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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended March 31, 2003
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 333-18053
PRUCO LIFE INSURANCE COMPANY
OF NEW JERSEY
(Exact name of Registrant as specified in its charter)
New Jersey 22-2426091
- ------------------------------- --------------------------
(State or other jurisdiction, (IRS Employer Identification No.)
incorporation or organization)
213 Washington Street, Newark, New Jersey 07102
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 802-3274
----------------------------------------------------
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES ___ NO X
---
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: NONE
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of May 14, 2003. Common stock, par value of
$5 per share: 400,000 shares outstanding
Pruco Life Insurance Company of New Jersey meets the conditions set
forth in General Instruction (H) (1) (a) and (b) on Form 10-Q and
is therefore filing this Form with the reduced disclosure format.
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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page No.
--------
Cover Page -
Index 2
PART I - Financial Information
------------------------------
Item 1. (Unaudited) Financial Statements
Statements of Financial Position
As of March 31, 2003 and December 31, 2002 3
Statements of Operations and Comprehensive Income
Three months ended March 31, 2003 and 2002 4
Statements of Stockholder's Equity
Periods ended March 31, 2003 and December 31, 2002 and 2001
5
Statements of Cash Flows
Three months ended March 31, 2003 and 2002 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 4. Controls and Procedures 16
PART II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
Certifications 19
Forward-Looking Statement Disclosure
Certain of the statements included in this Quarterly Report on Form
10-Q, including but not limited to those in the Management's Discussion
and Analysis of Financial Condition and Results of Operations,
constitute forward-looking statements within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. Words such as
"expects," "believes," "anticipates," "includes," "plans," "assumes,"
"estimates," "projects," "intends", or variations of such words are
generally part of forward-looking statements. Forward-looking
statements are made based on management's current expectations and
beliefs concerning future developments and their potential effects upon
Pruco Life Insurance Company of New Jersey ("the Company"). There can
be no assurance that future developments affecting the Company will be
those anticipated by management. These forward-looking statements are
not a guarantee of future performance and involve risks and
uncertainties, and there are certain important factors that could cause
actual results to differ, possibly materially, from expectations or
estimates reflected in such forward-looking statements, including
without limitation: general economic, market and political conditions,
including the performance of financial markets, interest rate
fluctuations and the continuing negative impact of the current economic
environment; various domestic or international military or terrorist
activities or conflicts; volatility in the securities markets;
reestimates of our reserves for future policy benefits and claims;
changes in our assumptions related to deferred policy acquisition
costs; our exposure to contingent liabilities; catastrophe losses;
investment losses and defaults; changes in our claims-paying or credit
ratings; competition in our product lines and for personnel;
fluctuations in foreign currency exchange rates and foreign securities
markets; the impact of changing regulation or accounting practices;
adverse litigation results; and changes in tax law. The Company does
not intend, and is under no obligation to, update any particular
forward-looking statement included in this document.
2
Pruco Life Insurance Company of New Jersey
Statements of Financial Position (Unaudited)
As of March 31, 2003 and December 31, 2002 (in thousands)
- ----------------------------------------------------------------------------------------------------
March 31, December 31,
2003 2002
---------- ----------
ASSETS
Fixed maturities available for sale,
at fair value (amortized cost, 2003: $568,265; and 2002: $525,866) $ 599,755 $ 553,901
Policy loans 157,744 158,431
Short-term investments 24,981 30,158
Other long-term investments 3,499 3,561
---------- ----------
Total investments 785,979 746,051
Cash and cash equivalents 88,135 61,482
Deferred policy acquisition costs 143,168 137,053
Accrued investment income 11,959 11,291
Receivables from affiliates 18,358 24,686
Other assets 15,741 11,644
Separate account assets 1,566,208 1,590,335
---------- ----------
TOTAL ASSETS $2,629,548 $2,582,542
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 549,347 $ 529,333
Future policy benefits and other policyholder liabilities 138,503 134,208
Cash collateral for loaned securities 31,828 25,035
Securities sold under agreements to repurchase 56,480 31,713
Income taxes payable 41,048 33,646
Other liabilities 13,438 9,562
Separate account liabilities 1,566,208 1,590,335
---------- ----------
Total liabilities 2,396,852 2,353,832
---------- ----------
Contingencies - (See Footnote 2)
Stockholder's Equity
Common stock, $5 par value;
400,000 shares, authorized;
issued and outstanding at
March 31, 2003 and December 31, 2002 2,000 2,000
Paid-in-capital 128,689 128,689
Retained earnings 90,959 88,326
Accumulated other comprehensive income 11,048 9,695
---------- ----------
Total stockholder's equity 232,696 228,710
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,629,548 $2,582,542
========== ==========
See Notes to Financial Statements
3
Pruco Life Insurance Company of New Jersey
Statements of Operations and Comprehensive Income (Unaudited)
Three Months Ended March 31, 2003 and 2002 (in thousands)
- -----------------------------------------------------------------------------------
Three months ended
March 31,
2003 2002
------- -------
REVENUES
Premiums $ 9,498 $ 4,083
Policy charges and fee income 15,630 13,283
Net investment income 10,643 11,179
Realized investment losses, net
(1,745) (2,132)
Asset management fees 950 33
