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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(Mark One) FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
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 1-11166
AXA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3623351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, New York 10104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 554-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- --------------------------- --------------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
None
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 if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes [ ] No [X]
No voting or non-voting common equity of the registrant is held by
non-affiliates of the registrant as of June 30, 2006.
As of March 14, 2007, 436,192,949 shares of the registrant's Common Stock were
outstanding.
REDUCED DISCLOSURE FORMAT:
Registrant meets the conditions set forth in General Instruction (I) (1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of AllianceBernstein L.P.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 2006 are incorporated by reference into Part I hereof.
TABLE OF CONTENTS
Part I Page
- ------ ----
Item 1. Business........................................................................ 1-1
Overview........................................................................ 1-1
Segment Information............................................................. 1-1
Employees and Financial Professionals........................................... 1-6
Competition..................................................................... 1-7
Regulation...................................................................... 1-7
Parent Company.................................................................. 1-10
Other Information............................................................... 1-11
Item 1A. Risk Factors.................................................................... 1A-1
Item 1B. Unresolved Staff Comments....................................................... 1B-1
Item 2. Properties...................................................................... 2-1
Item 3. Legal Proceedings............................................................... 3-1
Item 4. Submission of Matters to a Vote of Security Holders*............................ 4-1
Part II
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities......................................... 5-1
Item 6. Selected Financial Data*........................................................ 6-1
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ("Management Narrative")................................ 7-1
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................... 7A-1
Item 8. Financial Statements and Supplementary Data..................................... FS-1
Item 9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure.......................................................... 9-1
Item 9A. Controls and Procedures......................................................... 9A-1
Item 9B. Other Information............................................................... 9B-1
Part III
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Item 10. Directors and Executive Officers of the Registrant*............................. 10-1
Item 11. Executive Compensation*......................................................... 11-1
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters*.................................................. 12-1
Item 13. Certain Relationships and Related Transactions*................................. 13-1
Item 14. Principal Accounting Fees and Services.......................................... 14-1
Part IV
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Item 15. Exhibits, Financial Statement Schedules ........................................ 15-1
Signatures ................................................................................ S-1
Index to Exhibits ................................................................................ E-1
*Omitted pursuant to General Instruction I to Form 10-K
i
FORWARD-LOOKING STATEMENTS
Some of the statements made in this report, including statements made in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include, among other things, discussions concerning potential exposure of AXA
Financial, Inc. and its subsidiaries to market risks, as well as statements
expressing management's expectations, beliefs, estimates, forecasts, projections
and assumptions, as indicated by words such as "believes," "estimates,"
"intends," "anticipates," "plans," "expects," "projects," "should," "probably,"
"risk," "target," "goals," "objectives," or similar expressions. AXA Financial,
Inc. assumes no duty to update any forward-looking statement. Forward-looking
statements are based on management's expectations and beliefs concerning future
developments and their potential effects and are subject to risks and
uncertainties. Forward-looking statements are not a guarantee of future
performance. Actual results could differ materially from those anticipated by
forward-looking statements due to a number of important factors, including those
discussed under "Risk Factors" and elsewhere in this report.
ii
PART I, ITEM 1.
BUSINESS(1)
OVERVIEW
AXA Financial Group is a diversified financial services organization offering a
broad spectrum of financial advisory, insurance and investment management
products and services. It is one of the world's largest asset managers, with
total assets under management of approximately $795.01 billion at December 31,
2006, of which approximately $716.90 billion were managed by AllianceBernstein.
Through its insurance company subsidiaries, AXA Financial Group is also among
the oldest and largest life insurance organizations in the United States. AXA
Financial is a wholly owned subsidiary of AXA, a French holding company for an
international group of insurance and related financial services companies. AXA
is subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and files annual reports on Form 20-F. For
additional information regarding AXA, see "-Parent Company".
SEGMENT INFORMATION
AXA Financial Group conducts operations in two business segments, the Financial
Advisory/Insurance segment and the Investment Management segment. The financial
advisory and insurance business conducted by AXA Equitable, AXA Advisors, AXA
Network, AXA Distributors and their subsidiaries and the MONY Companies is
reported in the Financial Advisory/Insurance segment. The investment management
business of AllianceBernstein, a leading global investment management firm, is
reported in the Investment Management segment. For additional information on AXA
Financial Group's business segments, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results Of Continuing
Operations By Segment" and Note 21 of Notes to Consolidated Financial
Statements.
FINANCIAL ADVISORY/INSURANCE
The Financial Advisory/Insurance segment offers a variety of traditional,
variable and interest-sensitive life insurance products, variable and
fixed-interest annuity products, mutual funds and other investment products and
asset management, financial planning and other services principally to
individuals, small and medium-size businesses and professional and trade
associations. The Financial Advisory/Insurance segment, which also includes
Separate Accounts for individual and group life insurance and annuity products,
accounted for approximately $7.93 billion (or 66.9%) of total revenues, after
intersegment eliminations, for the year ended December 31, 2006.
Financial Advisory/Insurance segment products are offered on a retail basis in
all 50 states, the District of Columbia and Puerto Rico by financial
professionals associated with AXA Advisors, an affiliated broker-dealer, and AXA
Network, an affiliated insurance general agency. AXA Distributors, a
broker-dealer and insurance general agency
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(1) As used in this Form 10-K, the term "AXA Financial Group" refers to AXA
Financial, Inc., a Delaware corporation incorporated in 1991 ("AXA Financial"),
and its consolidated subsidiaries. The term "MONY" refers to The MONY Group
Inc., a Delaware corporation acquired by AXA Financial on July 8, 2004 that
merged with and into AXA Financial on July 22, 2004, and the term "MONY
Companies" means MONY Life Insurance Company ("MONY Life"), MONY Life Insurance
Company of America ("MLOA"), U.S. Financial Life Insurance Company ("USFL") and
the other subsidiaries of MONY acquired by AXA Financial in the MONY
acquisition. The term "Financial Advisory/Insurance Group" refers collectively
to AXA Equitable Life Insurance Company ("AXA Equitable"), a New York stock life
insurance corporation, to AXA Equitable's wholly owned subsidiaries, AXA Life
and Annuity Company ("AXA Life"), and AXA Distributors, LLC and its subsidiaries
(collectively, "AXA Distributors"), to AXA Advisors, LLC ("AXA Advisors"), to
AXA Network, LLC and its subsidiaries (collectively, "AXA Network"), AXA
Financial (Bermuda) Ltd. ("AXA Bermuda") and the MONY Companies. The term
"AllianceBernstein" refers to AllianceBernstein L.P. (formerly Alliance Capital
Management L.P.), a Delaware limited partnership, and its subsidiaries. The
term "Insurance Group" refers collectively to AXA Equitable, MONY Life, MLOA,
USFL, AXA Life and AXA Bermuda. The term "General Account" refers to the assets
held in the respective general accounts of AXA Equitable, MONY Life, MLOA, AXA
Life, USFL and AXA Bermuda and all of the investment assets held in certain of
AXA Equitable's, MONY Life's and MLOA's separate accounts on which the Insurance
Group bears the investment risk. The term "Separate Accounts" refers to the
separate account investment assets of AXA Equitable, MONY Life and MLOA
excluding the assets held in those separate accounts on which the Insurance
Group bears the investment risk. The term "General Account Investment Assets"
refers to assets held in the General Account associated with the Insurance
Group's continuing operations (which includes the Closed Blocks described below)
and does not include assets held in the General Account associated primarily
with the Insurance Group's discontinued Wind-up Annuity line of business
("Wind-up Annuities").
1-1
subsidiary of AXA Equitable, distributes the Insurance Group's products on a
wholesale basis in all 50 states, the District of Columbia and Puerto Rico
through national and regional securities firms, independent financial planning
and other broker-dealers, banks and brokerage general agencies.
As of December 31, 2006, the Insurance Group had approximately 3.4 million
insurance policies and annuity contracts in force. For additional information on
the Financial Advisory/Insurance segment, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Continuing Operations by Segment - Financial Advisory/Insurance", Note 21 of
Notes to Consolidated Financial Statements, as well as "- Employees and
Financial Professionals", "- Competition" and "- Regulation".
PRODUCTS
VARIABLE ANNUITIES AND VARIABLE LIFE INSURANCE. The Insurance Group is among the
country's leading issuers of variable annuity and variable life insurance
products. Variable annuity and variable life insurance products offer purchasers
the opportunity to invest some or all of their account values in various
Separate Account investment options. The continued growth of separate account
assets under management remains a strategic objective of AXA Financial Group,
which seeks to increase the percentage of its income that is fee-based and
derived from managing funds for its clients (who bear the investment risk and
reward).
The sale of variable annuity products has become increasingly important to the
Insurance Group in recent years, with variable annuities accounting for 74.1% of
the Insurance Group's total premiums and deposits in 2006. Variable annuity
products offered by the Insurance Group principally include deferred variable
annuities sold in the individual (non-qualified) markets, as individual
retirement annuities, in public school systems as tax sheltered annuities and as
group annuities in the employer-sponsored retirement plan markets. A significant
portion of the variable annuities sold by the Insurance Group offer one or more
enhanced guarantee features in addition to the standard return of principal
death benefit guarantee. Such enhanced guarantee features may include an
enhanced guaranteed minimum death benefit ("GMDB") and/or guaranteed minimum
living benefits. Guaranteed minimum living benefits include guaranteed minimum
income benefits ("GMIB"), guaranteed minimum accumulation benefits and
guaranteed minimum withdrawal benefits for life ("WBL"). During 2006, GMIB
remained the predominant guaranteed minimum living benefit elected by the
Insurance Group's customers. For additional information regarding these
guaranteed minimum benefit features, see Notes 2, 8 and 9 of Notes to
Consolidated Financial Statements.
Variable life insurance products accounted for 7.3% of the Insurance Group's
total premiums and deposits in 2006. Variable life insurance products offered by
the Insurance Group include single-life products, second-to-die policies (which
pay death benefits following the death of both insureds) and products for the
corporate-owned life insurance "COLI" market.
As noted above, variable annuity and variable life products offer purchasers the
opportunity to direct the investment of their account values into various
Separate Account investment options. Over the past five years, Separate Account
assets for individual variable annuities and variable life insurance policies
have increased by $43.88 billion to $83.55 billion at December 31, 2006. Of the
2006 year-end amount, approximately $53.85 billion was invested through EQ
Advisors Trust ("EQAT") and approximately $25.70 billion was invested through
AXA Premier VIP Trust ("VIP Trust"). EQAT and VIP Trust are mutual funds for
which AXA Equitable serves as investment manager and administrator. The balance
of such Separate Account assets is invested through various other mutual funds
for which third parties serve as investment manager.
EQAT is a mutual fund offering variable life and annuity contractholders a
choice of single-advisor equity, bond and money market investment portfolios.
Day-to-day portfolio management services for each investment portfolio are
provided, on a subadvisory basis, by various affiliated and unaffiliated
investment subadvisors. AllianceBernstein and AXA Rosenberg Investment
Management ("AXA Rosenberg"), each an AXA affiliate, provided investment
advisory services to investment portfolios representing approximately 45.6% of
the total assets in EQAT portfolios at December 31, 2006 and unaffiliated
investment subadvisors provided investment advisory services in respect of the
balance of the assets in EQAT portfolios.
VIP Trust is a mutual fund offering variable life and annuity contractholders a
choice of multi-advisor equity and bond investment portfolios, as well as asset
allocation portfolios that invest exclusively in other portfolios of EQAT and/or
VIP Trust. Day-to-day portfolio management services for each investment
portfolio are provided, on a subadvisory basis, by various affiliated and
unaffiliated investment subadvisors. AllianceBernstein and AXA Rosenberg
provided investment advisory services in respect of investment portfolios
representing approximately 9.0% of the total assets in the VIP Trust portfolios
at December 31, 2006 and unaffiliated investment subadvisors provided investment
advisory services in respect of the balance of the assets in the VIP Trust
portfolios.
1-2
FIXED ANNUITIES AND FIXED LIFE INSURANCE. In addition to variable annuity and
variable life insurance products, the Insurance Group issues a variety of fixed
annuity products, including individual single premium deferred annuities, which
credit an initial and subsequent annually declared interest rate, and payout
annuity products, including traditional immediate annuities. Fixed annuity
products accounted for 0.6% of the Insurance Group's total premium and deposits
in 2006.
The Insurance Group also issues an array of traditional and interest-sensitive
life insurance products, including whole life, universal life and term life
insurance. Traditional and interest-sensitive life insurance products accounted
for 12.3% of the Insurance Group's total premium and deposits in 2006 and
continue to represent an increasingly significant product line for the Insurance
Group. Included among these products are term life and interest-sensitive life
insurance products issued by USFL, which are designed for the impaired risk
market, focusing on customers with treatable medical conditions. USFL
specializes in underwriting life insurance policies for individuals considered
special medical risks using its proprietary Clinical Underwriting(R) risk
evaluation process.
RETAIL MUTUAL FUNDS. The Financial Advisory/Insurance Group also sponsors
various retail mutual funds.
AXA Enterprise Multimanager Funds Trust (formerly AXA Premier Funds Trust)
("Multimanager Trust") is a retail multi-manager mutual fund consisting of
equity and bond investment portfolios, as well as asset allocation portfolios
that invest exclusively in other retail funds managed by AXA Equitable or
Enterprise Capital Management, Inc. ("Enterprise Capital"), a subsidiary of AXA
Financial. At December 31, 2006, Multimanager Trust had total assets of $559
million. AXA Equitable serves as the Investment Manager and Administrator of
Multimanager Trust. AXA Enterprise Funds Trust ("AEFT") is a retail mutual fund
consisting of equity, bond and money market funds. At December 31, 2006, AEFT
had total assets of $2.58 billion. AXA Equitable serves as investment manager
and administrator to AEFT. The Enterprise Group of Funds, Inc. ("EGF") is a
retail mutual fund comprised of two equity investment portfolios. At December
31, 2006, EGF portfolios had total assets of $1.73 billion. Enterprise Capital
serves as the investment manager and AXA Equitable serves as the administrator
to each EGF fund.
In October 2006, AXA Financial and its subsidiaries, AXA Equitable, Enterprise
Capital and Enterprise Fund Distributors, Inc. ("EFD"), entered into an
agreement contemplating the transfer to Goldman Sachs Asset Management L. P.
("GSAM") of assets relating to the business of serving as sponsor of and
investment manager to 27 of the 31 funds of AXA Enterprise Multimanager Funds
Trust, AXA Enterprise Funds Trust and The Enterprise Group of Funds, Inc.
(collectively, the "AXA Enterprise Funds") and the reorganization of such funds
into corresponding mutual funds managed by GSAM. These 27 funds had
approximately $4.2 billion in assets under management as of December 31, 2006.
The reorganization of the 27 funds is subject to regulatory and fund shareholder
approvals and is expected to close in the second quarter of 2007. Of the
remaining four funds not included in the GSAM reorganization, which together had
approximately $700 million in assets under management as of December 31, 2006,
one fund is being liquidated and AXA Financial is considering possible
alternatives for the dispositions of the other three funds, which alternatives
include a possible transaction with another investment advisor or liquidation.
For additional information on assets under management, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Continuing Operations by Segment" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Assets Under
Management".
MARKETS. The Insurance Group targets primarily affluent and emerging affluent
individuals such as professionals and business owners, as well as employees of
public schools, universities, not-for-profit entities and certain other
tax-exempt organizations, and existing customers. Variable annuity products are
targeted at individuals saving for retirement, seeking retirement income (using
either qualified programs, such as individual retirement annuities, or
non-qualified investments) or seeking the enhanced guarantees offered in these
products, as well as employers (including, among others, educational and
not-for-profit entities, and small and medium-sized businesses) seeking to offer
retirement savings programs such as 401(k) or 403(b) plans. Variable and
interest-sensitive life insurance is targeted at individuals in middle-to-upper
income levels for protection and estate planning purposes, and at business
owners to assist in, among other things, business continuation planning and
funding for executive benefits. Mutual funds and other investment products are
intended for a broad spectrum of clients to meet a variety of asset accumulation
and investment needs. Mutual funds and their investment products add breadth and
depth to the range of needs-based services and products the Financial
Advisory/Insurance Group is able to provide.
DISTRIBUTION. The Insurance Group distributes its annuity, life insurance and
mutual fund products directly to the public through financial professionals
associated with AXA Advisors and AXA Network. These financial professionals also
have access to and can offer a broad array of annuity, life insurance and
investment products and services from unaffiliated insurers and other financial
service providers.
1-3
The Insurance Group also distributes its annuity and life insurance products on
a wholesale basis through AXA Distributors. AXA Distributors distributes the
Insurance Group's annuity products through third-party national and regional
securities firms, independent financial planning and other broker-dealers and
banks. AXA Distributors, through its AXA Partners division, also distributes the
Insurance Group's life insurance products principally through third-party
brokerage general agencies.
The continued growth of AXA Distributors' wholesale business has become
increasingly important to the Insurance Group. Annuities and life insurance
distributed by AXA Distributors accounted for 46.6% and 42.0% of the Insurance
Group's total annuity and life insurance premiums and deposits in 2006 and 2005,
respectively. Annuities distributed by AXA Distributors accounted for 63.1% and
60.1% of the Insurance Group's total first year annuity premiums and deposits in
2006 and 2005, respectively, and 53.8% and 50.2% of the Insurance Group's total
annuity premiums and deposits in 2006 and 2005, respectively. Similarly, life
insurance products distributed by the AXA Partners division of AXA Distributors
have accounted for a rising portion of the Insurance Group's overall life
insurance business, with life insurance products distributed by AXA Partners
accounting for 45.8% and 35.3% of the Insurance Group's total first year life
insurance premiums and deposits in 2006 and 2005, respectively, and 18.4% and
13.8% of the Insurance Group's total life insurance premiums and deposits in
2006 and 2005, respectively.
Management believes that a portion of the increase in sales of life insurance
through AXA Distributors may be attributable to certain sales of life insurance
policies instigated and/or financed by persons or entities with no relationship
to the insured, with the expectation that such persons or entities will
eventually acquire the policies from the insured as an investment. Due in part
to the potential for adverse selection in these circumstances, the profitability
of such sales may be lower than the Insurance Group might otherwise expect from
sales to traditional non-investor life insurance purchasers. The Insurance Group
has implemented changes to certain of its commission rates and underwriting
practices to reduce the possibility of sales to non-investor purchasers. Based
on periodic samplings of life insurance sales, however, management does not
believe that any sales to date to persons or entities with no relationship to
the insured will have a significant impact on the future profitability of the
Insurance Group.
EFD, an affiliate of AXA Financial, serves as the principal underwriter of
retail mutual funds sponsored by the Financial Advisory/Insurance Group. EFD has
selling agreements with AXA Advisors as well as third-party national and
regional securities firms, independent financial planning and other
broker-dealers and banks.
In December 2006, AXA Advisors entered into an outsourcing arrangement with
Linsco Private Ledger ("LPL") under which LPL will provide certain
administrative services, including clearing and transaction processing and
customer service, for the brokerage business of AXA Advisors. Under the terms of
related agreements, AXA Advisors' financial professionals will gain access to
certain LPL proprietary technology, including brokerage and advisory platforms
and research services. The related operational conversions are expected to
commence in the third quarter of 2007.
REINSURANCE AND HEDGING. The Insurance Group has in place reinsurance and
hedging programs to reduce its exposure to equity market declines, interest rate
fluctuations and mortality. In 2006, the Insurance Group retained up to a
maximum of $25 million of risk on single-life policies and $30 million of risk
on second-to-die policies, except for USFL for which the Insurance Group
retained up to a maximum of $2.5 million of risk on single-life policies and
$3.0 million of risk on second-to-die policies. For amounts issued in excess of
those limits, the Insurance Group obtained reinsurance from unaffiliated third
parties. The reinsurance arrangements obligate the reinsurer to pay a portion of
any death claim in excess of the amount retained by the Insurance Group in
exchange for an agreed-upon premium. A contingent liability exists with respect
to such reinsurance should the reinsurers be unable to meet their obligations.
The Insurance Group evaluates the financial condition of its reinsurers in an
effort to minimize its exposure to significant losses from reinsurer
insolvencies. The Insurance Group is not a party to any risk reinsurance
arrangement with any reinsurer pursuant to which the amount of reserves on
reinsurance ceded to such reinsurer equals more than one percent of the total
policy reserves of the Insurance Group (including Separate Accounts).
The Insurance Group also reinsures a percentage of its exposure on variable
annuity products that offer a GMIB feature and/or GMDB features. At December 31,
2006, the Insurance Group had reinsured, subject to certain maximum amounts or
caps in any one period, approximately 74.4% of its net amount at risk resulting
from the GMIB feature and approximately 33.6% of its net amount at risk to the
GMDB obligation on annuity contracts in force as of December 31, 2006. The
Insurance Group has adopted certain hedging strategies that are designed to
reduce exposure to GMIB, GMDB and WBL liabilities that have not been reinsured
for policies issued after April 2002.
1-4
For additional information about reinsurance and hedging strategies implemented
by AXA Financial Group, see "Quantitative and Qualitative Disclosures about
Market Risk" and Notes 2, 5, 8, and 9 of Notes to Consolidated Financial
Statements.
