-----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, Al2RndcYZ2M7fsqIOVL+fUtLzpCaiITezRKu+VDlLXXuDqVFTsY11c17QWAYeDtW Kjm7WhHENfYNC2QB68WGnA== 0001047469-99-031012.txt : 19990812 0001047469-99-031012.hdr.sgml : 19990812 ACCESSION NUMBER: 0001047469-99-031012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: SEC FILE NUMBER: 002-36140 FILM NUMBER: 99684093 BUSINESS ADDRESS: STREET 1: ONE GRANITE PL CITY: CONCORD STATE: NH ZIP: 03301 BUSINESS PHONE: 6032265000 MAIL ADDRESS: STREET 1: ONE GRANITE PLACE STREET 2: ONE GRANITE PLACE CITY: CONCORD STATE: NH ZIP: 03301 10-Q 1 10-Q 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 June 30, 1999 ------------- 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) Registrant's telephone number, including area code (603) 226-5000 ----------------- 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 June 30, 1999: 50,000 shares, all of which are owned by Jefferson-Pilot Corporation. DOCUMENTS INCORPORATED BY REFERENCE The exhibit index appears on pages 4 and 5 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements. See pages 6 through 9. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES The Company administers investment programs (the "Programs") which coordinate the acquisition of mutual fund shares and insurance over a period of ten years. Under the Programs, Participants purchase life and health insurance from affiliated 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 Account Indebtedness, the Company will terminate the Programs and liquidate shares sufficient to repay the indebtedness. Effective March 31, 1998, the Company discontinued the sale of Programs. The Company, however, will continue to make premium loans to current Participants and administer all Programs until their stated maturity or termination dates. 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 First National Bank of Chicago (the Bank). Pursuant to the Agreement, the Company sells the Participants' Total Account indebtedness (Loans Receivable) to PREFCO a third-party bank sponsored commercial paper conduit. In connection with these sales, the Company retains interest in the securitized assets that serve to absorb losses related to the sold receivables and enhance credit to the third-party conduit. Such retained interests include: (a) 5% of all Loans Receivable sold, which includes capitalized interest (residual principal); (b) the excess of the weighted average interest on the Loans Receivable securitized over the interest rate on the commercial paper sold (interest-only strips receivable); and (c) compensation for servicing the securitized assets on behalf of the purchaser. Interest income on residual principal, interest-only strips receivable and servicing assets is earned over time based on the outstanding balance of serviced assets. The Company receives servicing fees monthly for managing and collecting all receivables and loan repayments and monitoring the underlying collateral. The fee is calculated as 2% of outstanding receivables. Repayments of residual principal and interest only strips will be received after full amortization of the assets sold to third-parties. Gains or losses for each qualifying sale of receivables are determined by allocating the carrying value of the receivables sold between the portion sold and the interests retained, based on their relative fair values. The Company estimates the fair value of retained interests based on the present value of future cash flows expected from the sold receivables, under management's best estimates of key assumptions - credit losses, prepayment speeds, forward yield, curves and discount rates commensurate with the risks involved. The Company estimates that credit losses associated with sold receivables will not be material, as the loans are more than 100% secured by mutual fund shares. The interest rate paid to the third-party purchaser represents commercial paper rates (4.91% and 5.55% at June 30, 1999 and 1998, respectively) plus a margin of 2.25%. The Company estimates that 15% of Programs will terminate early. The Company has estimated that a 17% discount rate is commensurate with the duration and risks embedded in the particular assets retained from its loan sales. 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) up to $55,000,000. On June 29, 1999, the Agreement was amended to extend the termination date to June 27, 2000. 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 June 30, 1999, the Company has sold aggregate loans of $54,232,991 and has retained a subordinated interest 2 and servicing rights in the assets transferred aggregating $4,507,942. 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. As servicing agent for the loans sold, the Company collected loan prepayments of $7,995,936 during the first six months of 1999 which were paid to PREFCO (one month in arrears) to satisfy principal and variable interest obligation due. The Company originated new loans of $5,392,989 during the first six months of 1999 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 June 30, 1999, the Company had borrowed $1,200,000. 