Other income 434 146
------- -------
Total revenues 35,410 26,592
------- -------
BENEFITS AND EXPENSES
Policyholders' benefits 13,572 7,978
Interest credited to policyholders' account balances 4,749 4,801
General, administrative and other expenses 13,783 10,346
------- -------
Total benefits and expenses 32,104 23,125
------- -------
Income from operations before income taxes 3,306 3,467
------- -------
Income tax expense 673 979
------- -------
NET INCOME 2,633 2,488
------- -------
Net unrealized investment gains (losses) on
securities,
net of reclassification adjustment and taxes 1,353 (1,496)
------- -------
TOTAL COMPREHENSIVE INCOME $ 3,986 $ 992
======= =======
See Notes to Financial Statements
4
Pruco Life Insurance Company of New Jersey
Statements of Stockholder's Equity (Unaudited)
Periods ended March 31, 2003 and December 31, 2002 and 2001 (in thousands)
- -------------------------------------------------------------------------------------------------------
Accumulated
other Total
Common Paid - in - Retained comprehensive stockholder's
stock capital earnings income (loss) equity
------ ----------- --------- ------------- -------------
Balance, January 1, 2001 $2,000 $128,689 $ 253,641 $ (763) $ 383,567
Net income - - 15,593 - 15,593
Change in net unrealized
investment losses, net of
reclassification and taxes - - - 4,487 4,487
Dividend to Parent - - (186,000) - (186,000)
Policy credits issued to eligible
policyholders - - (10,275) - (10,275)
------ -------- --------- ------------- ---------
Balance, December 31, 2001 2,000 128,689 72,959 3,724 207,372
Net income - - 15,368 - 15,368
Change in net unrealized
investment gains, net of
reclassification and taxes - - - 5,971 5,971
Adjustments to policy credits
issued to eligible policyholders - - (1) - (1)
------ -------- --------- ------------- ---------
Balance, December 31, 2002 2,000 128,689 88,326 9,695 228,710
Net income - - 2,633 - 2,633
Change in net unrealized
investment gains, net of
reclassification and taxes - - - 1,353 1,353
------ -------- --------- ------------- ---------
Balance, March 31, 2003 $2,000 $128,689 $ 90,959 $ 11,048 $ 232,696
====== ======== ========= ============= =========
See Notes to Financial Statements
5
Pruco Life Insurance Company of New Jersey
Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2003 and 2002 (in thousands)
- -------------------------------------------------------------------------------------------
Three months ended,
March 31,
2003 2002
--------- --------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 2,633 $ 2,488
Adjustments to reconcile net income to net cash (used in)
provided by
Operating activities:
Policy charges and fee income (3,641) (2,721)
Interest credited to policyholders' account balances 4,749 4,801
Realized investment losses, net 1,745 2,132
Amortization and other non-cash items (1,221) 3,368
Change in:
Future policy benefits and other policyholders' 4,295 1,417
liabilities
Accrued investment income (668) (988)
Policy loans 687 (689)
Receivable from affiliates 6,328 286
Deferred policy acquisition costs (6,115) (10,680)
Income taxes payable 7,402 (32)
Other, net (221) (178)
--------- --------
Cash Flows From (Used in) Operating Activities 15,973 (796)
--------- --------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities available for sale 73,844 45,125
Payments for the purchase of:
Fixed maturities available for sale (118,400) (66,176)
Cash collateral for loaned securities, net 6,793 13,203
Securities sold under agreements to repurchase, net 24,767 (92)
Other long-term investments (58) (480)
Short term investments, net 5,177 18,011
--------- --------
Cash Flows (Used in) From Investing Activities (7,877) 9,591
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 26,899 34,794
Withdrawals (8,342) (14,634)
Cash payments to eligible policyholders - (8,996)
--------- --------
Cash Flows From Financing Activities 18,557 11,164
--------- --------
Net increase in Cash and cash equivalents 26,653 19,959
Cash and cash equivalents, beginning of year 61,482 58,212
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 88,135 $ 78,171
========= ========
See Notes to Financial Statements
6
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared pursuant to the
rules and regulations for reporting on Form 10-Q on the basis of accounting
principles generally accepted in the United States. These interim financial
statements are unaudited but reflect all adjustments which, in the opinion of
management, are necessary to provide a fair presentation of the results of
operations and financial condition of the Pruco Life Insurance Company of New
Jersey ("the Company"), for the interim periods presented. The Company is a
wholly owned subsidiary of the Pruco Life Insurance Company ("Pruco Life") which
in turn is a wholly-owned subsidiary of The Prudential Insurance Company of
America ("Prudential Insurance"). Prudential Insurance is a wholly owned
subsidiary of Prudential Financial, Inc ("Prudential Financial"). All such
adjustments are of a normal recurring nature. The results of operations for any
interim period are not necessarily indicative of results for a full year.
Certain amounts in the Company's prior year financial statements have been
reclassified to conform to the current year presentation. These financial
statements should be read in conjunction with the financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002.
2. CONTINGENCIES AND LITIGATION
Contingencies
On an ongoing basis, our internal supervisory and control functions review the
quality of our sales, marketing and other customer interface procedures and
practices and may recommend modifications or enhancements. In certain cases, if
appropriate, we may offer customers remediation and may incur charges, including
the cost of such remediation, administrative costs and regulatory fines.
It is possible that the results of operations or the cash flow of the Company in
a particular quarterly or annual period could be materially affected as a result
of payments in connection with the matters discussed above depending, in part,
upon the results of operations or cash flow for such period. Management
believes, however, that the ultimate payments in connection with these matters
should not have a material adverse effect on the Company's financial position.
