- -------------------------------------------------------------------------------
FORM 10-Q
------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 333-42425
Protective Life and Annuity Insurance Company
(Exact name of registrant as specified in its charter)
Alabama 63-0761690
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of principal executive offices and zip code)
(205) 879-9230
(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 [ ]
Number of shares of Common Stock, $10.00 par value, outstanding as of
November 5, 1999: 250,000 shares.
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 with the reduced disclosure
format pursuant to General Instruction H(2).
<PAGE>
Protective Life and Annuity Insurance Company
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Report of Independent Accountants.....................................
Condensed Statements of Income for the Three and Nine Months
ended September 30, 1999 and 1998 (unaudited).......................
Condensed Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998...................................
Condensed Statements of Cash Flows for the
Nine Months ended September 30, 1999 and 1998 (unaudited)...........
Notes to Condensed Financial Statements (unaudited)...................
Item 2. Management's Narrative Analysis of the Results of Operations.....
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K...................................
Signature.....................................................................
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Share Owners
Protective Life and Annuity Insurance Company
Birmingham, Alabama
We have reviewed the accompanying condensed balance sheet of Protective Life and
Annuity Insurance Company as of September 30, 1999, and the related condensed
statements of income for the three-month and nine-month periods ended September
30, 1999 and 1998, and condensed statements of cash flows for the nine-month
periods ended September 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed interim financial statements referred to above for them
to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the balance sheet as of December 31, 1998 and the related statements of income,
share-owners' equity, and cash flows for the year then ended (not presented
herein), and in our report dated February 11, 1999, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying condensed balance sheet as of December 31, 1998, is fairly
stated in all material respects in relation to the balance sheet from which it
has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 26, 1999
2
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums and policy fees $11,550,772 $2,250,042 $43,733,030 $6,137,888
Reinsurance ceded (4,139,281) (423,045) (15,141,137) (1,208,624)
------------ ----------- ----------- ----------
Premiums and policy fees, net of reinsurance ceded 7,411,491 1,826,997 28,591,893 4,929,264
Net investment income 8,755,048 2,047,860 21,644,715 4,893,543
Realized investment gains (losses) (74,151) (63,070) (500,000)
Other income (loss) 977 (5,416)
------------ ----------- ----------- ----------
16,093,365 3,874,857 50,168,122 9,322,807
------------ ----------- ----------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
three months: 1999 - $3,645,383; 1998 - $1,206,396
nine months: 1999 - $13,344,420; 1998 - $2,817,986) 8,881,623 2,686,038 25,407,794 5,967,483
Amortization of deferred policy acquisition costs 244,472 106,783 5,514,020 311,379
Other operating expenses (net of reinsurance ceded:
three months: 1999 - $52,541; 1998 - $213,656
nine months: 1999 - $192,228; 1998 - $205,582) 3,612,922 222,514 9,470,654 1,137,529
---------- --------- ---------- ---------
12,739,017 3,015,335 40,392,468 7,416,391
---------- --------- ---------- ---------
INCOME BEFORE INCOME TAX 3,354,348 859,522 9,775,654 1,906,416
Income tax expense 939,217 240,666 2,737,183 533,796
--------- ------- --------- ---------
NET INCOME $ 2,415,131 $ 618,856 $ 7,038,471 $ 1,372,620
=========== ========== =========== =========
</TABLE>
See notes to condensed financial statements
3
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
-----------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities $372,258,410 $360,113,277
Mortgage loans on real estate 3,795,372 7,900,221
Investment in real estate, net of accumulated depreciation 1,100,000
Policy loans 54,195,717 54,103,044
Short-term investments 6,200,000 18,267,431
------------ -----------
Total investments 437,549,499 440,383,973
Cash 1,010,241
Accrued investment income 7,232,418 7,597,305
Accounts and premiums receivable, net 2,910,859 673,967
Reinsurance receivables 24,946,154 22,405,337
Deferred policy acquisition costs 128,270,945 133,275,451
Other assets 42,173 55,968
Assets related to separate accounts
Variable annuity 2,555,911 237,565
------------ ------------
$604,518,200 $604,629,566
============ ============
LIABILITIES
Policy liabilities and accruals $441,667,863 $442,329,379
Annuity deposits 7,000,007 3,434,342
Other policyholders' funds 11,085,851 12,143,006
Other liabilities 12,463,365 7,941,276
Deferred income taxes 3,607,375 7,305,381
Liabilities related to separate accounts
Variable annuity 2,555,911 237,565
----------- -----------
478,380,372 473,390,949
=========== ===========
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B
SHARE-OWNERS' EQUITY
Preferred Stock, $1.00 par value, shares authorized, issued, and