The Insurance Group also acts as a retrocessionaire by assuming life reinsurance
from reinsurers. Mortality risk through reinsurance assumed is managed using the
same corporate retention limits noted above (i.e., $25 million on single-life
policies and $30 million on second-to-die policies), although, in practice, the
Insurance Group is currently using lower internal retention limits for life
reinsurance assumed. The Insurance Group has also assumed accident, health,
aviation and space risks by participating in or reinsuring various reinsurance
pools and arrangements. The Insurance Group generally discontinued its
participation in new accident, health, aviation and space reinsurance pools and
arrangements for years following 2000, but continues to be exposed to claims in
connection with pools it participated in prior to that time. The Insurance Group
audits or otherwise reviews the records of many of these reinsurance pools and
arrangements as part of its ongoing efforts to manage its claims risk.
GENERAL ACCOUNT INVESTMENT PORTFOLIO. The General Account consists of a
diversified portfolio of principally fixed-income investments.
The following table summarizes General Account Investment Assets of the
Insurance Group by asset category at December 31, 2006:
INSURANCE GROUP
GENERAL ACCOUNT INVESTMENT ASSETS
NET AMORTIZED COST (1)
(DOLLARS IN MILLIONS)
AMOUNT % OF TOTAL
------------- ------------
Fixed maturities (2)................... $ 38,420.0 74.9%
Mortgages.............................. 4,678.5 9.1
Equity real estate..................... 572.5 1.1
Other equity investments............... 1,509.8 2.9
Policy loans........................... 5,165.1 10.1
Cash and short-term investments (3).... 983.4 1.9
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Total.................................. $ 51,329.3 100.0%
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(1) Net amortized cost is the cost of the General Account Investment Assets
(adjusted for impairments in value deemed to be other than temporary, if
any) less depreciation and amortization, where applicable, and less
valuation allowances on mortgage and real estate portfolios.
(2) To enhance comparability to other General Account investment assets,
excludes net unrealized gains of $454.6 million on fixed maturities
classified as available for sale. Reported in the consolidated balance
sheet at estimated fair value as required by generally accepted accounting
principles, fixed maturities include approximately $893.9 million net
amortized cost of securities considered to be "Other than investment
grade" securities.
(3) Comprised of "Cash and cash equivalents" and short-term investments
included within the "Other invested assets" caption on the consolidated
balance sheet.
The Insurance Group has an asset/liability management approach with separate
investment objectives for specific classes of product liabilities, such as
insurance, annuity and group pension. The Insurance Group has investment
guidelines for each product line that form the basis for investment strategies
to manage such product line's investment return and liquidity requirements,
consistent with management's overall investment objectives for the General
Account investment portfolio. Investments frequently meet the investment
objectives of more than one class of product liabilities; each such class may be
allocated a pro rata interest in such investments and the returns therefrom.
As part of the Insurance Group's investment management process, management, with
the assistance of its investment advisors, constantly monitors General Account
investment performance. This internal review process culminates with a quarterly
review of assets by the Insurance Group's Investments Under Surveillance
Committee that evaluates whether any investments are other than temporarily
impaired and whether specific investments should be put on an interest
non-accrual basis.
1-5
WIND-UP ANNUITIES. Wind-up Annuities, consists primarily of group
non-participating wind-up annuity products, are included in AXA Financial
Group's discontinued operations. At December 31, 2006, $788.2 million of related
policyholder liabilities were outstanding. For additional information about
Wind-up Annuities, see Notes 2 and 16 of Notes to Consolidated Financial
Statements.
INVESTMENT MANAGEMENT
GENERAL. The Investment Management segment is principally comprised of the
investment management business of AllianceBernstein. AllianceBernstein offers a
broad range of investment products and services to its clients, including the
following: (a) to its institutional clients, AllianceBernstein offers separately
managed accounts, subadvisory relationships, structured products, group trusts,
mutual funds and other investment vehicles, (b) to its retail clients,
AllianceBernstein offers retail mutual funds sponsored by AllianceBernstein, its
subsidiaries and affiliated joint venture companies, subadvisory relationships
in respect of mutual funds sponsored by third parties, separately managed
account programs that are sponsored by various financial intermediaries
worldwide and other investment vehicles, (c) to its private clients,
AllianceBernstein offers separately managed accounts, hedge funds, mutual funds
and other investment vehicles and (d) to its institutional investors,
AllianceBernstein offers in-depth, independent, fundamental research, portfolio
strategy, trading and brokerage-related services.
AllianceBernstein's portfolio managers oversee a number of different types of
investment products within various vehicles and strategies. AllianceBernstein's
investment services include: (a) growth equities, generally targeting stocks
with under-appreciated growth potential; (b) value equities, generally targeting
stocks that are out of favor and that may trade at bargain prices; (c) fixed
income, including both taxable and tax-exempt securities; (d) passive
management, including both index and enhanced index strategies; and (e) blend
strategies, combining style pure components with systematic rebalancing.
The Investment Management segment in 2006 accounted for approximately $4.02
billion (or 33.9%) of total revenues, after intersegment eliminations. As of
December 31, 2006, AllianceBernstein had approximately $716.9 billion in assets
under management, including approximately $455.1 billion from institutional
investors, approximately $166.9 billion from retail mutual fund accounts and
approximately $94.9 billion from private clients. As of December 31, 2006,
assets of AXA, AXA Financial and the Insurance Group, including investments in
EQAT, VIP Trust and Multimanager Trust, represented approximately 16.5% of
AllianceBernstein's total assets under management, and fees and other charges
for the management of those assets accounted for approximately 4.7% of
AllianceBernstein's total revenues. The Investment Management segment continues
to add third-party assets under management, and to provide asset management
services to the Insurance Group.
INTEREST IN ALLIANCEBERNSTEIN. In October 2000, AllianceBernstein acquired SCB
Inc., formerly known as Sanford C. Bernstein, Inc. ("Bernstein"). In connection
with this acquisition (the "Bernstein Acquisition"), Bernstein and SCB Partners
Inc. were granted the right to sell limited partnership interests in
AllianceBernstein L.P. ("AllianceBernstein Units") to AXA Financial or an entity
designated by AXA Financial (the "AllianceBernstein Put"). Since November 2002,
AXA Financial, either directly or indirectly through wholly owned subsidiaries,
has acquired a total of 32.64 million AllianceBernstein Units for an aggregate
purchase price of approximately $1.63 billion through several purchases made
pursuant to the AllianceBernstein Put, including, most recently, AXA Financial's
purchase on February 23, 2007 of 8.16 million AllianceBernstein Units at a
purchase price of approximately $745.7 million. After giving effect to the
Bernstein Acquisition and such subsequent purchases, AXA Financial Group's
consolidated economic interests in AllianceBernstein L.P. as of March 1, 2007
and December 31, 2006 was approximately 63.3% and 60.3%, respectively, including
the general partnership interests held indirectly by AXA Equitable as the sole
shareholder of the general partner of AllianceBernstein Holding L.P. and
AllianceBernstein L.P.
For additional information about AllianceBernstein, including its results of
operations, see "- Regulation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Continuing Operations
by Segment - Investment Management" and AllianceBernstein L.P.'s Annual Report
on Form 10-K for the year ended December 31, 2006 filed with the Securities and
Exchange Commission (the "SEC") on February 28, 2007.
EMPLOYEES AND FINANCIAL PROFESSIONALS
As of December 31, 2006, AXA Financial Group had approximately 10,956 employees.
Of these, approximately 5,864 and 4,914 were employed full-time by the Financial
Advisory/Insurance Group and AllianceBernstein, respectively. In addition to
these employees, as of December 31, 2006, the Financial Advisory/Insurance Group
had a sales force consisting of approximately 5,968 AXA Advisors financial
professionals, including 358 field managers.
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COMPETITION
FINANCIAL ADVISORY/INSURANCE. There is strong competition among insurers, banks,
brokerage firms and other financial institutions and providers seeking clients
for the types of products and services provided by the Financial
Advisory/Insurance Group, including insurance, annuity and other investment
products and services. Competition is particularly intense among a broad range
of financial institutions and other financial service providers for retirement
and other savings dollars. The principal competitive factors affecting the
Financial Advisory/Insurance Group's business are financial and claims-paying
ratings; access to diversified sources of distribution; size and scale; product
quality, range, features/functionality, customization and price; crediting rates
on fixed products; visibility and brand recognition in the marketplace;
reputation and quality of service; and, with respect to variable insurance and
annuity products, mutual funds and other investment products, investment
management performance.
As noted above, ratings are an important factor in establishing the competitive
position of insurance companies. As of March 14, 2007 the financial strength or
claims-paying rating of AXA Equitable was "AA-" from Standard & Poor's
Corporation (4th highest of 21 ratings; with stable outlook), "Aa3" from Moody's
Investors Service (4th highest of 21 ratings; with stable outlook), "A+" from
A.M. Best Company, Inc. (2nd highest of 15 ratings; with stable outlook), and
"AA" from Fitch Investors Service, L.P. (3rd highest of 24 ratings; with stable
outlook). As of March 14, 2007, the financial strength or claims-paying ratings
of MONY Life and MLOA were "AA-" from Standard & Poor's Corporation (4th highest
of 21 ratings; with stable outlook), "Aa3" from Moody's Investors Service (4th
highest of 21 ratings; with stable outlook), "A+" from A.M. Best Company, Inc.
(2nd highest of 15 ratings; with stable outlook), and "AA" from Fitch Investors
Service, L.P. (3rd highest of 24 ratings; with stable outlook). As of March 14,
2007, the financial strength or claims-paying rating of USFL was "A+" from A.M.
Best Company, Inc. (2nd highest of 15 ratings; with stable outlook) and "AA"
from Fitch Investors Service, L.P. (3rd highest of 24 ratings; with stable
outlook). As of March 14, 2007, AXA Financial's long-term debt rating was "A"
from Standard & Poor's Corporation (7th highest of 22 ratings; with positive
outlook - under review for possible upgrade), "A2" from Moody's Investors
Service (6th highest of 21 ratings; with stable outlook), "a-" from A.M. Best
Company, Inc. (7th highest of 22 ratings; with stable outlook) and "A+" from
Fitch Investors Service, L.P. (5th highest of 24 ratings; with stable outlook).
INVESTMENT MANAGEMENT. The financial services industry is intensely competitive
and new entrants are continually attracted to it. No single or small group of
competitors is dominant in the industry. AllianceBernstein competes in all
aspects of its business with numerous investment management firms, mutual fund
complexes, brokerage and investment banking firms, insurance companies, banks,
savings and loan associations, and other financial institutions that often
provide investment products that have similar features and objectives as those
AllianceBernstein offers. AllianceBernstein's competitors offer a wide range of
financial services to the same customers that AllianceBernstein seeks to serve.
Some of AllianceBernstein's competitors are larger, have a broader range of
product choices and investment capabilities, conduct business in more markets,
and have substantially greater resources than AllianceBernstein does. These
factors may place AllianceBernstein at a competitive disadvantage. To grow its
business, AllianceBernstein must be able to compete effectively for assets under
management. Key competitive factors include (i) AllianceBernstein's commitment
to place the interests of its clients first; (ii) the quality of
AllianceBernstein's research; (iii) AllianceBernstein's ability to attract,
retain and motivate highly skilled, and often highly specialized, personnel;
(iv) AllianceBernstein's investment performance; (v) the array of investment
products AllianceBernstein offers; (vi) the fees AllianceBernstein charges;
(vii) AllianceBernstein's operational effectiveness; (viii) AllianceBernstein's
ability to further develop and market its brand; and (ix) AllianceBernstein's
global presence.
AXA, AXA Equitable and certain of their direct and indirect subsidiaries offer
financial services, some of which compete with those offered by
AllianceBernstein. AllianceBernstein's partnership agreement specifically allows
AXA Equitable and its subsidiaries (other than the general partner of
AllianceBernstein L.P.) to compete with AllianceBernstein.
REGULATION
INSURANCE SUPERVISION. Members of the Insurance Group are licensed to transact
insurance business in, and are subject to extensive regulation and supervision
by, insurance regulators in all 50 states of the United States, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands and nine of Canada's twelve
provinces and territories. AXA Equitable and MONY Life are domiciled in New York
and are primarily regulated by the Superintendent (the "Superintendent") of the
New York Insurance Department (the "NYID"). AXA Life is domiciled in Colorado
and is primarily regulated by the Commissioner of Insurance of the Colorado
Division of Insurance. MLOA is domiciled
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in Arizona and is primarily regulated by the Director of Insurance of the
Arizona Department of Insurance. USFL is domiciled in Ohio and is primarily
regulated by the Director of Insurance of the Ohio Department of Insurance. AXA
Bermuda is domiciled in Bermuda and is primarily regulated by the Bermuda
Monetary Authority. The extent of regulation varies, but most jurisdictions have
laws and regulations governing sales practices, standards of solvency, levels of
reserves, risk-based capital, permitted types and concentrations of investments,
and business conduct to be maintained by insurance companies as well as agent
licensing, approval of policy forms and, for certain lines of insurance,
approval or filing of rates. Insurance regulators have the discretionary
authority to limit or prohibit new issuances of business to policyholders within
their jurisdictions when, in their judgment, such regulators determine that the
issuing company is not maintaining adequate statutory surplus or capital.
Additionally, the New York Insurance Law limits sales commissions and certain
other marketing expenses that may be incurred by AXA Equitable or MONY Life.
Each of the members of the Insurance Group is required to file detailed annual
financial statements, prepared on a statutory accounting basis, with supervisory
agencies in each of the jurisdictions in which it does business. Such agencies
may conduct regular or targeted examinations of the operations and accounts of
the members of the Insurance Group, and make requests for particular information
from them. For example, the domestic insurance regulators of AXA Equitable, AXA
Life, MONY Life and USFL are currently conducting their periodic statutory
examinations of the books, records and accounts of these insurance companies.
The companies have responded to various information requests made during these
examinations, including inquiries relating to insurance replacement issues. A
remediation program may be required as a result of these examinations, but
management does not believe such a remediation program would have a material
impact on the Insurance Group's business. In recent years, the insurance
industry has seen an increase in inquiries from state attorneys general and
insurance commissioners regarding compliance with certain state insurance and
securities laws. For example, certain attorneys general and insurance
commissioners have requested information from the Insurance Group and other
insurance companies regarding collusive bidding, revenue sharing and market
timing practices, suitability of annuity sales and practices associated with
replacements and exchanges of life insurance and annuities.
HOLDING COMPANY AND SHAREHOLDER DIVIDEND REGULATION. Several states, including
New York, regulate transactions between an insurer and its affiliates under
insurance holding company acts. These acts contain certain reporting
requirements and restrictions on provision of services and on transactions, such
as intercompany service agreements, asset transfers, reinsurance, loans and
shareholder dividend payments by insurers. Depending on their size, such
transactions and payments may be subject to prior notice to, or approval by, the
insurance department of the applicable state. In 2006, AXA Equitable and MONY
Life paid an aggregate of $600 million and $35 million, respectively, in
shareholder dividends.
FEDERAL TAX INITIATIVES. Although the Federal government generally does not
directly regulate the insurance business, many Federal tax laws affect the
business in a variety of ways. There are a number of existing, newly enacted or
recently proposed Federal tax initiatives that may significantly affect the
Insurance Group. In June 2001, legislation was enacted which, among other
things, provides several years of lower rates for estate, gift and generation
skipping taxes ("GST") as well as one year of estate and GST repeal (in 2010)
before returning to 2001 law for the year 2011 and thereafter. Legislation has
been proposed regarding extending or making permanent the repeal of the estate
and generation skipping taxes or significantly increasing exemption amounts and
lowering rates. If enacted, this legislation would have an adverse impact on
sales and surrenders of life insurance in connection with estate planning. Other
provisions of the 2001 legislation increased amounts which may be contributed to
tax qualified retirement plans and allowed increased funding levels for tax
qualified retirement products. These provisions, which were to expire after
2010, have now been made permanent. In 2003, reductions to income tax rates on
long-term capital gains and qualifying corporate dividends were enacted which
adversely impacted the attractiveness of cash value life insurance and annuity
products relative to other investment alternatives that may qualify for these
lower rates. While set to expire after 2010, there are proposals to extend or
make such reduced rates permanent. Recently proposed Federal legislation and
Treasury regulations relating to the creation of new tax-favored savings
accounts and modifications to nonqualified deferred compensation and qualified
plans (including tax sheltered annuities) could, to the extent enacted or
adopted, adversely affect certain sales of life insurance as well as the
attractiveness of certain qualified plan arrangements, cash value life insurance
and annuities. The U.S. Congress may also consider proposals for the
comprehensive overhaul of the Federal tax law which, if enacted, could adversely
impact the attractiveness of cash value life insurance, annuities and tax
qualified retirement products. For example, in November 2005, The President's
Advisory Panel on Federal Tax Reform announced its tax reform options that, if
enacted by Congress, would make sweeping changes to many longstanding tax rules.
These changes would include the creation of new tax-favored savings accounts
that would replace many existing qualified plan arrangements and would eliminate
certain tax benefits currently available to cash value life insurance and
deferred annuity products by annually taxing any withdrawable cash value
build-up in such products. Management believes that the enactment of these
options into law in their current or similar form would adversely affect sales,
funding and persistency of cash value life insurance and deferred annuity
products. Management cannot predict what, if any, legislation will actually be
proposed or enacted based on these options or what other
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proposals or legislation, if any, may be introduced or enacted relating to AXA
Financial Group's business or what the effect of any such legislation might be.
SECURITIES LAWS. AXA Financial, certain of its subsidiaries, and certain
policies and contracts offered by the Insurance Group are subject to regulation
under the Federal securities laws administered by the SEC and under certain
state securities laws. The SEC conducts regular examinations of the Insurance
Group's operations, and from time to time makes requests for particular
information from the Insurance Group.
AXA Advisors, AXA Distributors, AllianceBernstein Investments, Inc., Sanford C.
Bernstein & Co., LLC and EFD are registered as broker-dealers (collectively the
"Broker-Dealers") under the Exchange Act. The Broker-Dealers are subject to
extensive regulation by the SEC, and are members of, and subject to regulation
by, the National Association of Securities Dealers, Inc. (the "NASD"). As
broker-dealers registered with the SEC, the Broker-Dealers are subject to the
capital requirements of the SEC and/or the NASD. These capital requirements
specify minimum levels of capital, computed in accordance with regulatory
requirements ("net capital"), that the Broker-Dealers are required to maintain
and also limit the amount of leverage that the Broker-Dealers are able to obtain
in their businesses. The SEC and the NASD also regulate the sales practices of
the Broker-Dealers. In recent years, the SEC and the NASD have intensified their
scrutiny of sales practices relating to variable annuities, variable life
insurance and mutual funds, among other products. For example, the NASD recently
proposed increased suitability requirements and additional compliance procedures
relating to sales of variable annuities which, if enacted, could negatively
impact sales of annuity products. In addition, the Broker-Dealers are also
subject to regulation by state securities administrators in those states in
which they conduct business.
The SEC, the NASD and other governmental regulatory authorities, including state
securities administrators, may institute administrative or judicial proceedings
that may result in censure, fines, the issuance of cease-and-desist orders, the
suspension or expulsion of a broker-dealer or member, its officers or employees
or other similar sanctions.
AXA Financial and certain subsidiaries have provided, and in certain cases
continue to provide, information and documents to the SEC, the NASD, state
attorneys general, state insurance regulators and other regulators on a wide
range of issues, including supervisory issues, market timing, late trading,
valuation, suitability, email retention policies, replacements and exchanges of
variable life insurance and annuities, collusive bidding and other inappropriate
solicitation activities, "revenue sharing" and directed brokerage arrangements,
investment company directed brokerage arrangements, fund portfolio brokerage
commissions, mutual fund sales and marketing and "networking arrangements". For
example, AXA Equitable has provided information to the New York State Attorney
General (the "NYAG") in response to a subpoena and information requests relating
to possible market timing activities conducted through AXA Equitable's variable
insurance products. Ongoing or future regulatory investigations could result in
fines, other sanctions and/or other costs.
Certain Separate Accounts of AXA Equitable, MONY Life and MLOA are registered as
investment companies under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Separate Account interests under certain annuity
contracts and insurance policies issued by AXA Equitable and MLOA are also
registered under the Securities Act of 1933, as amended (the "Securities Act").
EQAT, Multimanager Trust, VIP Trust, AEFT and EGF are registered as investment
companies under the Investment Company Act and shares offered by these
investment companies are also registered under the Securities Act. Many of the
investment companies managed by AllianceBernstein, including a variety of mutual
funds and other pooled investment vehicles, are registered with the SEC under
the Investment Company Act.
AXA Equitable, AXA Advisors, Enterprise Capital and certain affiliates and
AllianceBernstein and certain affiliates of AllianceBernstein also are
registered as investment advisors under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"). The investment advisory activities of
such registered investment advisors are subject to various Federal and state
laws and regulations and to the laws in those foreign countries in which they
conduct business. These laws and regulations generally grant supervisory
agencies broad administrative powers, including the power to limit or restrict
the carrying on of business for failure to comply with such laws and
regulations. In case of such an event, the possible sanctions that may be
imposed include the suspension of individual employees, limitations on engaging
in business for specific periods, revocation of registration as an investment
advisor, censures and fines.
Regulators, including the SEC, the NASD and state attorneys general, continue to
focus attention on various practices in or affecting the investment management
and/or mutual fund industries, including market timing, late trading and the use
of fund assets for distribution.