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. The Company's liabilities include amounts due to affiliates for expense reimbursements and other working capital needs. Jefferson Pilot Life Insurance Company, 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 its affiliate 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 was provided by servicing fees from collateral loans sold, and interest earned on investments during the first quarter of 1999 and 1998. RESULTS OF OPERATIONS The Company concluded the six months ended June 30, 1999 with net income of $488,544 as compared to net income of $378,039 for the same period in 1998. Total revenues through June 30, 1999 were $796,766 versus $1,039,479 in the same period in 1998. The Company's revenues are derived from income on its retained interest in the loans transferred to investors ("Interest on Securities"), gain on the sale of collateral loans and program fees. The average interest rate charged to each Participant's outstanding loan balance has remained at 8.95%. 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. For the second quarter ending 1997 the Company's cost to service its collateral loans receivable was included in General and administrative. Program fees include placement, administrative and termination fees as well as charges for special services. At June 30, 1999 and 1998 the number of Programs administered by the Company were 4,323 and 5,118, respectively. 3 In the future, the Company may realize a gain or loss on the securitization of future collateral notes receivable which may impact future earnings. YEAR 2000 CONVERSION The Company recognizes the need to ensure that its operations will not be adversely impacted by the Year 2000 systems failures. Year 2000 issues arise because some computer software and hardware (systems) were designed to handle only a two digit year, not a four digit year. By using two digits, they could fail or make miscalculations due to the inability to distinguish between dates in the 1900' and in the 2000's. In order to minimize the impact of the year 2000 on the Company, Jefferson-Pilot Corporation developed a centralized oversight and project management process to facilitate the planning and conversion of all information systems on behalf of the Company and its affiliates. The scope of the project includes an assessment of the Company's material systems currently in place, modification, testing and implementation of such systems as required, inquiry to third-party providers with whom the Company has material business relationships as to the state of their readiness, and the development of a contingency plan in the event that material Year 2000 issues arise. The Company has completed its assessment and modifications of its material administrative systems to handle the Year 2000. The underlying software, which includes file structures, on-line access screen formats and the data access methods for the Company's systems were rewritten, tested, certified and implemented during 1998. The cost of rewriting, testing, certifying and implementing these systems was $80,115. The Company has completed the strategy phase of its PC and Lan Systems and is executing the assessment, remediation and certification phases concurrently. All the Company's key business partners have responded to the Company's inquiries, indication that they are on schedule for Year 2000 compliance. The Company is currently testing data transmissions from its key business partners and the results are being analyzed. The target date for completing all remaining phases is September 30, 1999. Although management does not anticipate a material effect on its business operations as a result of the Year 2000 computer systems issues, the Company is in the process of developing a contingency plan in the event that material Year 2000 issues arise in the Company or third-party computer systems.. 4 PART II - OTHER INFORMATION Item 1 - LEGAL PROCEEDINGS - Not Applicable Item 2 - CHANGES IN SECURITIES - Not Applicable Item 3 - DEFAULTS UPON SENIOR SECURITIES - Not Applicable Item 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS - Not Applicable Item 5 - OTHER INFORMATION - None 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 incorporated by reference from the reference source cited in the table below.
Reg. S-K Item 601 Exhibit Table No. Document Reference Source ---------- -------- ---------------- (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 5 Reg. S-K Item 601 Exhibit Table No. Document Reference Source ---------- -------- ---------------- 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 (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 (d) Receivables Purchase Agreement Form 10-K filed among the Company, Investors March 31, 1998, for the Preferred Receivables Funding year ended December 31, Bank of Chicago dated 1997, pp. 27-75 December 31, 1997 (e) Performance Guarantee by Form 10-K filed Jefferson-Pilot Corporation March 31, 1998, for the year ended December 31, 1997, pp. 76-83 (f) Amendment No. 1 to the pp. 31 - 33 Receivables Purchase Agreement among the Company, Investors, Preferred Receivables Funding Preferred Receivables Funding Corporation and First National Bank of Chicago dated June 29, 1998 (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 June 30, 1999. 6 HAMPSHIRE FUNDING, INC. STATEMENTS OF FINANCIAL CONDITION