outstanding: 2,000 2,000 2,000
Common Stock, $10 par value
Shares authorized: 500,000
Shares issued and outstanding: 250,000 2,500,000 2,500,000
Additional paid-in capital 101,386,324 101,574,516
Retained earnings 25,391,961 18,353,492
Accumulated other comprehensive income
Net unrealized gains (losses) on investments (net of income
tax: 1999 - $(1,692,092); 1998 - $4,743,097 (3,142,457) 8,808,609
------------ -----------
126,137,828 131,238,617
------------ -----------
$604,518,200 $604,629,566
============ ===========
</TABLE>
See notes to condensed financial statements
4
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,038,471 $ 1,372,620
Adjustments to reconcile net income to net cash used in operating activities:
Realized investment gains 63,070
Amortization of deferred policy acquisition costs 5,514,020 311,379
Capitalization of deferred policy acquisition costs (509,514) (593,050)
Deferred income tax 2,737,183 (566,340)
Accrued income tax 11,978
Interest credited to universal life and investment products 8,552,618 811,436
Policy fees assessed on universal life and investment products (8,956,188) (751,805)
Change in accrued investment income and other receivables (4,412,822) 470,377
Change in policy liabilities and other policyholder
funds of traditional life and health products (15,205,019) (194,536)
Change in other liabilities 4,522,089 (2,478,355)
Other (net) (174,396) 18,408
------------- ------------
Net cash used in operating activities (830,488) (1,587,888)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale 49,917,961 12,857,145
Other 2,505,047 2,515,965
Cost of investments acquired
Investments available for sale (66,937,862) (16,546,471)
Other (1,100,000)
------------ -----------
Net cash used in investing activities (15,614,854) (1,173,361)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to share owners (50,000)
Investment product deposits and change in universal life deposits 17,455,583 (461,728)
Capital contributions 2,000,000
---------- ---------
Net cash provided by financing activities 17,455,583 1,488,272
---------- ---------
INCREASE (DECREASE) IN CASH 1,010,241 (1,272,977)
CASH AT BEGINNING OF PERIOD 0 2,218,201
---------- ---------
CASH AT END OF PERIOD $ 1,010,241 $ 945,224
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period:
Income taxes $ 350,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCIAL ACTIVITIES
Issuance of common stock dividend $ 500,000
</TABLE>
See notes to condensed financial statements
5
<PAGE>
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Protective
Life and Annuity Insurance Company ("the Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1999, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. For further information, refer to the financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1998.
All outstanding shares of the Company's common stock are owned by
Protective Life Insurance Company ("Protective"), which is a wholly-owned
subsidiary of Protective Life Corporation ("PLC"). All outstanding shares of the
Company's preferred stock are owned by PLC.
NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. The Company does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
A number of civil jury verdicts have been returned against insurers in the
jurisdictions in which the Company does business involving the insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against the insurer that are disproportionate to the
actual damages, including material amounts of punitive damages. In addition, in
some class action and other lawsuits involving insurers' sales practices,
insurers have made material settlement payments. In some states, including
Alabama (where the Company maintains its headquarters), juries have substantial
discretion in awarding punitive and non-economic compensatory damages, which
creates the potential for unpredictable material adverse judgments in any given
lawsuit. The Company and its affiliates, like other insurers, in the ordinary
course of business, are involved in such litigation or alternatively in
arbitration. Although the outcome of any such litigation or arbitration cannot
be predicted with certainty, the Company believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse effect on the financial position, results of operations, or
liquidity of the Company.
6
<PAGE>
NOTE C - OPERATING SEGMENTS
PLC, through its subsidiaries, operates seven divisions whose principal
strategic focus can be grouped into three general categories: Life Insurance,
Specialty Insurance Products, and Retirement Savings and Investment Products.
The Company is involved in the businesses of four of PLC's seven divisions. The
following table sets forth operating segment income and assets for the periods
shown. Adjustments represent the inclusion of unallocated realized investment
gains (losses) and the recognition of income tax expense. There are no asset
adjustments.
<TABLE>
<CAPTION>
OPERATING SEGMENT INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ -------- ------------
<S> <C> <C> <C>
Premiums and policy fees $ 40,657,642 $1,865,248 $1,191,926
Reinsurance ceded (14,593,146) (547,991)
----------- --------- ---------
Net of reinsurance ceded 26,064,496 1,317,257 1,191,926
Net investment income 20,735,028 344,133 175,597
Realized investment gains (losses)
Other income (8,718)
---------- --------- ---------
Total revenues 46,790,806 1,661,390 1,367,523
