<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to __________
-------------------------------
Commission file number 33-58677
-------------------------------
THE TRAVELERS LIFE AND ANNUITY COMPANY
(exact name of registrant as specified in its charter)
CONNECTICUT 06-0904249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(860) 277-0111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of the date hereof, there were outstanding 30,000 shares of common
stock, par value $100 per share, of the registrant, all of which were owned
by The Travelers Insurance Company, an indirect, wholly owned subsidiary of
Travelers Group 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.
<PAGE> 2
THE TRAVELERS LIFE AND ANNUITY COMPANY
FORM 10-Q
For the Three Months Ended June 30, 1996
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Condensed Statement of Income and Retained Earnings for the Three and
Six Months Ended June 30, 1996 and 1995 (unaudited)..................... 3
Condensed Balance Sheet as of June 30, 1996 (unaudited) and
December 31, 1995....................................................... 4
Condensed Statement of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 (unaudited)..................... 5
Notes to Condensed Financial Statements (unaudited)..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 9
SIGNATURES.............................................................. 10
</TABLE>
2
<PAGE> 3
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF INCOME AND RETAINED EARNINGS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 1,746 $ 212 $ 2,843 $ 291
Net investment income 21,815 15,582 38,769 31,451
Realized investment gains (losses) (6,762) 944 (14,954) (4,675)
Other revenues 3,428 4,058 6,036 7,749
-------- -------- -------- --------
20,227 20,796 32,694 34,816
-------- -------- -------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 11,910 13,452 25,213 26,782
Operating expenses, including amortization
of deferred acquisition costs and
value of insurance in force 1,089 980 2,286 1,967
-------- -------- -------- --------
12,999 14,432 27,499 28,749
-------- -------- -------- --------
Income from operations before
federal income taxes 7,228 6,364 5,195 6,067
Federal income taxes 2,514 2,202 1,789 2,075
-------- -------- -------- --------
Net income 4,714 4,162 3,406 3,992
Retained earnings beginning of period 156,599 128,820 157,907 128,990
-------- -------- -------- --------
Retained earnings end of period $161,313 $132,982 $161,313 $132,982
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Investments, including real estate held for sale $ 932,076 $ 989,732
Separate and variable accounts 969,871 886,688
Deferred federal income taxes 58,869 41,158
Other assets 54,492 47,061
---------- ----------
Total assets $2,015,308 $1,964,639
========== ==========
LIABILITIES
Future policy benefit reserves and contractholder funds $ 699,478 $ 671,027
Separate and variable accounts 937,239 856,867
Other liabilities 42,044 73,194
---------- ----------
Total liabilities 1,678,761 1,601,088
---------- ----------
SHAREHOLDER'S EQUITY
Capital stock, par value $100; 100,000
shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,314 167,314
Retained earnings 161,313 157,907
Unrealized investment gains, net of taxes 4,920 35,330
---------- ----------
Total shareholder's equity 336,547 363,551
---------- ----------
Total liabilities and shareholder's equity $2,015,308 $1,964,639
========== ==========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
--------- --------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 31,588 $(40,891)
--------- --------
Cash flows from investing activities
Investment repayments
Fixed maturities 11,190 3,579
Mortgage loans 11,553 10,234
Proceeds from sales of investments
Fixed maturities 750,933 124,442
Equity securities 3,046 4,879
Mortgage loans -- 2,081
Investments in
Fixed maturities (733,032) (90,834)
Equity securities -- (71)
Policy loans (1,184) --
Short-term securities (purchases) sales, net (32,481) (11,100)
Other investments, net (3,607) (2,824)
Securities transactions in course of settlement (51,840) 210
--------- --------
Net cash provided by (used in) investing activities (45,422) 40,596
--------- --------
Cash flows from financing activities
Contractholder fund deposits 23,835 --
Contractholder fund withdrawals (10,001) --
--------- --------
Net cash provided by financing activities 13,834 --
--------- --------
Net increase (decrease) in cash -- (295)
Cash at beginning of period -- 296
--------- --------
Cash at end of period $ -- $ 1
========= ========
Supplemental disclosure of cash flow information
Income taxes paid $ 905 $ 37,510
========= ========
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 6
THE TRAVELERS LIFE AND ANNUITY COMPANY
Notes to Condensed Financial Statements (Unaudited)
June 30, 1996
1. General
The interim financial statements of The Travelers Life and Annuity Company
(the Company), a wholly owned subsidiary of The Travelers Insurance Company
(an indirect, wholly owned subsidiary of Travelers Group Inc.), have been
prepared in conformity with generally accepted accounting principles (GAAP)
and are unaudited. They reflect all adjustments (none of which were other
than normal recurring adjustments) necessary, in the opinion of management,
for a fair statement of results for the periods reported. The accompanying
condensed financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. Changes in Accounting Principles
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." This statement
establishes accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be disposed of. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed of (e.g. real estate held for sale) to be carried at the lower of
cost or fair value less cost to sell, and does not allow such assets to be
depreciated. The adoption of this standard did not have a material impact
on the Company's financial condition, results of operations or liquidity.
