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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 SEPTEMBER 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 33-33691
THE TRAVELERS INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0566090
(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 40,000,000 shares of common stock,
par value $2.50 per share, of the registrant, all of which were owned by
Citigroup Insurance Holding Corporation, 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 INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 2002 and 2001 (unaudited) .......... 3
Condensed Consolidated Balance Sheets as of September 30, 2002 (unaudited) and
December 31, 2001 ............................................................ 4
Condensed Consolidated Statements of Changes in Shareholder's Equity for the
three and nine months ended September 30, 2002 and 2001 (unaudited) .......... 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2002 and 2001 (unaudited) .................... 6
Notes to Condensed Consolidated Financial Statements (unaudited) ............. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................ 15
ITEM 4. CONTROLS AND PROCEDURES .............................................. 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .................................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................................... 21
Signatures and Certifications ................................................ 22
Exhibit 10.01 ................................................................ 25
Exhibit 99.01 ................................................................ 42
Exhibit 99.02 ................................................................ 43
2
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ in millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------
2002 2001 2002 2001
------ ------ ------ ------
REVENUES
Premiums ......................................... $ 497 $ 421 $1,457 $1,477
Net investment income ............................ 717 671 2,142 2,132
Realized investment gains (losses) ............... (161) 91 (317) 192
Fee income ....................................... 129 132 414 396
Other revenues ................................... 40 22 94 89
- ---------------------------------------------------------------------------------------------
Total Revenues ................................ 1,222 1,337 3,790 4,286
- ---------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits ............ 450 375 1,300 1,308
Interest credited to contractholders ............. 316 298 899 884
Amortization of deferred acquisition costs ....... 97 95 270 281
General and administrative expenses .............. 101 78 296 283
- ---------------------------------------------------------------------------------------------
Total Benefits and Expenses ................... 964 846 2,765 2,756
- ---------------------------------------------------------------------------------------------
Income from operations before federal
income taxes and cumulative effects of
changes in accounting principles ................. 258 491 1,025 1,530
Federal income taxes ............................. 61 160 285 507
- ---------------------------------------------------------------------------------------------
Income before cumulative effects of changes in
accounting principles ........................ 197 331 740 1,023
Cumulative effect of change in accounting for
derivative instruments and hedging activities,
net of tax ................................... -- -- -- (6)
Cumulative effect of change in accounting for
securitized financial assets, net of tax ..... -- -- -- (3)
- ---------------------------------------------------------------------------------------------
Net Income ....................................... $ 197 $ 331 $ 740 $1,014
=============================================================================================
See Notes to Condensed Consolidated Financial Statements
3
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
SEPTEMBER 30, 2002 DECEMBER 31, 2001
(UNAUDITED)
- -----------------------------------------------------------------------------------------------
ASSETS
Investments (including $1,402 and $2,330 subject to
securities lending agreements) $ 47,484 $ 43,220
Separate and variable accounts 21,025 24,837
Reinsurance recoverable 4,261 4,163
Deferred acquisition costs 3,853 3,461
Other assets 3,012 2,185
- -----------------------------------------------------------------------------------------------
Total Assets $ 79,635 $ 77,866
- -----------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $ 26,243 $ 22,810
Future policy benefits and claims 14,865 14,221
Separate and variable accounts 21,025 24,837
Other liabilities 6,351 6,813
- -----------------------------------------------------------------------------------------------
Total Liabilities 68,484 68,681
- -----------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares
authorized, issued and outstanding 100 100
Additional paid-in capital 5,471 3,869
Retained earnings 5,296 5,142
Accumulated other changes in equity from nonowner
sources 284 74
- -----------------------------------------------------------------------------------------------
Total Shareholder's Equity 11,151 9,185
- -----------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $ 79,635 $ 77,866
===============================================================================================
See Notes to Condensed Consolidated Financial Statements.