---------- --------- ---------
Benefits and settlement expenses 23,177,480 1,482,549 605,625
Amortization of deferred policy
acquisition costs 5,220,186 293,834
Other operating expenses 9,019,249 40,883 (12,480)
---------- --------- -------
Total benefits and expenses 37,416,915 1,523,432 886,979
---------- --------- -------
Income before income tax 9,373,891 137,958 480,544
CORPORATE
INVESTMENT AND
PRODUCTS OTHER ADJUSTMENTS TOTAL
---------- --------- ----------- -----
Premiums and policy fees $ 18,214 $43,733,030
Reinsurance ceded (15,141,137)
------ ----------
Net of reinsurance ceded 18,214 28,591,893
Net investment income $389,957 21,644,715
Realized investment gains (losses) $ (63,070) (63,070)
Other income 3,302 (5,416)
------ ------- ------- ----------
Total revenues 21,516 389,957 (63,070) 50,168,122
------ ------- ------- ----------
Benefits and settlement expenses 142,140 25,407,794
Amortization of deferred policy
acquisition costs 5,514,020
Other operating expenses 397,872 25,130 9,470,654
------- ------ ---------
Total benefits and expenses 540,012 25,130 40,392,468
------- ------ ------ ----------
Income (loss) before income tax (518,496) 364,827 (63,070) 9,775,654
Income tax expense 2,737,183 2,737,183
---------
Net income $ 7,038,471
=========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
OPERATING SEGMENT INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ --------- ------------
<S> <C> <C> <C>
Premiums and policy fees $3,474,030 $2,135,891 $527,947
Reinsurance ceded (593,678) (614,946)
--------- --------- -------
Net of reinsurance ceded 2,880,352 1,520,945 527,947
Net investment income 3,565,457 518,138
--------- --------- -------
Total revenues 6,445,809 2,039,083 527,947
--------- --------- -------
Benefits and settlement expenses 4,368,904 1,329,099 268,035
Amortization of deferred policy
acquisition costs 197,597 113,782
Other operating expenses 581,969 540,851 36,821
--------- --------- -------
Total benefits and expenses 5,148,470 1,869,950 418,638
--------- --------- -------
Income before tax 1,297,339 169,133 109,309
CORPORATE
INVESTMENT AND
PRODUCTS OTHER ADJUSTMENTS TOTAL
---------- --------- ----------- -----
Premiums and policy fees $ 20 $6,137,888
Reinsurance ceded (1,208,624)
-------- ---------
Net of reinsurance ceded 20 4,929,264
Net investment income $809,948 4,893,543
Realized investment gains (losses) $(500,000) (500,000)
-------- ------- --------- ---------
Total revenues 20 809,948 (500,000) 9,322,807
-------- ------- --------- ---------
Benefits and settlement expenses 1,445 5,967,483
Amortization of deferred policy
acquisition costs 311,379
Other operating expenses (22,112) 1,137,529
-------- ------- ---------
Total benefits and expenses (20,667) 7,416,391
-------- ------- -------- ---------
Income before tax 20,687 809,948 (500,000) 1,906,416
Income tax expense 533,796 533,796
---------
Net income $1,372,620
=========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
OPERATING SEGMENT ASSETS
SEPTEMBER 30, 1999
---------------------------------------------------------------
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ ----------- ------------
<S> <C> <C> <C>
Investments and other assets $422,153,997 $10,532,071 $3,711,851
Deferred policy acquisition costs 127,362,341 908,604
----------- ---------- ---------
Total assets $549,516,338 $10,532,071 $4,620,455
=========== ========== =========
CORPORATE
INVESTMENT AND
PRODUCTS OTHER TOTAL
---------- --------- -----
Investments and other assets $4,460,225 $35,389,111 $476,247,255
Deferred policy acquisition costs 128,270,945
--------- ---------- -----------
Total assets $4,460,225 $35,389,111 $604,518,200
========= ========== ===========
OPERATING SEGMENT ASSETS
DECEMBER 31, 1998
---------------------------------------------------------------
DENTAL AND
CONSUMER FINANCIAL
ACQUISITIONS BENEFITS INSTITUTIONS
------------ -------- ------------
Investments and other assets $434,928,613 $6,642,241 $2,658,668
Deferred policy acquisition costs 132,582,526 692,925
----------- --------- ---------
Total assets $567,511,139 $6,642,241 $3,351,593
=========== ========= =========
CORPORATE
INVESTMENT AND
PRODUCTS OTHER TOTAL
---------- ---------- -----
Investments and other assets $774,504 $26,350,089 $471,354,115
Deferred policy acquisition costs 133,275,451
------- ---------- -----------
Total assets $774,504 $26,350,089 $604,629,566
======= ========== ===========
</TABLE>
9
<PAGE>
NOTE D - STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principles (i.e., GAAP) differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. At September 30, 1999, and for the nine months then ended, the
Company had share-owners' equity and net income prepared in conformity with
statutory reporting practices of $35.5 million and $10.0 million, respectively.
NOTE E - INVESTMENTS
As prescribed by Statement of Financial Accounting Standards ("SFAS")
No. 115, certain investments are recorded at their market values with the
resulting net unrealized gains and losses reduced by a related adjustment to
deferred policy acquisition costs, net of income tax, recorded as a component of
share-owners' equity. The market values of fixed maturities increase or decrease
as interest rates fall or rise. Therefore, although the adoption of SFAS No. 115
does not affect the Company's operations, its reported share-owners' equity will
fluctuate significantly as interest rates change.