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ALLIANCEBERNSTEIN REGULATORY MATTERS
MARKET TIMING INVESTIGATIONS. On December 18, 2003, AllianceBernstein entered
into agreements with the SEC and the NYAG in connection with their
investigations into trading practices in shares of certain of
AllianceBernstein's sponsored mutual funds. AllianceBernstein's agreement with
the SEC was reflected in an Order of the Commission ("SEC Order") dated December
18, 2003 (amended and restated January 15, 2004), while AllianceBernstein's
final agreement with the NYAG was reflected in an Assurance of Discontinuance
("AoD") dated September 1, 2004.
AllianceBernstein has taken a number of important initiatives to resolve these
matters. Specifically, AllianceBernstein: (i) established a $250 million
restitution fund to compensate fund shareholders for the adverse effects of
market timing (the "Restitution Fund"); (ii) reduced by 20% (on a weighted
average basis) the advisory fees on U.S. long-term open-end retail mutual FUNDS
by reducing its advisory fee rates (resulting in an approximate $66 million
reduction in 2006 advisory fees, a $63 million reduction in 2005 advisory fees
and a $70 million reduction in 2004 advisory fees), and AllianceBernstein will
maintain these reduced fee rates for at least the five-year period that
commenced January 1, 2004; and (iii) agreed to have an independent third party
perform a comprehensive compliance review biannually.
With the approval of the independent directors of AllianceBernstein's U.S.
registered mutual fund boards and the staff of the SEC, AllianceBernstein
retained an Independent Distribution Consultant ("IDC") to develop a plan for
the distribution of the Restitution Fund. To the extent it is determined that
the harm to mutual fund shareholders caused by market timing exceeds $200
million, AllianceBernstein will be required to contribute additional monies to
the Restitution Fund. In September 2005, the IDC submitted to the SEC staff the
portion of his report concerning his methodology for determining damages and a
proposed distribution plan, which addresses the mechanics of distribution. The
Restitution Fund proceeds will not be distributed until after the SEC has issued
an order approving the distribution plan. Until then it is not possible to
predict the exact timing, method or amount of the distribution.
For additional information regarding market timing matters involving
AllianceBernstein, see "Alliance Litigation - Market Timing-Related Matters" in
Note 19 of Notes to Consolidated Financial Statements.
PRIVACY OF CUSTOMER INFORMATION. AXA Financial has adopted a privacy policy
outlining procedures and practices to be followed by members of the AXA
Financial Group relating to the collection, disclosure and protection of
customer information. Customer information may only be used to conduct company
business. AXA Financial Group companies may not disclose customer information to
third parties except as required or permitted by law. Customer information may
not be sold or rented to third parties. A copy of the privacy policy is mailed
to customers on an annual basis. Federal and state laws and regulations require
financial institutions to protect the security and confidentiality of customer
information and report breaches in which customer information is intentionally
or accidentally disclosed to third parties. Violation of these laws and
regulations may result in significant fines and remediation costs. Legislation
currently under consideration in the U.S. Congress and state legislatures could
create additional obligations relating to the use and protection of customer
information.
PARENT COMPANY
AXA, the ultimate parent company of AXA Financial, is the holding company for an
international group of insurance and related financial services companies
engaged in the financial protection and wealth management business. AXA is one
of the largest insurance groups in the world. AXA operates primarily in Western
Europe, North America, the Asia/Pacific region and, to a lesser extent, in other
regions including, in particular, the Middle East and Africa. AXA has five
operating business segments: life and savings, property and casualty,
international insurance (including reinsurance), asset management and other
financial services.
Neither AXA nor any affiliate of AXA has any obligation to provide additional
capital or credit support to AXA Financial or any of its subsidiaries.
VOTING TRUST. In connection with AXA's application to the Superintendent for
approval of its acquisition of capital stock of AXA Financial, AXA and the
initial Trustees of the Voting Trust entered into a Voting Trust Agreement dated
as of May 12, 1992 (as amended by the First Amendment, dated January 22, 1997,
and as amended and restated by the Amended and Restated Voting Trust Agreement,
dated May 12, 2002, the "Voting Trust Agreement"). Pursuant to the Voting Trust
Agreement, AXA and its affiliates ("AXA Parties") have deposited the
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shares of AXA Financial's Common Stock held by them in the Voting Trust. The
purpose of the Voting Trust is to ensure for insurance regulatory purposes that
certain indirect minority shareholders of AXA will not be able to exercise
control over AXA Financial or AXA Equitable.
AXA and any other holder of voting trust certificates will remain the beneficial
owner of the shares deposited by it, except that the Trustees will be entitled
to exercise all voting rights attached to the deposited shares so long as such
shares remain subject to the Voting Trust. In voting the deposited shares, the
Trustees must act to protect the legitimate economic interests of AXA and any
other holders of voting trust certificates (but with a view to ensuring that
certain indirect minority shareholders of AXA do not exercise control over AXA
Financial or AXA Equitable). All dividends and distributions (other than those
which are paid in the form of shares required to be deposited in the Voting
Trust) in respect of deposited shares will be paid directly to the holders of
voting trust certificates. If a holder of voting trust certificates sells or
transfers deposited shares to a person who is not an AXA Party and is not (and
does not, in connection with such sale or transfer, become) a holder of voting
trust certificates, the shares sold or transferred will be released from the
Voting Trust. The initial term of the Voting Trust ended in 2002 and the term of
the Voting Trust has been extended, with the prior approval of the
Superintendent, until May 12, 2012. Future extensions of the term of the Voting
Trust remain subject to the prior approval of the Superintendent.
OTHER INFORMATION
All of AXA Financial's officers and employees, including its chief executive
officer, chief financial officer and controller, are subject to the Policy
Statement on Ethics (the "Code"), a code of ethics as defined under Regulation
S-K.
The Code complies with Section 406 of the Sarbanes-Oxley Act of 2002 and is
available on AXA Financial's website at www.axa-financial.com. AXA Financial
intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K
regarding certain amendments to or waivers from provisions of the Code that
apply to its chief executive officer, chief financial officer and controller by
posting such information on its website at the above address.
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PART I, ITEM 1A.
RISK FACTORS
In the course of conducting our business operations, we could be exposed to a
variety of risks. This "Risk Factors" section provides a summary of some of the
significant risks that could affect our business, financial condition or results
of operations. In this section, the terms "we," "us" and "our" refer to the
Financial Advisory/Insurance Group.
EQUITY MARKET DECLINES AND VOLATILITY MAY ADVERSELY IMPACT OUR PROFITABILITY.
Declines or volatility in equity markets can negatively impact the investment
returns we earn in those markets as well as our business and profitability.
Examples of the effects of declines or volatility in equity markets include the
following:
o Sustained equity market declines that result in decreases in the account
values of our variable life and annuity contracts could reduce the amount
of revenue we derive from fees charged on those account and asset values;
o Sustained equity market declines that result in decreases in the account
values of our variable life and annuity contracts that provide guaranteed
benefits would increase the size of our potential obligations related to
such guaranteed benefits. This could result in an increase in claims and
reserves related to those contracts, net of any reinsurance reimbursements
or proceeds from our hedging program;
o Increased volatility of equity markets may result in changes to the fair
value of our GMIB reinsurance contracts, which could result in increased
volatility of our earnings;
o Increased volatility of equity markets may increase surrenders and
withdrawals of our variable life and annuity contracts, which could
negatively impact our future profitability;
o Equity market declines could negatively impact the value of equity
securities we hold for investment, thereby reducing our capital;
o Equity price declines may decrease the value of assets held to fund
payments to employees from our qualified pension plan, which could result
in increased pension plan costs; and
o Deferred acquisition costs, referred to as DAC, and value of business
acquired, referred to as VOBA, are accounting methods for amortizing the
sales costs related to the acquisition of new life insurance and annuity
business over the period in which that business will generate earnings for
us. DAC and VOBA amortization rates are based in part on investment return
and related estimates that, in turn, are based on actual market trends and
reasonable expectations as to future performance drawn from those trends.
Equity market declines could lead to reductions in these estimates that, in
turn, could accelerate our DAC and VOBA amortization and reduce our current
earnings.
INTEREST RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR MARGINS ON
INTEREST-SENSITIVE ANNUITY AND LIFE INSURANCE CONTRACTS AND INCREASE SURRENDERS
AND WITHDRAWALS FROM THOSE CONTRACTS.
Our margin or "spread" on interest-sensitive annuity and life insurance
contracts is the difference between the yield we derive from portfolio
investments that are intended to support our required payments under these
contracts and the interest rates we credit to holders of these contracts. This
spread is a significant part of our earnings.
If interest rates fall and remain at significantly lower levels, the minimum
interest rates that we guarantee on interest-sensitive annuity and life
insurance contracts would cause our spreads on these contracts to deteriorate
and possibly become negative, which could have a material adverse effect on our
profitability. Also, such a fall in interest rates could result in increased
reserve requirements for those contracts.
A rapid and sustained rise in interest rates poses risks of deteriorating
spreads and high surrenders of our interest-sensitive annuity and life insurance
contracts. In such an environment, we may face pressure to increase credited
rates on those contracts to match rates offered by our competitors on new
deposits. Such changes in our credited rates on these contracts generally occur
more quickly than corresponding changes to the rates we earn on related
portfolio investments, thereby reducing our spreads on such contracts. Also, a
high level of surrenders associated
1A-1
with a rapid and sustained rise in interest rates could require us to liquidate
portfolio investments to fund surrender payments at a time when the value of
those investments has decreased.
AN OVERALL ECONOMIC DOWNTURN COULD ADVERSELY AFFECT OUR REVENUES AND FINANCIAL
POSITION.
An overall economic downturn could negatively affect the value of our portfolio
investments, reduce new sales of our products and increase surrenders and
withdrawals from our existing life insurance and annuity contracts. In
particular, an overall economic downturn could significantly affect the value of
our portfolio investments since the majority of our portfolio is invested in
bonds and mortgage loans that may suffer an increased default rate and may cause
credit deterioration during such a downturn. Reductions in the value of our
portfolio investments and reduced sales of our products coupled with increased
surrenders and withdrawals from our existing contracts could adversely affect
our revenues and financial position.
An overall economic downturn could also result in higher financing costs and
could increase the cost of our hedging programs and other risk mitigation
techniques that could result in certain of our products becoming less
profitable. These circumstances may cause us to modify certain product features
or to cease offering these products
OUR RESERVES COULD BE INADEQUATE DUE TO DIFFERENCES BETWEEN OUR ACTUAL
EXPERIENCE AND MANAGEMENT'S ESTIMATES AND ASSUMPTIONS.
Our reserve requirements for our direct and reinsurance assumed business are
calculated based on a number of estimates and assumptions, including estimates
and assumptions related to future mortality, morbidity, persistency, interest
rates, claims experience and reinvestment rates. For a description of some of
these estimates, see "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Critical Accounting Estimates". Our
reserves could be inadequate if actual results differ significantly from our
estimates and assumptions. If so, we will be required to increase reserves
resulting in a charge to our earnings.
LOSSES DUE TO DEFAULTS, ERRORS OR OMISSIONS BY THIRD PARTIES, INCLUDING
OUTSOURCING RELATIONSHIPS, COULD ADVERSELY IMPACT OUR BUSINESS AND RESULTS OF
OPERATIONS.
We depend on third parties that owe us money, securities or other assets to pay
or perform under their obligations. These parties include the issuers whose
securities we hold in our investment portfolios, borrowers under the mortgage
loans we make, customers, trading counterparties, counterparties under swap and
other derivative contracts, clearing agents, exchanges, clearing houses and
other financial intermediaries. These parties may default on their obligations
to us due to bankruptcy, lack of liquidity, downturns in the economy or real
estate values, operational failure or other reasons.
We also depend on third parties in other contexts. For example, in establishing
the amount of the liabilities and reserves associated with the risks assumed in
connection with reinsurance pools and arrangements, we rely on the accuracy and
timely delivery of data and other information from ceding companies. In
addition, as investment manager and administrator of several mutual funds, we
rely on various affiliated and unaffiliated subadvisors to provide day-to-day
portfolio management services for each investment portfolio.
We also rely on third parties to whom we outsource certain technology platforms,
information systems and administrative functions. If we do not effectively
implement and manage our outsourcing strategy, third party vendor providers do
not perform as anticipated or we experience technological or other problems
associated with outsourcing transitions, we may not realize anticipated
productivity improvements or cost efficiencies and may experience operational
difficulties, increased costs and reputational damage. Furthermore, losses
associated with defaults or other failures by these third parties and
outsourcing partners upon whom we rely could adversely impact our business and
results of operations.
OUR HEDGING AND REINSURANCE PROGRAMS MAY BE INADEQUATE TO PROTECT US AGAINST
UNANTICIPATED LEVELS OF EXPOSURE OR LOSSES AND WE MAY INCUR LOSSES FROM OUR
REINSURERS' FAILURE TO MEET THEIR OBLIGATIONS.
In the normal course of business, we seek to reduce risk through our hedging and
reinsurance programs. Although our hedging programs are designed to reduce the
economic impact of unfavorable changes in GMDB and GMIB exposures due to
movements in the equity and fixed income markets, our hedging programs do not
eliminate all the risks associated with GMDB/GMIB product features. For example,
if there are extreme or unanticipated levels of volatility in the market, we
could experience losses associated with product guarantee features.
Additionally, under our reinsurance arrangements, other insurers assume a
portion of the claims and related expenses on certain business we underwrite;
however, we remain liable as the direct insurer on all risks we reinsure. These
reinsurance arrangements do not eliminate our obligation to pay related claims
and we are subject to our reinsurers' credit risk
1A-2
with respect to our ability to recover amounts due from them. Although we
evaluate periodically the financial condition of our reinsurers, our reinsurers
may become financially unsound by the time their financial obligation to us
becomes due. The inability or unwillingness of any reinsurer to meet its
financial obligations to us could negatively impact our results of operations.
See "Business - Reinsurance and Hedging" and Note 9 of Notes to Consolidated
Financial Statements for additional information regarding our reinsurance
arrangements.
OUR EARNINGS ARE IMPACTED BY DAC AND VOBA CALCULATIONS THAT ARE BASED ON
ESTIMATES THAT ARE SUBJECT TO CHANGE.
Our earnings for any period depend in part on the amount of our life insurance
and annuity product acquisition costs (including commissions, underwriting,
agency and policy issue expenses) that can be deferred as DAC rather than
expensed immediately. They also depend in part on the pattern of DAC and VOBA
amortization and the recoverability of DAC and VOBA which are both based on
models involving numerous estimates and subjective judgments, including those
regarding investment, mortality and expense margins, expected market rates of
return, lapse rates and anticipated surrender charges. Revisions to our
estimates may result in an acceleration in DAC and VOBA amortization, which
could negatively impact our earnings for the period in which the estimates are
revised.
A DOWNGRADE IN THE FINANCIAL STRENGTH AND CLAIMS-PAYING RATINGS OF OUR INSURANCE
COMPANIES COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
Claims-paying and financial strength ratings are important factors in
establishing the competitive position of insurance companies. A downgrade in
these ratings could adversely affect our business and results of operations by
reducing new sales of our products or increasing surrenders and withdrawals from
our existing contracts. A downgrade in our ratings may also adversely affect our
cost of raising capital or limit our access to sources of capital. See "Business
- - Competition" for a full description of the ratings for our insurance
companies.
LEGAL AND REGULATORY ACTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESSES.
A number of lawsuits have been filed against life and health insurers and
affiliated distribution companies involving insurers' sales practices, alleged
agent misconduct, failure to properly supervise agents and other matters. Some
of these lawsuits have resulted in the award of substantial judgments against
other insurers, including material amounts of punitive damages, or in
substantial settlements. In some states, juries have substantial discretion in
awarding punitive damages.
Our insurance subsidiaries and related companies, like other life and health
insurers, are involved in such litigation and our results of operations and
financial position could be affected by defense and settlement costs and any
unexpected material adverse outcomes in such litigations as well as in other
material litigations pending against them. The frequency of large damage awards,
including large punitive damage awards that bear little or no relation to actual
economic damages incurred by plaintiffs in some jurisdictions, continues to
create the potential for an unpredictable judgment in any given matter.
In addition to the litigation described above, examinations by Federal and state
regulators and other governmental and self-regulatory agencies including, among
others, the SEC, state attorneys general, insurance and securities regulators
and the NASD could result in adverse publicity, sanctions, fines and other
costs. We have provided, and in certain cases, continue to provide, information
and documents to the SEC, the NASD, state attorneys general, state insurance
departments and other regulators on a wide range of issues, including,
supervisory issues, market timing, late trading, valuation, suitability, email
retention policies, replacements and exchanges of variable life insurance and
annuities, collusive bidding and other inappropriate solicitation activities,
"revenue sharing" and directed brokerage arrangements, investment company
directed brokerage arrangements, fund portfolio brokerage commissions, mutual
fund sales and marketing and "networking arrangements". At this time, management
cannot predict what other actions the SEC, NASD and/or other regulators may take
or what the impact of such actions might be. Fines, other sanctions and/or other
costs could result from ongoing or future regulatory matters. For further
information, see "Business - Regulation".
OUR BUSINESSES MAY BE ADVERSELY AFFECTED TO THE EXTENT THAT WE, THIRD-PARTY
FIRMS THAT DISTRIBUTE OUR PRODUCTS OR UNAFFILIATED INSURERS FACE INCREASED
REGULATION, CHANGES IN REGULATIONS AND/OR HEIGHTENED REGULATORY SCRUTINY.
Our businesses are subject to extensive regulation and supervision by state
insurance departments and Federal and state agencies regulating, among other
things, insurance and annuities, securities transactions, investment companies,
investment advisors and anti-money laundering compliance programs. Federal and
state regulators
1A-3
regularly propose new regulations or amend existing regulations, which may have
a significant impact on our business operations or may require significant
change to our products or compliance procedures. The activities of our insurance
companies, in particular, are subject to the supervision of the insurance
regulators of each of the 50 states, the District of Columbia, Puerto Rico, the
U.S. Virgin Islands, Bermuda and nine of Canada's twelve provinces and
territories. These various insurance regulators can and frequently do impose
different requirements and standards which can place insurers at a significant
competitive disadvantage compared to other financial services businesses that
are primarily regulated on a national basis. Among other things, disparate state
insurance regulations complicate, delay and increase the costs of designing,
selling and administering new products, and also add considerable complexity and
cost to compliance programs.
To the extent that the amount of state and Federal regulation continues to
increase, our costs of compliance will continue to increase. Such increases in
our compliance obligations could materially increase our costs and adversely
affect our earnings. In addition, changes in the regulatory environment,
including increased activism by state attorneys general, insurance commissioners
and other regulators, could have a material adverse impact on our business and
results of operations. For additional information, see "Business - Regulation".
Our sales of insurance products could also be adversely affected to the extent
that some or all of the third-party firms that distribute our products or
unaffiliated insurance companies face heightened regulatory scrutiny and/or
increased regulation and thereby cause the types of products issued by our
insurance companies to become disfavored in the marketplace.
CHANGES IN U.S. TAX LAWS MAY ADVERSELY AFFECT SALES OF OUR PRODUCTS AND OUR
PROFITABILITY.
Currently, special US tax law provisions apply to life insurance and annuity
products. The nature and extent of competition and the markets for our life
insurance and annuity products and our profitability may be materially affected
by changes in tax laws and regulations, including changes relating to savings,
retirement funding and taxation. Adverse changes could include the introduction
of taxation of annual increases in the account value of life insurance and
annuity products, improved tax treatment of mutual funds or other investments as
compared to insurance products or repeal of the Federal estate tax. Management
cannot predict what proposals may be made, what legislation, if any, may be
introduced or enacted or what the effect of any such legislation might be. For
additional information, see "Business - Regulation - Federal Tax Initiatives".
WE FACE COMPETITION FROM OTHER INSURANCE COMPANIES, BANKS AND OTHER FINANCIAL
INSTITUTIONS, WHICH MAY ADVERSELY IMPACT OUR MARKET SHARE AND PROFITABILITY.
There is competition among insurers, banks, brokerage firms and other financial
institutions and providers seeking clients for the types of products and
services we provide, including insurance, annuity and other investment products
and services. Competition is intense among a broad range of financial
institutions and other financial service providers for specifically tailored
products for retirement and other savings dollars. This competition makes it
especially difficult to provide unique insurance products since, once such
products are made available to the public, they may be reproduced and offered by
our competitors. Also, this competition may adversely impact our market share
and profitability.
Our ability to compete is dependent on numerous factors including, among others,
the successful implementation of our strategy; our financial and claims-paying
ratings; our access to diversified sources of distribution; our size and scale;
our product quality, range, features/functionality and price; our ability to
bring customized products to the market quickly; our ability to explain
complicated products and features to our distribution channels and customers;
crediting rates on our fixed products; the visibility, recognition and
understanding of our brands in the marketplace; our reputation and quality of
service; and our investment management options and performance.
AN INABILITY TO RECRUIT AND RETAIN EXPERIENCED AND PRODUCTIVE FINANCIAL
PROFESSIONALS AND KEY EMPLOYEES MAY ADVERSELY AFFECT OUR SALES.
Our sales force and key employees are key factors driving our sales. Intense
competition exists among insurers and other financial services companies for
financial professionals and key employees. We compete principally with respect
to compensation policies, products and support provided to financial
professionals. Competition is particularly intense in the hiring and retention
of experienced financial professionals. Although we believe that we offer
financial professionals and employees a strong value proposition, we cannot
provide assurances that we will be successful in our efforts to recruit and
retain top financial professionals and key employees.
