Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO________
-------------------------------
COMMISSION FILE NUMBER 33-58677
-------------------------------
THE TRAVELERS LIFE AND ANNUITY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0904249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(860) 277-0111
(Registrant's telephone number, including area code)
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
----------- -----------
As of the date hereof, there were outstanding 30,000 shares of common stock, par
value $100 per share, of the registrant, all of which were owned by The
Travelers Insurance Company, an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
THE TRAVELERS LIFE AND ANNUITY COMPANY
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Condensed Statements of Income for the three and
six months ended June 30, 2002 and 2001 (unaudited)............................3
Condensed Balance Sheets as of June 30, 2002 (unaudited) and
December 31, 2001..............................................................4
Condensed Statements of Changes in Shareholder's Equity
for the three and six months ended June 30, 2002 and 2001 (unaudited)..........5
Condensed Statements of Cash Flows for the
six months ended June 30, 2002 and 2001 (unaudited)............................6
Notes to Condensed Financial Statements (unaudited)............................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................9
- ---------------------------------------------
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................12
- -----------------------------------------
SIGNATURES................................... ................................13
EXHIBIT 99.01.................................................................14
EXHIBIT 99.02.................................................................15
2
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
($ in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- -----------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
Premiums $ 10,556 $ 9,233 $ 20,823 $ 18,186
Net investment income 76,151 62,276 143,370 118,420
Realized investment gains (losses) (19,699) 349 (15,636) 21,154
Fee income 50,398 42,921 100,563 82,517
Other revenues 5,186 3,290 9,322 5,665
- -----------------------------------------------------------------------------------------------------------------
Total Revenues 122,592 118,069 258,442 245,942
- -----------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 21,410 18,968 46,790 42,742
Interest credited to contractholders 42,933 29,637 82,126 55,356
Amortization of deferred acquisition costs 22,295 20,727 13,675 40,592
Operating expenses 6,173 5,416 13,181 11,196
-----------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 92,811 74,748 155,772 149,886
- -----------------------------------------------------------------------------------------------------------------
Income before federal income taxes and cumulative
effect of change in accounting principle 29,781 43,321 102,670 96,056
Federal income taxes 10,422 15,088 35,961 33,471
- -----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 19,359 28,233 66,709 62,585
Cumulative effect of change in accounting for
derivative instruments and hedging activities, net of
tax -- -- -- (62)
- -----------------------------------------------------------------------------------------------------------------
Net income $ 19,359 $ 28,233 $ 66,709 $ 62,523
=================================================================================================================
See Notes to Condensed Financial Statements.
3
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEETS
($ in thousands)
JUNE 30, 2002 DECEMBER 31, 2001
(UNAUDITED)
- --------------------------------------------------------------------------------------------------
ASSETS
Investments (including $113,662 and $102,347 subject to
securities lending agreements) $ 4,547,070 $ 3,938,782
Separate accounts 7,320,308 7,681,791
Deferred acquisition costs 966,681 814,369
Other assets 359,441 221,325
- --------------------------------------------------------------------------------------------------
Total Assets $ 13,193,500 $ 12,656,267
- --------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 1,061,129 $ 1,040,856
Contractholder funds 3,253,865 2,624,570
Separate accounts 7,320,308 7,681,791
Other liabilities 531,641 331,486
- --------------------------------------------------------------------------------------------------
Total Liabilities 12,166,943 11,678,703
- --------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000 shares authorized,
30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 417,316 417,316
Retained earnings 607,873 541,164
Accumulated other changes in equity from nonowner sources (1,632) 16,084
- --------------------------------------------------------------------------------------------------
Total Shareholder's Equity 1,026,557 977,564
- --------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $ 13,193,500 $ 12,656,267
==================================================================================================
See Notes to Condensed Financial Statements.