The Company's balance sheets at September 30, 1999 and December 31,
1998, prepared on the basis of reporting investments at amortized cost rather
than at market values, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Total investments $442,384,048 $426,832,267
Deferred policy acquisition costs 128,270,945 133,275,451
All other assets 38,697,756 30,970,142
----------- -----------
$609,352,749 $591,077,860
=========== ===========
Deferred income taxes $ 5,299,467 $ 2,562,284
All other liabilities 474,772,997 466,085,568
----------- -----------
480,072,464 468,647,852
Share-owners' equity 129,280,285 122,430,008
----------- -----------
$609,352,749 $591,077,860
=========== ===========
</TABLE>
10
<PAGE>
NOTE F - COMPREHENSIVE INCOME (LOSS)
The following table sets forth the Company's comprehensive income
(loss) for the three and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $2,415,131 $618,856 $ 7,038,471 $1,372,620
Increase (decrease) in net unrealized gains
on investments (net of income tax:
three months: 1999 - $709,574; 1998 -
$571,031; nine months: 1999 - $(6,452,848);
1998 - $553,361) 1,302,951 1,195,601 (11,996,476) 1,422,927
Reclassification adjustment for amounts
included in net income (net of income
tax: three months: 1999 - $20,762; nine
months: 1999 - $17,659; 1998 - $140,000) 53,388 45,410 360,000
--------- --------- ---------- ---------
Comprehensive income (loss) $3,771,470 $1,814,457 $(4,912,595) $3,155,547
========== ========== ============ ==========
</TABLE>
NOTE G - RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
previously reported net income, total assets, or share- owners' equity.
11
<PAGE>
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
Protective Life and Annuity Insurance Company ("the Company"), a stock
life insurance company, was founded in 1978 as American Foundation Life
Insurance Company. Effective March 1, 1999, the Company was renamed Protective
Life and Annuity Insurance Company. Since 1983, all outstanding shares of the
Company's common stock have been owned by Protective Life Insurance Company
("Protective"), which is a wholly-owned subsidiary of Protective Life
Corporation ("PLC"), an insurance holding company whose common stock is traded
on the New York Stock Exchange under the symbol "PL". All outstanding shares of
the Company's preferred stock are owned by PLC. The Company is authorized to
transact insurance business as an insurance company or a reinsurance company in
48 states, including New York.
In accordance with General Instruction H(2)(a), the Company includes
the following analysis with the reduced disclosure format.
PLC through its subsidiaries provides financial services through the
production, distribution, and administration of insurance and investment
products. PLC through its subsidiaries operates seven divisions whose principal
strategic focuses can be grouped into three general categories: life insurance,
specialty insurance products, and retirement savings and investment products.
The life insurance category includes the Individual Life, West Coast, and
Acquisitions Divisions. The specialty insurance products category includes the
Dental and Consumer Benefits ("Dental") and Financial Institutions Divisions.
The retirement savings and investment products category includes the Stable
Value Products and Investment Products Divisions.
The Company, since it is licensed in the State of New York, is the
entity through which PLC markets, distributes, and services insurance and
annuity products in New York. As of September 30, 1999, the Company was involved
in the businesses of four of PLC's seven divisions: the Acquisition Division,
the Dental Division, the Financial Institutions Division and the Investment
Products Division. The Company has an additional business segment which is
described herein as Corporate and Other.
Protective has entered into an intercompany guaranty agreement,
enforceable by the Company or its successors, whereby Protective has guaranteed
the Company's payment of claims made by the holders of Company policies
according to the terms of such policies. The guarantee will remain in force
until the earlier of (a) when the Company achieves a claims-paying rating equal
to or better than Protective without the benefit of any intercompany guaranty
agreement or (b) 90 days after the guaranty agreement is revoked by written
instrument; provided, however, even after any revocation or termination by such
notice, the guarantee shall remain effective as to policies issued during the
existence of the guaranty agreement.
This report includes "forward-looking statements" which express the
expectations of future events and/or results. The words "believe", "expect",
"anticipate" and similar expressions identify forward-looking statements which
are based on future expectations rather than on historical facts and are subject
to a number of risks and uncertainties, and the Company cannot
12
<PAGE>
give assurance that such statements will prove to be correct. Please refer to
Exhibit 99 herein for more information about factors which could affect future
results.
Revenues
The following table sets forth revenues by source for the period shown,
and the percentage change from the prior period:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED PERCENTAGE
SEPTEMBER 30 INCREASE
---------------------------------- ----------
1999 1998
---- ----
<S> <C> <C> <C>
Premiums and policy fees $28,591,893 $4,929,264 480.0 %
Net investment income 21,644,715 4,893,543 342.3
Realized investment losses (63,070) (500,000) --
Other (5,416) -
---------- ---------
$50,168,122 $9,322,807
========== =========
</TABLE>
Premiums and policy fees, net of reinsurance ("premiums and policy
fees") increased $23.7 million or 480.0% in the first nine months of 1999 over
the first nine months of 1998. Premiums and policy fees from the Acquisitions
Division increased $23.2 million primarily due to the coinsurance of a block of
policies from Lincoln National Corporation ("Lincoln National") in October 1998.
Premiums and policy fees related to the Dental Division decreased slightly in
the first nine months of 1999 as compared to the same period in 1998. The
Financial Institutions Division's premiums and policy fees increased $0.7
million in the first nine months of 1999 over the first nine months of 1998 due
to increased marketing efforts and sales momentum. The Investment Products
Division began marketing certain annuity products in the state of New York
through the Company during the latter part of 1998, which resulted in a small
amount of new premiums and policy fees in the first nine months of 1999.
Net investment income in the first nine months of 1999 increased $16.8
million or 342.3% as compared to the corresponding period of the preceding year
primarily due to increases in the average amount of invested assets associated
with the coinsurance transaction described above.
The Company generally purchases its investments with the intent to hold
to maturity by purchasing investments that match future cash-flow needs.