4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
($ in millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------
COMMON STOCK 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 100 $ 100 $ 100 $ 100
Changes in common stock -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Balance, end of period $ 100 $ 100 $ 100 $ 100
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 5,471 $ 3,858 $ 3,869 $ 3,848
Stock option tax benefit -- 1 6 11
Capital contributed by parent -- -- 1,596 --
- ------------------------------------------------------------------------------------------------------------
Balance, end of period $ 5,471 $ 3,859 $ 5,471 $ 3,859
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 5,257 $ 4,710 $ 5,142 $ 4,342
Net income 197 331 740 1,014
Dividends to parent (158) (157) (586) (472)
- ------------------------------------------------------------------------------------------------------------
Balance, end of period $ 5,296 $ 4,884 $ 5,296 $ 4,884
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES
IN EQUITY FROM NONOWNER SOURCES
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ (2) $ 105 $ 74 $ 104
Cumulative effect of change in accounting principle
for derivative instruments and hedging activities,
net of tax -- -- -- (29)
Foreign currency translation, net of tax 2 -- 4 --
Unrealized gains, net of tax 380 310 300 342
Derivative instrument hedging activity losses, net of tax (96) (100) (94) (102)
- ------------------------------------------------------------------------------------------------------------
Balance, end of period $ 284 $ 315 $ 284 $ 315
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
- ------------------------------------------------------------------------------------------------------------
Net income $ 197 $ 331 $ 740 $ 1,014
Other changes in equity from nonowner sources 286 210 210 211
- ------------------------------------------------------------------------------------------------------------
Total changes in equity from nonowner sources $ 483 $ 541 $ 950 $ 1,225
============================================================================================================
See Notes to Condensed Consolidated Financial Statements.
5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ in millions)
NINE MONTHS ENDED
SEPTEMBER 30,
2002 2001
- ----------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 755 $ 984
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 3,101 2,498
Equity Securities 19 --
Mortgage loans 161 310
Proceeds from sales of investments
Fixed maturities 11,484 10,678
Equity securities 937 90
Real estate held for sale 15 2
Purchases of investments
Fixed maturities (17,980) (16,290)
Equity securities (871) (35)
Mortgage loans (197) (145)
Policy loans, net 30 27
Short-term securities sales (purchases), net 1,170 (765)
Other investment sales (purchases), net (16) 161
Securities transactions in course of
settlement, net (1,568) 303
- ----------------------------------------------------------------------------
Net cash used in investing activities (3,715) (3,166)
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 6,966 6,473
Contractholder fund withdrawals (3,575) (3,809)
Capital contribution by parent 172 --
Dividends to parent company (586) (472)
Payment of long term debt (4) --
- ----------------------------------------------------------------------------
Net cash provided by financing activities 2,973 2,192
- ----------------------------------------------------------------------------
Net increase in cash 13 10
Cash at beginning of period 146 150
- ----------------------------------------------------------------------------
Cash at end of period $ 159 $ 160
============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 2 $ --
Income taxes paid $ 265 $ 278
============================================================================
See Notes to Condensed Consolidated Financial Statements.
6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is a wholly owned subsidiary of Citigroup Insurance Holding
Corporation (CIHC), 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 consolidated
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 and
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. The condensed consolidated financial statements include the
accounts of the Company and its insurance and non-insurance subsidiaries on a
fully consolidated basis. 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 consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
On March 27, 2002, Travelers Property Casualty Corp. (TPC), the Company's
parent at December 31, 2001, completed its initial public offering (IPO). On
August 20, 2002, Citigroup made a tax-free distribution to its stockholders
of a portion of its remaining interest in TPC. Prior to the IPO the following
transactions occurred:
- The common stock of the Company was distributed by TPC to CIHC so
the Company would remain an indirect wholly owned subsidiary of
Citigroup.
- The Company sold its home office buildings in Hartford, Connecticut
and a building housing TPC's information systems in Norcross,
Georgia to TPC for $68 million.
- TLA Holdings LLC, a non-insurance subsidiary valued at $142 million,
was contributed to the Company by TPC.
- The Company assumed pension, post-retirement and post-employment
benefits payable to all inactive employees of the former Travelers
Insurance entities and received $189 million of cash and other
assets from TPC to offset these benefit liabilities.
- The Company received 2,225 shares of Citigroup's 6.767% Cumulative
Preferred Stock, Series YYY, with a par value of $1.00 per share and
a liquidation value of $1 million per share as a contribution from
TPC.
Currently, the Company shares services with TPC and its subsidiaries. These
services, which include leasing arrangements, facilities management, banking
and financial functions, benefit coverages, data processing services, a
short-term investment pool and others, are being phased out over a brief
period of time since the tax-free distribution occurred. The Company has a
license from TPC to use the names "Travelers Life & Annuity," "The Travelers
Insurance Company," "The Travelers Life and Annuity Company" (TLAC) and
related names in connection with the Company's business.