Litigation
The Company and Prudential Insurance are subject to legal and regulatory actions
in the ordinary course of their businesses, including class actions. Pending
legal and regulatory actions include proceedings relating to aspects of the
businesses and operations that are specific to the Company and Prudential
Insurance and that are typical of the businesses in which the Company and
Prudential Insurance operate. Class action and individual lawsuits involve a
variety of issues and/or allegations, which include sales practices,
underwriting practices, claims payment and procedures, premium charges, policy
servicing and breach of fiduciary duties to customers. We are also subject to
litigation arising out of our general business activities, such as our
investments and third party contracts. In certain of these matters, the
plaintiffs are seeking large and/or indeterminate amounts, including punitive or
exemplary damages.
The Company and Prudential Insurance have been subject to substantial regulatory
actions and civil litigation, including class actions, involving individual life
insurance sales practices from 1982 through 1995. As of January 31, 2003, the
Company and Prudential Insurance have resolved those regulatory actions, its
sales practices class action litigation and virtually all of the individual
sales practices actions filed by policyholders who "opted out" of the sales
practices class action. Prudential Insurance has indemnified the Company for any
liabilities incurred in connection with sales practices litigation covering
policyholders of individual permanent life insurance policies issued in the
United States from 1982 to 1995.
The Company's litigation is subject to many uncertainties, and given the
complexity and scope, the outcomes cannot be predicted. It is possible that the
results of operations or the cash flow of the Company in a particular quarterly
or annual period could be materially affected by an ultimate unfavorable
resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory
matters should not have a material adverse effect on the Company's financial
position.
7
Pruco Life Insurance Company of New Jersey
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with Prudential
Insurance and other affiliates. It is possible that the terms of these
transactions are not the same as those that would result from transactions among
wholly unrelated parties.
Expense Charges and Allocations
Many of the Company's expenses are allocations or charges from Prudential
Insurance or other affiliates. These expenses can be grouped into the following
categories: general and administrative expenses and agency distribution
expenses.
The Company's general and administrative expenses are charged to the Company
using allocation methodologies based on business processes. Management believes
that the methodology is reasonable and reflects costs incurred by Prudential
Insurance to process transactions on behalf of the Company. The Company operates
under service and lease agreements whereby services of officers and employees,
supplies, use of equipment and office space are provided by Prudential
Insurance.
The Company is allocated estimated distribution expenses from Prudential
Insurance's agency network for both its life and annuity products. The estimate
of allocated distribution expenses is intended to reflect a market based pricing
arrangement.
The Company has capitalized the majority of these distribution expenses as
deferred policy acquisition costs.
Affiliated Asset Management Fee Income
In accordance with a servicing agreement with Prudential Investments LLC, the
Company receives fee income from policyholder account balances invested in the
Prudential Series Funds ("PSF"). These revenues are recorded as "Asset
management fees" in the Statements of Operations and Comprehensive Income.
Corporate Owned Life Insurance
The Company has sold two Corporate Owned Life Insurance ("COLI") polices to
Prudential Insurance. The cash surrender value included in Separate accounts was
$369.8 million and $359.6 million at March 31, 2003 and December 31, 2002,
respectively.
Reinsurance with Affiliates
The Company currently has a reinsurance agreement in place with Prudential
Insurance ("the reinsurer"). The reinsurance agreement is a yearly renewable
term agreement in which the Company may offer and the reinsurer may accept
reinsurance on any life in excess of the Company's maximum limit of retention.
The Company is not relieved of its primary obligation to the policyholder as a
result of these reinsurance transactions.
Debt Agreements
The Company and its parent, Pruco Life, have a revolving line of credit facility
of up to $800 million with Prudential Funding, LLC, a wholly owned subsidiary of
Prudential Insurance. The total of asset-based financing and borrowing under
this credit facility for the Company and its parent cannot be more than $800
million. There is no outstanding debt to Prudential Funding, LLC. as of March
31, 2003 or December 31, 2002.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Pruco Life Insurance Company of New Jersey meets the conditions set forth in
General Instruction H(1)(a) and (b) on Form 10-Q and is filing this form with
reduced disclosure.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the financial condition of Pruco Life Insurance
Company of New Jersey as of March 31, 2003, compared with December 31, 2002, and
its results of operations for the three-month periods ended March 31, 2003 and
March 31, 2002. You should read the following analysis of our financial
condition and results of operations in conjunction with the Company's MD&A and
audited financial statements included in the Company's Report on Form 10-K for
the year ended December 31, 2002.
The Company sells interest-sensitive individual life insurance and variable life
insurance, term life insurance, and individual variable annuities primarily
through Prudential Insurance's sales force in New Jersey and New York. These
markets are subject to regulatory oversight with particular emphasis placed on
company solvency and sales practices. These markets are also subject to
increasing competitive pressure as the legal barriers, which have historically
segregated the markets of the financial services industry, have been changed
through both legislative and judicial processes. Regulatory changes have opened
the insurance industry to competition from other financial institutions,
particularly banks and mutual funds that are positioned to deliver competing
investment products through large, stable distribution channels.
Generally, policyholders who purchase the Company's products have the option of
investing in the Separate accounts, segregated funds for which investment risks
are borne by the customer, or the Company's portfolio, referred to as the
General account. The Company earns its profits through policy fees charged to
Separate account annuity and life policyholders and through the interest spread
for General account annuity and life products. Policy charges and fee income
consist mainly of three types, sales charges or loading fees on new sales,
mortality and expense charges ("M&E") assessed on fund balances, and mortality
and related charges based on total life insurance in-force business.
Policyholder fund values are affected by net sales (sales less withdrawals)
changes in interest rates and investment returns. The interest spread represents
the difference between the investment income earned by the Company on its
investment portfolio and the amount of interest credited to the policyholders'
accounts. Products that generate spread income primarily include general account
life insurance products, fixed annuities and the fixed-rate option of variable
annuities.