However, the Company may sell any of its investments to maintain approximate
matching of assets and liabilities. Accordingly, the Company has classified its
fixed maturities and certain other securities as "available for sale." The sales
of investments that have occurred generally result from portfolio management
decisions to maintain proper matching of assets and liabilities.
The Company reported an insignificant amount of realized investment
losses and other income (loss) in the first nine months of 1999.
13
<PAGE>
Income Before Income Tax
- ------------------------
The following table sets forth operating income or loss and income or
loss before income tax by business segment for the periods shown:
OPERATING INCOME (LOSS) AND INCOME (LOSS) BEFORE INCOME TAX
NINE MONTHS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Operating Income (Loss)1
Acquisitions $9,373,891 $1,297,339
Dental and Consumer Benefits 137,958 169,133
Financial Institutions 480,544 109,309
Investment Products (518,496) 20,687
Corporate and Other 364,827 809,948
--------- ---------
Total operating income 9,838,724 2,406,416
--------- ---------
Realized Investment Gains (Losses)
Unallocated Realized Investment Losses (63,070) (500,000)
--------- --------
Total net (63,070) (500,000)
--------- --------
Income (Loss) Before Income Tax
Acquisitions 9,373,891 1,297,339
Dental and Consumer Benefits 137,958 169,133
Financial Institutions 480,544 109,309
Investment Products (518,496) 20,687
Corporate and Other 364,827 809,948
Unallocated Realized Investment Losses (63,070) (500,000)
--------- ---------
Total income before tax $9,775,654 $1,906,416
========= =========
</TABLE>
1 Income (loss) before tax excluding realized investment gains and losses.
Pretax operating income from the Acquisitions Division was $9.4 million
in the first nine months of 1999 as compared to $1.3 million in the same period
of 1998. Earnings from the Acquisitions Division are expected to decline over
time (due to the lapsing of policies resulting from deaths of insureds or
terminations of coverage) unless new acquisitions are made. In October 1998, the
Division coinsured a block of policies from Lincoln National. This acquisition
represented most of the increase in pretax earnings for the Division.
Dental Division pretax earnings were $0.1 million in the first nine
months of 1999 and $0.2 million in the first nine months of 1998.
The Financial Institutions Division's pretax operating income was $0.5
million for the first nine months of 1999 as compared to $0.1 million the first
nine months of 1998. The increase was primarily due to increased marketing
efforts.
The Investment Products Division began marketing certain annuity
products in the state of New York in the latter part of 1998. The Division had a
pretax operating loss of $0.5 million in the first nine months of 1999 primarily
related to start-up expenses.
14
<PAGE>
The Corporate and Other segment consists of net investment income and
realized investment gains not identified with the preceding operating divisions.
Pretax operating income from this segment was $0.4 million in the first nine
months of 1999 and $0.8 million in the first nine months of 1998.
Income Taxes
The following table sets forth the effective tax rates for the periods
shown:
NINE MONTHS
ENDED ESTIMATED EFFECTIVE
SEPTEMBER 30 INCOME TAX RATES
------------ -------------------
1998 28 %
1999 28
The effective income tax rate for the full year of 1998 was 28%.
Management's estimate of the effective income tax rate for 1999 is 28%.
Net Income
The following table sets forth net income for the periods shown, and
the percentage change from the prior period:
NET INCOME
------------------------------------
NINE MONTHS
ENDED PERCENTAGE
SEPTEMBER 30 TOTAL INCREASE
------------ ----- ----------
1998 $1,372,620 (23.3) %
1999 7,038,471 412.8
Compared to the same period in 1998, net income in the first nine
months of 1999 increased $5.7 million, reflecting increases related to the
Acquisitions and Financial Institutions Divisions, and realized investment
gains, which were partially offset by decreases in the Dental and Investment
Products Divisions and the Corporate and other segment.
Year 2000 Disclosure
Computer hardware and software often denote the year using two digits
rather than four; for example, the year 1999 often is denoted by such hardware
and software as "99." It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather than the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including the Company, its customers, business
partners, suppliers, banks, custodians and administrators). The problem is most
prevalent in older mainframe systems, but personal computers and equipment
containing computer chips could also be affected.
15
<PAGE>
The Company shares computer hardware and software with PLC. PLC began
work on the Year 2000 problem in 1995. At that time, PLC identified and assessed
its critical mainframe systems, and prioritized the remediation efforts that
were to follow. During 1998 all other hardware and software, including
non-information technology (non-IT) related hardware and software, were included
in the process. PLC's Year 2000 plan includes all subsidiaries.
PLC estimates that Year 2000 remediation is complete for its insurance
administration systems and general administration systems. All remediated
systems are currently in production.
Mainframe application remediation was completed December 31, 1998.
Personal computer network hardware, software, and operating systems have been
reviewed, with upgrades implemented where necessary. In March 1999 a personal
computer test lab was established to facilitate client server system testing.
That testing is now materially complete and the lab facility is being used for
desktop application testing. With respect to non-IT equipment and processes, the
assessment and remediation is progressing on schedule and all known issues are
expected to be remediated before December 31, 1999.
Future date tests are complete for PLC's mission critical systems.