1A-4
THE ABILITY OF OUR FINANCIAL PROFESSIONALS TO SELL OUR COMPETITORS' PRODUCTS
COULD RESULT IN REDUCED SALES OF OUR PRODUCTS AND REVENUES.
Most of our financial professionals are not captive agents or employees and can
sell annuity and life insurance products of competing unaffiliated insurance
companies. To the extent our financial professionals sell our competitors'
products rather than our products, we will experience reduced sales and
revenues.
RESTRICTIONS ON THE PAYMENT OF DIVIDENDS TO AXA FINANCIAL BY OUR INSURANCE
SUBSIDIARIES COULD ADVERSELY AFFECT AXA FINANCIAL'S FINANCIAL POSITION.
AXA Financial's cash requirements include debt service, operating expenses,
taxes, shareholder dividends to AXA, certain employee benefits and the provision
of funding to certain of our non-insurance company subsidiaries to meet their
capital requirements. A primary source of liquidity for AXA Financial is
dividend payments from its insurance subsidiaries. However, insurance
subsidiaries may be restricted by operation of applicable insurance laws from
making such dividend payments. In that case, AXA Financial may be required to
raise cash by incurring additional debt or selling some of its assets. Such
additional debt or forced sale of assets could adversely affect AXA Financial's
financial position.
CHANGES IN STATUTORY RESERVE REQUIREMENTS AND ADVERSE MARKET CONDITIONS COULD
NEGATIVELY IMPACT OUR SALES.
Changes in statutory reserve requirements, increased costs of hedging, other
risk mitigation techniques and financing and other adverse market conditions
could result in certain products becoming less profitable. These circumstances
could cause us to modify certain features of these products or to cease offering
these products.
CHANGES IN ACCOUNTING STANDARDS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
RESULTS OF OPERATION AND/OR FINANCIAL POSITION.
Our financial statements are prepared in accordance with generally accepted
accounting principles that are revised from time to time. In the future, new
accounting pronouncements, as well as new interpretations of existing accounting
pronouncements, may have material adverse effects on our results of operations
and/or financial position. For information about recent accounting
pronouncements, see Note 2 of Notes to Consolidated Financial Statements.
OUR LOSSES PROVIDED FOR DISCONTINUED OPERATIONS MAY DIFFER FROM THE LOSSES
ULTIMATELY REALIZED.
The determination of the allowance for future losses from our discontinued
operations involves numerous estimates and subjective judgments, including those
regarding expected performance of investment assets, asset reinvestment rates,
ultimate mortality experience and other factors that affect investment and
benefit projections. In particular, significant estimates and judgments are made
with respect to the income, sales proceeds and holding periods for equity real
estate. To the extent actual results or future projections of discontinued
operations differ from management's current best estimates underlying the
allowance, the difference would be reflected as earnings or loss from
discontinued operations.
OUR DISCLOSURE AND INTERNAL CONTROL SYSTEM CANNOT GUARANTEE THAT OUR PUBLIC
DISCLOSURE AND FINANCIAL STATEMENTS DO NOT CONTAIN ERRORS.
There are inherent limitations in the effectiveness of any system of disclosure
and internal controls, including the possibilities of faulty judgments in
decision-making, simple error or mistake, fraud, the circumvention of controls
by individual acts or the collusion of two or more people, or management
override of controls. Accordingly, even an effective disclosure and internal
control system can provide only reasonable assurance with respect to disclosures
and financial statement preparation. Also, the effectiveness of a disclosure and
internal control system may vary over time due to changes in conditions.
WE COULD EXPERIENCE SIGNIFICANT DIFFICULTIES WITH RESPECT TO OUR PROPRIETARY
TECHNOLOGY AND INFORMATION SYSTEMS AS WELL AS THOSE PROVIDED BY VENDORS.
We utilize numerous technology and information systems in our businesses, some
of which are proprietary and some of which are provided by outside vendors
pursuant to outsourcing arrangements. These systems are central to, among other
things, designing and pricing products, marketing and selling products and
services, processing policyholder and investor transactions, client
recordkeeping, communicating with retail sales associates, employees and
clients, and recording information for accounting and management purposes in a
secure and timely manner. The
1A-5
systems are maintained to provide customer privacy and, although they are
periodically tested to ensure the viability of business resumption plans, these
systems are subject to attack by viruses, spam, spyware, worms and other
malicious software programs, which could jeopardize the security of information
stored in a user's computer or in our computer systems and networks.
We commit significant resources to maintain and enhance our existing information
systems that, in some cases, are advanced in age, and to develop new systems.
Any significant difficulty associated with the operation of our systems, or any
material delay, disruption or inability to develop needed system capabilities,
could have a material adverse effect on our results of operations and,
ultimately, our ability to achieve our strategic goals. We are unable to predict
with certainty all of the material adverse effects that could result from our
failure, or the failure of an outside vendor, to address these problems. The
material adverse effects could include the inability to perform or prolonged
delays in performing critical business operational functions or failure to
comply with regulatory requirements, which could lead to loss of client
confidence, harm to reputation or exposure to disciplinary action.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE OCCURRENCE OF A CATASTROPHE,
INCLUDING A NATURAL OR MAN-MADE DISASTER.
Any catastrophic event, such as pandemic diseases, terrorist attacks, floods,
severe storms or hurricanes, could have an adverse effect on our business in
several respects:
o We could experience long-term interruptions in our service due to the
vulnerability of our information and operation systems and those of our
significant vendors to the effects of catastrophic events. Some of our
operational systems are not fully redundant, and our disaster recovery and
business continuity planning cannot account for all eventualities.
o The occurrence of a pandemic disease such as the Avian Influenza Virus
(H5N1) could have a material adverse effect on our liquidity and the
operating results of the Financial Advisory/Insurance Segment due to
increased mortality and, in certain cases, morbidity rates.
o The occurrence of any pandemic disease, natural disaster or terrorist
attacks or any catastrophic event which results in our workforce being
unable to be physically located at one of our facilities could result in
lengthy interruptions in our service.
o A terrorist attack on the financial services industry in the United States
could have severe negative effects on our investment portfolio and disrupt
our business operations. Any continuous and heightened threat of terrorist
attacks could also result in increased costs of reinsurance.
ASSUMPTIONS AND MODELS USED IN OUR BUSINESS MAY LEAVE US EXPOSED TO UNIDENTIFIED
OR UNANTICIPATED RISK.
Our business operations and risk management strategy rely on numerous
assumptions and models. We are subject to the risk that our assumptions and
models could be flawed or that errors in calculation could occur. As a result,
these assumptions and models may not accurately predict future exposures.
AXA FINANCIAL GROUP'S RESULTS OF OPERATION AND FINANCIAL POSITION DEPEND IN
SIGNIFICANT PART ON THE PERFORMANCE OF ALLIANCEBERNSTEIN'S BUSINESS.
AllianceBernstein L.P. is a principal subsidiary of AXA Financial and,
consequently, AXA Financial Group's results of operations and financial position
depend in significant part on the performance of AllianceBernstein's business.
For information regarding risk factors associated with AllianceBernstein and its
business, see "Item 1A - Risk Factors" included in AllianceBernstein L.P.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which
item is incorporated into this section by reference to Exhibit 13.1 filed with
this Report.
1A-6
PART I, ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
1B-1
PART I, ITEM 2.
PROPERTIES
FINANCIAL ADVISORY/INSURANCE
AXA Financial Group leases on a long-term basis approximately 810,000 square
feet of office space located at 1290 Avenue of the Americas, New York, NY, which
serves as AXA Financial's, AXA Equitable's, MONY Life's and MLOA's headquarters.
AXA Financial Group also has the following significant office space leases:
570,000 square feet in Syracuse, NY, under a lease that expires in 2008, for use
as an annuity operations and service center; and 185,000 square feet in
Charlotte, NC, under a lease that expires in 2013, for use as a life insurance
operations and service center; and 94,000 square feet in Secaucus, NJ, under a
lease that expires in 2012 for use as an annuity operations and service center.
AXA Financial Group owns an office building of approximately 22,000 square feet
in Harrisburg, PA that houses AXA Network personnel. Management believes its
facilities are adequate for its present needs in all material respects.
AXA Financial Group subleases its office space at 1290 Avenue of the Americas to
the New York City Industrial Development Agency (the "IDA"), and sub-subleases
that space back from the IDA, in connection with the IDA's granting of sales tax
benefits to AXA Equitable.
INVESTMENT MANAGEMENT
AllianceBernstein's principal executive offices at 1345 Avenue of the Americas,
New York, NY are occupied pursuant to a lease that extends until 2029.
AllianceBernstein currently occupies approximately 837,270 square feet of space
at this location. AllianceBernstein also occupies approximately 226,374 square
feet of space at 135 West 50th Street, New York, NY under a lease expiring in
2029 and approximately 210,756 square feet of space at One North Lexington,
White Plains, NY under a lease expiring in 2031. AllianceBernstein also occupies
approximately 134,261 square feet of space in Secaucus, NJ and approximately
92,067 square feet of space in San Antonio, TX under leases expiring in 2007 and
2009, respectively. AllianceBernstein also leases other property both
domestically and abroad for its operations.
2-1
PART I, ITEM 3.
LEGAL PROCEEDINGS
The matters set forth in Note 19 of Notes to Consolidated Financial Statements
for the year ended December 31, 2006 (Part II, Item 8 of this report) are
incorporated herein by reference.
3-1
PART I, ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I to Form 10-K.
4-1
PART II, ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
At December 31, 2006, AXA Financial was an indirect wholly owned subsidiary of
AXA and there is no established public market for AXA Financial's common equity.
AXA Financial did not pay any shareholder dividends in 2006 or 2005. For
information on AXA Financial's present and future ability to pay dividends, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" (Part II, Item 7 of this report)
and Note 20 of Notes to Consolidated Financial Statements.
5-1
PART II, ITEM 6.
SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I to Form 10-K.
6-1
PART II, ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is omitted pursuant to General Instruction
I(2)(a) of Form 10-K. The management narrative for AXA Financial Group that
follows should be read in conjunction with the consolidated financial statements
and related notes to consolidated financial statements and information discussed
under "Forward-looking Statements" and "Risk Factors" included elsewhere in this
Form 10-K.
GENERAL
In October 2006, AXA Financial and certain of its subsidiaries entered into an
agreement contemplating the transfer to GSAM of assets relating to the business
of serving as sponsor of and investment manager to 27 of the 31 funds of AXA
Enterprise Multimanager Funds Trust, AXA Enterprise Funds Trust and The
Enterprise Group of Funds, Inc. (collectively, the "AXA Enterprise Funds") and
the reorganization of such funds into corresponding mutual funds managed by
GSAM. See Note 16 of Notes to Consolidated Financial Statement contained
elsewhere herein for more detailed information regarding this reorganization. As
a result of management's disposition plan, AXA Enterprise Funds advisory and
distribution contracts and operations, previously part of the Financial
Advisory/Insurance segment, are now reported in Discontinued Operations. Similar
treatment was applied to Advest, which was sold in 2005. Unless otherwise
indicated, amounts in this management narrative exclude the effects of the AXA
Enterprise Funds and Advest in the periods presented.
The consolidated and segment earnings narratives that follow discuss the results
for 2006 compared to the 2005 results.
CONSOLIDATED RESULTS OF OPERATIONS
Net earnings for AXA Financial Group totaled $1.28 billion for 2006 compared to
$1.07 billion for 2005. Net earnings for 2006 and 2005 included the post-tax
results from discontinued operations detailed in the following schedule. For
further information, see Note 16 of Notes to Consolidated Financial Statements
included elsewhere herein.
2006 2005
----------- -----------
(IN MILLIONS)
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Wind-up Annuities............................................................... $ 30.2 $ 15.2
Real estate held-for-sale....................................................... 6.8 5.9
Disposal of business - Advest................................................... - (6.7)
Disposal of business - Enterprise............................................... (6.1) (0.8)
----------- ------------
Total........................................................................... $ 30.9 $ 13.6
=========== ============
GAINS (LOSSES) ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF INCOME TAXES:
Real estate held-for-sale....................................................... $ 62.1 $ -
Discontinued Investment Banking and Brokerage segment........................... 53.9 -
Disposal of business - Advest................................................... 4.1 (85.4)
Disposal of business - Enterprise............................................... (2.9) -
----------- ------------
Total........................................................................... $ 117.2 $ (85.4)
=========== ============
Earnings from continuing operations in 2006 were $1.13 billion, a decrease of
$12.5 million from 2005. Income taxes totaled $518.6 million in 2006 as compared
to the $595.0 million in 2005, as the $149.6 million tax decrease in the
Financial Advisory/Insurance segment was offset by the $73.2 increase for the
Investment Management segment. AXA Financial recognized a net tax benefit in
third quarter 2006 of $163.5 million. This benefit was related to the settlement
of an IRS audit of the 1997-2001 tax years, partially offset by additional tax
reserves established for subsequent tax periods. Of the net tax benefit of
$163.5, $103.8 million related to continuing operations in the Financial
Advisory/Insurance segment, $53.9 million to the disposition of the discontinued
Investment Banking and Brokerage segment and $5.8 million to the discontinued
Wind-up Annuities.
7-1
Earnings from continuing operations before income taxes and minority interest
were $2.09 billion for 2006, an increase of $9.1 million from the $2.08 billion
reported in 2005. The increase resulted from the $267.7 million increase in the
Investment Management segment offset by the $258.6 million decrease in the
Financial Advisory/Insurance segment.
Total revenues increased $954.2 million to $11.85 billion in 2006 from $10.89
billion in 2005 due to revenue increases in both segments. The 2006 increase of
$208.2 million in the Financial Advisory/Insurance segment principally resulted
from $378.1 million higher policy fee income and $110.8 million higher
commissions, fees and other income offset by $92.9 million lower investment
results primarily due to changes in the fair value of derivatives. The $630.8
million increase in investment advisory and services fees at AllianceBernstein
contributed to the $737.3 million increase in the Investment Management
segment's revenues.
Total benefits and other deductions were $9.76 billion in 2006, a $945.1 million
increase as compared to $8.81 billion in 2005 with expense increases reported by
both segments. The Financial Advisory/Insurance segment increase of $466.8
million was primarily due to higher commission costs, higher benefits paid,
higher DAC and VOBA amortization and an increase in other operating costs and
expenses offset by higher DAC capitalization. There was a $469.6 million
increase in the Investment Management segment's benefits and other deductions
principally attributed to higher compensation and benefits and higher other
operating costs and expenses at AllianceBernstein.
RESULTS OF CONTINUING OPERATIONS BY SEGMENT
FINANCIAL ADVISORY/INSURANCE.
FINANCIAL ADVISORY/INSURANCE - RESULTS OF OPERATIONS
(IN MILLIONS)
2006 2005
---------------- -----------------
Universal life and investment-type product policy fee income...................... $ 2,468.3 $ 2,090.2
Premiums.......................................................................... 1,581.6 1,648.8
Net investment income............................................................. 2,951.3 3,143.0
Investment gains, net............................................................. (8.2) 13.6
Commissions, fees and other income................................................ 938.7 827.9
----------------- ----------------
Total revenues............................................................... 7,931.7 7,723.5
----------------- ----------------
Policyholders' benefits........................................................... 2,997.6 2,842.4
Interest credited to policyholders' account balances.............................. 1,216.5 1,206.9
Compensation and benefits......................................................... 1,035.3 992.1
Commission costs.................................................................. 1,295.3 1,104.9
Interest expense.................................................................. 180.7 189.8
Amortization of DAC and VOBA...................................................... 812.6 682.0
Capitalization of DAC............................................................. (1,458.8) (1,347.6)
Rent expense...................................................................... 89.2 112.7
Amortization of other intangible assets, net...................................... 4.8 4.8
All other operating costs and expenses............................................ 798.4 716.8
----------------- ----------------
Total benefits and other deductions....................................... 6,971.6 6,504.8
----------------- ----------------
Earnings from Continuing Operations before Income Taxes........................... $ 960.1 $ 1,218.7
================= ================
In 2006, pre-tax earnings from continuing operations in the Financial
Advisory/Insurance segment decreased $258.6 million to $960.1 million as
compared to $1.22 billion in 2005. The pre-tax earnings decrease resulted from
higher commissions, policyholders' benefits and all other operating costs and
expenses and lower investment results partially offset by higher policy fee
income and commissions, fees and other income.
Revenues. In 2006, segment revenues increased $208.2 million over the prior year
as higher policy fee income and commissions, fees and other income were
partially offset by lower investment results and lower premiums.
7-2
Policy fee income grew to $2.47 billion in 2006 as compared to $2.09 billion in
the prior year. This $378.1 million increase resulted from fees earned on higher
average Separate Account balances resulting from positive net cash flows and
market appreciation.
Premiums totaled $1.58 billion for 2006, $67.2 million lower than in 2005,
principally due to a $65.8 million decrease in traditional life renewal premiums
in the Closed Blocks.
Net investment income decreased $191.7 million to $2.95 billion in 2006. This
decrease was primarily related to the $288.7 million decline in the fair values
of derivative instruments including those related to economic hedging programs
implemented to mitigate certain risks associated with the GMDB/GMIB features of
certain variable annuity contracts and interest rate swap and floor contracts as
compared to the $64.8 million decline in 2005. This decrease was partially
offset by a $22.2 million increase in cash and short-term investment income due
to higher yields and $12.3 million higher income on other equity investments.
In 2006, investment losses totaled $8.2 million as compared to $13.6 million of
investment gains in 2005. The $21.8 million decrease was principally due to a
$28.0 million decrease in realized gains on sales of fixed maturities, $17.2
million in 2006 as compared to $45.2 million in 2005.
Commissions, fees and other income increased $110.8 million to $938.7 million in
2006. The increase was principally due to higher gross investment management
fees received from EQAT and VIP Trust due to a higher asset base partially
offset by the change in the fair value of the GMIB reinsurance contracts. As
required by SFAS No. 133, the GMIB contracts are considered derivatives and are
reported at fair value. The 2006 decrease in fair value was $14.9 million as
compared to the $42.8 million increase recorded in 2005.
Benefits and Other Deductions. Total benefits and other deductions for the
Financial Advisory/Insurance segment increased $466.8 million to $6.97 billion
in 2006 as compared to $6.50 billion in 2005. The increase was principally the
result of $190.4 million higher commission costs, a $155.2 million increase in
policyholders' benefits, $130.6 million higher DAC and VOBA amortization and an
$81.6 million increase in all other operating costs and expenses partially
offset by $111.6 million lower DAC capitalization.
Policyholders' benefits were $3.00 billion in 2006, a $155.2 million increase
from 2005. The increase partially resulted from lower benefits and reserves in
the reinsurance assumed product line in 2005 due to the $16.8 million settlement
of outstanding issues with one life reinsurer in third quarter 2005 that
resulted in the release of $46.8 million of reserves and higher individual life
death claims in 2006.
Compensation and benefits for the Financial Advisory/Insurance segment increased
$43.2 million to $1.04 billion in 2006 as compared to $992.1 million in 2005.
The increase was primarily due to a $80.8 million increase in share-based
compensation expense principally due to the implementation of SFAS No. 123(R),
$17.0 million higher severance costs and $7.0 million higher incentive
compensation expense offset by a $62.8 million decrease in other employee
benefit costs. The lower benefit costs principally were due to the $45.4 million
impact in 2006 of the announced curtailment of age and/or service credits toward
the cost sharing rules for retiree health coverage for active participants
effective December 31, 2006 and the $28.5 million adjustment of the survivor
income benefits liability reported in 2005 related to earlier periods.
For 2006, commission costs increased $190.4 million to $1.30 billion from $1.10
billion in 2005, due to higher sales of life and annuity products and higher
asset-based commissions.
DAC and VOBA amortization increased to $812.6 million in 2006, up $130.6 million
from $682.0 million in 2005. The increase was primarily related to higher
current margins in products that are DAC reactive and lower favorable DAC
unlocking in 2006 compared to 2005. This increase was partially offset by
reactivity to the decrease in the fair value of the derivative instruments
related to the GMDB/GMIB economic hedging programs and the lower increase in
fair value of the GMIB reinsurance asset during 2006. The unlocking impact in
2006 from the recognition of higher expected future margins driven by higher
fees related to variable life insurance and annuity contracts in that year also
offset the increase. In 2005, DAC unlocking related to higher estimated future
margins due to revised expectations regarding lapses on certain variable annuity
contracts based upon the completion of a comprehensive lapse study. Both years
also reflect DAC unlocking associated with higher estimated future margins due
to expectations of life mortality improvement based on emerging experience,
which resulted in a deceleration of DAC amortization. However, the deceleration
of DAC amortization resulting from these revised mortality projections was lower
in 2006 than in 2005.
DAC and VOBA for universal life-type and investment-type products and
participating traditional life policies are amortized over the expected total
life of the contract group as a constant percentage of estimated gross profits
(for
7-3
universal life and investment-type contracts) or margins (for participating
traditional life policies). Estimates and assumptions underlying these DAC and
VOBA amortization rates are reassessed and updated at the end of each reporting
period ("DAC and VOBA unlocking"). The effect of DAC and VOBA unlocking is
reflected in earnings in the period such estimated gross profits are revised. A
decrease in expected gross profits would accelerate DAC and VOBA amortization.