1. Analysis of Financial Condition
From December 31, 2002 to March 31, 2003 there was an increase of $47 million in
total assets from $2,583 million to $2,630 million. Fixed maturities increased
by $46 million and short-term investments and cash and cash equivalents
increased by $21 million from December 31, 2002. These increases are a result of
investing general account policyholder deposits and positive cash flows from
insurance operations into these investments. A higher level of securities
lending activity also contributed to the increase in cash and cash equivalents.
Separate account assets decreased by $24 million primarily from market value
declines and policy charges, which are deducted from the fund values.
During this three-month period, liabilities increased by $43 million from $2,354
million to $2,397 million. Policyholder account balances increased by $20
million due primarily to positive net sales (sales less withdrawals) of annuity
products with fixed rate options and life general account products.
Corresponding with the asset change, Separate account liabilities decreased by
$24 million, as described above. A higher level of securities lending activity
increased liabilities by $32 million. Income taxes payable increased by $7
million mainly as a result of a tax refund received from Prudential Financial.
In accordance with the tax sharing agreement with Prudential Financial, the
Company was reimbursed for operating losses utilized in the consolidated federal
tax return. Future policy benefits increased by $4 million as a result of growth
in the life in-force business. Other liabilities increased by $ 4 million as a
result of payables resulting from purchases of securities that had not settled
at the balance sheet date.
2. Results of Operations
Net Income
Net income of $2.6 million for the first quarter of 2003 was slightly more than
the $2.5 million earned for the first quarter of 2002. Both revenues and
expenses increased as growth of the life in-force business resulted in increased
premiums, policy charges for life products and related policyholder benefit
expenses. The annuity products' results continue to be unfavorably impacted by
the weak equity markets resulting in lower policy fee income for those products
and higher guaranteed minimum death benefits. Further details regarding the
components of revenues and expenses are described in the following paragraphs.
9
Revenues
Revenues increased by $8.8 million from the prior year comparable period.
Premiums increased by $5.4 million from higher term insurance sales and renewals
of the Term Essential and Term Elite products of $4.1 million and higher
extended term insurance of $1.3 million. Extended term life insurance increased
as a result of less favorable market performance in previous quarters, which
caused an increase in lapses.
Policy charges and fee income, consisting primarily of mortality and expense
("M&E"), loading and other insurance charges assessed on General and Separate
Account policyholder fund balances, increased by $2.3 million. The increase was
a result of a $2.9 million increase for individual life products offset by a $.6
million decrease for annuity products. Mortality and sales based loading charges
for life products increased as a result of growth in the in-force business. The
in-force business (excluding term insurance) grew to $9.2 billion at March 31,
2003 from $7.2 billion at March 31, 2002 and $8.9 billion at December 31, 2002.
In contrast, annuity fees are mainly asset based fees which are dependent on the
fund balances which are affected by net sales as well as asset depreciation or
appreciation on the underlying investment funds in which the customer has the
option to invest. Annuity fund balances have declined as a result of unfavorable
valuation changes in the securities market over the past several years.
Net investment income decreased by $.5 million from the previous year from the
effect of lower reinvestment yields rates, which was partially offset by higher
fixed maturity portfolio balances. Realized investment losses decreased by $.4
million mainly as lower trading losses based on credit quality of fixed
maturities in 2003 offset fixed maturity impairments of $2 million in 2003.
Asset management fees increased by $.9 million in 2003 as the Company received,
in accordance with a servicing agreement with Prudential Investments LLC, asset
management fees on the policyholder account balances invested in the Prudential
Series Funds ("PSF"). The Company did not receive these fees in the first
quarter of 2002.
Benefits and Expenses
Policyholder benefits increased by $5.6 million from increased reserve
provisions for life insurance reserves and increased death and surrender
benefits. The change in reserves for life products increased by $2.6 million
from the prior year primarily as a result of higher term and extended term
insurance, as discussed in the premium section. There were also increased
benefits paid on life insurance policies of $2.4 million from higher death
claims as a result of the increasing term insurance in-force business and from
surrenders of reduced paid up life policies. Annuity death benefits were higher
by $.6 million primarily due to higher guaranteed minimum death benefits.
As of March 31, 2003, the death benefit coverage in force (representing the
amount that we would have to pay if all annuitants had died on that date) was
approximately $.2 billion. The death benefit coverage in force represents the
excess of the guaranteed benefit amount over the account value. The guaranteed
minimum death benefit feature provides annuity contract holders with a guarantee
that the benefit received at death will be no less than a prescribed minimum
amount. This minimum amount is based on the net deposits paid into the contract,
the net deposits accumulated at a specified rate, the highest historical account
value on a contract anniversary, or more typically, the greatest of these
values, depending on features offered in various contracts and elected by the
contract holders. These contracts generally require payment of additional
charges for guarantees other than those based on net deposits paid into the
contract. To the extent that the guaranteed minimum death benefit is higher than
the current account value at the time of death, we incur a cost. This results in
increased annuity policy benefits in periods of declining financial markets and
in periods of stable financial markets following a decline. Current accounting
literature does not prescribe advance recognition of the expected future net
costs associated with these guarantees, and accordingly, we currently do not
record a liability corresponding to these projected future obligations for death
benefits in excess of annuity account values. However, we consider the expected
net costs associated with these guarantees in our calculations of expected gross
profits on variable annuity business, on which our periodic evaluations of
unamortized deferred policy acquisition costs are based. A proposed AICPA
Statement of Position, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (the
"Proposed SOP"), would require the recording of a liability for the expected net
costs associated with these guarantees under certain circumstances, if adopted
as proposed. We are currently evaluating the impact of the Proposed SOP.