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.
7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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.
Other intangible assets that are not deemed to have an indefinite useful life
will continue to be amortized over their useful lives.
The Company stopped amortizing goodwill on January 1, 2002. During the three
months ended September 30, 2001, the Company reversed $8 million of negative
goodwill. Net income adjusted to exclude the impact of goodwill amortization
for the three and nine months ended September 30, 2001 is as follows:
Three Months Nine Months
Ended Ended
($ in millions) September 30, 2001 September 30, 2001
------------------ ------------------
Net income:
Reported net income $ 331 $ 1,014
Negative goodwill reversal (8) (8)
Goodwill amortization 2 4
------- -------
Adjusted net income $ 325 $ 1,010
------- -------
The Company had a gross carrying amount of $551 million of contract-based
intangible assets as of September 30, 2002 and 2001, with accumulated
amortization of $425 million and $400 million as of September 30, 2002 and
2001, respectively. Amortization expense was $6 million and $7 million for
the respective three months ended September 30, 2002 and 2001, and was $18
million and $20 million for the respective nine month periods. Intangible
assets amortization expense is estimated to be $6 million for the remainder
of 2002, $23 million in 2003, $18 million in 2004, $17 million in 2005 and
$15 million in both 2006 and 2007.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
Effective January 1, 2002, the Company adopted the 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.
8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
There has been no impact as of September 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
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
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.
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company currently applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
stock-based compensation plans, under which there is generally no charge to
earnings for employee stock option awards. Alternatively, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), allows companies to recognize compensation expense
over the related service period based on the grant-date fair value of the
stock-based award.
Beginning in 2003, the Company intends to account for stock-based
compensation issued with respect to 2003 and thereafter in accordance with
the fair-value method prescribed by FAS 123. The Company does not expect this
change in accounting principle to have a significant impact on its results of
operations, financial condition or liquidity.
3. SHAREHOLDER'S EQUITY
In connection with the TPC IPO and distribution, the Company's additional
paid-in capital increased $1,596 million during the first quarter of 2002 as
follows:
($ in millions)
Citigroup Series YYY Preferred Stock $ 2,225
TLA Holdings LLC 142
Cash and other assets 189
Pension, post-retirement, and post-
employment benefits payable (279)
Deferred tax assets 98
Deferred tax liabilities (779)
-------
$ 1,596
=======
9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Statutory capital and surplus of the Company was $5.09 billion 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. A maximum of $586
million is available by the end of the year 2002 for such dividends without
prior approval of the State of Connecticut Insurance Department, depending
upon the amount and timing of the payments. The Company paid $586 million in
dividends to its parent during the nine months ended September 30, 2002.
4. COMMITMENTS AND CONTINGENCIES
TIC and its subsidiaries are defendants or co-defendants in various other
litigation matters in the normal course of business. These include civil
actions, arbitration proceedings and other matters arising in the normal
course of business out of activities as an insurance company, a broker and
dealer in securities or otherwise. 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 the Company's consolidated
results of operations, financial condition or liquidity.
For information concerning a purported class action entitled Patterman v. The
Travelers Inc., et al., see Part II, Item 1, "Legal Proceedings."
5. OPERATING SEGMENTS
The Company has two reportable business segments that are separately managed
due to differences in products, services, marketing strategy and resource
management. The business of each segment is maintained and reported through
separate legal entities within the Company. The management groups of each
segment report separately to the Company's ultimate parent, Citigroup.
TRAVELERS LIFE & ANNUITY (TLA) core offerings include individual annuity,
individual life, corporate owned life insurance (COLI) and group annuity
insurance products distributed by TIC and The Travelers Life and Annuity
Company (TLAC) principally under the Travelers Life & Annuity name. Among the
range of individual products offered are fixed and variable deferred
annuities, payout annuities and term, universal and variable life insurance.
The COLI product is a variable universal life product distributed through
independent specialty brokers. The group products include institutional
pensions, including guaranteed investment contracts (GICs), payout annuities,
group annuities sold to employer-sponsored retirement and savings plans and
structured finance funding agreements. The majority of the annuity business
and a substantial portion of the life business written by TLA are accounted
for as investment contracts, with the result that the deposits collected are
reported as liabilities and are not included in revenues.