Integrated tests involve multiple system testing and are used to verify the Year
2000 readiness of interfaces and connectivity across multiple systems. PLC used
its mainframe computer to simulate a Year 2000 production environment and to
facilitate integrated testing. Integrated tests were completed during August
1999. Additional testing will be conducted whenever changing circumstances
warrant additional testing.
Significant business partners and suppliers that provide products or
services critical to Company operations are being reviewed for year 2000
readiness. To date, no significant partners or suppliers have reported that they
expect to be unable to continue supplying products and services after January 1,
2000.
PLC cannot specifically identify all of the costs to develop and implement
its Year 2000 plan. The costs of new systems to replace non-compliant systems
have been capitalized in the ordinary course of business. Other costs have been
expensed as incurred. Through August 31, 1999, costs that have been specifically
identified as relating to the Year 2000 problem total $4.9 million, with an
additional $0.3 million estimated to be required to support continued Year 2000
preparations. PLC's Year 2000 efforts have not adversely affected its normal
procurement and development of information technology.
Although PLC believes that a process is in place to successfully
address Year 2000 issues, there can be no assurance that PLC's efforts will be
successful, that interactions with other service providers with Year 2000 issues
will not impair PLC or the Company's operations, or that the Year 2000 issue
will not otherwise adversely affect PLC or the Company.
A formal contingency plan has been prepared and approved by senior
management. Systems and functions identified as mission critical are included in
the contingency plan.
Should some of PLC's systems not be available due to Year 2000
problems, in a reasonably likely worst case scenario, the Company may experience
significant delays in its ability to perform
16
<PAGE>
certain functions, but does not expect to be unable to perform critical
functions or to otherwise conduct business.
17
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial data schedule
Exhibit 99 - Safe Harbor for Forward-Looking Statements
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
Date: November 12, 1999 /s/ Jerry W. DeFoor
-------------------
Jerry W. DeFoor
Vice President and Controller,
and Chief Accounting Officer
(Duly authorized officer)
18
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of protective Life and Annuity Insurance Company and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 372,258,410
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 3,795,372
<REAL-ESTATE> 0
<TOTAL-INVEST> 437,549,499
<CASH> 1,010,241
<RECOVER-REINSURE> 24,946,154
<DEFERRED-ACQUISITION> 128,270,945
<TOTAL-ASSETS> 604,518,200
<POLICY-LOSSES> 441,667,863
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 11,085,851
<NOTES-PAYABLE> 0
2,000
0
<COMMON> 2,500,000
<OTHER-SE> 123,635,828
<TOTAL-LIABILITY-AND-EQUITY> 604,518,200
28,591,893
<INVESTMENT-INCOME> 21,644,715
<INVESTMENT-GAINS> (63,070)
<OTHER-INCOME> (5,416)
<BENEFITS> 25,407,794
<UNDERWRITING-AMORTIZATION> 5,514,020
<UNDERWRITING-OTHER> 9,470,654
<INCOME-PRETAX> 9,775,654
<INCOME-TAX> 2,737,183
<INCOME-CONTINUING> 7,038,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,038,471
<EPS-BASIC> 0 <F1>
<EPS-DILUTED> 0 <F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Protective Life and Annuity Life Insurance Company is a wholly-owned subsidiary of
Protective Life Insurance Company, which is a wholly-owned subsidiary of Protective Life
Corporation (NYSE: PL) and is not required to present EPS information.
</FN>
</TABLE>
Exhibit 99
to
Form 10-Q
of
Protective Life and Annuity Insurance Company
for the nine months
ended September 30, 1999
Safe Harbor for Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act")
encourages companies to make "forward-looking statements" by creating a safe
harbor to protect the companies from securities law liability in connection with
forward-looking statements. Forward-looking statements can be identified by use
of words such as "expect," "estimate," "project," "budget," "forecast,"
"anticipated," "plan," and similar expressions. Protective Life and Annuity
Insurance Company ("the Company") intends to qualify both its written and oral
forward-looking statements for protection under the Act.
To qualify oral forward-looking statements for protection under the
Act, a readily available written document must identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements. The Company provides the following information to
qualify forward-looking statements for the safe harbor protection of the Act.
The Company is a stock life insurance company founded in 1978. All
outstanding shares of the Company's common stock are owned by Protective Life
Insurance Company ("Protective"), which is the principal operating subsidiary of
Protective Life Corporation ("PLC"), an insurance holding company whose common
stock is traded on the New York Stock Exchange under the symbol "PL". All
outstanding shares of Company's preferred stock are owned by PLC. The Company is
authorized to transact insurance business, as an insurance company or
reinsurance company in 48 states, including New York.
Protective Life Corporation ("PLC") through its subsidiaries provides
financial services through the production, distribution, and administration of
insurance and investment products. PLC operates through seven divisions whose
principal strategic focuses can be grouped into six general categories: life
insurance, specialty insurance products, and retirement savings and investment
products. The life insurance category includes the Acquisitions, Individual
Life, and West Coast Divisions. The specialty insurance products category
includes the Dental and Consumer Benefits ("Dental") and Financial Institutions
Divisions. The retirement savings and investment products category includes the
Stable Value Products and Investment Products Divisions.
