in realized gains in connection with the sale of loans. Gains (or losses) for each sale of receivables are determined by allocating the carrying value of the receivables sold between the portion sold and the interest retained based on their relative fair value. The Company estimates the fair value of its retained interest based on the present value of future cash flows expected from the sold receivables. Interest expense was $3,017 and $3,282 for the three months ended March 31, 2002 and 2001, respectively. The average interest rates of 1.79% and 5.66% were paid on average outstanding loans due to affiliates of $675,302 and $214,100 for the three months ended March 31, 2002 and 2001, respectively. The Company receives fee income for continuing to service sold receivables. The Company capitalizes the present value of expected servicing fee income in excess of the related cost of servicing over the estimated life of the sold receivables. Program fees include placement, administrative and termination fees as well as charges for special services. Program fees continue to decline as programs terminate and mature. As of March 31, 2002 and 2001 the number of Programs administered by the Company were 2,113 and 2,996, respectively. In the future, the Company may realize a gain or loss on the securitization of future collateral notes receivable which may impact future earnings. 9 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK Not required because Hampshire Funding, Inc. qualifies as a small business issuer under Regulation S-B. PART II - OTHER INFORMATION Item 1 - LEGAL PROCEEDINGS - None Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS - None Item 3 - DEFAULTS UPON SENIOR SECURITIES - Not Applicable Item 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - None Item 5 - OTHER INFORMATION - None Item 6 - EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits - None (b) Reports on Form 8-K No Reports on Form 8-K were filed by the Company during the quarter ended March 31, 2002. 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, 2002 John A. Weston Treasurer, Principal Financial and Accounting Officer 10 -----END PRIVACY-ENHANCED MESSAGE-----