The PRIMERICA LIFE INSURANCE business segment consolidates primarily the
business of Primerica Life, Primerica Life Insurance Company of Canada,
CitiLife Financial Limited and National Benefit Life Insurance Company. The
Primerica Life Insurance business segment offers individual life products,
primarily term insurance, to customers through a sales force of approximately
106,000 representatives. A great majority of the domestic licensed sales
force works on a part-time basis.
10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- -------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2002 ($ in millions) & ANNUITY INSURANCE TOTAL
- -------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 197 $ 300 $ 497
Deposits 2,675 -- 2,675
-------- -------- --------
Total business volume 2,872 300 3,172
Net investment income 645 72 717
Interest credited to contractholders 316 -- 316
Amortization of deferred acquisition costs 41 56 97
Total expenditures for deferred
acquisition costs 132 74 206
Federal income taxes on Operating Income 61 52 113
Operating Income (1) $ 203 $ 101 $ 304
Segment Assets $ 71,266 $ 8,369 $ 79,635
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2001 ($ in millions) & ANNUITY INSURANCE TOTAL
- -------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 134 $ 287 $ 421
Deposits 3,159 -- 3,159
-------- -------- --------
Total business volume 3,293 287 3,580
Net investment income 598 73 671
Interest credited to contractholders 298 -- 298
Amortization of deferred acquisition costs 44 51 95
Total expenditures for deferred
acquisition costs 126 72 198
Federal income taxes on Operating Income
77 51 128
Operating Income (1) $ 174 $ 98 $ 272
Segment Assets $ 66,779 $ 7,968 $ 74,747
- -------------------------------------------------------------------------------------------
(1) Excludes realized gains or losses, net of tax and the cumulative effect of
the changes in accounting principles, net of tax.
11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
- ------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, ($ in millions) 2002 2001
- ------------------------------------------------------------------------
INCOME:
Total operating income of segments $ 304 $ 272
Realized investment gains (losses), net of tax (107) 59
- ------------------------------------------------------------------------
Net Income $ 197 $ 331
========================================================================
12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- ------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2002 ($ in millions) & ANNUITY INSURANCE TOTAL
- ------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 567 $ 890 $ 1,457
Deposits 9,703 -- 9,703
-------- -------- --------
Total business volume 10,270 890 11,160
Net investment income 1,927 215 2,142
Interest credited to contractholders 899 -- 899
Amortization of deferred acquisition costs 106 164 270
Total expenditures for deferred acquisition
costs 426 236 662
Federal income taxes on Operating Income 239 154 393
Operating Income (1) $ 650 $ 299 $ 949
Segment Assets $ 71,266 $ 8,369 $ 79,635
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
SEPTEMBER 30, 2001 ($ in millions) & ANNUITY INSURANCE TOTAL
- ------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 621 $ 856 $ 1,477
Deposits 10,154 -- 10,154
-------- -------- --------
Total business volume 10,775 856 11,631
Net investment income 1,907 225 2,132
Interest credited to contractholders 884 -- 884
Amortization of deferred acquisition costs 129 152 281
Total expenditures for deferred acquisition
costs 403 221 624
Federal income taxes on Operating Income 287 153 440
Operating Income (1) $ 605 $ 293 $ 898
Segment Assets $ 66,779 $ 7,968 $ 74,747
- ------------------------------------------------------------------------------------------
(1) Excludes realized gains or losses, net of tax and the cumulative effect of
the changes in accounting principles, net of tax.
13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
- ----------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, ($ in millions) 2002 2001
- ----------------------------------------------------------------------------
INCOME:
Total operating income of segments $ 949 $ 898
Realized investment gains (losses), net of tax (209) 125
Cumulative effect of change in accounting for
derivative instruments and hedging activity,
net of tax -- (6)
Cumulative effect of change in accounting for
securitized financial assets, net of tax -- (3)
- ----------------------------------------------------------------------------
Net Income $ 740 $1,014
============================================================================
14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2002 2001 2002 2001
------ ------ ------ ------
Revenues $1,222 $1,337 $3,790 $4,286
====== ====== ====== ======
Net income $ 197 $ 331 $ 740 $1,014
====== ====== ====== ======
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is comprised of two business segments, Travelers Life & Annuity (TLA)
and Primerica Life Insurance. Net income declined 40% to $197 million in the
three-month period ended September 30, 2002 versus the prior year period. This
decline was primarily due to $107 million of after-tax net realized investment
losses in the third quarter, largely related to impairments in the energy sector
of the fixed maturity portfolio, versus $59 million after-tax gains in the prior
year quarter.