General, administrative and other expenses increased by $3.4 million from the
prior year comparable period. This resulted mainly from increases to DAC
amortization due to poor market performance and higher commission expense due to
new sales and renewals.
10
General Account Investments
The Company's investment portfolio supports its insurance and annuity
liabilities and other obligations to customers for which it assumes investment
related risks. The portfolio was comprised of total investments amounting to
$786.0 million at March 31, 2003, versus $746.1 million at December 31, 2002. A
diversified portfolio of publicly traded bonds and private placements is managed
under strategies intended to maintain a competitive asset mix consistent with
current and anticipated cash flow requirements of the related obligations. The
risk tolerance reflects the Company's aggregate capital position, exposure to
business risk, liquidity and rating agency considerations.
As of March 31, As of December 31,
2003 % of Total 2002 % of Total
--------------------- -----------------------
($ in thousands)
Fixed maturities
Public, available for sale, at fair value $442,308 56.3% $377,969 50.7%
Private, available for sale, at fair value 157,447 20.0% 175,932 23.6%
Short-term investments 24,981 3.2% 30,158 4.0%
Policy loans, at outstanding balance 157,744 20.1% 158,431 21.2%
Other long-term investments (1) 3,499 0.4% 3,561 0.5%
-------- ----- -------- -----
Total investments $785,979 100.0% $746,051 100.0%
======== ===== ======== =====
- ------------
(1) Other long-term investments consist of the Company's interest in
separate account investments.
The asset management strategy for the portfolio is in accordance with an
investment policy statement developed and coordinated within the Company by the
Asset Liability and Risk Management Group, agreed to by senior management, and
approved by the Board of Directors. In managing the investment portfolio, the
long-term objective is to generate favorable investment results through
asset-liability management, strategic and tactical asset allocation and asset
manager selection. Asset management strategies take into account the need to
match asset structure to product liabilities, considering the underlying income
and return characteristics of investment alternatives and seeking to closely
approximate the interest rate sensitivity of the asset portfolio with the
estimated interest rate sensitivity of the product liabilities. Asset management
strategies also include broad diversification across asset classes, issuers and
sectors; effective utilization of capital while maintaining liquidity believed
to be adequate to satisfy cash flow requirements; and achievement of competitive
performance. The major categories of invested assets, the related quality of the
portfolio, and recent activities to manage the portfolio are discussed below.
As of March 31, 2003, our investment portfolio consisted primarily of $599.8
million of fixed maturity securities (76% of the total portfolio as of March 31,
2003 versus 74% as of December 31, 2002), and $186.2 million of other
investments (24% of the total portfolio as of March 31, 2003 versus 26% as of
December 31, 2002). The $186.2 million of other investments were comprised of
other long-term investments, policy loans and short-term investments as compared
to $192.2 million as of December 31, 2002.
Investment Results
The overall income yield on our invested assets after investment expenses,
excluding realized investment losses, net was 5.80% for the first three months
of 2003 and 6.61% for the first three months of 2002. The decrease in yield on
the portfolio in 2003 from 2002 is primarily attributable to reinvestment
activities in a declining interest rate environment.
11
The following table sets forth the income yield and investment income, excluding
realized investment losses, net for each major asset category of the Company for
the periods indicated.
For the quarter ended March 31,
-----------------------------------
2003 2002
--------------- ---------------
(1) Yield Amount Yield Amount
--------------- ---------------
($ in thousands)
Fixed maturities 6.42% $ 8,713 7.15% $ 8,657
Policy loans 5.31 2,085 5.28 2,086
Short-term investments 1.59 381 3.55 515
Other long-term investments (6.49) (58) 55.09 358
----- ------- ----- -------
Investment income before investment expenses 5.92 11,121 6.73 11,616
Investment expenses (0.12) (478) (0.12) (437)
----- ------- ----- -------
Total after investment expenses 5.80% $10,643 6.61% $11,179
===== ======= ===== =======
- -------------
(1) Yields are based on quarterly average carrying values except for fixed
maturities and securities lending activity. Yields for fixed maturities
are based on amortized cost. Yields for securities lending activity are
calculated net of corresponding liabilities and rebate expenses. Yields
for prior year are presented on a basis consistent with our current
reporting practices.
Fixed Maturity Securities
Investment Mix
We manage our public portfolio to a risk profile directed by the Asset Liability
and Risk Management Group. We seek to employ relative value analysis both in
credit selection and in purchasing and selling securities. To the extent that we
actively purchase and sell securities as part of portfolio selection and
portfolio rebalancing, the total return that we earn on the portfolio will be
reflected both as investment income and also as realized gains or losses on
investments.
We use our private placement and asset-backed portfolios to enhance the
diversification and yield of our overall fixed maturity portfolio. Our
investment staff directly originates approximately half of all of our private
placements. Our origination capability offers the opportunity to lead
transactions and gives us the opportunity for better terms, including covenants
and call protection, and to take advantage of innovative deal structures.
The Company has classified all privately placements and publicly traded
securities as available for sale. "Available for sale" securities are carried in
the Statements of Financial Position at fair value, with unrealized gains and
losses (after certain related adjustments) recognized by credits and charges to
equity capital. At March 31, 2003 the fixed maturities portfolio totaled $599.8
million, an increase of $45.9 million compared to December 31, 2002.