The Company, since it is licensed in the State of New York, is the
entity through which PLC markets, distributes, and services insurance and
annuity products in New York. As of September 30, 1999, the Company was involved
in the operations of four of PLC's Divisions: the
<PAGE>
Acquisition Division, the Dental Division, the Financial Institutions Division
and the Investment Products Division. The Company has an additional business
segment which is described herein as Corporate and Other.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors. Certain known trends and uncertainties
which may affect future results of the Company are discussed more fully below.
We operate in a mature, highly competitive industry, which could limit our
ability to gain or maintain our position in the industry.
Life and health insurance is a mature industry. In recent years, the
industry has experienced virtually no growth in life insurance sales, though the
aging population has increased the demand for retirement savings products.
Insurance is a highly competitive industry and the Company encounters
significant competition in all lines of business from other insurance companies,
many of which have greater financial resources than the Company, as well as
competition from other providers of financial services.
The life and health insurance industry is consolidating, with larger,
more efficient organizations emerging from consolidation. Also, mutual insurance
companies are converting to stock ownership which will give them greater access
to capital markets. Additionally, the United States Congress has approved
legislation that would permit commercial banks, insurance companies and
investment banks to combine, provided certain requirements are satisfied.
The Company's ability to compete is dependent upon, among other things,
its ability to attract and retain distribution channels to market its insurance
and investment products, its ability to develop competitive and profitable
products, its ability to maintain low unit costs, and its maintenance of strong
financial strength and claims-paying-ability ratings from rating agencies.
The Company competes against other insurance companies and financial
institutions in the origination of commercial mortgage loans.
A ratings downgrade could adversely affect our ability to compete.
Ratings are an important factor in the Company's competitive position.
Rating organizations periodically review the financial performance and condition
of insurers, including the Company. A downgrade in the ratings of the Company
could adversely affect its ability to sell its products and its ability to
compete for attractive acquisition opportunities.
Rating organizations assign ratings based upon several factors. While
most of the factors relate to the rated company, some of the factors relate to
general economic conditions and circumstances outside the rated company's
control. For the past several years rating downgrades in the industry have
exceeded upgrades.
<PAGE>
Our policy claims fluctuate from year to year.
The Company's results may fluctuate from year to year on account of
fluctuations in policy claims received by the Company.
We could be forced to sell illiquid investments at a loss to cover policyholder
withdrawals.
Many of the products offered by the Company allow policyholders and
contract holders to withdraw their funds under defined circumstances. The
Company designs products and configures investment portfolios so as to provide
and maintain sufficient liquidity to support anticipated withdrawal demands and
contract benefits and maturities. Formal asset/liability management programs and
procedures are used to monitor the relative duration of the Company's assets and
liabilities. While the Company owns a significant amount of liquid assets, many
of its assets are relatively illiquid. Significant unanticipated withdrawal or
surrender activity could, under some circumstances, compel the Company to
dispose of illiquid assets on unfavorable terms, which could have a material
adverse effect on the Company.
Interest-rate fluctuations could negatively affect our spread income.
Significant changes in interest rates expose insurance companies to the
risk of not earning anticipated spreads between the interest rate earned on
investments and the credited rates paid on outstanding policies. Both rising and
declining interest rates can negatively affect the Company's spread income. For
example, certain of the Company's insurance and investment products guarantee a
minimum credited interest rate. While the Company develops and maintains
asset/liability management programs and procedures designed to preserve spread
income in rising or falling interest rate environments, no assurance can be
given that significant changes in interest rates will not materially affect such
spreads.
Lower interest rates may result in lower sales of the Company's
insurance and investment products.
Insurance companies are highly regulated.
The Company is subject to government regulation in each of the states
in which it conducts business. Such regulation is vested in state agencies
having broad administrative power dealing with many aspects of the insurance
business, which may include premium rates, marketing practices, advertising,
policy forms, and capital adequacy, and is concerned primarily with the
protection of policyholders rather than share owners. The Company cannot predict
the form of any regulatory initiatives.
The Company acts as a fiduciary and is subject to regulation by the
United States Department of Labor when providing a variety of products and
services to employee benefit plans governed by ERISA. Severe penalties are
imposed by ERISA on fiduciaries that breach their duties to the plans under
ERISA's prohibited transaction provisions.
<PAGE>
Certain policies, contracts and annuities offered by the Company are
subject to regulation under the federal securities laws administered by the
Securities and Exchange Commission. The federal securities laws contain
regulatory restrictions and criminal, administrative and private remedial
provisions.
A tax law change could adversely affect our ability to compete with
non-insurance products.
Under the Internal Revenue Code of 1986, as amended, income tax payable
by policyholders on investment earnings is deferred during the accumulation
period of certain life insurance and annuity products. This favorable tax
treatment may give certain of the Company's products a competitive advantage
over other non-insurance products. To the extent that the Internal Revenue Code
is revised to reduce the tax-deferred status of life insurance and annuity
products, or to increase the tax-deferred status of competing products, all life
insurance companies, including the Company, would be adversely affected with
respect to their ability to sell such products, and, depending on grandfathering
provisions, the surrenders of existing annuity contracts and life insurance
policies. In addition, life insurance products are often used to fund estate tax
obligations. If the estate tax was eliminated, the demand for certain life
insurance products would be adversely affected. The Company cannot predict what
future tax initiatives may be proposed which could affect the Company.