Operating income, defined as income before net realized investment gains and
losses and cumulative effect of changes in accounting principles, was $304
million for the quarter ended September 30, 2002, up from $272 million for the
2001 comparable period. Revenues, excluding realized investment gains and
losses, increased 11% between the 2002 and 2001 quarters. Contributing to the
increased revenues were strong business volumes in TLA's individual life and
group annuity businesses, $38 million of dividends received from Citigroup
Series YYY Preferred Stock contributed to the Company as part of the TPC spin
off during the first quarter of 2002, and a $13 million stop loss payment
related to the Company's long term care business sold during 2000. The strong
business volumes also contributed to the 14% increase in benefits and expenses
in the third quarter of 2002 over the third quarter of 2001, which included
reductions to expenses related to an $8 million negative goodwill reversal and
expense accrual reversals.
Net income declined 27% to $740 million for the nine month period ended
September 30, 2002 versus the prior year period. This decrease is attributable
to net realized investment losses in 2002 of $209 million after-tax, including
principal impairments to the fixed maturities portfolio related to WorldCom Inc.
of $126 million, as well as other fixed maturities and equity investment
impairments, versus net realized gains of $125 million after-tax in 2001.
Operating income grew $51 million to $949 million in the nine months ended
September 30, 2002, partially offsetting the realized investment losses.
Operating revenues (excluding realized gains and losses), for the nine month
period ended September 30, 2002 include $88 million of dividends received from
Citigroup Series YYY Preferred Stock, business volume growth in TLA's individual
life and group annuity businesses and a $13 million stop loss payment related to
the long term care business. These revenues were level with the prior year
period due to declining yields in the fixed income portfolio and a one-time real
estate transaction in 2001. Benefits and expenses were also level, reflecting
the business volume growth in 2002 offset by the first quarter 2002 decrease in
the amortization of deferred acquisition costs of $22 million in TLA's
individual annuity business related to changes in the underlying lapse and
interest rate assumptions.
15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 2001
($ in millions) ---- ----
Revenues $839 $941
==== ====
Net income $101 $225
==== ====
Travelers Life & Annuity (TLA) core offerings include individual annuity,
individual life, corporate owned life insurance (COLI) and group annuity
insurance products distributed by TIC and The Travelers Life and Annuity Company
(TLAC) under the Travelers Life & Annuity name. Among the range of individual
products offered are fixed and variable deferred annuities, payout annuities and
term, universal and variable life insurance. The COLI product is a variable
universal life product distributed through independent specialty brokers. The
group products include institutional pensions, including guaranteed investment
contracts (GICs), payout annuities, group annuities sold to employer-sponsored
retirement and savings plans and structured finance funding agreements.
The majority of the annuity business and a substantial portion of the life
business written by TLA are accounted for as investment contracts, with the
result that the deposits collected are reported as liabilities and are not
included in revenues. TLA's business is significantly affected by movements in
the U.S. equity and fixed income credit markets. U.S. equity and credit market
events can have both positive and negative effects on the deposit and revenue
performance of the business. A sustained weakness in the equity markets will
decrease revenues and earnings in variable products. Declines in credit quality
of issuers will have a negative effect on earnings. These statements are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 19.
Net income decreased 55% to $101 million primarily related to net realized
investment losses of $102 million after-tax, mostly the result of impairments in
the energy sector of the fixed maturity portfolio. These realized losses were
partially offset by operating income growth to $203 million in the quarter ended
September 30, 2002 from $174 million in the third quarter of 2001. The 11%
decrease in revenues in 2002 is primarily the result of net realized investment
losses. Investment income of $645 million in 2002 was 8% ahead of the prior year
and included volume growth related to group annuity account balances and $38
million of dividends received from Citigroup Series YYY Preferred Stock. These
increases over the prior year were substantially offset by the declining fixed
income yields resulting from the interest rate environment in 2002 versus the
prior year quarter. Insurance benefits and interest credited to contractholders
in the third quarter of 2002 increased compared to the third quarter of 2001,
related to increased business volumes in the group annuity and individual life
businesses, partially offset by reduced crediting rates relating to the interest
rate environment.
