10-Q/A 1 d10qa.txt AMERICAN SKANDIA LIFE ASSURANCE CORPORATION - SECOND QUARTER 2005 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-Q/A (Amendment No. 1) ----------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2005 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 33-44202 ----------------- American Skandia Life Assurance Corporation (Exact Name of Registrant as Specified in its Charter) Connecticut 06-1241288 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) One Corporate Drive Shelton, Connecticut 06484 (203) 926-1888 (Address and Telephone Number of Registrant's Principal Executive Offices) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act). Yes [_] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes [_] No [X] As of August 12, 2005, 25,000 shares of the registrant's Common Stock (par value $100) consisting of 100 voting shares and 24,900 non-voting shares, were outstanding. As of such date, American Skandia, Inc., an indirect wholly owned subsidiary of Prudential Financial, Inc., a New Jersey corporation, owned all of the registrant's Common Stock. American Skandia Life Assurance Corporation meets the conditions set forth in General Instruction (H) (1) (a) and (b) on Form 10-Q/A and is therefore filing this Form with the reduced disclosure format. ================================================================================ TABLE OF CONTENTS
Page Number ------ PART I FINANCIAL INFORMATION Explanatory Note 2 Item 1. Financial Statements (unaudited): Interim Statements of Financial Position As of June 30, 2005 and December 31, 2004................................ 3 Interim Statements of Operations and Comprehensive Income Three months ended June 30, 2005 and 2004................................ 4 Interim Statements of Operations and Comprehensive Income Six months ended June 30, 2005 and 2004.................................. 5 Interim Statements of Stockholder's Equity Six months ended June 30, 2005 6 Interim Statements of Cash Flows (restated) Six months ended June 30, 2005 and 2004.................................. 7 Notes to Interim Financial Statements.................................... 8 Item 4. Controls and Procedures 12 PART II OTHER INFORMATION Item 6. Exhibits............................................................. 13 SIGNATURES................................................................... 14
EXPLANATORY NOTE This Amendment No. 1 on Form 10-Q/A is being filed for the purpose of amending Items 1 and 4 of Part I of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 of American Skandia Life Assurance Corporation to reflect the restatement of American Skandia Life Assurance Corporation's Interim Statements of Cash Flows for the six months ended June 30, 2005 and 2004, as described in Footnote 2 to the Interim Financial Statements included in this Form 10-Q/A. All other Items of the original filing on Form 10-Q made on August 12, 2005 are unaffected by the changes to the Interim Statements of Cash Flows and such Items have not been included in this Amendment. Information in this Form 10-Q/A is generally stated as of June 30, 2005 and does not reflect any subsequent information or events other than the restatement of the Interim Statements of Cash Flows. More current information with respect to American Skandia Life Assurance Corporation is contained within its Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and other filings with the Securities and Exchange Commission. 2 PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS American Skandia Life Assurance Corporation Interim Statements of Financial Position As of June 30, 2005 and December 31, 2004 (in thousands)
June 30, December 31, 2005 2004 ----------- ------------ ASSETS Fixed maturities available for sale, at fair value (amortized cost, 2005 $1,879,107; 2004: $1,737,949) $ 1,908,416 $ 1,771,976 Trading account assets, at fair value 34,806 47,316 Equity securities available for sale, at fair value (cost of $11,238) 11,440 11,567 Policy loans 10,576 10,323 Short-term investments 241,742 423,971 ----------- ----------- Total investments 2,206,980 2,265,153 Cash and cash equivalents 5,296 72,854 Deferred policy acquisition costs 404,520 300,901 Accrued investment income 21,919 22,321 Receivables from Parent and affiliates - 5,098 Income taxes receivable 225,406 244,932 Valuation of business acquired 220,924 234,167 Deferred purchase credits 181,263 144,395 Other assets 39,770 60,412 Separate account assets 27,113,685 26,984,413 ----------- ----------- TOTAL ASSETS $30,419,763 $30,334,646 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities Policyholders' account balances $ 1,516,332 $ 1,411,483 Future policy benefits and other policyholder liabilities 71,769 50,980 Payables to Parent and affiliates 24,440 24,182 Cash collateral for loaned securities 185,439 291,299 Securities sold under agreements to repurchase 4,848 33,373 Short-term borrowing 245,340 140,363 Long-term borrowing 135,000 135,000 Future fees payable to American Skandia, Inc. ("ASI") 154,183 200,597 Other liabilities 218,577 375,486 Separate account liabilities 27,113,685 26,984,413 ----------- ----------- Total liabilities 29,669,613 29,647,176 ----------- ----------- Contingencies (See Note 3) Stockholder's Equity Common stock, $100 par value; 25,000 shares, authorized, issued and outstanding 2,500 2,500 Additional paid-in capital 484,393 484,425 Retained earnings 246,465 180,758 Deferred compensation (1,467) (904) Accumulated other comprehensive income 18,259 20,691 ----------- ----------- Total stockholder's equity 750,150 687,470 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $30,419,763 $30,334,646 =========== ===========