Our fixed maturity securities portfolio consists principally of public and
private fixed maturities across an array of industry categories. As of March 31,
2003, we held approximately 76% of assets in fixed maturity securities (versus
74% as of December 31, 2002) with a total amortized cost of $568.3 million and
an estimated fair value of $599.8 million, compared to an amortized cost of
$525.9 million and estimated fair value of $553.9 million as of December 31,
2002. Our investments in public fixed maturities as of March 31, 2003 were
$419.3 million at amortized cost and $442.3 million at estimated fair value
compared to $358.1 million at amortized cost and $378.0 million at estimated
fair value as of December 31, 2002. Our investments in private fixed maturities
as of March 31, 2003 were $149.0 million at amortized cost and $157.5 million at
estimated fair value compared to $167.7 million at amortized cost and $175.9
million at estimated fair value as of December 31, 2002.
12
Fixed Maturity Securities and Unrealized Gains and Losses by Industry Category
The following table sets forth the composition of our fixed maturity securities
portfolio by industry category as of the dates indicated and the associated
gross unrealized gains and losses.
------------------------------------------- ------------------------------------------
As of March 31, 2003 As of December 31, 2002
------------------------------------------- ------------------------------------------
(1) Gross Gross Gross Gross
Amortized Unrealized Unrealized Amortized Unrealized Unrealized
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
-------------------------------------------- -------------------------------------------
($ in Thousands)
Industry
U.S. Government $ 63,985 $ 1,469 $ - $ 65,454 $ 42,149 $ 1,222 $ - $ 43,371
Manufacturing 117,917 7,041 566 124,392 119,244 6,714 538 125,420
Utilities 67,623 4,979 214 72,388 64,765 3,874 1,190 67,449
Finance 104,385 8,039 34 112,390 88,285 7,467 26 95,726
Services 37,938 2,046 258 39,726 29,927 1,456 255 31,128
Mortgage Backed 14,004 336 - 14,340 15,455 342 - 15,797
Foreign Government 4,025 253 - 4,278 4,027 280 - 4,307
Retail and Wholesale 47,440 3,997 49 51,388 42,695 3,999 113 46,581
Asset-Backed
Securities 63,862 1,767 507 65,122 69,183 1,965 775 70,373
Transportation 19,740 987 48 20,679 22,772 1,175 53 23,894
Energy 27,346 2,267 15 29,598 27,364 2,498 7 29,855
-------- ------- ------ -------- -------- ------ --------
Total $568,265 $33,181 $1,691 $599,755 $525,866 $30,992 $2,957 $553,901
======== ======= ====== ======== ======== ======= ====== ========
- --------------
(1) Investment data for 2003 has been classified based on industry
accepted Lehman categorizations for public holdings and similar
classifications by industry for all other holdings. Prior year data has
been reclassified to conform to current year presentation.
As a percentage of amortized cost, fixed maturity investments as of March 31,
2003 consist primarily of the following sectors: 21% manufacturing, 18% finance,
12% utilities, and 11% U.S. government compared to 23% manufacturing, 17%
finance, 13% asset-backed securities and 12% utilities as of December 31, 2002.
100% of the mortgage-backed securities were publicly traded agency pass-through
securities. The Company did not invest in collateralized mortgage obligations as
of March 31, 2003 and December 31, 2002.
The gross unrealized losses related to our fixed maturity portfolio were $1.7
million as of March 31, 2003 compared to $3.0 million as of December 31, 2002.
The gross unrealized losses as of March 31, 2003 were concentrated primarily in
the manufacturing, asset-backed securities, services and utilities sectors while
gross unrealized losses as of December 31, 2002 were concentrated in the
utilities, asset-backed securities, manufacturing and services sectors.
Non-investment grade securities represented 41% of the gross unrealized losses
as of March 31, 2003 versus 62% of gross unrealized losses as of December 31,
2002.
Fixed Maturity Securities Credit Quality
The NAIC evaluates the investments of insurers for regulatory reporting purposes
and assigns fixed maturity securities to one of six categories called "NAIC
Designations." NAIC designations of "1" or "2" include fixed maturities
considered investment grade, which include securities rated Baa3 or higher by
Moody's or BBB- or higher by S&P. NAIC Designations of "3" through "6" are
referred to as below investment grade, which include securities rated Ba1 or
lower by Moody's and BB+ or lower by S&P. The fixed maturity securities
designated as NAIC 6 include securities that are not rated.
The amortized cost of our public and private below-investment grade fixed
maturities totaled $47.5 million, or 8%, of the total fixed maturities as of
March 31, 2003, compared to $63.8 million, or 12%, of total fixed maturities as
of December 31, 2002.
13
Public Fixed Maturities - Credit Quality
The following table sets forth our public fixed maturity portfolios by NAIC
rating as of the dates indicated.
-------------------------------------------------------------------------------------------------
As of March 31, 2003 As of December 31, 2002
-------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Amortized Unrealized Unrealized
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
------------------------------------------------- ----------------------------------------------
($ in thousands)
NAIC Rating Agency
Designation Equivalent
- -------------------------------
1 Aaa, Aa, A $ 234,131 $ 13,191 $ 9 $ 247,313 $ 200,153 $ 12,626 $ 35 $ 212,744
2 Baa 159,815 9,820 606 169,029 132,938 8,798 874 140,862
3 Ba 13,424 381 226 13,579 11,993 309 96 12,206
4 B 9,099 508 118 9,489 9,232 266 636 8,862
5 C and lower 1,367 123 43 1,447 2,330 82 450 1,962
6 In or near
default 1,428 23 - 1,451 1,491 - 158 1,333
--------- -------- ------- --------- --------- -------- ------- ---------
Public Fixed Maturities $ 419,264 $ 24,046 $ 1,002 $ 442,308 $ 358,137 $ 22,081 $ 2,249 $ 377,969
========= ======== ======= ========= ========= ======== ======= =========
Private Fixed Maturities - Credit Quality
The following table sets forth our private fixed maturity portfolios by NAIC
rating as of the dates indicated.