4
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
($ in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 3,000 $ 3,000 $ 3,000 $ 3,000
Changes in common stock -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 3,000 $ 3,000 $ 3,000 $ 3,000
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 417,316 $ 417,316 $ 417,316 $ 417,316
Changes in Additional Paid-in-Capital -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 417,316 $ 417,316 $ 417,316 $ 417,316
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 588,514 $ 460,356 $ 541,164 $ 426,066
Net income 19,359 28,233 66,709 62,523
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 607,873 $ 488,589 $ 607,873 $ 488,589
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES
IN EQUITY FROM NONOWNER SOURCES
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ (21,942) $ 30,692 $ 16,084 $ 13,622
Cumulative effect of change in accounting principle for
derivative instruments and hedging activities, net of tax -- -- -- 62
Unrealized gains (losses), net of tax 16,848 (16,650) (19,824) (1,519)
Derivative instrument hedging activity gains (losses),
net of tax 3,462 (1,444) 2,108 433
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ (1,632) $ 12,598 $ (1,632) $ 12,598
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 19,359 $ 28,233 $ 66,709 $ 62,523
Other changes in equity from nonowner sources 20,310 (18,094) (17,716) (1,024)
- -----------------------------------------------------------------------------------------------------------------------------------
Total changes in equity from nonowner sources $ 39,669 $ 10,139 $ 48,993 $ 61,499
===================================================================================================================================
See Notes to Condensed Financial Statements.
5
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ in thousands)
SIX MONTHS ENDED
JUNE 30,
2002 2001
- ----------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES $ (88,223) $ (82,729)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 112,820 36,114
Mortgage loans 13,189 7,477
Proceeds from sales of investments
Fixed maturities 917,057 481,793
Equity securities 1,044 5,013
Purchases of investments
Fixed maturities (1,627,293) (952,941)
Equity securities (346) (1,219)
Mortgage loans (21,758) (368)
Policy loans, net (987) (1,989)
Short-term securities sales (purchases), net 17,496 (42,813)
Other investment (purchases) sales, net (9,312) 13,435
Securities transactions in course of settlement, net 68,232 98,384
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (529,858) (357,114)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 748,540 541,435
Contractholder fund withdrawals (119,245) (84,544)
- ----------------------------------------------------------------------------------------------
Net cash provided by financing activities 629,295 456,891
- ----------------------------------------------------------------------------------------------
Net increase in cash 11,214 17,048
Cash at beginning of period 19,514 14,938
- ----------------------------------------------------------------------------------------------
Cash at end of period $ 30,728 $ 31,986
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid (received) $ 19,347 $ (20,994)
==============================================================================================
See Notes to Condensed Financial Statements.
6
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), an indirect wholly
owned subsidiary of Citigroup Inc. (Citigroup). Citigroup is a diversified
global financial services holding company whose businesses provide a broad
range of financial services to consumer and corporate customers around the
world. The condensed financial statements and accompanying footnotes of
the Company are prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP) and are
unaudited. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and benefits and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management, the interim financial statements reflect all
adjustments necessary (all of which were normal recurring adjustments) for
a fair presentation of results for the periods reported. The accompanying
condensed financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
Certain financial information that is normally included in annual
financial statements prepared in accordance with GAAP, but is not required
for interim reporting purposes, has been condensed or omitted.
Certain prior year amounts have been reclassified to conform to the 2002
presentation.
2. CHANGES IN ACCOUNTING PRINCIPLES AND ACCOUNTING STANDARDS NOT YET ADOPTED
ACCOUNTING CHANGES
------------------
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted the Financial Accounting
Standards Board (FASB) Statements of Financial Accounting Standards No.
141, "Business Combinations" (FAS 141) and No. 142, "Goodwill and Other
Intangible Assets" (FAS 142). These standards change the accounting for
business combinations by, among other things, prohibiting the prospective
use of pooling-of-interests accounting and requiring companies to stop
amortizing goodwill and certain intangible assets with an indefinite
useful life created by business combinations accounted for using the
purchase method of accounting. Instead, goodwill and intangible assets
deemed to have an indefinite useful life will be subject to an annual
review for impairment. All goodwill was fully amortized at December 31,
2001 and the Company did not have any other intangible assets with an
indefinite useful life. Other intangible assets that are not deemed to
have an indefinite useful life will continue to be amortized over their
useful lives. The carrying value of other intangible assets with useful
lives is $13 million at June 30, 2002.