JUNE 30 DECEMBER 31 1999 1998 -------------------------------- ASSETS Cash and cash equivalents $ 1,906,374 $ 1,284,375 Accounts receivable from customers 8,393 13,187 -------------------------------- Total current assets 1,914,767 1,297,562 Interests retained from loan sales 4,507,942 4,301,000 Deferred asset 233,622 262,825 -------------------------------- Total assets $ 6,656,331 $ 5,861,387 -------------------------------- -------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Due to affiliates $ 2,759,521 $ 2,325,058 Accrued expenses and other liabilities 260,670 155,373 Total liabilities 3,020,191 2,480,431 -------------------------------- 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 Accumulated other comprehensive loss (659,545) (426,185) Retained earnings 3,455,874 2,967,330 -------------------------------- Total stockholder's equity 3,636,140 3,380,956 -------------------------------- Total liabilities and stockholder's equity $ 6,656,331 $ 5,861,387 -------------------------------- --------------------------------
7 HAMPSHIRE FUNDING, INC. STATEMENTS OF INCOME
SIX MONTHS ENDING JUNE 30, 1999 1998 -------------------------------------- Revenues: Interest income on securities $ 285,369 $ 805,039 Realized gain on sale of collateral loans 332,949 0 Program participant fees 178,448 234,440 -------------------------------------- 796,766 1,039,479 Operating expenses: Interest on affiliated loan agreements 25,175 0 General and administrative 0 457,880 -------------------------------------- 25,175 457,880 -------------------------------------- Income before income taxes 771,591 581,599 Income tax expense 283,047 203,560 -------------------------------------- Net income $ 488,544 $ 378,039 -------------------------------------- --------------------------------------
8 HAMPSHIRE FUNDING, INC. STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY SIX MONTHS ENDING JUNE 30, 1998 AND 1999
ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE TOTAL COMMON PAID-IN RETAINED INCOME STOCKHOLDER'S STOCK CAPITAL EARNINGS (LOSS) EQUITY --------------- ---------------- ---------------- ------------------ ----------------- Balance at December 31, 1997 50,000 789,811 2,186,747 3,026,558 Comprehensive income Net income 378,039 378,039 --------------- ---------------- ---------------- ------------------ ----------------- Balance at June 30, 1998 $ 50,000 $ 789,811 $ 2,564,786 $ 3,404,597 --------------- ---------------- ---------------- ------------------ ----------------- --------------- ---------------- ---------------- ------------------ ----------------- Balance at December 31, 1998 50,000 789,811 2,967,330 (426,185) 3,380,956 Comprehensive income Net income 488,544 488,544 Unrealized loss on securities available for sale, net of tax of $125,655 (233,360) (233,360) --------------- ---------------- ---------------- ------------------ ----------------- Balance at June 30, 1999 $ 50,000 $ 789,811 $ 3,455,874 (659,545) $ 3,636,140 --------------- ---------------- ---------------- ------------------ ----------------- --------------- ---------------- ---------------- ------------------ -----------------
9 HAMPSHIRE FUNDING, INC. STATEMENTS OF CASH FLOWS
SIX MONTHS ENDING JUNE 30, 1999 1998 --------------------------------------- OPERATING ACTIVITIES Net income $ 488,544 $ 378,039 Adjustments to reconcile net income to net cash provided (used) by operating activities: Gain on sale (332,949) Decrease (increase) in accounts receivable from customers 4,794 (47,994) Net change in other liabilities 267,593 768,671 Change in due to affiliates 434,463 720,144 Net originations of collateral notes receivable (537,115) Decrease in accrued interest receivable 201,262 Decrease in deferred asset 29,203 36,972 --------------------------------------- Net cash used by operating activities 891,648 1,519,979 FINANCING ACTIVITIES Proceeds from sale of collateral notes receivable 5,123,340 Loans originated (5,392,989) Proceeds from affiliated loan agreements 0 --------------------------------------- Net cash used (provided) by financing activities (269,649) --------------------------------------- Increase (decrease) in cash and cash equivalents 621,999 1,519,979 Cash and cash equivalents at beginning of year 1,284,375 297,934 --------------------------------------- Cash and cash equivalents at end of period $ 1,906,374 $ 1,817,913 --------------------------------------- ---------------------------------------
10 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: AUGUST 11, 1999 John A. Weston Treasurer, Principal Financial and Accounting Officer 11 EX-27 2 EXHIBIT 27
5 0000205422 HAMPSHIRE FUNDING, INC. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1,906,374 4,507,972 8,393 0 0 1,914,767 0 0 6,656,331 3,020,191 0 50,000 0 0 3,586,140 6,656,331 0 796,766 0 0 25,175 0 0 771,591 283,047 488,544 0 0 0 488,544 8.97 0
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