See Notes to Interim Financial Statements 3 American Skandia Life Assurance Corporation Interim Statements of Operations and Comprehensive Income Three Months ended June 30, 2005 and 2004 (in thousands)
Three Months Three Months ended ended June 30, June 30, 2005 2004 ------------ ------------ REVENUES Premiums $ 686 $ 4,594 Policy charges and fee income 119,722 103,209 Net investment income 24,006 22,239 Realized investment (losses) gains, net (3,682) (8,391) Asset management fees 30,315 27,773 Other income 2,349 695 -------- -------- Total revenues 173,396 150,119 -------- -------- BENEFITS AND EXPENSES Policyholders' benefits 31,525 29,976 Interest credited to policyholders' account balances 20,457 20,648 General, administrative and other expenses 79,628 63,221 -------- -------- Total benefits and expenses 131,610 113,845 -------- -------- INCOME FROM OPERATIONS BEFORE INCOME TAXES 41,786 36,274 -------- -------- Income tax expense 6,201 10,471 -------- -------- NET INCOME 35,585 25,803 -------- -------- Other comprehensive (loss) income, net of taxes 20,821 (31,806) -------- -------- COMPREHENSIVE INCOME $ 56,406 $ (6,003) ======== ========
See Notes to Interim Financial Statements 4 American Skandia Life Assurance Corporation Interim Statements of Operations and Comprehensive Income Six Months ended June 30, 2005 and 2004 (in thousands)
Six Months Six Months ended ended June 30, June 30, 2005 2004 ---------- ---------- REVENUES Premiums $ 10,352 $ 7,306 Policy charges and fee income 235,675 201,283 Net investment income 45,796 41,550 Realized investment losses, net (5,484) (8,648) Asset management fees 60,096 55,115 Other income 1,104 1,990 -------- -------- Total revenues 347,539 298,596 -------- -------- BENEFITS AND EXPENSES Policyholders' benefits 70,487 57,725 Interest credited to policyholders' account balances 38,703 41,201 General, administrative and other expenses 154,423 124,377 -------- -------- Total benefits and expenses 263,613 223,303 -------- -------- INCOME FROM OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 83,926 75,293 -------- -------- Income tax expense 18,220 22,604 -------- -------- INCOME FROM OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 65,706 52,689 -------- -------- Cumulative effect of accounting change, net of taxes - (17,079) -------- -------- NET INCOME 65,706 35,610 -------- -------- Other comprehensive (loss) income, net of taxes (2,431) (8,873) -------- -------- COMPREHENSIVE INCOME $ 63,275 $ 26,737 ======== ========
See Notes to Interim Financial Statements 5 American Skandia Life Assurance Corporation Interim Statements of Stockholder's Equity Six months ended June 30, 2005 (in thousands)
Accumulated Additional other Total Common paid-in - Retained Deferred comprehensive stockholder's Stock capital earnings compensation income equity ------ ---------- -------- ------------ ------------- ------------- Balance, December 31, 2004 $2,500 $484,425 $180,759 $ (904) $20,690 $687,470 Net income 65,706 65,706 Stock-based compensation (32) (32) Deferred compensation program (563) (563) Change in net unrealized investment gains/(losses) (2,431) (2,431) ------ -------- -------- ------- ------- -------- Balance, June 30, 2005 $2,500 $484,393 $246,465 $(1,467) $18,259 $750,150 ====== ======== ======== ======= ======= ========
See Notes to Interim Financial Statements 6 American Skandia Life Assurance Corporation Interim Statements of Cash Flows (restated) Six Months ended June 30, 2005 and 2004 (in thousands)
Six Months Ended Six Months Ended June 30, June 30, 2005 2004 ---------------- ---------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income $ 65,706 $ 35,610 Adjustments to reconcile net income to net cash (used in) operating activities: Realized investment losses, net 5,484 8,648 Amortization and depreciation 19,159 33,844 Cumulative effect of accounting change, net of taxes - 17,079 Interest credited to policyholders' account balances 29,237 36,655 Change in: Policy reserves 20,789 21,406 Accrued investment income 402 (2,224) Trading account assets 12,146 11,650 Net receivable to Parent and affiliates 5,356 6,158 Deferred sales inducements (36,868) (42,788) Deferred policy acquisition costs (103,619) (100,891) Income taxes (receivable) payable 19,526 (19,521) Other, net (48,116) 42,028 ----------- ----------- Cash Flows From (Used in) Operating Activities (10,798) 47,654 ----------- ----------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Proceeds