BUSINESS VOLUME ($ IN MILLIONS)
AT AND FOR THE
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001 %CHANGE
-------- -------- -------
Individual Annuity Account Balances $ 26,360 $ 26,402 (--)%
Group Annuity Account Balances $ 22,675 $ 20,155 13%
Life Premiums and Deposits $ 178 $ 137 30%
16
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Individual annuity account balances were $26.4 billion at September 30, 2002,
down from $28.9 billion at December 31, 2001 and even with September 30, 2001,
primarily reflecting decreased variable annuity sales and declining equity
market conditions. These decreases were mostly offset by increases in fixed
annuity sales.
Net written premiums and deposits for individual annuities in the 2002 third
quarter were $1.29 billion, down from $1.43 billion in the comparable period of
2001.
Group annuity account balances and benefit reserves reached $22.7 billion at
September 30, 2002, up from $21.0 billion at December 31, 2001 and $20.2 billion
at September 30, 2001. The group annuity business experienced continued strong
retention in all products and strong sales momentum in structured settlement
products. Net written premiums and deposits (excluding Citigroup's employee
pension plan deposits) decreased to $1.397 billion in the 2002 third quarter
from $1.717 billion in the comparable period of 2001 due to decreased GIC sales.
Total premiums and deposits for individual life insurance and COLI of $178
million in the third quarter of 2002 were up 30% from $137 million in the
comparable period of 2001, driven by increased sales through independent agents
in the high-end retirement and estate planning markets. New periodic and single
premium life insurance and COLI sales, were $102.5 million for the three months
ended September 30, 2002 versus $70.8 million in the comparable period of 2001,
reflecting strong core agency sales results. Life insurance in force was $80.9
billion at September 30, 2002, up from $75.7 billion at December 31, 2001.
PRIMERICA LIFE INSURANCE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 2001
($ in millions) ---- ----
Revenues $383 $396
==== ====
Net income $ 96 $106
==== ====
The Primerica Life Insurance business segment offers individual life products,
primarily term insurance, to customers through a sales force of approximately
106,000 representatives. A great majority of the domestic licensed sales force
works on a part-time basis.
Net income declined 9% to $96 million for the third quarter of 2002 related to
realized investment losses. These realized losses were partially offset by
operating income. Operating income was $101 million in the third quarter of 2002
compared to $98 million in the third quarter of 2001. The 3% improvement in 2002
reflects growth in life insurance in force and the discontinuance of the
goodwill amortization in accordance with FAS 142, partially offset by lower
investment returns.
Earned premiums net of reinsurance were $299 million in the third quarter of
2002 compared to $287 million in the prior year period, including $283 million
and $271 million, respectively, for Primerica individual term life policies.
Total life insurance in force reached $459.1 billion at September 30, 2002, up
from $434.8 billion at December 31, 2001, reflecting good in-force policy
retention and higher sales. The face amount of new term life insurance sales was
$19.6 billion for the three-month period ended September 30, 2002, compared to
$17.6 billion for the prior year period.
17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TRAVELERS LIFE & ANNUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 2001
($ in millions) ------ ------
Revenues $2,625 $3,068
====== ======
Net income $ 448 $ 680
====== ======
Net income for the nine months ended September 30, 2002 decreased 34% to $448
million, primarily driven by $202 million of realized investment losses
including principal impairments to the fixed maturities portfolio related to
WorldCom Inc. totaling $122 million after-tax, as well as other fixed maturities
and equity investment impairments. These realized losses were partially offset
by operating income growth, which increased 7% to $650 million in the nine
months ended September 30, 2002, compared to $605 million in the nine months
ended September 30, 2001. Operating earnings growth was driven by individual
life and group annuity business volume, a higher capital base, $88 million in
dividends from Citigroup Series YYY Preferred Stock and the $22 million decrease
in amortization of deferred acquisition costs in the individual annuity product
line due to changes in underlying lapse and interest rate assumptions, partially
offset by lower investment yields. Operating revenues of $2,930 million in 2002
were level with the 2001 amounts. 2002 revenues included $88 million from
Citigroup Series YYY Preferred Stock, group annuity business volume growth, and
$13 million from a Long Term Care stop loss payment, partially offset by
declining investment yields in the fixed income portfolio.