-------------------------------------------------------------------------------------------------
As of March 31, 2003 As of December 31, 2002
------------------------------------------------- -----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Amortized Unrealized Unrealized
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
------------------------------------------------- -----------------------------------------------
($ in thousands)
NAIC Rating Agency
Designation Equivalent
- -------------- ----------------
1 Aaa, Aa, A $ 43,015 $ 1,855 $ 380 $ 44,490 $ 39,178 $ 1,341 $ 199 $40,320
2 Baa 83,777 6,445 - 90,222 89,806 6,823 10 96,619
3 Ba 9,016 601 63 9,554 25,270 588 338 25,520
4 B 1,374 - 8 1,366 1,518 - 28 1,490
5 C and lower 11,819 234 238 11,815 11,957 158 132 11,983
6 In or near
default - - - - - - - -
--------- ------- ----- --------- --------- ------- ----- ---------
Private Fixed Maturities $ 149,001 $ 9,135 $ 689 $ 157,447 $ 167,729 $ 8,910 $ 707 $ 175,932
========= ======= ===== ========= ========= ======= ===== =========
Unrealized Losses from Fixed Maturity Securities
The following table sets forth the amortized cost and gross unrealized losses of
fixed maturity securities where the estimated fair value had declined and
remained below amortized cost by 20% or more for the following timeframes:
---------------------------------- ---------------------------------
As of March 31, 2003 As of December 31, 2002
---------------------------------- ---------------------------------
Gross Unrealized Gross Unrealized
Amortized Cost Losses Amortized Cost Losses
---------------------------------- ---------------------------------
($ in thousands)
Less than six months $ 1,747 $ 408 $ 2,969 $ 990
Greater than six months but less than nine
months - - 706 260
Greater than nine months - - - -
------------ --------- -------- --------
Total $ 1,747 $ 408 $ 3,675 $ 1,250
============ ========= ======== ========
Gross unrealized losses of fixed maturity securities where estimated fair value
has been 20% or more below amortized cost was $0.4 million as of March 31, 2003
and $1.3 as of December 31, 2002. The gross unrealized losses as of March 31,
2003 were primarily concentrated in the manufacturing, retail and wholesale, and
finance sectors while the gross unrealized losses as of December 31, 2002 were
concentrated in the utilities, manufacturing, and retail and wholesale sectors.
14
Impairments of Fixed Maturity Securities
Our credit and portfolio management processes help ensure prudent controls over
valuation and management of the private portfolio. We have separate pricing and
authorization processes to establish "checks and balances" for new investments.
We apply consistent standards of credit analysis and due diligence for all
transactions, whether they originate through our own in-house origination staff
or through agents. Our regional offices closely monitor the portfolios in their
regions. We set all valuation standards centrally, and we assess the fair value
of all investments quarterly.
We maintain separate monitoring processes for public and private fixed
maturities and create watch lists to highlight securities which require special
scrutiny and management. Our public fixed maturity asset managers formally
review all public fixed maturity holdings on a monthly basis and more frequently
when necessary to identify potential credit deterioration whether due to ratings
downgrades, unexpected price variances, and/or industry specific concerns. We
classify public fixed maturity securities of issuers that have defaulted as
securities not in good standing and all other public watch list assets as
closely monitored.
Our private fixed maturity asset managers conduct specific servicing tests on
each investment on an ongoing basis to determine whether the investment is in
compliance or should be placed on the watch list or assigned an early warning
classification. We assign early warning classifications to those issuers that
have failed a servicing test or experienced a minor covenant default, and we
continue to monitor them for improvement or deterioration. In certain
situations, the Company benefits from negotiated rate increases or fees
resulting from a covenant breach. We assign closely monitored status to those
investments that have been recently restructured or for which restructuring is a
possibility due to substantial credit deterioration or material covenant
defaults. We classify as not in good standing securities of issuers that are in
more severe conditions, for example, bankruptcy or payment default.
We classify our fixed maturity securities as available for sale. As a result we
record unrealized gains and losses to the extent that amortized cost is
different from estimated fair value. All available for sale securities with
unrealized losses are subject to our review to identify other-than-temporary
impairments in value. In evaluating whether a decline in value is
other-than-temporary, we consider several factors including, but not limited to,
the following:
1. whether the decline is substantial
2. the duration (generally greater than six months);
3. the reasons for the decline in value (credit event or interest rate
related);
4. our ability and intent to hold our investment for a period of time to
allow for a recovery of value;
and
5. the financial condition of and near-term prospects of the issuer.
When we determine that there is an other-than-temporary impairment, we record a
writedown to estimated fair value which reduces the cost basis. The new cost
basis of an impaired security is not adjusted for subsequent increases in
estimated fair value. Estimated fair values for fixed maturities, other than
private placement securities are based on quoted market prices or prices
obtained from independent pricing services. Estimated fair values for private
placement fixed maturities are determined primarily by using a discounted cash
flow model which considers the current market spreads between the U.S. Treasury
yield curve and corporate bond yield curve, adjusted for type of issue, its
current credit quality and its remaining average life. The estimated fair value
of certain non-performing private placement fixed maturities is based on amounts
estimated by management.