from the sale/maturity of fixed maturities available for sale 968,858 1,133,412 Payments for the purchase of fixed maturities available for sale (1,111,133) (1,412,515) Proceeds from the sale/maturity of policy loans 413 - Payments for the issuance of policy loans (666) (1,567) Other short-term investments, net 182,229 (316,575) ----------- ----------- Cash Flows From (Used in) Investing Activities 39,701 (597,245) ----------- ----------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Decrease in future fees payable to ASI, net (46,414) (56,002) Cash collateral for loaned securities (105,860) 227,478 Securities sold under agreement to repurchase (28,525) 91,885 Net increase in long-term borrowing - 135,000 Net increase in short-term borrowing 104,977 35,222 Drafts outstanding (90,044) 3,884 Policyholder's account balances: Deposits 224,780 296,115 Withdrawals (155,375) (170,559) ----------- ----------- Cash Flows From (Used in) Financing Activities (96,461) 563,023 ----------- ----------- Net (decrease) increase in cash and cash equivalents (67,558) 13,432 Cash and cash equivalents, beginning of period 72,854 6,300 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,296 $ 19,732 =========== =========== Income taxes paid (received) $ (2,640) $ 41,615 =========== =========== Interest paid $ 2,116 $ 7,271 =========== ===========
See Notes to Interim Financial Statements 7 American Skandia Life Assurance Corporation Notes to Interim Financial Statements 1. BUSINESS American Skandia Life Assurance Corporation (the "Company"), with its principal offices in Shelton, Connecticut, is an indirect wholly owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey corporation. The Company is a wholly owned subsidiary of American Skandia, Inc. ("ASI"), which in turn is an indirect wholly owned subsidiary of Prudential Financial. On December 19, 2002, Skandia Insurance Company Ltd. (publ) ("Skandia"), an insurance company organized under the laws of the Kingdom of Sweden, and the ultimate parent company of the Company prior to May 1, 2003, entered into a definitive purchase agreement with Prudential Financial whereby Prudential Financial would acquire the Company and certain of its affiliates (the "Acquisition"). On May 1, 2003, the initial phase of the Acquisition was consummated. This included Prudential Financial acquiring 90% of the outstanding common stock of Skandia U.S. Inc. ("SUSI"), an indirect parent of the Company. On September 9, 2003, Prudential Financial acquired the remaining 10% of SUSI's outstanding common stock. On June 23, 2005, SUSI amended its certificate of incorporation to change its name to Prudential Annuities Holding Company, Inc. The Company develops long-term savings and retirement products, that are distributed through its affiliated broker-dealer company, American Skandia Marketing, Incorporated. The Company currently issues variable deferred and immediate annuities for individuals and groups in the United States of America and its territories. The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing insurance products, and individual and group annuities. 2. BASIS OF PRESENTATION Restatement of Statements of Cash Flows The Statements of Cash Flows for the six months ended June 30, 2005 and 2004 have been restated to reflect the following: Changes in the net receivable/payable from unsettled investment purchases and sales, previously classified within "adjustments to reconcile net income to cash provided by operating activities," have been reclassified to cash flows from investing activities, to the extent such balances pertained to investments classified as available for sale. Interest credited to policyholder's account balances, previously classified within "Change in contractowner accounts" within cash flows from financing activities, is now reported as a component of cash flows from operating activities. Changes in trading account assets, previously classified within "Proceeds from the sale of equity securities" and "Payments for the purchase of shares in equity" within cash flows from investing activities have been reclassified to cash flows from operating activities in "adjustments to reconcile net income to cash provided by operating activities". The net change in the policy loans receivable, previously reported in cash flows operating activities, is now reported as a component of cash flows of investing activities. Changes related to stock based compensation and deferred compensation programs, previously classified within cash flows from financing activities, have been reclassified to cash flows from operating activities within "Other, net". As a result of the restatements, previously reported cash flows from (used in) operating activities, cash flows from (used) in investing activities and cash flows from (used in) financing activities were increased or reduced for the six months ended June 30, 2005 and 2004 as follows:
Six Months Ended June 30, 2005 2004 -------- --------- Cash flows from (used in) operating activities As originally reported $(53,013) $ (1,628) Impact of Restatements 42,215 49,282 Revised for restatements (10,798) 47,654 Cash flows from (used in) investing activities As originally reported $ 47,067 $(584,028) Impact of Restatements (7,366) (13,217) Revised for restatements 39,701 (597,245) Cash flows from (used in) financing activities As originally reported $(61,612) $ 599,088 Impact of Restatements (34,849) (36,065) Revised for restatements (96,461) 563,023
The restatements had no impact on the total change in cash and cash equivalents within the Statements of Cash Flows or on the Statements of Operations or Statements of Financial Position. 8 American Skandia Life Assurance Corporation Notes to Interim Financial Statements The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and on a basis consistent with reporting interim financial information in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. These interim financial statements are unaudited but reflect all adjustments that, in the opinion of management, are necessary to provide a fair presentation of the results of operations and financial condition of the Company for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for a full year. Certain amounts in the Company's prior year financial statements have been reclassified to conform with the current year presentation. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2004. 3. CONTINGENCIES AND LITIGATION Contingencies On an ongoing basis, our internal supervisory and control functions review the quality of our sales, marketing, annuity administration and servicing, and other customer interface procedures and practices and may recommend modifications or enhancements. In certain cases, if appropriate, the Company may offer customers remediation and may incur charges, including the costs of remediation, administrative costs and regulatory fines. It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be materially affected as a result of payments in connection with the matters discussed above or other matters, depending, in part, upon the results of operations or cash flow for that period. Management believes, however, that ultimate payments in connection with these matters, after consideration of applicable reserves and indemnification, should not have a material adverse effect on the Company's financial position. Litigation and Regulatory Matters The Company is subject to legal and regulatory actions in the ordinary course of its businesses. Pending legal and regulatory actions include proceedings relating to aspects of our businesses and operations that are specific to the Company and proceedings that are typical of the businesses in which the Company operates. Some of these proceedings have been brought on behalf of various alleged groups of complainants. In certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. As indicated in the Company's Annual Report on Form 10-K for 2004, the Securities and Exchange Commission and the State of New York Attorney General's Office are investigating the Company and certain of its affiliates with regard to alleged market timing in certain Company products. The Company believes that these investigations are likely to lead to proceedings and/or settlements. The Company is fully cooperating with these investigations. Any regulatory settlement involving the Company and its affiliates would be subject to the indemnification provisions of the acquisition agreement pursuant to which Prudential Financial purchased the Company entities in May 2003 from Skandia Insurance Company Ltd. (publ) ("Skandia"). With Skandia's approval, an offer was made by the Company and its affiliates to these regulators to settle the matters relating to market timing in variable annuities by paying restitution and a civil penalty of $95 million in the aggregate, and there are ongoing discussions with these regulators regarding settlement of these matters. 9 American Skandia Life Assurance Corporation Notes to Interim Financial Statements Prudential Financial and its subsidiaries currently use reinsurance primarily to transfer mortality risk, to acquire or dispose of blocks of business and to manage capital more effectively. Given the recent publicity surrounding certain reinsurance transactions involving other companies in the insurance industry, Prudential Financial voluntarily commenced a review of the accounting for the reinsurance arrangements of Prudential Financial and its subsidiaries to confirm that it complied with applicable accounting rules. This review includes an inventory and examination of current and past arrangements. This review is ongoing and not yet complete. Subsequent to commencing this voluntary review, Prudential Financial and certain subsidiaries received formal requests for information from the Connecticut Attorney General, the Connecticut Insurance Department and the Securities and Exchange Commission requesting information regarding their participation in certain reinsurance transactions. Prudential Financial believes that a number of other insurance industry participants have also received similar requests. It is possible that Prudential Financial and its subsidiaries may receive additional requests from regulators relating to reinsurance arrangements. Prudential Financial and its subsidiaries intend to cooperate fully with all such requests. The Company's litigation is subject to many uncertainties, and given its complexity and scope, its outcome cannot be predicted. It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash flow for such period. Management believes, however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves, should not have a material adverse effect on the Company's financial position. 