3. Commitments and Contingencies
The Company is a defendant in various litigation matters in the normal
course of business. Although there can be no assurances, as of June 30,
1996, the Company believes, based on information currently available, that
the ultimate resolution of these legal proceedings would not be likely to
have a material adverse effect on its results of operations, financial
condition or liquidity.
6
<PAGE> 7
THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
The Travelers Life and Annuity Company (the Company) primarily writes single
premium group annuity close-out contracts and individual structured settlement
annuities. The single premium group annuity contracts are typically purchased by
employer-sponsored pension plans upon termination of the plan, asset reversion
or other significant plan changes. As a result, sales activity can vary
significantly from period to period.
The individual structured settlement contracts are purchased primarily by
subsidiaries of Travelers/Aetna Property Casualty Corp., an affiliate, in
connection with the settlement of certain of its policyholder obligations. All
structured settlement contracts are issued through a separate account of the
Company. Accordingly, the Company's other revenues include structured settlement
policyholder revenues net of the related benefits and expenses.
In 1995, the Company commenced writing individual life and deferred annuity
business in certain states and is in the process of obtaining further regulatory
approvals to write these products in additional states.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net income for the six months ended June 30, 1996 was $3.4 million, compared to
net income of $4.0 million for the same period in 1995. Excluding after-tax
portfolio losses, operating earnings increased from $7.0 million in the six
months ended June 30, 1995 to $12.4 million in the six months ended June 30,
1996, reflecting improved investment portfolio performance.
The majority of the annuity business and a substantial portion of the life
business written by the Company is accounted for as investment contracts, with
the result that the premium deposits collected are not included in revenues.
Premiums and deposits amounted to $18.4 million for the six months ended June
30, 1996, a 4% decrease compared to the same period for 1995, reflecting a
decline in structured settlement sales.
Policyholder benefit reserves, contractholder funds and separate accounts
totaled $1.6 billion at June 30, 1996, up from $1.5 billion at June 30, 1995,
primarily as a result of accumulated growth in the structured settlement
separate account.
7
<PAGE> 8
INSURANCE REGULATIONS
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
merit further regulatory action. At June 30, 1996, 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. The maximum amount of
dividends available to be paid to the Company's parent in 1996, without prior
approval of the Connecticut Insurance Department, is $16 million. The Company
made no dividend payment during the six months ended June 30, 1996.
ACCOUNTING STANDARDS NOT YET ADOPTED
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123), is effective for 1996 reporting. This statement addresses the
accounting for the cost of stock-based compensation, such as stock options and
restricted stock. FAS 123 permits either expensing the value of stock-based
compensation over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be measured at
the grant date based upon estimated fair value, using option pricing models. The
Company, along with affiliated companies, participates in stock option and other
stock based incentive plans sponsored by its ultimate parent. The Company has
selected the disclosure alternative that requires such pro forma disclosures to
be included in annual financial statements.
In June 1996, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are based
on consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. FAS 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The requirements of FAS 125 would be
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The Company
is currently evaluating the impact of this statement.
8
<PAGE> 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No.
Description Filing Method
3. Articles of Incorporation and By-laws
a. Charter of the Company as amended on April 10, 1990,
incorporated herein by reference to Exhibit 6(a) to
the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
b. By-laws of the Company as amended October 20, 1994,
incorporated herein by reference to Exhibit 6(b) to
the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
27. Financial Data Schedule Electronic
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Company during the quarter ended
June 30, 1996.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Registrant)
Date August 13, 1996 ----------------------------------------------------
Ian R. Stuart
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer)
10
<PAGE> 11
EXHIBIT INDEX
Exhibit
No. Description Filing Method
3. Articles of Incorporation and By-laws
a. Charter of the Company as amended on April 10, 1990,
incorporated herein by reference to Exhibit 6(a) to
the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
b. By-laws of the Company as amended October 20, 1994,
incorporated herein by reference to Exhibit 6(b) to
the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.
27. Financial Data Schedule Electronic
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1996 FINANCIAL STATEMENTS OF THE TRAVELERS LIFE AND ANNUITY COMPANY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000929498
<NAME> THE TRAVELERS LIFE AND ANNUITY COMPANY
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 932,076
<CASH> 0
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 2,015,308
<POLICY-LOSSES> 669,478
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 937,239
<NOTES-PAYABLE> 0
0
0
<COMMON> 3,000
<OTHER-SE> 333,547
<TOTAL-LIABILITY-AND-EQUITY> 2,015,308
2,843
<INVESTMENT-INCOME> 38,769
<INVESTMENT-GAINS> (14,954)
<OTHER-INCOME> 6,036
<BENEFITS> 25,213
<UNDERWRITING-AMORTIZATION> 2,286
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 5,195
<INCOME-TAX> 1,789
<INCOME-CONTINUING> 3,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,406
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