Impairments of fixed maturity securities totaled $2.0 million for the first
three months of 2003 and $0.1 million for the first three months of 2002.
15
3. Liquidity and Capital Resources
Sources and Uses of Liquidity
Our principal cash flow sources are premiums and fund deposits, investment and
fee income and investment maturities and sales. These cash inflows may be
supplemented by financing activities either directly through asset-based
financing or through borrowing from an affiliated company, Prudential Funding,
LLC. We actively use our balance sheet capacity for financing activities on a
secured basis through securities lending and repurchase transactions to earn
additional spread income.
Cash outflow requirements principally relate to benefits, claims, and payments
to contract holders as well as amounts paid to policyholders and contract
holders in connection with surrenders, withdrawals, and net policy loan
activity. Uses of cash also include commissions, general and administrative
expenses, and purchase of investments. We regularly monitor our liquidity
requirements associated with our policyholder and contract holder obligations so
that we manage cash inflows to match anticipated cash outflow requirements. We
utilize a cash flow projection system and regularly perform asset/liability
duration matching in the management of our asset and liability portfolios.
We believe that cash flows from operating and investing activities of our
insurance and annuity products operations are adequate to satisfy liquidity
requirements of these operations based on our current liability structure and
considering a variety of reasonably foreseeable stress scenarios. The continued
adequacy of this liquidity will depend upon factors including future securities
market conditions, changes in interest rate levels and policyholder perceptions
of our financial strength, which could lead to reduced cash inflows or increased
cash outflows. As of March 31, 2003 and December 31, 2002 we had cash and
short-term investments of approximately $113.1 million and $91.6 million,
respectively, and fixed maturity investments classified as "available for sale"
with fair values of $599.8 million and $553.9 million at those dates,
respectively.
Financing Activities
Our financing principally consists of an affiliated revolving line of credit
with Prudential Funding, LLC, a wholly owned subsidiary of Prudential Insurance,
and asset-based or secured forms of financing. The total capacity to borrow for
the Company and its parent, Pruco Life, is $800 million, which includes both the
asset-based financing and borrowings from Prudential Funding, LLC. There was no
outstanding debt relating to the Prudential Funding LLC credit facility as of
March 31, 2003 or December 31, 2002. The secured financing arrangements include
transactions such as securities lending and repurchase agreements, which we
generally use to finance portfolios of liquid securities and earn additional
spread income.
March 31, December 31,
2003 2002
----------- -------------
Borrowings: ($ in millions)
General obligations $ - $ -
Total asset-based financing 88 57
------ --------
Total borrowings and asset-based
financings $ 88 $ 57
====== ========
Item 4. Controls and Procedures
- -------------------------------
Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of these disclosure
controls and procedures were effective. No significant changes were made in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
16
PART II
- -------
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
--------
3(i)(a) The Articles of Incorporation (as amended through March 11,
1983) of Pruco Life Insurance Company of New Jersey are
incorporated by reference to Post-effective Amendment No. 26
to the Registration Statement on Form S-6 of Pruco Life of New
Jersey Variable Appreciable Account as filed April 28, 1997,
Registration No. 2-89780.
3(i)(b) Amendment to the Articles of Incorporation dated February 12,
1998 is incorporated by reference to Post-Effective Amendment
No. 12 to the Registration Statement on Form S-1, of Pruco
Life of New Jersey Variable Contract Real Property Account as
filed on April 16, 1999, Registration No. 33-20018.
3(ii) By-Laws of Pruco Life Insurance Company of New Jersey (as
amended through May 5, 1997) are incorporated by reference to
Form 10-Q as filed by the Company on August 15, 1997.
4(a) Market-Value Adjustment Annuity Contract (Discovery Select
variable annuity) is incorporated by reference to
Pre-Effective Amendment No. 1 to Form N-4, Registration No.
333-18053, filed December 18, 1996, on behalf of the Pruco
Life of New Jersey Flexible Premium Variable Annuity Account.
4(b) Market-Value Adjustment Annuity Contract (Strategic Partners
Select variable annuity) is incorporated by reference to the
Company's registration statement on Form S-3, Registration No.
333-62246, filed June 4, 2001.
4(c) Market-Value Adjustment Annuity Contract (Strategic Partners
Horizon annuity) is incorporated by reference to the Company's
Form S-3, Registration No. 333-100713, filed October 24, 2002.
4(d) Market-Value Adjustment Annuity Contract Endorsement
(Strategic Partners Annuity One 3 variable annuity) is
incorporated by reference to the Company's registration
statement on Form S-3, Registration No. 333-103473, filed
February 27, 2003.
(b) Reports on Form 8K
------------------
Form 8-K, Commission file number 33-18053, filed on
March 24, 2003.
17
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 of the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(Registrant)
By: Andrew J. Mako
----------------------------
Andrew J. Mako
President
Signature Title Date
- --------- ----- ----
Andrew J. Mako President May 14, 2003
- ----------------------------- (Authorized Signatory)
Andrew J. Mako
William J. Eckert, IV Vice President and May 14, 2003
- ----------------------------- Chief Accounting Officer
William J. Eckert, IV (Principal Accounting Officer)
18
CERTIFICATIONS
I, Andrew J. Mako certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pruco Life Insurance
Company of New Jersey;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
Andrew J. Mako
-------------------
Andrew J. Mako
Chief Executive Officer
19
I, William J. Eckert, IV, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pruco Life Insurance
Company of New Jersey;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003.
William J. Eckert
-----------------
William J. Eckert, IV
Chief Financial Officer
20