Conversely, an increase in expected gross profits would slow DAC and VOBA
amortization.
Expected gross profits for variable and interest-sensitive life insurance and
variable annuities arise principally from investment results, Separate Account
fees, mortality and expense margins and surrender charges based on historical
and anticipated future experience. Other significant assumptions underlying
gross profit estimates relate to contract persistency and General Account
investment spread. A significant assumption in the development of expected gross
profits and, therefore, the amortization of DAC and VOBA on these products
relates to projected future Separate Account performance. Management sets
expected future gross profit assumptions related to Separate Account performance
using a long-term view of expected average market returns by applying a
reversion to the mean approach. In applying this approach to develop estimates
of future returns, it is assumed that the market will return to an average gross
long-term return estimate, developed with reference to historical long-term
equity market performance and subject to assessment of the reasonableness of
resulting estimates of future return assumptions. For purposes of making this
reasonableness assessment, management has set limitations as to maximum and
minimum future rate of return assumptions, as well as a limitation on the
duration of use of these maximum or minimum rates of return. Currently, the
average gross long-term annual return estimate is 9.0% (6.8% net of product
weighted average Separate Account fees), and the gross maximum and minimum
annual rate of return limitations are 15.0% (12.8% net of product weighted
average Separate Account fees) and 0% (-2.2% net of product weighted average
Separate Account fees), respectively. The maximum duration over which these rate
limitations may be applied is 5 years. This approach will continue to be applied
in future periods. If actual market returns continue at levels that would result
in assuming future market returns of 15% for more than 5 years in order to reach
the average gross long-term return estimate, the application of the 5 year
maximum duration limitation would result in an acceleration of DAC and VOBA
amortization. Conversely, actual market returns resulting in assumed future
market returns of 0% for more than 5 years would result in a required
deceleration of DAC and VOBA amortization. As of December 31, 2006, current
projections of future average gross market returns for purposes of this approach
assume a 0.5% return for 2007, which is within the maximum and minimum
limitations, and assume a reversion to the mean of 9.0% after 7 quarters.
In addition, projections of future mortality assumptions related to variable and
interest-sensitive life products are based on a long-term average of actual
experience. This assumption is updated quarterly to reflect recent experience as
it emerges. Improvement of life mortality in future periods from that currently
projected would result in future deceleration of DAC and VOBA amortization.
Conversely, deterioration of life mortality in future periods from that
currently projected would result in future acceleration of DAC and VOBA
amortization. Generally, life mortality experience has been improving in recent
periods.
DAC capitalization increased $111.2 million from $1.35 billion in 2005 to $1.46
billion in 2006 principally due to higher sales of annuity products.
Interest expense decreased $9.1 million to $180.7 million in 2006 principally as
a result of the April 2006 prepayment of the $300.0 million MONY Holdings
Insured Notes.
All other operating cost and expenses totaled $798.4 million in 2006, an
increase of $81.6 million from the $716.8 million reported in 2005. The increase
was primarily due to higher EQAT and VIP Trust subadvisory fees due to higher
asset levels, $26.6 million higher charitable contributions principally to the
AXA Foundation and a $12.0 million accrual for broker-dealer account termination
costs.
Premiums and Deposits. Total premiums and deposits for life insurance and
annuity products in 2006 were $17.96 billion, an increase of $2.17 billion from
the prior year's level while total first year premiums and deposits increased
$2.04 billion to $12.26 billion in 2006. Annuity products' first year premiums
and deposits increased $1.97 billion to $11.58 billion in 2006 with higher first
year sales of $443.7 million and $1.52 billion in the retail and wholesale
distribution channels, respectively. First year life premiums and deposits
increased $75.4 million to $657.9 million primarily due to higher sales of
interest sensitive life products principally in the wholesale channel. Total
sales of mutual funds and fee-based assets gathered increased $896.0 million to
$5.98 billion in 2006.
Surrenders and Withdrawals. Total policy and contract surrenders and withdrawals
increased $1.57 billion to $9.40 billion during 2006 compared to $7.83 billion
in 2005. This increase resulted from increases of $1.51 billion and $62.6
million in surrenders and withdrawals for individual annuity and traditional
life products, respectively, partially offset by a decrease of $4.7 million for
variable and interest sensitive life products. The annuity surrender
7-4
rates increased from 8.6% in 2005 to 9.2% in 2006. The 2005 rate included the
impact of two large surrenders in that year. The segment's individual life
surrender rate was 4.2% in 2006, unchanged from the prior year. The 2005
individual life surrender rate included the impact of the surrender of a single
large MONY company owned life insurance ("COLI") policy in fourth quarter 2005.
The trends in surrenders and withdrawals continue to fall within the range of
expected experience.
INVESTMENT MANAGEMENT.
The table that follows presents the operating results of the Investment
Management segment, consisting principally of AllianceBernstein's operations.
INVESTMENT MANAGEMENT - RESULTS OF OPERATIONS
(IN MILLIONS)
2006 2005
--------------- ----------------
Revenues:
Investment advisory and services fees (1)............................ $ 2,890.2 $ 2,259.4
Distribution revenues................................................ 421.0 397.8
Institutional research services...................................... 375.1 352.8
Other revenues(1).................................................... 132.3 163.8
--------------- ----------------
Commissions, fees and other income................................. 3,818.6 3,173.8
Gross investment income.............................................. 320.7 146.7
Less: interest expense to finance trading activities................. (187.8) (95.9)
--------------- ----------------
Net investment income.............................................. 132.9 50.8
Investment gains, net................................................ 53.2 42.8
--------------- ----------------
Total revenues.................................................... 4,004.7 3,267.4
--------------- ----------------
Expenses:
Compensation and benefits............................................ 1,570.2 1,280.6
Distribution plan payments........................................... 292.9 292.0
Amortization of deferred sales commissions........................... 100.4 132.0
Interest expense..................................................... 78.6 81.1
Rent expense......................................................... 155.7 113.9
Amortization of other intangible assets, net......................... 27.6 27.6
Other operating costs and expenses................................... 651.0 479.6
--------------- ----------------
Total expenses.................................................... 2,876.4 2,406.8
--------------- ----------------
Earnings from Continuing Operations before
Income Taxes and Minority Interest................................... $ 1,128.3 $ 860.6
=============== ================
(1) Includes fees earned by AllianceBernstein totaling $41.9 million and $41.3
million in 2006 and 2005, respectively, for services provided to the
Insurance Group.
Revenues. The Investment Management segment's pre-tax earnings from continuing
operations for 2006 were $1.13 billion, an increase of $267.7 million from the
prior year. Revenues totaled $4.00 billion in 2006, an increase of $737.3
million from 2005, primarily due to a $630.8 million increase in investment
advisory and services fees and the $92.5 million higher investment results.
INVESTMENT advisory and services fees include base fees and performance fees.
The 2006 increase in investment advisory and services fees primarily resulted
from higher average AUM in all three distribution channels, a favorable asset
mix, reflected by global and international AUM increases where base-fee rates
are generally higher than domestic rates, and the $103.8 increase in performance
fees from $131.9 million in 2005 to $235.7 million in 2006. These increases were
partially offset by the effects of the disposition of its cash management
services in the retail channel in 2005. Net investment income consists
principally of dividend and interest income, offset by interest expense related
to customer accounts and collateral received for securities loaned, and realized
and unrealized gains on investments related to deferred compensation plan
obligations and other investments. The $82.1 million increase in 2006 was
primarily due to higher mutual fund dividends and increased stock borrowed
income as a result of higher average customer credit balances and interest rates
in 2006 as well as higher mark to market gains on investments related to
deferred compensation plan obligations. Investment gains, net includes non-cash
gains resulting from the issuance of AllianceBernstein units to
7-5
employees in connection with their long-term incentive plans and to the gains
from the dispositions of the AllianceBernstein cash management services, Indian
mutual funds and South African joint venture interest in 2005. The 2006 increase
of $10.4 million principally resulted from the $31.3 million non-cash gain in
2006 as compared to $12.2 million in 2005 offset by the effect of the
disposition gains recognized in 2005 as compared to 2006.
Expenses. The segment's total expenses were $2.88 billion in 2006, compared to
$2.41 billion in 2005, an increase of $469.6 million principally due to the
$289.6 million and $171.4 million increases in compensation and benefits and
other operating costs and expenses, respectively. The increase in
AllianceBernstein employee compensation and benefits in 2006 as compared to 2005
was due to increases in all components of compensation and benefits. Base
compensation, fringe benefits and other employment costs increased $84.4 million
in 2006 primarily due to annual merit increases, additional headcount and higher
fringe benefits reflecting increased compensation levels. Incentive compensation
in 2006 increased $111.1 million due to higher short-term incentive compensation
reflecting higher earnings and higher amortization of deferred compensation, due
to vesting of prior year awards. Commission expense increased $89.9 million in
2006 reflecting higher revenues or sales across all distribution channels and
for Institutional Research Services. The other operating expenses increase of
$171.4 million included the $56.0 million fourth quarter 2006 charge
AllianceBernstein recorded relating to the estimated cost of reimbursing certain
clients for losses arising out of an error related to processing claims for
class action settlement proceeds on behalf of these clients as well as higher
travel and entertainment, advertising and promotional material costs, higher
litigation costs and higher market data services and data processing costs. Rent
expense increased $41.8 million in 2006 due to higher occupancy costs related to
office expansion at AllianceBernstein. The 2006 decrease of $31.6 million in
amortization of deferred sales commissions was a result of lower sales of
back-end load shares.
ASSETS UNDER MANAGEMENT
A breakdown of AXA Financial Group's AUM follows:
ASSETS UNDER MANAGEMENT
(IN MILLIONS)
DECEMBER 31,
--------------------------------------
2006 2005
------------------ ------------------
Third party(1) .......................................................... $ 651,562 $ 513,499
General Account and other(2)............................................. 54,688 55,389
Insurance Group Separate Accounts........................................ 88,758 74,552
------------------ ------------------
Total Assets Under Management........................................ $ 795,008 $ 643,440
================== ==================
(1) Includes $29.46 billion and $24.08 billion of assets managed on behalf of
AXA affiliates at December 31, 2006 and 2005, respectively. Also included
in 2006 and 2005 are $17.83 billion and $13.30 billion, respectively, in
assets related to an Australian joint venture between AllianceBernstein and
an AXA affiliate.
(2) Includes invested assets of AXA Financial Group not managed by
AllianceBernstein, principally cash and short-term investments and policy
loans, totaling approximately $11.33 billion and $9.39 billion at December
31, 2006 and 2005, respectively, as well as mortgages and equity real
estate totaling $5.42 billion and $5.71 billion at December 31, 2006 and
2005, respectively.
Third party AUM increased $138.06 billion to $651.56 billion in 2006 primarily
due to increases at AllianceBernstein. General Account and other AUM decreased
$701 million from the total reported in 2005 primarily due to the effect the
rising interest rate environment in 2006 had on the fair value of the bond
portfolio. The $14.21 billion increase in Insurance Group Separate Accounts AUM
in 2006 resulted from market appreciation and net new deposits.
AllianceBernstein's AUM increased $138.35 billion to $716.90 billion in 2006
from $578.55 billion at December 31, 2005, with $90.1 billion of the increase
resulting from market appreciation due to equity market gains and $47.8 billion
due to net asset inflows. Active equity growth and active equity value account
AUM, which made up 71.1% of AllianceBernstein's total AUM at December 31, 2006,
increased by 24.6%. Net inflows in 2006 were $27.3 million, $12.1 million and
$8.4 million, respectively, in the institutional investment, retail and private
client channels. Non-U.S. clients accounted for 35.8% of AllianceBernstein's
December 31, 2006 AUM total.
7-6
DISCONTINUED OPERATIONS - WIND-UP ANNUITIES
Wind-up Annuities. Earnings from Wind-up Annuities of $30.2 million in 2006 as
compared to $15.2 million in 2005 reflect releases of the allowance for future
losses due primarily to improved actual and projected investment results.
LIQUIDITY AND CAPITAL RESOURCES
AXA FINANCIAL
AXA Financial paid no cash dividends in 2006 and 2005.
At December 31, 2006, former MONY stockholders, holding approximately 3.6
million shares of MONY common stock, representing approximately 7.1% of MONY
common stock outstanding at July 8, 2004 (the effective date of the MONY
Acquisition), and demanding appraisal rights pursuant to Section 262 of the
General Corporation Law of the State of Delaware, have not withdrawn their
demands. The fair value of shares of MONY common stock to be determined in the
appraisal process, which is the amount that will be payable by AXA Financial
Group to the holders of shares subject to the appraisal, could be greater or
less than the $31.00 per share paid to former MONY stockholders who did not
demand appraisal under Delaware law. See Note 19 of Notes to Consolidated
Financial Statements contained elsewhere herein.
In June 2006, AXA Financial repaid the $100.0 million 4.59% note issued in
December 2005. The proceeds from this borrowing had been used to pay for the
exercise of the call options on AXA ADRs to fund employee stock benefit plans.
AXA Financial's $75.0 million note with AXA issued in March 2006 was also repaid
in June 2006.
Also in June 2006, AXA Financial repaid $150.0 million of its $200.0 million
Subordinated Note to AXA. The maturity date for the remaining balance of this
note was extended for an additional 6-month term with the same interest rate
terms; this balance was repaid in December 2006.
On April 21, 2006, AXA Financial prepaid the MONY Holdings $300.0 million
Insured Notes for $319.3 million, which included principal, accrued interest,
bond call premium and swap settlement payments. The prepayment was funded by new
borrowings from AXA of $260.0 million and available cash. This AXA loan, which
had a maturity date of April 2011 and an initial floating interest rate of 5.52%
that would reset semi-annually, was prepaid in December 2006.
On June 8, 2005, AXA and its subsidiaries amended their 2004 global revolving
credit facility and letter of credit facility: the maturity was extended to June
8, 2012 and the letter of credit was increased to $1.0 billion with a group of
27 banks and other lenders. Under the amended agreements, the amount available
to AXA (Bermuda), an AXA Financial subsidiary, under the letter of credit
facility increased to $850.0 million from $500 million.
The $88.9 million, 2.76% short-term note with AXA was repaid in May 2005.
In connection with AllianceBernstein's acquisition of Bernstein in 2000, AXA
Financial agreed to provide liquidity to the former Bernstein shareholders.
Through year-end 2006, AXA Financial Group had acquired a total of 24.5 million
AllianceBernstein Units for an aggregate market price of $885.4 million. AXA
Financial Group's economic interest in AllianceBernstein was 60.3% at December
31, 2006. There were no acquisitions in calendar year 2006. On February 23,
2007, AXA Financial Group acquired an additional 8.2 million AllianceBernstein
Units for an aggregate market price of approximately $745.7 million thereby
increasing its total economic interest in AllianceBernstein to 63.3%. The
remaining 8.2 million private AllianceBernstein Units still held by the former
Bernstein shareholders at February 23, 2007 may be sold to AXA Financial at the
prevailing market price not sooner than nine months after the February 2007
purchase or over the following period ending October 2, 2009.
To fund the February 2007 AllianceBernstein Unit purchase, AXA Financial issued
a $700.0 million short-term note to AXA on February 21, 2007. The note, which
matures on December 21, 2007, has an interest rate of LIBOR plus 15 basis points
that resets every two months, with an initial interest rate of 5.495%. Interest
is payable every two months.
AXA Financial's cash requirements include debt service, operating expenses,
taxes, shareholder dividends to AXA, certain employee benefits, the obligation
to provide liquidity to the former Bernstein shareholders and providing funding
to certain non-Insurance Group subsidiaries to meet their capital requirements.
Pre-tax debt service totaled $196.5 million and $170.2 million in 2006 and 2005,
respectively, while general and administrative expenses were
7-7
$39.8 million and $28.7 million, respectively. Due to AXA Financial's assumption
of primary liability from AXA Equitable for all current and future obligations
of certain of its benefit plans, AXA Financial paid $79.5 million and $71.2
million in benefits, all of which was reimbursed by subsidiaries of AXA
Financial, in 2006 and 2005, respectively.
Management from time to time explores selective acquisition opportunities in
financial advisory, insurance and investment management businesses.
Sources of Liquidity. At December 31, 2006 and 2005, respectively, AXA Financial
held cash and short-term investments and U.S. Treasury securities of
approximately $141.1 million and $83.7 million as well as investment grade
publicly traded bonds totaling $5.5 million and $2.2 million. Other primary
sources of liquidity for AXA Financial include (i) dividends from AXA Equitable
and the MONY Companies (ii) distributions from AllianceBernstein, (iii)
dividends, distributions or sales proceeds from less liquid investment assets
and (iv) borrowings from AXA. In 2006 and 2005, respectively, AXA Financial
received $600.0 million and $500.0 million of dividends from AXA Equitable. Cash
distributions from AllianceBernstein totaled $128.8 million and $101.7 million
in 2006 and 2005, respectively. Cash dividends of $35.0 million and $38.0
million were paid to AXA Financial by the MONY Companies in 2006 and 2005,
respectively.
THE INSURANCE GROUP
The principal sources of the Insurance Group's cash flows are premiums, deposits
and charges on policies and contracts, investment income, repayments of
principal and sales proceeds from its fixed maturity portfolios, sales of other
General Account Investment Assets, borrowings from third-parties and affiliates
and dividends and distributions from subsidiaries.
The Insurance Group's liquidity requirements principally relate to the
liabilities associated with its various life insurance, annuity and group
pension products in its continuing operations; the liabilities of the
discontinued Wind-up Annuities operations; shareholder dividends to AXA
Financial; and operating expenses, including debt service. The Insurance Group's
liabilities include the payment of benefits under life insurance, annuity and
group pension products, as well as cash payments in connection with policy
surrenders, withdrawals and loans.
Sources of Liquidity. The Insurance Group's primary source of short-term
liquidity to support continuing and discontinued insurance operations is a pool
of liquid, high quality short-term instruments structured to provide liquidity
in excess of the expected cash requirements.
Other liquidity sources include dividends and distributions from
AllianceBernstein. In 2006, the Insurance Group received cash distributions from
AllianceBernstein and AllianceBernstein Holding of $492.0 million as compared to
$387.1 million in 2005.
Liquidity Requirements. The Insurance Group's liquidity needs are affected by:
fluctuations in mortality; other benefit payments, policyholder directed
transfers from General Account to Separate Account investment options; and the
level of surrenders and withdrawals previously discussed in "Results of
Continuing Operations by Segment - Financial Advisory/Insurance," as well as by
dividends to its shareholders. In 2006 and 2005, respectively, AXA Equitable
paid shareholder dividends totaling $600.0 million and $500.0 million while MONY
Life paid $35.0 million and $38.0 million in dividends.
In December 2005, AXA Equitable repaid its $400.0 million 6.95% surplus note at
maturity using the proceeds from the $325.0 million 6% surplus note issued to
AXA Financial, which matures in 2035.
ALLIANCEBERNSTEIN
AllianceBernstein's principal sources of liquidity have been cash flows from
operations, commercial paper borrowings and proceeds from the issuance, both
publicly and privately, of debt and AllianceBernstein Units. AllianceBernstein
requires financial resources to fund commissions paid on certain back-end load
mutual fund sales, to fund distributions to Unitholders, to fund capital
expenditures and for general working capital purposes. On January 4, 2007 and
2006, respectively, AllianceBernstein deposited an additional $245.0 million and
$49.1 million in U.S. Treasury Bills in a special reserve account pursuant to
Rule 15c3-3 requirements. AllianceBernstein repaid its $400 million 5.625%
Senior Notes in August 2006. It currently has $200.0 million available under a
shelf registration statement for future issuances.
In 2006 and 2005, AllianceBernstein completed several transactions involving its
domestic and foreign services. In May 2006, AllianceBernstein purchased the
remaining 50% interest in its Hong Kong joint venture at a cost of $16.1
7-8
million net of cash acquired. During 2005, AllianceBernstein received net
proceeds of $18.8 million related to the transfer of its cash management
services business and $8.1 million from its transfer of certain Indian mutual
funds and related servicing rights. During 2006, AllianceBernstein received
$12.8 million in contingent payments related to the cash management services
transaction and net proceeds of $8.8 million related to the 2005 sale of its
interest in a South African subsidiary. The 2006 acquisition and three 2005
dispositions are not expected to have a material impact on the Investment
Management segment's future results of operations, cash flow or liquidity.
In February 2006, AllianceBernstein entered into an $800.0 million five-year
revolving credit facility with a group of commercial banks and other lenders. It
is intended to provide back-up liquidity for AllianceBernstein's commercial
paper program, which was increased from $425 million to $800 million in May
2006. Under the revolving credit facility, the interest rate, at
AllianceBernstein' option, is a floating rate generally based upon a defined
prime rate, a rate related to LIBOR or the Federal Funds rate. The revolving
credit facility contains covenants that, among other things, require
AllianceBernstein to meet certain financial ratios. AllianceBernstein was in
compliance with the covenants at December 31, 2006. AllianceBernstein also
maintains a $100 million ECN program as a supplement to its commercial paper
program. ECNs are short-term uncommitted debt instruments that do not require
back-up liquidity support. At December 31, 2006, $334.9 million in commercial
paper was outstanding; no amounts were outstanding under any of the other
programs at that date.