7
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
Effective January 1, 2002, the Company adopted FASB Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" (FAS 144). FAS 144 establishes a single accounting
model for long-lived assets to be disposed of by sale. A long-lived asset
classified as held for sale is to be measured at the lower of its carrying
amount or fair value less cost to sell. Depreciation (amortization) is to
cease. Impairment is recognized only if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows and
is measured as the difference between the carrying amount and fair value
of the asset. Long-lived assets to be abandoned, exchanged for a similar
productive asset, or distributed to owners in a spin-off are considered
held and used until disposed of. Accordingly, discontinued operations are
no longer to be measured on a net realizable value basis, and future
operating losses are no longer recognized before they occur. The
provisions of the new standard are to be applied prospectively. There has
been no impact as of June 30, 2002 on the Company's results of operations,
financial condition or liquidity and the Company does not expect the
impact of this standard to be significant.
ACCOUNTING STANDARDS NOT YET ADOPTED
------------------------------------
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" (FAS 146). FAS 146 requires that a liability for costs
associated with exit or disposal activities be recognized when the
liability is incurred. Existing generally accepted accounting principles
provide for the recognition of such costs at the date of management's
commitment to an exit plan. In addition, FAS 146 requires that the
liability be measured at fair value and be adjusted for changes in
estimated cash flows.
The provisions of the new standard are effective for exit or disposal
activities initiated after December 31, 2002. The Company does not expect
the impact of this new standard to be significant.
3. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $407 million at December
31, 2001. The Company is currently subject to various regulatory
restrictions that limit the maximum amount of dividends available to be
paid to its parent without prior approval of insurance regulatory
authorities. The Company does not have surplus available to pay dividends
to TIC in 2002 without prior approval of the State of Connecticut
Insurance Department.
4. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is a defendant or
co-defendant in various litigation matters incidental to and typical of
the businesses in which it is engaged. In the opinion of the Company's
management, the ultimate resolution of these legal proceedings would not
be likely to have a material adverse effect on its results of operations,
financial condition or liquidity.
8
THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), an indirect wholly owned
subsidiary of Citigroup Inc. (Citigroup).
RESULTS OF OPERATIONS ($ in millions)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues $ 122.6 $ 118.1 $ 258.4 $ 245.9
Net income (1) $ 19.4 $ 28.2 $ 66.7 $ 62.5
(1) Includes net after-tax realized investment losses of $12.8 million and
$10.2 million for the three and six months ended June 30, 2002 and gains
of $.2 million and $13.7 million for the three and six months ended June
30, 2001, respectively.
The Company offers fixed and variable deferred annuities and individual life
insurance to individuals and small businesses. These products are distributed
primarily through Salomon Smith Barney (SSB), Primerica Financial Services
(Primerica), affiliates of the Company, a nationwide network of independent
financial professionals and non-affiliated broker-dealers. In addition, the
Company distributes these products through CitiStreet Retirement Services and
Citibank, N.A. (Citibank), affiliates of the Company.
Net income decreased $8.8 million for the three months ended June 30, 2002
versus the prior year period. Included in the second quarter of 2002 were $12.9
million of after-tax realized investment losses related to the impairment of
investments in debt securities of WorldCom Inc. These realized losses were
partially offset by operating income growth of $4.2 million. Operating income,
defined as income before net realized investments gains or losses, was $32.2
million for the quarter ended June 30, 2002 up 14.8% from $28.0 million for the
same period in the prior year. This increase in operating income is related to
net investment income and fee income growth in the individual annuity and
individual life lines which reflects increased business volumes. These increased
volumes also caused a 12.9% increase in insurance benefits, a 44.9% increase in
interest credited to contractholders and a 7.6% increase in amortization of
deferred acquisition costs in the second quarter of 2002 over the same period in
2001.