Industrywide litigation concerning sales practices, agent misconduct, failure to
supervise agents, and other matters could result in substantial judgements
against us.
A number of civil jury verdicts have been returned against insurers in the
jurisdictions in which the Company does business involving the insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. Increasingly these lawsuits have resulted in the award of
substantial judgments against the insurer that are disproportionate to the
actual damages, including material amounts of punitive damages. In some states,
including Alabama (where the Company maintains its headquarters), juries have
substantial discretion in awarding punitive and non-economic compensatory
damages, which creates the potential for unpredictable material adverse
judgments in any given lawsuit. The Company and its affiliates, like other
insurers, in the ordinary course of business, are involved in such litigation or
alternatively in arbitration. The outcome of any such litigation or arbitration
cannot be predicted with certainty. In addition, in some class action and other
lawsuits involving insurers' sales practices, insurers have made material
settlement payments.
Our investments are subject to risks.
The Company's invested assets (including derivative financial
instruments) are subject to customary risks of defaults and changes in market
values. The value of the Company's commercial mortgage portfolio depends in part
on the financial condition of the tenants occupying the properties which the
Company has financed. Factors that may affect the overall default rate on, and
market value of, the Company's invested assets include interest rate levels,
financial market performance, and general economic conditions, as well as
particular circumstances affecting the businesses of individual borrowers and
tenants.
<PAGE>
Our acquisition strategy involves risks.
The Company has actively pursued a strategy of acquiring blocks of
insurance policies. This acquisition strategy has increased the Company's
earnings in part by allowing the Company to position itself to realize certain
operating efficiencies associated with economies of scale. The Company has also
from time to time acquired other companies and continued to operate them as
subsidiaries. There can be no assurance, however, that suitable acquisitions,
presenting opportunities for continued growth and operating efficiencies, will
continue to be available to the Company, or that the Company will realize the
anticipated financial results from its acquisitions.
We are dependent on the performance of others.
The Company's results may be affected by the performance of others
because the Company has entered into various ventures involving other parties.
Examples include, but are not limited to: many of the Company's products are
sold through independent distribution channels; the Investment Products
Division's variable annuity deposits are invested in funds managed by
unaffiliated investment managers; and a portion of the sales in the Individual
Life, West Coast, Dental, and Financial Institutions Divisions comes from
arrangements with unrelated marketing organizations.
Year 2000 computer compliance issues may adversely affect us.
Computer hardware and software often denote the year using two digits
rather than four; for example, the year 1999 often is denoted by such hardware
and software as "99." It is probable that such hardware and software will
malfunction when calculations involving the year 2000 are attempted because the
hardware and/or software will interpret "00" as representing the year 1900
rather that the year 2000. This "Year 2000" issue potentially affects all
individuals and companies (including the Company, its customers, business
partners, suppliers, banks, custodians and administrators). The problem is most
prevalent in older mainframe systems, but personal computers and equipment
containing computer chips could also be affected.
The Company shares computer hardware and software with its ultimate parent,
Protective Life Corporation ("PLC"), and other affiliates of PLC.
Because PLC does not control all of the factors that could impact its
Year 2000 readiness, there can be no assurances that PLC's efforts will be
successful, that interactions with other service providers with Year 2000 issues
will not impair PLC's or the Company's operations, or that the Year 2000 issue
will not otherwise adversely affect PLC or the Company.
Should some of PLC's systems not be available due to Year 2000
problems, in a reasonable likely worst case scenario, PLC or the Company may
experience significant delays in its ability to perform certain functions, but
does not expect an inability to perform critical functions or to otherwise
conduct business. However, other worst case scenarios, depending upon their
duration, could have a material adverse effect on PLC and the Company and their
operations.
<PAGE>
Our reinsurance program involves risks.
The Company cedes insurance to other insurance companies through
reinsurance. However, the Company remains liable with respect to ceded insurance
should any reinsurer fail to meet the obligations assumed by it. The cost of
reinsurance is, in some cases, reflected in the premium rates charged by the
Company. Under certain reinsurance agreements, the reinsurer may increase the
rate it charges the Company for the reinsurance, though the Company does not
anticipate increases to occur. Therefore, if the cost of reinsurance were to
increase with respect to policies where the rates have been guaranteed by the
Company, the Company could be adversely affected.
Additionally, the Company assumes policies of other insurers. Any
regulatory or other adverse development affecting the ceding insurer could also
have an adverse effect on the Company.
FORWARD-LOOKING STATEMENTS EXPRESS EXPECTATIONS OF FUTURE EVENTS AND/OR
RESULTS. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE
BASED ON VARIOUS EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS AND THEY
ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES WHICH COULD
CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. DUE TO
THESE INHERENT UNCERTAINTIES, INVESTORS ARE URGED NOT TO PLACE UNDUE RELIANCE ON
FORWARD-LOOKING STATEMENTS. IN ADDITION, THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS, OR CHANGES TO PROJECTIONS OVER TIME.
<PAGE>