Certain of AllianceBernstein's deferred and other compensation plans provide for
the election by participants to notionally invest in AllianceBernstein Holding
units or AllianceBernstein sponsored mutual funds. From time to time,
AllianceBernstein will fund participant elections. In 2006 and 2005,
respectively, subsidiaries of AllianceBernstein purchased AllianceBernstein
Holding units totaling $22.3 million and $33.3 million for such plans.
Management believes AllianceBernstein's substantial equity base and its access
to public and private debt at competitive terms should provide adequate
liquidity for its general business needs and its cash flows from operations and
the issuance of debt and AllianceBernstein Units will provide AllianceBernstein
with the resources to meet its financial obligations. For further information,
see AllianceBernstein's Annual Report on Form 10-K for the year ended
December 31, 2006.
SUPPLEMENTARY INFORMATION
AXA Financial Group is involved in several ventures and transactions with AXA
and certain of its affiliates. At December 31, 2006, AXA Equitable had
outstanding a $400.0 million, 5.89% loan to AXA Insurance Holding Co., Ltd., a
Japanese subsidiary of AXA. All payments, including interest, are guaranteed by
AXA. AllianceBernstein provides investment management and related services to
AXA, AXA Financial Group and certain of their subsidiaries and affiliates. In
2001, AllianceBernstein entered into joint ventures with AXA Asia Pacific
Holdings Limited, an AXA affiliate, and recognized management fees of $61.1
million, $44.6 million and $33.3 million in 2006, 2005 and 2004, respectively,
of which approximately $21.3 million, $19.9 million and $17.6 million,
respectively, were from AXA affiliates and $8.8 million, $5.9 million and $3.7
million, respectively, were attributed to minority interest. AXA Financial, AXA
Equitable and AllianceBernstein, along with other AXA affiliates, participate in
certain cost sharing and servicing agreements, which include technology and
professional development arrangements. Payments by AXA Financial Group to AXA
under such agreements totaled approximately $29.9 million, $33.8 million and
$31.6 million in 2006, 2005 and 2004, respectively. Payments by AXA and AXA
affiliates to AXA Financial Group under such agreements totaled approximately
$27.9 million, $36.2 million and $39.2 million in 2006, 2005 and 2004,
respectively. Included in the payments by AXA and AXA affiliates to AXA
Financial Group are $12.6 million, $12.7 million and $12.7 million from AXA
Tech, which represent the net amount of payments resulting from services and
facilities provided by AXA Financial Group to AXA Tech of $111.0 million, $110.9
million and $106.4 million less the payments for services provided by AXA Tech
to AXA Financial Group of $98.4 million, $98.2 million and $93.7 million for
2006, 2005 and 2004, respectively. See Notes 11 and 18 of Notes to the
Consolidated Financial Statements contained elsewhere herein and
AllianceBernstein's Report on Form 10-K for the year ended December 31, 2006 for
information on related party transactions.
7-9
A schedule of future payments under certain of AXA Financial Group's
consolidated contractual obligations follows:
CONTRACTUAL OBLIGATIONS - DECEMBER 31, 2006
(IN MILLIONS)
Payments Due by Period
------------------------------------------------------------
Less than Over
Total 1 year 1 - 3 years 4 - 5 years 5 years
------------ ------------- ----------- ----------- -------------
Contractual obligations:
Policyholders liabilities -
policyholders' account
balances, future policy
benefits and other
policyholders liabilities (1).... $ 99,351.9 $ 3,762.0 $ 7,166.7 $ 6,853.1 $ 81,570.1
Long-term debt..................... 1,830.2 248.3 250.0 780.0 551.9
Operating leases................... 2,478.2 203.5 374.4 334.1 1,566.2
Employee benefits (2).............. 992.5 100.6 207.4 198.8 485.7
------------ ------------- ----------- ----------- -------------
Total Contractual
Obligations.................... $ 104,652.8 $ 4,314.4 $ 7,998.5 $ 8,166.0 $ 84,173.9
============ ============= =========== ============ ==============
(1) Policyholders liabilities represent estimated cash flows out of the General
Account related to the payment of death and disability claims, policy
surrenders and withdrawals, annuity payments, minimum guarantees on
Separate Account funded contracts, matured endowments, benefits under
accident and health contracts, policyholder dividends and future renewal
premium-based and fund-based commissions offset by contractual future
premiums and deposits on in-force contracts. These estimated cash flows are
based on mortality, morbidity and lapse assumptions comparable with the AXA
Financial Group's experience and assume market growth and interest
crediting consistent with assumptions used in amortizing DAC and VOBA.
These amounts are undiscounted and, therefore, exceed the Policyholders'
account balances and Future policy benefits and other policyholder
liabilities included in the consolidated balance sheet included elsewhere
herein. They do not reflect projected recoveries from reinsurance
agreements. Due to the use of assumptions, actual cash flows will differ
from these estimates (see "Critical Accounting Estimates - Future Policy
Benefits"). Separate Accounts liabilities have been excluded as they are
legally insulated from General Account obligations and will be funded by
cash flows from Separate Accounts assets.
(2) Excludes AXA Financial Group's qualified pension plan for which no payments
to the plan are expected to be required for the next five years or longer.
Interest on long-term debt will be approximately $110.3 million, $97.7 million,
$93.1 million, $64.6 million and $40.1 million in 2007, 2008, 2009, 2010 and
2011, respectively, while interest on long-term borrowings from AXA and other
AXA affiliates will be approximately $65.4 million, $73.1 million, $79.2
million, $84.2 million and $84.2 million, respectively. AXA Financial has
long-term loans outstanding from AXA and certain AXA affiliated totaling $1.28
billion with a 2019 maturity date.
Certain of AllianceBernstein's deferred compensation plans provide for election
by participants to have their deferred compensation awards invested notionally
in AllianceBernstein Holding units and in company-sponsored mutual funds. Since
January 1, 2007, AllianceBernstein made purchases of mutual funds totaling
$272.3 million to fund its future obligations resulting from participant
elections with respect to 2006 awards. AllianceBernstein also allocated
AllianceBernstein Holding units with an aggregate value of approximately $36.8
million; these units were held in a deferred compensation trust at December 31,
2006 to fund its future obligations that resulted from participant elections
with respect to 2006 awards. At year-end 2006, AllianceBernstein had a $360.6
million accrual for compensation and benefits, of which $215.8 million is
expected to be paid in 2007, $79.4 million in 2008-2009, $42.7 million in
2010-2011 and the rest thereafter. Further, AllianceBernstein expects to make
contributions to its qualified profit sharing plan of approximately $25.0
million in each of the next four years. AllianceBernstein currently expects to
contribute an restimated $3.7 million to its qualified, noncontributory, defined
benefit plan during 2007.
7-10
In addition, AXA Financial Group has obligations under contingent commitments at
December 31, 2006, including: AXA Financial's and AllianceBernstein's respective
revolving credit facilities and commercial paper programs; AllianceBernstein's
$100.0 million ECN program; AXA Financial Group's $1.49 billion of undrawn
letters of credit; AllianceBernstein's $125.0 million guarantee on behalf of SCB
LLC; and AXA Financial Group's guarantees or commitments to provide equity
financing to certain limited partnerships of $697.8 million. Information on
these contingent commitments can be found in Notes 11, 18 and 19 of Notes to
Consolidated Financial Statements.
Further, AXA Financial Group is exposed to potential risk related to its own
ceded reinsurance agreements with other insurers and to insurance guaranty fund
laws in all 50 states, the District of Columbia and Puerto Rico. Under these
laws, insurers doing business in these states can be assessed amounts up to
prescribed limits to protect policyholders of companies that become impaired or
insolvent.
CRITICAL ACCOUNTING ESTIMATES
AXA Financial Group's management narrative is based upon AXA Financial Group's
consolidated financial statements that have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and assumptions (including normal, recurring accruals) that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, AXA
Financial Group evaluates its estimates, including those related to investments,
recognition of insurance income and related expenses, DAC and VOBA, future
policy benefits, recognition of Investment Management revenues and related
expenses and pension cost. AXA Financial Group bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. The results of such factors form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from those
estimates under different assumptions or conditions.
AXA Financial Group believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.
Investments - AXA Financial Group records an investment impairment charge when
it believes an investment has experienced a decline in fair value that is other
than temporary. Identifying those situations requires management's careful
consideration of the facts and circumstances including, but not limited to, the
duration and extent to which the fair value has been depressed, the financial
condition, cash flows, and near-term earnings potential of the issuer, as well
as AXA Financial Group's ability and intent to retain the investment to allow
sufficient time for any anticipated recovery in fair value. The basis for
measuring fair value may require utilization of investment valuation
methodologies, such as discounted cash flow analysis, if quoted market prices
are not readily available.
Recognition of Insurance Income and Related Benefits - Profits on
non-participating traditional life policies and annuity contracts with life
contingencies emerge from the matching of benefits and other expenses against
the related premiums. Profits on participating traditional life, universal
life-type and investment-type contracts emerge from the matching of benefits and
other expenses against the related contract margins. This matching is
accomplished by means of the provision for liabilities for future policy
benefits and the deferral, and subsequent amortization, of policy acquisition
costs. Trends in the general population and AXA Financial Group's own mortality,
morbidity, persistency and claims experience have a direct impact on the
benefits and expenses reported in any given period.
DAC and VOBA - For universal life-type and investment-type contracts and
participating traditional life policies, DAC and VOBA amortization may be
affected by changes in estimated gross profits and margins principally related
to investment results, Separate Account fees, mortality and expense margins,
lapse rates and anticipated surrender charges. Should revisions to estimated
gross profits or margins be required, the effect is reflected in earnings in the
period such estimated gross profits are revised. Additionally, the level of
deferrable Insurance Group operating expenses is another significant factor in
that business' reported profitability in any given period. VOBA was recorded in
conjunction with the MONY Acquisition and represents the present value of
estimated future profits from the insurance and annuity policies in-force when
the business was acquired by AXA Financial.
Future Policy Benefits - Future policy benefit liabilities for traditional
policies are based on actuarial assumptions as to such factors as mortality,
morbidity, persistency, interest and expenses and, in the case of participating
policies, expected annual and terminal dividends. Determination of the GMDB/GMIB
liabilities is based on models that involve numerous estimates and subjective
judgments, including those regarding expected market rates of return and
7-11
volatility, contract surrender rates, mortality experience and, for GMIB, GMIB
election rates. Premium deficiency reserves are based upon estimates of future
gross premiums, expected policy benefits and other expenses. The allowance for
future losses for the discontinued Wind-up Annuities business is based upon
numerous estimates and subjective judgments regarding the expected performance
of the related investment assets, future asset reinvestment rates and future
benefit payments.
Recognition of Investment Management Revenues and Related Expenses - The
Investment Management segment's revenues are largely dependent on the total
value and composition of assets under management. The most significant factors
that could affect this segment's results include, but are not limited to, the
performance of the financial markets and the investment performance and
composition of sponsored investment products and separately managed accounts.
Performance fees are recorded as revenue at the end of the specified period and
will generally be higher in favorable markets and lower in unfavorable markets,
which may increase the volatility of the segment's revenues and earnings.
Capitalized sales commissions paid to financial intermediaries in connection
with the sale of shares of open-end mutual funds sold without a front-end sales
charge are expected to be recovered from distribution plan payments received
from those funds and from contingent deferred sales charges received from
shareholders of those funds upon redemption of their shares. The recoverability
of these commissions is estimated based on management's assessment of these
future revenue flows.
Pension Cost - Net periodic pension cost is the aggregation of the compensation
cost of benefits promised, interest cost resulting from deferred payment of
those benefits, and investment results of assets dedicated to fund those
benefits. Each cost component is based on AXA Financial Group's best estimate of
long-term actuarial and investment return assumptions. Actual experience
different from that assumed generally is recognized prospectively over future
periods; however, significant variances could result in immediate recognition if
they exceed certain prescribed thresholds or in conjunction with a
reconsideration of the related assumptions.
Share-based and Other Compensation Programs - Prior to the adoption of SFAS No.
123(R) on January 1, 2006, equity settled stock option awards only resulted in
compensation expense if the current market price of the underlying stock
exceeded the option strike price at the grant date. Compensation expense for
cash settled award programs, such as tandem Stock Appreciation Rights and
Performance Units, was recorded based upon changes in the fair value of the AXA
ADRs or AXA shares. In connection with the adoption of SFAS No. 123(R), AXA
Financial Group began recognizing compensation expense for the unvested portion
of awards outstanding on January 1, 2006 over the balance of the vesting period
and ,for new awards after January 1, 2006, for the fair values of the option
awards over the vesting period. Significant factors that could affect results
include, but are not limited to, assumptions incorporated in the option pricing
models, changes in the market price of AXA ADRs and AXA ordinary shares and
grants of additional awards.
Consolidation - AXA Financial Group includes in its consolidated financial
statements the accounts and activities of AXA Financial; AXA Equitable and MONY
Life; those of their subsidiaries engaged in insurance related businesses; other
subsidiaries, principally AllianceBernstein, AXA Advisors and AXA Network; and
those investment companies, partnerships and joint ventures in which AXA
Financial Group has control and a majority economic interest as well as those
VIEs that meet the requirements for consolidation. All significant intercompany
transactions and balances have been eliminated in consolidation.
7-12
PART II, ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AXA Financial Group's businesses are subject to financial, market, political and
economic risks, as well as to risks inherent in its business operations. The
discussion that follows provides additional information on market risks arising
from its insurance asset/liability management and asset management activities.
Such risks are evaluated and managed by each business on a decentralized basis.
Primary market risk exposure results from interest rate fluctuations, equity
price movements and changes in credit quality.
THE INSURANCE GROUP AND AXA FINANCIAL
The Insurance Group's results significantly depend on profit margins or
"spreads" between investment results derived from the General Account supported
portfolios of continuing and discontinued insurance operations and interest
credited on individual insurance and annuity products. Management believes its
fixed rate liabilities should be supported by a portfolio principally composed
of fixed rate investments that generate predictable, steady rates of return.
Although these assets are purchased for long-term investment, the portfolio
management strategy considers them available for sale in response to changes in
market interest rates, changes in prepayment risk, changes in relative values of
asset sectors and individual securities and loans, changes in credit quality
outlook and other relevant factors. See the "Investments" section of Note 2 of
Notes to Consolidated Financial Statements for the accounting policies for the
investment portfolios. The objective of portfolio management is to maximize
returns, taking into account interest rate and credit risks. Insurance
asset/liability management includes strategies to minimize exposure to loss as
interest rates and economic and market conditions change. As a result, the fixed
maturity portfolio has modest exposure to call and prepayment risk and the vast
majority of mortgage holdings are fixed rate mortgages that carry yield
maintenance and prepayment provisions.
Insurance Group assets with interest rate risk include fixed maturities and
mortgage loans that make up 84.0% of the carrying value of assets of the General
Account associated with continuing operations ("General Account Investment
Assets") at December 31, 2006. As part of its asset/liability management,
quantitative analyses are used to model the impact various changes in interest
rates have on assets with interest rate risk. The table that follows shows the
impact an immediate 100 basis point increase in interest rates at December 31,
2006 and 2005 would have on the fair value of fixed maturities and mortgage
loans:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2006 December 31, 2005
---------------------------------------- ------------------------------------
BALANCE AFTER Balance After
FAIR +100 BASE Fair +100 Basis
VALUE POINT CHANGE Value Point Change
------------------ -------------------- ---------------- -------------------
Insurance Group
---------------
Continuing Operations:
Fixed maturities:
Fixed rate....................... $ 38,068.7 $ 36,139.7 $ 38,899.7 $ 36,837.9
Floating rate.................... 279.5 278.9 386.3 382.4
Mortgage loans..................... 4,703.0 4,503.6 4,813.3 4,619.8
Wind-up Annuities:
Fixed maturities:
Fixed rate....................... $ 764.8 $ 735.6 $ 823.5 $ 787.0
Mortgage loans..................... 3.0 3.0 7.1 6.9
AXA Financial
-------------
Fixed maturities:
Fixed rate....................... $ 11.5 $ 11.1 $ 14.6 $ 14.4
A 100 basis point fluctuation in interest rates is a hypothetical rate scenario
used to demonstrate potential risk; it does not represent management's view of
future market changes. While these fair value measurements provide a
representation of interest rate sensitivity of fixed maturities and mortgage
loans, they are based on various portfolio exposures at a particular point in
time and may not be representative of future market results. These exposures
will
7A-1
change as a result of ongoing portfolio activities in response to management's
assessment of changing market conditions and available investment opportunities.
The investment portfolios also have direct holdings of public and private equity
securities. The following table shows the potential exposure from those equity
security investments, measured in terms of fair value, to an immediate 10% drop
in equity prices from those prevailing at December 31, 2006 and 2005:
EQUITY PRICE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2006 December 31, 2005
-------------------------------------- ------------------------------------
BALANCE AFTER Balance After
FAIR -10% EQUITY Fair -10% Equity
VALUE PRICE CHANGE Value Price Change
---------------- --------------------- -------------- --------------------
Insurance Group
Continuing operations.............. $ 262.8 $ 236.5 $ 200.7 $ 180.6
Wind-up Annuities.................. - - .1 .1
AXA Financial........................ $ 1.4 $ 1.3 $ 1.7 $ 1.6
A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent management's view of future market
changes. The fair value measurements shown are based on the equity securities
portfolio exposures at a particular point in time and these exposures will
change as a result of ongoing portfolio activities in response to management's
assessment of changing market conditions and available investment opportunities.
At years end 2006 and 2005, the aggregate carrying value of policyholders
liabilities were $53,438.5 million and $54,250.7 million, respectively,
including $18,451.3 million and $19,496.3 million of liabilities, respectively,
related to the General Account's investment contracts. The aggregate fair value
of those investment contracts at years end 2006 and 2005 were $18,508.4 million
and $19,855.9 million, respectively. The impact of a relative 1% decrease in
interest rates would be an increase in the fair value of those investment
contracts to $19,003.7 million and $20,428.2 million, respectively. Those
investment contracts represent only a portion of total policyholders
liabilities. As such, meaningful assessment of net market risk exposure cannot
be made by comparing the results of the invested assets sensitivity analyses
presented herein to the potential exposure from the policyholders liabilities
quantified in this paragraph.
Asset/liability management is integrated into many aspects of the Insurance
Group's operations, including investment decisions, product development and
determination of crediting rates. As part of its risk management process,
numerous economic scenarios are modeled, including cash flow testing required
for insurance regulatory purposes, to determine if existing assets would be
sufficient to meet projected liability cash flows. Key variables include
policyholder behavior, such as persistency, under differing crediting rate
strategies. On the basis of these more comprehensive analyses, management
believes there is minimal solvency risk to Insurance Group from interest rate
movements of 100 basis points and from equity price changes of 10% from year-end
2006 levels.
The Insurance Group primarily uses derivatives for asset/liability risk
management, for hedging individual securities and to reduce the Insurance
Group's exposure to equity market decline and interest rate fluctuations.
Similarly, AXA Financial utilizes derivatives to reduce the fixed interest cost
of its long-term debt obligations. As more fully described in Notes 2 and 3 of
Notes to Consolidated Financial Statements, various traditional derivative
financial instruments are used to achieve these objectives, including interest
rate floors to hedge crediting rates on interest-sensitive individual annuity
contracts, interest rate futures to protect against declines in interest rates
between receipt of funds and purchase of appropriate assets, and interest rate
swaps to modify the duration and cash flows of fixed maturity investments and
long-term debt. In addition, AXA Financial Group periodically enters into
forward and futures contracts to provide an economic hedge for certain equity
and interest rate exposures, including the program to hedge certain risks
associated with the GMDB and GMIB features of the Accumulator(R) series of
annuity products. To minimize credit risk exposure associated with its
derivative transactions, each counterparty's credit is appraised and approved
and risk control limits and monitoring procedures are applied. Credit limits are
established and monitored on the basis of potential exposures that take into
consideration current market values and estimates of potential future movements
in market values given potential fluctuations in market interest rates.
7A-2
While notional amount is the most commonly used measure of volume in the
derivatives market, it is not used by the Insurance Group as a measure of risk
because the notional amount greatly exceeds the possible credit and market loss
that could arise from such transactions. Mark to market exposure is a
point-in-time measure of the value of a derivative contract in the open market.
A positive value indicates existence of credit risk for the Insurance Group
because the counterparty would owe money to the Insurance Group if the contract
were closed. Alternatively, a negative value indicates the Insurance Group would
owe money to the counterparty if the contract were closed. If there is more than
one derivative transaction outstanding with a counterparty, a master netting
arrangement exists with the counterparty. In that case, the market risk
represents the net of the positive and negative exposures with the single
counterparty. In management's view, the net potential exposure is the better
measure of credit risk.
At years end 2006 and 2005, the fair values of the Insurance Group's and AXA
Financial's derivatives were $34.7 million and $7.5 million, respectively. The
table that follows shows the interest rate or equity sensitivities of those
derivatives, measured in terms of fair value. These exposures will change as a
result of ongoing portfolio and risk management activities.