Net income increased $4.2 million for the six months ended June 30, 2002
compared to the six months ended June 30, 2001. Net realized investment gains
decreased $23.9 million, primarily related to the $12.9 million WorldCom Inc.
loss during 2002 and various realized investment gains during 2001. This
decrease in realized gains was fully offset by a $28.1 million operating income
increase. Operating income was $76.9 million in the first six months of 2002
versus $48.8 million in the prior year period. This $28.1 million gain was
driven by business volume growth and a $19.4 million after-tax reduction to the
amortization of deferred acquisitions costs in the individual annuity product
line resulting from changes in underlying lapse and interest rate assumptions
during the first quarter of 2002.
9
THE TRAVELERS LIFE AND ANNUITY COMPANY
BUSINESS VOLUME ($ IN MILLIONS)
AT AND FOR THE AT AND FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Individual Annuity Account Balances $9,896 $8,838 $9,896 $8,838
Individual Life Net Premiums and Deposits $ 117 $ 80 $ 232 $ 151
The growth in individual annuity account balances reflects good in-force policy
retention. Declining variable annuity sales were partially offset by increased
fixed annuity deposits during the three and six months ended June 30, 2002
versus the prior year periods, particularly in the non-affiliated broker-dealer
channel.
Individual life volumes continued to grow reflecting strong universal life and
traditional life sales through the independent financial professionals channel
and SSB.
PREMIUMS AND DEPOSITS ($ IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Deposits
- ------
Individual Annuity $ 767 $ 868 $1,517 $1,608
Individual Life 107 72 213 135
Other Annuity 1 -- 2 1
------ ------ ------ ------
Total Deposits $ 875 $ 940 $1,732 $1,744
Total Premiums 11 9 21 18
- --------------------------- ------ ------ ------ ------
Total Premiums and Deposits $ 886 $ 949 $1,753 $1,762
====== ====== ====== ======
The majority of the annuity business and a substantial portion of the individual
life business written by the Company are accounted for as investment contracts,
with the result that the deposits collected from contractholders are reported as
liabilities and are not included in revenues. Declining variable sales were
partially offset by increased fixed annuity deposits in both the three and six
months ended June 30, 2002.
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners (NAIC) and the states to
identify companies that merit further regulatory action. At December 31, 2001,
the Company had total adjusted capital in excess of amounts requiring any
regulatory action as defined by the NAIC.
The Company is subject to various regulatory restrictions that limit the maximum
amount of dividends available to be paid to its parent without prior approval of
insurance regulatory authorities in the state of domicile. The Company does not
have surplus available to pay dividends to its parent in 2002 without prior
approval of the State of Connecticut Insurance Department. The Company did not
pay any dividends to its parent during the six months ended June 30, 2002.
10
THE TRAVELERS LIFE AND ANNUITY COMPANY
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 2 of Notes to Condensed Financial Statements for a discussion of
recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," "may fluctuate," and similar expressions or future
or conditional verbs such as "will," "should," "would," and "could." These
forward-looking statements involve risks and uncertainties including, but not
limited to, the resolution of legal proceedings.
11
THE TRAVELERS LIFE AND ANNUITY COMPANY
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- --------------
3.01 Charter of The Travelers Life and Annuity Company (the
"Company"), as amended on April 10, 1990, incorporated herein
by reference to Exhibit 6(a) to the Registration Statement on
Form N-4, File No. 33-58131, filed on March 17, 1995.
3.02 By-laws of the Company, as amended on October 20, 1994,
incorporated herein by reference to Exhibit 6(b) to the
Registration Statement on Form N-4, File No. 33-58131, filed
on March 17, 1995.
99.01+ Certification Pursuant to 18 U.S.C. Section 1350.
99.02+ Certification Pursuant to 18 U.S.C. Section 1350.
------------------------
+Filed herewith
(b) REPORTS ON FORM 8-K.
None.
12
THE TRAVELERS LIFE AND ANNUITY COMPANY
SIGNATURES
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.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Registrant)
Date August 14, 2002 /s/ Glenn D. Lammey
----------------------- -----------------------------------------
Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
13