4. RELATED PARTY TRANSACTIONS Debt Agreements On January 3, 2002, the Company entered into a $150 million credit facility agreement with ASI. This credit facility terminates on December 31, 2005 and bears interest at the London Interbank Offered Rate ("LIBOR") plus 0.35% per annum for the relevant interest period. As of June 30, 2005, no amounts were outstanding under this credit facility. On March 12, 2004, the Company entered into a $45 million loan with Prudential Funding, LLC, a wholly owned subsidiary of The Prudential Insurance Company of America ("Prudential Insurance"). This loan matures on March 12, 2007 and has an interest rate of 3.70%. The proceeds were used to support working capital needs. On May 1, 2004, the Company entered into a $500 million credit facility agreement with Prudential Funding, LLC. Effective December 1, 2004, the credit facility agreement was increased to $750 million. As of June 30, 2005, $335.3 million was outstanding under this credit facility. Reinsurance Agreements During 2005, the Company entered into a new reinsurance agreement with an affiliate as part of its risk management and capital management strategies. The company entered into a coinsurance agreement with Prudential Insurance providing for the 100% reinsurance of its Lifetime Five benefit feature sold on new business prior to May 6, 2005. Effective July 1, 2005, the Company entered into a new coinsurance agreement with Pruco Re, Ltd. providing for the 100% reinsurance of its Lifetime Five benefit feature sold on new business after May 5, 2005 as well as for riders issued from March 15, 2005 forward on business in-force before March 15, 2005. 5. NEW ACCOUNTING POLICIES AND ACCOUNTING PRONOUNCEMENTS SFAS 154 In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 154, "Accounting Changes and Error Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS No. 154 requires the retrospective application of changes in accounting principles to prior periods' financial statements. This Statement applies to all voluntary changes in accounting principles made after December 15, 2005, and for the limited instance when a new accounting pronouncement does not provide transition provisions. Adoption of SOP 03-1 In July 2003, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts." AcSEC issued the SOP 03-1 to address the need for interpretive guidance to be developed in three areas: separate account presentation and valuation; the accounting recognition given sales inducements (bonus interest, bonus credits, persistency bonuses); and the classification and valuation of certain long-duration contract liabilities. 10 The Company adopted the SOP effective January 1, 2004. The effect of initially adopting SOP 03-1 was a charge of $17.1 million, net of $9.4 million of taxes, which was reported as a "Cumulative effect of accounting change, net of taxes" in the results of operations for the six months ended June 30, 2004. This charge reflects the net impact of converting certain individual market value adjusted annuity contracts from separate account accounting treatment to general account accounting treatment and the effect of establishing reserves for guaranteed minimum death benefit provisions of the Company's annuity contracts. The Company also recognized a cumulative effect of accounting change related to unrealized investment gains within "Other comprehensive income, net of taxes" of $3.4 million, net of $1.9 million of taxes. Upon adoption of the SOP $1.8 billion in "Separate account assets" were reclassified resulting in a $1.7 billion increase in "Fixed maturities, available for sale, at fair value" as well as changes in other non-separate account assets. Similarly, upon adoption, $1.8 billion in "Separate account liabilities" were reclassified resulting in increases in "Policyholders' account balances," as well as changes in other non-separate account liabilities. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (R), "Share-Based Payment," which replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 (R) requires all entities to apply the fair value base measurement method in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans. Under this method, compensation costs of awards to employees, such as stock options, are measured at fair value and expensed over the period during which an employee is required to provide service in exchange for the award (the vesting period). The Company had previously adopted the fair value recognition provision of the original SFAS No. 123, prospectively for all interim and annual periods beginning after June 15, 2005. However, the SEC has recently deferred the effective date and as a result the Company will adopt SFAS No. 123 (R) on January 1, 2006. By that date, there will be no unvested stock options issued prior to January 1, 2003. Share-based Compensation Awards with Non-substantive Vesting Conditions Prudential Financial issues share-based compensation awards to employees of the Company under an authorized plan that are subject to specific vesting conditions; generally the awards vest ratably over a three year period "the nominal vesting period", or at the date the employee retires (as defined by the plan), if earlier. For awards that specify an employee vests in the award upon retirement, we account for the awards using the nominal vesting period approach. Under this approach, the Company records compensation expense over the nominal vesting period. If the employee retires before the end of the nominal vesting period, any remaining unrecognized compensation expenses is recorded at the date of retirement. Upon the Company's adoption of SFAS No. 123(R), the Company will revise its approach to apply the non-substantive vesting period approach to all new share-based compensation awards. Under this approach, compensation cost will be recognized immediately for awards granted to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period. The Company will continue to apply the nominal vesting period approach for any new awards granted prior to the Company's adoption of SFAS No. 123(R), and for the remaining portion of unvested outstanding awards. The Company believes the adoption of SFAS No. 123(R) will not have a material impact on its results of operations. 11 Item 4. Controls and Procedures In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company's management, including our Chief Executive Officer and Chief Financial Officer, previously reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of June 30, 2005. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer previously concluded that, as of June 30, 2005, our disclosure controls and procedures were effective in timely alerting them to material information required to be included in our periodic SEC filings. No change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f), occurred during the quarter ended June 30, 2005, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. These conclusions are not affected by the misclassifications in the Company's Statements of Cash Flows discussed in the following paragraph, which were identified subsequent to the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. As reported in a Current Report on Form 8-K filed by the Company on February 9, 2006, management of the Company concluded that certain amounts were incorrectly classified in the Company's audited Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 included in the Company's 2004 Annual Report on Form 10-K (the "2004 Form 10-K") and in the Company's interim Statements of Cash Flows for the periods ended March 31 and June 30, 2005 and 2004 included in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2005 (the "2005 Forms 10-Q"). In connection with the preparation of the Company's financial statements for the year ended December 31, 2005, management of the Company concluded on February 3, 2006 that the Company should file a Form 10-K/A and Forms 10-Q/A, including this Form 10-Q/A, restating the Statements of Cash Flows included in the 2004 Form 10-K and in the 2005 Forms 10-Q. The restatements are limited in scope, relating principally to the classification of data collected and not to the collection of data or to the numerical accuracy of data collected. The Company has implemented enhancements to its internal control over financial reporting, primarily with respect to the periodic analysis and review of statements of cash flows, designed to provide reasonable assurance that errors of this type in the Company's Statements of Cash Flows will not recur. 12 PART II OTHER INFORMATION Item 6. Exhibits 31.1 Section 302 Certification of the Chief Executive Officer. 31.2 Section 302 Certification of the Chief Financial Officer. 32.1 Section 906 Certification of the Chief Executive Officer. 32.2 Section 906 Certification of the Chief Financial Officer. Schedules are omitted because they are either inapplicable or the information required therein is included in the notes to Financial Statements included herein. 13 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. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION By: /s/ Michael A. Bohm ----------------------------- Michael A. Bohm Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 9, 2006 14 Exhibit Index Exhibit Number and Description 31.1 Section 302 Certification of the Chief Executive Officer. 31.2 Section 302 Certification of the Chief Financial Officer. 32.1 Section 906 Certification of the Chief Executive Officer. 32.2 Section 906 Certification of the Chief Financial Officer. 15