DERIVATIVE FINANCIAL INSTRUMENTS
(IN MILLIONS, EXCEPT FOR WEIGHTED AVERAGE TERM)
INTEREST RATE SENSITIVITY
--------------------------------------------------------
WEIGHTED
AVERAGE BALANCE AFTER BALANCE AFTER
NOTIONAL TERM -100 BASIS FAIR +100 BASIS
AMOUNT (YEARS) POINT CHANGE VALUE POINT CHANGE
--------------- -------------- ----------------- ---------------- -------------------
DECEMBER 31, 2006
Insurance Group:
Options:
Floors.............. $ 32,000.0 2.88 $ 30.2 $ 8.7 $ 4.3
Futures............... 565.8 .22 40.5 - (40.5)
AXA Financial:
Swaps with AXA........ 1,280.0 2.0 16.6 39.2 61.8
3rd party swaps....... 1,080.0 .29 (10.8) (13.2) (15.9)
--------------- ---------------- ----------------- -------------------
Total.................... $ 34,925.8 $ 76.5 $ 34.7 $ 9.7
=============== ================= ================= ===================
December 31, 2005
Insurance Group:
Options:
Floors.............. $ 24,000.0 2.55 $ 43.9 $ 12.3 $ 7.0
Swaps............... 300.0 11.06 (29.3) (18.1) (3.9)
Futures............... 286.6 0.22 17.0 0.0 (17.0)
AXA Financial:
Swaps with AXA........ 1,280.0 3.0 65.5 32.2 (2.3)
3rd party swaps....... 2,160.0 0.79 (9.3) (18.9) (29.4)
--------------- ---------------- ----------------- -------------------
Total.................... $ 28,026.6 $ 87.8 $ 7.5 $ (45.6)
=============== ================= ================= ===================
EQUITY SENSITIVITY
--------------------------------------
BALANCE AFTER
FAIR -10% EQUITY
VALUE PRICE SHIFT
------------------- -------------------
DECEMBER 31, 2006
Insurance Group:
Futures............... $ (2,970.5) .22 $ - $ 297.0
=============== =================== ===================
December 31, 2005
Insurance Group:
Futures............... $ (1,921.3) .21 $ - $ 192.1
=============== =================== ===================
7A-3
In addition to the traditional derivatives discussed above, the Insurance Group
has entered into reinsurance contracts to mitigate the risk associated with the
impact of potential market fluctuations on future policyholder elections of GMIB
features contained in certain annuity contracts. These reinsurance contracts are
considered derivatives for accounting purposes and were reported at their fair
values of $117.8 million and $132.6 million at December 31, 2006 and 2005,
respectively. The potential fair value exposure to an immediate 10% drop in
equity prices from those prevailing at December 31, 2006 and 2005, respectively,
would increase the balance of these reinsurance contracts to $186.7 million and
$211.8 million.
At the end of 2006 and of 2005, the aggregate fair values of long-term debt
issued by the Insurance Group and AXA Financial were $1.71 billion and $2.06
billion, respectively. The table below shows the potential fair value exposure
to an immediate 100 basis point decrease in interest rates from those prevailing
at the end of 2006 and of 2005.
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2006 December 31, 2005
-------------------------------------- --------------------------------------
BALANCE AFTER Balance After
FAIR -100 BASIS Fair -100 Basis
VALUE POINT CHANGE Value Point Change
----------------- -------------------- ------------------ ------------------
Insurance Group
Continuing Operations:
Fixed rate..................... $ 232.5 $ 248.6 $ 235.6 $ 253.3
Floating rate.................. - - 300.0 300.0
AXA Financial
Fixed rate....................... $ 1,481.1 $ 1,558.3 $ 1,526.7 $ 1,618.0
INVESTMENT MANAGEMENT
AllianceBernstein's investments consist of investments, trading and
available-for-sale, and other investments. AllianceBernstein's trading and
available-for-sale investments include U.S. Treasury bills and equity and fixed
income mutual funds investments. Trading investments are purchased for
short-term investment, principally to fund liabilities related to deferred
compensation plans. Although available-for-sale investments are purchased for
long-term investment, the portfolio strategy considers them available-for-sale
from time to time due to changes in market interest rates, equity prices and
other relevant factors. Other investments include investments in hedge funds
sponsored by AllianceBernstein
The table below provides AllianceBernstein's potential exposure, measured in
terms of fair value, to an immediate 100 basis point increase in interest rates
at all maturities from the levels prevailing at December 31, 2006 and 2005:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2006 December 31, 2005
-------------------------------------- --------------------------------------
BALANCE AFTER Balance After
FAIR +100 BASIS POINT Fair +100 Basis Point
VALUE CHANGE Value Change
----------------- -------------------- ------------------ ------------------
Fixed Income Investments:
Trading........................ $ 31.7 $ 30.2 $ 30.5 $ 29.1
Available-for-sale and other
investments................ 32.0 30.5 2.5 2.4
Such a fluctuation in interest rates is a hypothetical rate scenario used to
calibrate potential risk and does not represent AllianceBernstein management's
view of future market changes. While these fair value measurements provide a
representation of interest rate sensitivity of fixed income mutual funds and
fixed income hedge funds, they are based on AllianceBernstein's exposures at a
particular point in time and may not be representative of future market results.
These exposures will change as a result of ongoing changes in investments in
response to AllianceBernstein management's assessment of changing market
conditions and available investment opportunities.
7A-4
The following table presents AllianceBernstein's potential exposure from its
equity investments, including equity mutual funds and equity hedge funds,
measured in terms of fair value, to an immediate 10% drop in equity prices from
those prevailing at December 31, 2006 and 2005:
EQUITY PRICE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2006 December 31, 2005
---------------------------------------- ------------------------------------
BALANCE AFTER Balance After
FAIR -10% EQUITY PRICE Fair -10% Equity Price
VALUE CHANGE Value Change
------------------- ------------------- ---------------- ------------------
Equity Investments:
Trading......................... $ 432.1 $ 388.9 $ 282.7 $ 254.4
Available for sale and other
investments................. 251.8 226.7 115.7 104.1
A 10% decrease in equity prices is a hypothetical scenario used to calibrate
potential risk and does not represent AllianceBernstein management's view of
future market changes. While these fair value measurements provide a
representation of equity price sensitivity of equity mutual funds and equity
hedge funds, they are based on AllianceBernstein's exposure at a particular
point in time and may not be representative of future market results. These
exposures will change as a result of ongoing portfolio activities in response to
AllianceBernstein management's assessment of changing market conditions and
available investment opportunities.
At December 31, 2006 and 2005, respectively, AllianceBernstein's fixed rate debt
had an aggregate fair value of $335.0 million and $409.7 million. The table
below provides the potential fair value exposure to an immediate 100 basis point
decrease in interest rates at all maturities and a ten percent decrease in
exchange rates from those prevailing at year-end 2006 and 2005:
INTEREST RATE RISK EXPOSURE
(IN MILLIONS)
DECEMBER 31, 2006 December 31, 2005
------------------------------------------ --------------------------------------
BALANCE BALANCE Balance Balance
AFTER AFTER After -100 After -10%
-100 BASIS -10% EXCHANGE Basis Point Exchange
FAIR VALUE POINT CHANGE RATE CHANGE Fair Value Change Rate Change
---------- ------------ ----------- ---------- ----------- -----------
Debt.......................... $ 335.0 $ 349.4 $ 335.0 $ 409.7 $ 427.9 $ 410.4
For further information on AllianceBernstein's market risk, see
AllianceBernstein and AllianceBernstein Holding's Annual Reports on Form 10-K
for the year ended December 31, 2006.
7A-5
PART II, ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AXA FINANCIAL, INC.
Reports of Independent Registered Public Accounting Firms:
Report of PricewaterhouseCoopers LLP on AXA Financial, Inc............................................. F-1
Report of KPMG LLP on AllianceBernstein L.P............................................................ F-2
Report of KPMG LLP on AllianceBernstein Holding L.P.................................................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 2006 and 2005................................................. F-4
Consolidated Statements of Earnings, Years Ended December 31, 2006, 2005 and 2004....................... F-5
Consolidated Statements of Shareholder's Equity and Comprehensive Income,
Years Ended December 31, 2006, 2005 and 2004.......................................................... F-6
Consolidated Statements of Cash Flows, Years Ended December 31, 2006, 2005 and 2004..................... F-7
Notes to Consolidated Financial Statements.............................................................. F-9
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statement Schedules..... F-66
Consolidated Financial Statement Schedules:
Schedule I - Summary of Investments - Other than Investments in Related Parties,
December 31, 2006..................................................................................... F-67
Schedule II - Balance Sheets (Parent Company), December 31, 2006 and 2005.............................. F-68
Schedule II - Statements of Earnings (Parent Company),
Years Ended December 31, 2006, 2005 and 2004.......................................................... F-69
Schedule II - Statements of Cash Flows (Parent Company),
Years Ended December 31, 2006, 2005 and 2004.......................................................... F-70
Schedule III - Supplementary Insurance Information,
Years Ended December 31, 2006, 2005 and 2004.......................................................... F-71
Schedule IV - Reinsurance, Years Ended December 31, 2006, 2005 and 2004................................ F-74
FS-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
AXA Financial Inc.
In our opinion, based on our audits and the reports of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of earnings, of shareholder's equity and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of AXA
Financial, Inc. and its subsidiaries ("AXA Financial Group") at December 31,
2006 and 2005, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2006 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the AXA Financial Group's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
AllianceBernstein L.P. and AllianceBernstein Holding L.P., subsidiaries of AXA
Financial Group, as of and for the year ended December 31, 2005, whose
statements reflect total assets of six percent of the related consolidated total
as of December 31, 2005 and total revenues of thirty percent of the related
consolidated total for the year ended December 31, 2005. Those statements were
audited by other auditors whose reports thereon have been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
AllianceBernstein L.P. and AllianceBernstein Holding L.P., is based solely on
the reports of the other auditors. We conducted our audits of these statements
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors provide a reasonable
basis for our opinion.
As discussed in Note 2 of the Notes to Consolidated Financial Statements, AXA
Financial Group changed its method of accounting for share-based compensation on
January 1, 2006, for defined benefit pension and other postretirement plans on
December 31, 2006 and for certain nontraditional long-duration contracts and
Separate Accounts on January 1, 2004.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 15, 2007
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The General Partner and Unitholders
AllianceBernstein L.P.
We have audited the accompanying consolidated statement of financial condition
of AllianceBernstein L.P. and subsidiaries ("AllianceBernstein"), formerly
Alliance Capital Management L.P., as of December 31, 2005, and the related
consolidated statements of income, changes in partners' capital and
comprehensive income and cash flows for each of the years in the two-year period
ended December 31, 2005. These consolidated financial statements are the
responsibility of the management of the General Partner. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AllianceBernstein as
of December 31, 2005, and the results of their operations and their cash flows
for each of the years in the two-year period ended December 31, 2005, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 24, 2006
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The General Partner and Unitholders
AllianceBernstein Holding L.P.
We have audited the accompanying statement of financial condition of
AllianceBernstein Holding L.P. ("AllianceBernstein Holding"), formerly Alliance
Capital Management Holding L.P., as of December 31, 2005, and the related
statements of income, changes in partners' capital and comprehensive income and
cash flows for each of the years in the two-year period ended December 31, 2005.
These financial statements are the responsibility of the management of the
General Partner. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AllianceBernstein Holding as of
December 31, 2005, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2005, in conformity with
U.S. generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 24, 2006
F-3
AXA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
2006 2005
---------------- ----------------
(IN MILLIONS)
ASSETS
Investments:
Fixed maturities available for sale, at estimated fair value.............. $ 37,991.8 $ 38,904.1
Mortgage loans on real estate............................................. 4,664.6 4,702.5
Equity real estate, held for the production of income..................... 585.6 632.2
Policy loans.............................................................. 5,007.5 4,946.5
Other equity investments.................................................. 1,735.3 1,410.1
Trading securities........................................................ 465.1 314.3
Other invested assets .................................................... 1,119.6 1,093.6
---------------- ----------------
Total investments...................................................... 51,569.5 52,003.3
Cash and cash equivalents................................................... 1,917.4 1,870.4
Cash and securities segregated, at estimated fair value..................... 1,864.0 1,720.8
Broker-dealer related receivables........................................... 3,481.0 2,929.1
Deferred policy acquisition costs .......................................... 8,609.9 7,781.9
Goodwill and other intangible assets, net .................................. 4,868.9 4,924.9
Value of business acquired.................................................. 689.5 780.4
Amounts due from reinsurers................................................. 3,339.3 3,277.2
Loans to affiliates......................................................... 400.0 400.0
Other assets ............................................................... 3,413.1 4,193.3
Separate Accounts' assets .................................................. 88,593.1 74,458.8
---------------- ----------------
TOTAL ASSETS................................................................ $ 168,745.7 $ 154,340.1
================ ================
LIABILITIES
Policyholders' account balances ............................................ $ 29,895.6 $ 30,817.4
Future policy benefits and other policyholders liabilities ................. 22,754.7 22,677.2
Broker-dealer related payables ............................................. 954.9 1,229.9
Customers related payables.................................................. 3,980.8 2,924.3
Short-term and long-term debt .............................................. 2,190.2 2,569.9
Loans from affiliates....................................................... 1,280.0 1,580.0
Income taxes payable ....................................................... 2,122.1 2,199.9
Other liabilities........................................................... 5,036.1 4,897.4
Separate Accounts' liabilities.............................................. 88,593.1 74,458.8
Minority interest in equity of consolidated subsidiaries.................... 1,631.6 1,467.8
Minority interest subject to redemption rights.............................. 288.0 271.6
---------------- ----------------
Total liabilities...................................................... 158,727.1 145,094.2
---------------- ----------------
Commitments and contingent liabilities (Notes 2, 5, 12, 13, 18 and 19)
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 500 million shares authorized,
436.2 million shares issued and outstanding............................ 3.9 3.9
Capital in excess of par value.............................................. 1,122.4 1,047.8
Retained earnings........................................................... 9,494.7 8,213.5
Accumulated other comprehensive (loss) income............................... (378.9) 345.5
Treasury shares, at cost.................................................... (223.5) (364.8)
---------------- ----------------
Total shareholder's equity............................................. 10,018.6 9,245.9
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................................. $ 168,745.7 $ 154,340.1
================ ================
See Notes to Consolidated Financial Statements
F-4
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
REVENUES
Universal life and investment-type product
policy fee income............................................. $ 2,468.3 $ 2,090.2 $ 1,697.8
Premiums........................................................ 1,581.6 1,648.8 1,275.8
Net investment income........................................... 3,114.5 3,210.2 2,798.7
Investment gains, net........................................... 45.0 56.4 76.0
Commissions, fees and other income.............................. 4,637.0 3,886.6 3,629.5
----------------- ----------------- -----------------
Total revenues............................................ 11,846.4 10,892.2 9,477.8
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits......................................... 2,997.6 2,842.4 2,405.7
Interest credited to policyholders' account balances............ 1,216.5 1,206.9 1,108.3
Compensation and benefits....................................... 2,605.2 2,272.6 2,162.7
Commissions..................................................... 1,295.3 1,104.9 925.2
Distribution plan payments...................................... 292.9 292.0 374.2
Amortization of deferred sales commissions...................... 100.4 132.0 177.4
Interest expense................................................ 259.3 256.9 219.8
Amortization of deferred policy acquisition costs and
value of business acquired.................................... 812.6 682.0 510.1
Capitalization of deferred policy acquisition costs............. (1,458.8) (1,347.6) (1,116.1)
Rent expense.................................................... 244.9 226.6 216.9
Amortization of other intangible assets......................... 32.4 32.4 28.6
Other operating costs and expenses.............................. 1,359.7 1,111.8 921.0
----------------- ----------------- -----------------
Total benefits and other deductions....................... 9,758.0 8,812.9 7,933.8
----------------- ----------------- -----------------
Earnings from continuing operations before
income taxes and minority interest............................ 2,088.4 2,079.3 1,544.0
Income taxes.................................................... (518.6) (595.0) (395.7)
Minority interest in net income of consolidated subsidiaries.... (436.7) (338.7) (293.9)
----------------- ----------------- -----------------
Earnings from continuing operations............................. 1,133.1 1,145.6 854.4
Earnings from discontinued operations, net of income taxes...... 30.9 13.6 10.2
Gains (losses) on disposal of discontinued operations,
net of income taxes........................................... 117.2 (85.4) 84.3
Cumulative effect of accounting changes, net of income taxes.... - - (4.0)
----------------- ----------------- -----------------
Net Earnings.................................................... $ 1,281.2 $ 1,073.8 $ 944.9
================= ================= =================
See Notes to Consolidated Financial Statements
F-5
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Common stock, at par value, beginning and end of year........... $ 3.9 $ 3.9 $ 3.9
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year .............. 1,047.8 1,073.5 1,122.2
Changes in capital in excess of par value....................... 74.6 (25.7) (48.7)
----------------- ----------------- -----------------
Capital in excess of par value, end of year..................... 1,122.4 1,047.8 1,073.5
----------------- ----------------- -----------------
Retained earnings, beginning of year............................ 8,213.5 7,139.7 6,194.8
Net earnings.................................................... 1,281.2 1,073.8 944.9
----------------- ----------------- -----------------
Retained earnings, end of year.................................. 9,494.7 8,213.5 7,139.7
----------------- ----------------- -----------------
Accumulated other comprehensive income,
beginning of year............................................ 345.5 866.1 872.7
Other comprehensive loss........................................ (142.7) (520.6) (6.6)
Adjustment to initially apply SFAS No. 158,
net of income taxes.......................................... (581.7) - -
----------------- ----------------- -----------------
Accumulated other comprehensive (loss) income, end of year...... (378.9) 345.5 866.1
----------------- ----------------- -----------------
Treasury shares at cost, beginning of year ..................... (364.8) (19.4) (19.9)
Changes in treasury shares .................................... 141.3 (345.4) .5
----------------- ----------------- -----------------
Treasury shares at cost, end of year ........................... (223.5) (364.8) (19.4)
----------------- ----------------- -----------------
Total Shareholder's Equity, End of Year......................... $ 10,018.6 $ 9,245.9 $ 9,063.8
================= ================= =================
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
COMPREHENSIVE INCOME
Net earnings.................................................... $ 1,281.2 $ 1,073.8 $ 944.9
----------------- ----------------- -----------------
Change in unrealized (losses) gains, net of
reclassification adjustment.................................. (161.2) (501.9) 11.4
Cumulative effect of accounting changes......................... - - 12.4
Minimum pension liability adjustment............................ 18.5 (18.7) (30.4)
----------------- ----------------- -----------------
Other comprehensive loss........................................ (142.7) (520.6) (6.6)
----------------- ----------------- -----------------
Comprehensive Income............................................ $ 1,138.5 $ 553.2 $ 938.3
================= ================= =================
See Notes to Consolidated Financial Statements.
F-6
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Net earnings................................................ $ 1,281.2 $ 1,073.8 $ 944.9
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Interest credited to policyholders' account balances...... 1,216.5 1,206.9 1,108.3
Universal life and investment-type product
policy fee income...................................... (2,468.3) (2,090.2) (1,697.8)
Net change in broker-dealer and customer
related receivables/payables........................... 119.0 (352.2) 308.7
Investment gains, net..................................... (45.0) (56.4) (76.1)
Change in deferred policy acquisition costs and value
of business acquired................................... (646.2) (665.6) (606.0)
Change in future policy benefits.......................... 23.2 153.3 154.6
Change in income tax payable.............................. 339.5 468.4 259.6
Change in segregated cash and securities, net............. (143.2) (231.8) (203.2)
Change in fair value of guaranteed minimum income
benefit reinsurance contract........................... 14.9 (42.7) (61.0)
Amortization of deferred sales commission................. 100.4 132.0 177.4
Other depreciation and amortization....................... 229.7 274.7 287.1
Amortization of other intangible assets................... 32.4 32.4 28.6
(Gains) losses on disposal of discontinued operations..... (117.2) 85.4 (84.3)
Minority interest in net income of
consolidated subsidiaries.............................. 436.7 338.7 293.9
Other, net................................................ 478.8 (136.3) (85.4)
----------------- ----------------- -----------------
Net cash provided by operating activities................... 852.4 190.4 749.3
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................. 4,256.4 4,189.0 4,112.2
Sales of investments...................................... 2,344.7 2,748.9 3,884.9
Purchases of investments.................................. (6,087.1) (7,748.0) (9,288.0)
Change in short-term investments.......................... 11.1 59.2 328.5
Purchase of minority interest in consolidated subsidiary.. - - (635.7)
Acquisition of the MONY Group Inc., net of cash and
cash equivalents acquired.............................. - - (775.0)
Disposition of The Advest Group, Inc...................... - 400.0 -
Increase in capitalized software, leasehold improvements
and EDP equipment...................................... (159.3) (141.5) (144.0)
Other, net................................................ (442.9) (138.2) 275.4
----------------- ----------------- -----------------
Net cash used in investing activities....................... (77.1) (630.6) (2,241.7)
----------------- ----------------- -----------------
F-7
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(CONTINUED)
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. $ 4,316.2 $ 4,649.9 $ 4,061.0
Withdrawals from and transfers to Separate Accounts....... (4,233.3) (3,630.2) (2,605.0)
Proceeds in loans from affiliates........................... 335.0 11.1 1,568.9
Repayments of loans from affiliates ........................ (635.0) - -
Net change in short-term financings......................... 337.7 - 118.3
Repayments of long-term debt................................ (700.0) (675.0) (300.0)
(Purchase) sale of treasury shares.......................... (4.3) (372.6) .4
Other, net.................................................. (144.6) (266.5) (52.0)
----------------- ----------------- -----------------
Net cash (used in) provided by financing activities........... (728.3) (283.3) 2,791.6
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... 47.0 (723.5) 1,299.2
Cash and cash equivalents, beginning of year.................. 1,870.4 2,593.9 1,294.7
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 1,917.4 $ 1,870.4 $ 2,593.9
================= ================= =================
Supplemental cash flow information:
Interest Paid............................................... $ 178.7 $ 217.5 $ 223.6
================= ================= =================
Income Taxes Paid........................................... $ 89.7 $ 164.4 $ 114.1
================= ================= =================
See Notes to Consolidated Financial Statements.