For individual annuities, net written premiums and deposits were $4.3 billion in
the first nine months of 2002, down 7% from $4.6 billion in the comparable
period of 2001. This decrease was due to a decline in variable annuity sales,
partially offset by growth in fixed annuity sales, reflecting current individual
annuity market conditions.
Group annuity net premiums and deposits were $5.3 billion in the first nine
months of 2002, down 5% from $5.6 billion in the prior year period, reflecting
declines in GIC sales offset by strong sales growth from the structured
settlement product.
For individual life insurance and COLI, net written premiums were $682 million
for the nine months of 2002, up 32% from $515 million in the prior year period.
Total periodic and single life insurance and COLI sales were $384.3 million for
the nine months ended September 30, 2002 versus $291.0 million in the prior year
period, reflecting particularly strong single premium sales. The face amount of
individual life insurance issued during the first nine months of 2002 was $11.7
billion, up from $9.6 billion in the prior period of 2001.
PRIMERICA LIFE INSURANCE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 2001
($ in millions) ------ ------
Revenues $1,165 $1,218
====== ======
Net income $ 292 $ 334
====== ======
Net income decreased 13% to $292 million due to net realized investment losses
in 2002 of $7 million, including the impairment of the fixed maturities
portfolio investment in WorldCom Inc. totaling $4 million, net of tax, compared
to $41 million of realized investment gains in the first nine months of 2001.
Operating income for the first nine months of 2002 increased 2% to $299 million,
compared to $293 million in the first nine months of 2001. The face amount of
new term life insurance sales was $58.8 billion in the first nine months of
2002, up from $52.4 billion in the prior year period, related to an increase in
the number of licensed representatives.
18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At December 31, 2001, the
Company had adjusted capital in excess of amounts requiring any regulatory
action.
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. A maximum of $586
million is available by the end of 2002 for such dividends without prior
approval of the State of Connecticut Insurance Department, depending upon the
amount and timing of the payments. The Company paid $586 million in dividends to
its parent during the nine months ended September 30, 2002.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 2 of Notes to Condensed Consolidated Financial Statements for a
discussion of future application of accounting standards.
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, regulatory matters and the resolution of legal proceedings.
19
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 4. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company's disclosure controls and procedures (as such
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation Date"). Based on
such evaluation, such officers have concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures are effective in alerting them
on a timely basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's reports
filed or submitted under the Exchange Act.
(B) CHANGES IN INTERNAL CONTROLS.
Since the Evaluation Date, there have not been any significant changes in the
Company's internal controls or in other factors that could significantly affect
such controls.
20
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information concerning a purported class action entitled Patterman v. The
Travelers Inc., et al., see the description that appears in second paragraph
under the caption "Legal Proceedings" beginning on page 6 of the Annual Report
on Form 10-K of the Company for the year ended December 31, 2001 (File No.
33-33691), which description is included as Exhibit 99.02 to this Form 10-Q
and incorporated by reference herein. In October 2002, the matter was settled on
an individual basis and the claims resolved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.01 Charter of The Travelers Insurance Company (the "Company"), as
effective October 19, 1994, incorporated by reference to
Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1994 (File No.
33-33691) (the "Company's September 30, 1994 10-Q").
3.02 By-laws of the Company, as effective October 20, 1994,
incorporated by reference to Exhibit 3.02 to the Company's
September 30, 1994 10-Q.
10.01+ Trademark License Agreement between Travelers Property
Casualty Corp. and The Travelers Insurance Company, effective
as of August 20, 2002.
99.01+ Certification Pursuant to 18 U.S.C. Section 1350.
99.02+ Second paragraph under the caption "Legal Proceedings"
beginning on page 6 of the Annual Report on Form 10-K of the
Company for the year ended December 31, 2001 (File No.
33-33691).
- ----------
+ Filed herewith
(B) REPORTS ON FORM 8-K
None
21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
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 INSURANCE COMPANY
-------------------------------
(Registrant)
Date November 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)
CERTIFICATIONS
I, Glenn D. Lammey, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Travelers Insurance
Company;
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;
22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CERTIFICATIONS
(continued)
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 November 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)
I, George C. Kokulis, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Travelers Insurance
Company;
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;
23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CERTIFICATIONS
(continued)
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 November 14, 2002 /s/ George C. Kokulis
--------------------- -------------------------------------
George C. Kokulis
Chief Executive Officer
24