F-8
AXA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
AXA Financial, Inc. ("AXA Financial," and, collectively with its
consolidated subsidiaries, "AXA Financial Group") is a diversified
financial services organization serving a broad spectrum of insurance
and investment management customers. AXA Financial is a wholly owned
subsidiary of AXA, a French parent Company for an international group of
insurance and related financial services companies.
AXA Financial Group conducts operations in two business segments: the
Financial Advisory/Insurance and Investment Management segments. AXA
Financial Group's management evaluates the performance of each of these
segments independently and allocates resources based on current and
future requirements of each segment.
Financial Advisory/Insurance
----------------------------
The Financial Advisory/Insurance segment offers a variety of
traditional, variable and interest-sensitive life insurance products,
variable and fixed-interest annuity products, mutual funds and other
investment products and asset management to individuals and small and
medium size businesses and professional trade associations and provides
financial planning services for individuals. This segment includes
Separate Accounts for individual insurance and annuity products.
The financial advisory and insurance business is conducted by AXA
Financial's insurance companies, its insurance general agency, AXA
Network, LLC (collectively with its subsidiaries, "AXA Network"), its
broker-dealers and other affiliated companies.
AXA Financial's direct and indirect wholly-owned insurance subsidiaries
(collectively the "Insurance Group") include AXA Equitable Life
Insurance Company ("AXA Equitable"), AXA Equitable's wholly-owned life
insurance subsidiary, AXA Life and Annuity Company ("AXA Life"), AXA
Financial (Bermuda) Ltd. ("AXA Bermuda") and, effective July 2004, MONY
Life Insurance Company ("MONY Life") and its wholly-owned subsidiaries,
MONY Life Insurance Company of America ("MLOA"), U.S. Financial Life
Insurance Company ("USFL"), Enterprise Capital Management, Inc.
("Enterprise") and The Advest Group, Inc. ("Advest") through December 2,
2005, the date of the Advest sale.
On July 8, 2004, AXA Financial completed its acquisition of The MONY
Group Inc. ("MONY") and, under terms of the related merger agreement,
paid or made provision to pay MONY shareholders approximately $1.5
billion in cash, representing $31 for each share of MONY common stock.
MONY shareholders also received a dividend from MONY totaling $0.34755
per share. On July 22, 2004, MONY was merged into AXA Financial. AXA
Financial funded the acquisition of MONY (the "MONY Acquisition") by
using available cash and issuing $1.28 billion of Subordinated Notes to
AXA and two AXA affiliates. The Subordinated Notes have a floating
interest rate, payable semiannually, and mature in 2019. The interest
rate resets semiannually on July 15 and January 15. Concurrently, AXA
Financial entered into an interest swap agreement with AXA, converting
the floating rate on these Subordinated Notes to a fixed rate of 5.11%
for the first three years. The acquisition provided AXA Financial Group
with additional scale in distribution, client base and assets under
management ("AUM").
The acquisition was accounted for using the purchase method under
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets".
For accounting purposes (due to convenience and the immateriality of the
results of MONY from July 1, 2004 through July 8, 2004), AXA Financial
Group has consolidated MONY and its subsidiaries (the "MONY Companies")
and reflected their results since July 1, 2004 in its consolidated
statements of earnings and cash flows, respectively. Under the purchase
method of accounting, the assets acquired and liabilities assumed were
recorded at estimated fair value at the date of acquisition. Purchase
adjustments required significant management estimates and assumptions.
The purchase adjustments related to value of business acquired ("VOBA")
and liabilities, including policyholder reserves, required management to
exercise judgment to assess the value of these items.
F-9
Investment Management
---------------------
The Investment Management segment is principally comprised of the
investment management business of AllianceBernstein L.P., a Delaware
limited partnership, and its subsidiaries ("AllianceBernstein").
AllianceBernstein provides research, diversified investment management
and related services globally to a broad range of clients. Its principal
services include: (a) institutional investments, including unaffiliated
corporate and public employee pension funds, endowment funds, domestic
and foreign institutions and governments, by means of separately managed
accounts, sub-advisory relationships, structured products, group trusts,
mutual funds and other investment vehicles, (b) retail, servicing
individual investors, primarily by means of retail mutual funds,
sub-advisory relationships in respect of mutual funds sponsored by third
parties, separately managed account programs that are sponsored by
various financial intermediaries worldwide, and other investment
vehicles, (c) private clients, including high-net-worth individuals,
trusts and estates, charitable foundations, partnerships, private and
family corporations and other entities, by means of separately managed
accounts, hedge funds, mutual funds, and other investment vehicles, and
(d) institutional research by means of in-depth independent fundamental
research, portfolio strategy, trading and brokerage-related services.
Principal subsidiaries of AllianceBernstein include: SCB Inc., formally
known as Sanford C. Bernstein, Inc. ("Bernstein"), Sanford C. Bernstein
& Co. LLC ("SCB LLC"), Sanford C. Bernstein Limited ("SCBL") and SCB
Partners, Inc. ("SCB Partners"). This segment includes institutional
Separate Accounts principally managed by AllianceBernstein that provide
various investment options for large group pension clients, primarily
defined benefit and contribution plans, through pooled or single group
accounts.
In October 2000, AllianceBernstein acquired substantially all of the
assets and liabilities of SCB Inc (the "Bernstein Acquisition"). AXA
Financial agreed to provide liquidity to these former Bernstein
shareholders after a two-year lockout period that ended October 2002.
Through December 31, 2006, AXA Financial Group acquired 24.5 million
units in AllianceBernstein L.P. ("AllianceBernstein Units") at the
aggregate market price of $885.4 million from SCB Inc. and SCB Partners
under a preexisting agreement and recorded additional goodwill of $341.0
million and other intangible assets of $42.2 million. Minority interest
subject to redemption rights represents the remaining 16.3 million of
private AllianceBernstein Units issued to former Bernstein shareholders
in connection with AllianceBernstein's acquisition of Bernstein. At
December 31, 2006 and 2005, AXA Financial Group's beneficial ownership
in AllianceBernstein L.P. was approximately 60.3% and 61.1%,
respectively. On February 23, 2007, AXA Financial purchased another
tranche of 8.16 million AllianceBernstein Units pursuant to an exercise
of the AllianceBernstein put at a purchase price of approximately $745.7
million. After the purchase, AXA Financial Group's beneficial ownership
in AllianceBernstein L.P. increased by approximately 3.0% to 63.3%. The
remaining 8.16 million AllianceBernstein Units may be sold to AXA
Financial at the prevailing market price no sooner than nine months
after the February 2007 purchase or over the following period ending
October 2, 2009.
2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
-----------------------------------------------------
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles in the United
States of America ("GAAP") requires management to make estimates and
assumptions (including normal, recurring accruals) that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. The
accompanying consolidated financial statements reflect all adjustments
necessary in the opinion of management to present fairly the
consolidated financial position of AXA Financial Group and its
consolidated results of operations and cash flows for the periods
presented.
The accompanying consolidated financial statements include the accounts
of: AXA Financial, AXA Equitable and MONY Life; those of their
subsidiaries engaged in insurance related businesses; other
subsidiaries, principally AllianceBernstein; and those investment
companies, partnerships and joint ventures in which AXA Financial Group
has control and a majority economic interest as well as those variable
interest entities ("VIEs") that meet the requirements for consolidation.
All significant intercompany transactions and balances have been
eliminated in consolidation. The years "2006," "2005" and "2004" refer
to the years ended December 31, 2006, 2005 and 2004, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform those periods to the current presentation. The
consolidated statements of cash flows for 2005 and 2004 have been
revised to reflect cash outflows related to capitalized software,
leasehold improvements and EDP equipment as
F-10
cash used in investing activities rather than cash used by operating
activities to be consistent with the 2006 presentation.
Accounting Changes
------------------
On December 31, 2006, AXA Financial Group implemented SFAS No. 158,
"Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans," requiring employers to recognize the over or
under funded status of such benefit plans as an asset or liability in
the balance sheet for reporting periods ending after December 15, 2006
and to recognize subsequent changes in that funded status as a component
of other comprehensive income. The funded status of a plan is measured
as the difference between plan assets at fair value and the projected
benefit obligation for pension plans or the benefit obligation for any
other postretirement plan. SFAS No. 158 does not change the
determination of net periodic benefit cost or its presentation in the
statement of earnings. However, its requirements represent a significant
change to previous accounting guidance that generally delayed
recognition of certain changes in plan assets and benefit obligations in
the balance sheet and only required disclosure of the complete funded
status of the plans in the notes to the financial statements.
As required by SFAS No. 158, the $581.7 million, net of income tax and
minority interest, impact of initial adoption has been reported as an
adjustment to the December 31, 2006 balance of accumulated other
comprehensive income in the accompanying consolidated financial
statements. The consequent recognition of the funded status of its
defined benefit pension and other postretirement plans at December 31,
2006 reduced total assets by approximately $698.2 million, principally
due to the reduction of prepaid pension cost of $681.7 million and
decreased total liabilities by approximately $116.5 million. The change
in liabilities resulted principally from the decrease in income taxes
payable of $313.3 million partially offset by an increase in benefit
plan liabilities of $199.7 million. See Note 12 of Notes to Consolidated
Financial Statements for further information.
SFAS No. 158 imposes an additional requirement, effective for fiscal
years ending after December 15, 2008, to measure plan assets and benefit
obligations as of the date of the employer's year-end balance sheet,
thereby eliminating the option to elect an earlier measurement date
alternative of not more than three months prior to that date, if used
consistently each year. This provision of SFAS No. 158 will have no
impact on AXA Financial Group as it already uses a December 31
measurement date for all of its plan assets and benefits obligations.
On January 1, 2006, AXA Financial Group adopted SFAS No. 123(R),
"Share-Based Payment". To effect its adoption, AXA Financial Group
elected the "modified prospective method" of transition. Under this
method, prior-period results were not restated. Prior to the adoption of
SFAS No. 123(R), AXA Financial Group had elected to continue to account
for stock-based compensation in accordance with Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and, as a result, the recognition of stock-based
compensation expense generally was limited to amounts attributed to
awards of restricted shares and various cash-settled programs such as
stock appreciation rights. SFAS No. 123(R) requires the cost of all
share-based payments to employees to be recognized in the financial
statements based on their fair values, resulting in compensation expense
for certain types of AXA Financial Group's equity-classified award
programs for which no cost previously would have been charged to net
earnings under APB No. 25, most notably for employee options to purchase
AXA American Depository Receipts ("ADRs") and AXA ordinary shares and
for employee stock purchase plans. As a result of adopting SFAS No.
123(R) on January 1, 2006, consolidated earnings from continuing
operations before income taxes and minority interest for 2006 and
consolidated net earnings for 2006 were $81.8 million and $52.5 million
lower, respectively, than if these plans had continued to be accounted
for under APB No. 25.
Under the modified prospective method, AXA Financial Group applied the
measurement, recognition, and attribution requirements of SFAS No.
123(R) to stock-based compensation awards granted, modified, repurchased
or cancelled on or after January 1, 2006. In addition, beginning in
first quarter 2006, costs associated with unvested portions of
outstanding employee stock option awards at January 1, 2006 that prior
to adoption of SFAS No. 123(R) would have been reflected by AXA
Financial Group only in pro forma disclosures, were recognized in the
consolidated statement of earnings over the awards' remaining future
service-vesting periods. Liability-classified awards outstanding at
January 1, 2006, such as performance units and stock appreciation
rights, were remeasured to fair value. The remeasurement resulted in no
adjustment to their intrinsic value basis, including the cumulative
effect of differences between actual and expected forfeitures, primarily
due to the de minimis time remaining to expected settlement of these
awards.
F-11
Effective with its adoption of SFAS No. 123(R), AXA Financial Group
elected the "short-cut" transition alternative for approximating the
historical pool of windfall tax benefits available in shareholder's
equity at January 1, 2006 as provided by the Financial Accounting
Standards Board (the "FASB") in FASB Staff Position ("FSP") No.
123(R)-3, "Transition Election Related to Accounting For the Tax Effects
of Share-Based Payment Awards". This historical pool represents the
cumulative tax benefits of tax deductions for employee share-based
payments in excess of compensation costs recognized under GAAP, either
in the financial statements or in the pro forma disclosures. In the
event that a shortfall of tax benefits occurs during a reporting period
(i.e. tax deductions are less than the related cumulative compensation
expense), the historical pool will be reduced by the amount of the
shortfall. If the shortfall exceeds the amount of the historical pool,
there will be a negative impact on the results of operations. In 2006,
additional windfall tax benefits resulted from employee exercises of
stock option awards.
On January 1, 2006, AXA Financial Group adopted the provisions of SFAS
No. 154, "Accounting Changes and Error Corrections," a replacement of
APB No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements". SFAS No. 154 applies to all
voluntary changes in accounting principle as well as to changes required
by an accounting pronouncement that does not include transition
provisions. To enhance comparability, this statement requires
retrospective application to prior periods' financial statements of
changes in accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the
change. The cumulative effect of the change is reported in the carrying
value of assets and liabilities as of the first period presented, with
the offset applied to opening retained earnings. Each period presented
is adjusted to show the period specific effects of the change. Only
direct effects of the change will be retrospectively recognized;
indirect effects will be recognized in the period of change. SFAS No.
154 carries forward without change APB No. 20's guidance for reporting
the correction of an error and a change in accounting estimate as well
as SFAS No. 3's provisions governing reporting accounting changes in
interim financial statements. The adoption of SFAS No. 154 did not have
an impact on AXA Financial Group's results of operations or financial
position.
In third quarter 2004, AXA Financial Group began to implement FSP No.
106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug Improvement and Modernization Act of 2003", that
provides guidance on employers' accounting for the effects of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003
("MMA") signed into law in December 2003. The MMA introduced a
prescription drug benefit under Medicare Part D that would go into
effect in 2006 as well as a Federal subsidy to employers whose plans
provide an "actuarially equivalent" prescription drug benefit. FSP No.
106-2 required the effects of the MMA to be reflected in measurements of
the accumulated postretirement benefits obligation and net periodic
postretirement benefit cost made on or after the date of enactment. As
permitted by FSP No. 106-2, AXA Financial Group initially elected to
defer these remeasurements and to provide required disclosures pending
regulations regarding the determination of eligibility for the Federal
subsidy under the MMA. Following consideration of regulations and
guidance issued by the Center for Medicare and Medicaid Services in
fourth quarter 2005, management and its actuarial advisors concluded
that the prescription drug benefits provided under AXA Financial Group's
retiree medical plans are actuarially equivalent to the new Medicare
prescription drug benefits. Consequently, the estimated subsidy has been
reflected in measurements of the accumulated postretirement benefits
obligations for these plans as of January 1, 2005, and the resulting
aggregate reduction of $63.9 million was accounted for prospectively as
an actuarial experience gain in accordance with FSP No. 106-2. The
impact of the MMA, including the effect of the subsidy, resulted in a
decrease in the annual net periodic postretirement benefits costs for
2005 of approximately $8.7 million.
At March 31, 2004, AXA Financial Group completed its transition to the
consolidation and disclosure requirements of FASB Interpretation ("FIN")
46(R), "Consolidation of Variable Interest Entities, Revised".
At December 31, 2006 and 2005, the Insurance Group's General Account
held $5.8 million of investment assets issued by VIEs and determined to
be significant variable interests under FIN 46(R). At December 31, 2006
and 2005, as reported in the consolidated balance sheet, these
investments included $4.7 million of fixed maturities (collateralized
debt and loan obligations) and $1.1 million of other equity investments
(principally investment limited partnership interests) and are subject
to ongoing review for impairment in value. These VIEs do not require
consolidation because management has determined that the Insurance Group
is not the primary beneficiary. These variable interests at December 31,
2006 represent the Insurance Group's maximum exposure to loss from its
direct involvement with the VIEs. The Insurance Group has no further
economic interest in these VIEs in the form of related guarantees,
commitments, derivatives, credit enhancements or similar instruments and
obligations.
F-12
Management of AllianceBernstein has reviewed its investment management
agreements and its investments in and other financial arrangements with
certain entities that hold client assets under management to determine
the entities that AllianceBernstein is required to consolidate under FIN
46(R). These include certain mutual fund products domiciled in
Luxembourg, India, Japan, Singapore and Australia (collectively, the
"Offshore Funds"), hedge funds, structured products, group trusts and
joint ventures.
AllianceBernstein derived no direct benefit from client assets under
management of these entities other than investment management fees and
cannot utilize those assets in its operations.
AllianceBernstein has significant variable interests in certain other
VIEs with approximately $226.4 million in client assets under
management. However, these VIEs do not require consolidation because
management has determined that AllianceBernstein is not the primary
beneficiary. AllianceBernstein's maximum exposure to loss in these
entities is limited to its investments in and prospective investment
management fees earned in these entities.
Effective January 1, 2004, AXA Financial Group adopted the American
Institute of Certified Public Accounts ("AICPA") Statement of Position
("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate
Accounts". SOP 03-1 required a change in AXA Financial Group's
accounting policies relating to (a) General Account interests in
Separate Accounts, (b) assets and liabilities associated with market
value adjusted fixed rate investment options available in certain
variable annuity contracts, (c) liabilities related to group pension
participating contracts, and (d) liabilities related to certain
mortality and annuitization benefits, such as the no lapse guarantee
feature contained in variable and interest-sensitive life policies.
The adoption of SOP 03-1 required changes in several of AXA Financial
Group's accounting policies relating to separate account assets and
liabilities. AXA Financial Group now reports the General Account's
interests in separate accounts as trading account securities in the
consolidated balance sheet; prior to the adoption of SOP 03-1, such
interests were included in Separate Accounts' assets. Also, the assets
and liabilities of two Separate Accounts are now presented and accounted
for as General Account assets and liabilities. Investment assets in
these Separate Accounts principally consist of fixed maturities that are
classified as available for sale in the accompanying consolidated
financial statements. These two Separate Accounts hold assets and
liabilities associated with market value adjusted fixed rate investment
options available in certain variable annuity contracts. In addition,
liabilities associated with the market value adjustment feature are now
reported at the accrued account balance. Prior to the adoption of SOP
03-1, such liabilities had been reported at market-adjusted value.
Prior to the adoption of SOP 03-1, the liabilities for group pension
participating contracts were adjusted only for changes in the fair value
of certain related investment assets that were reported at fair value in
the balance sheet (including fixed maturities and equity securities
classified as available for sale, but not equity real estate or mortgage
loans) with changes in the liabilities recorded directly in Accumulated
other comprehensive income to offset the unrealized gains and losses on
the related assets. SOP 03-1 required an adjustment to the liabilities
for group pension participating contracts to reflect the fair value of
all the assets on which those contracts' returns are based, regardless
of whether those assets are reported at fair value in the balance sheet.
Changes in the liability related to fluctuations in asset fair values
are now reported as Interest credited to policyholders' account balances
in the consolidated statements of earnings.
In addition, the adoption of SOP 03-1 resulted in a change in the method
of determining liabilities associated with the no lapse guarantee
feature contained in variable and interest-sensitive life contracts.
While both AXA Financial Group's previous method of establishing the no
lapse guarantee reserve and the SOP 03-1 method are based on
accumulation of a portion of the charges for the no lapse guarantee
feature, SOP 03-1 specifies a different approach for identifying the
portion of the fee to be accrued and establishing the related reserve.
The adoption of SOP 03-1 as of January 1, 2004 resulted in a decrease in
2004 net earnings of $4.0 million and an increase in other comprehensive
income of $12.4 million related to the cumulative effect of the required
changes in accounting. The determination of liabilities associated with
group pension participating contracts and mortality and annuitization
benefits, as well as related impacts on deferred acquisition costs, is
based on models that involve numerous estimates and subjective
judgments. There can be no assurance that the ultimate actual experience
will not differ from management's estimates.
F-13
New Accounting Pronouncements
-----------------------------
On September 15, 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements". SFAS No. 157 establishes a single authoritative
definition of fair value, sets out a framework for measuring fair value,
and requires additional disclosures about fair value measurements. It
applies only to fair value measurements that are already required or
permitted by other accounting standards, except for measurements of
share-based payments and measurements that are similar to, but not
intended to be, fair value. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007,
with earlier application encouraged. Management is currently assessing
the potential impacts of adoption of SFAS No. 157.
On July 13, 2006, the FASB issued FIN 48, "Accounting for Uncertainty in
Income Taxes," to clarify the criteria used to recognize and measure the
economic benefits associated with tax positions taken or expected to be
taken in a tax return. Under FIN 48, a tax benefit is recognized only if
it is "more likely than not" to be sustained assuming examination by the
taxing authority, based on the technical merits of the position. Tax
positions meeting the recognition criteria are required to be measured
at the largest amount of tax benefit that is more than 50 percent likely
of being realized upon ultimate settlement and, accordingly, requires
consideration of the amounts and probabilities of potential settlement
outcomes. FIN 48 also addresses subsequent derecognition of tax
positions, changes in the measurement of recognized tax positions,
accrual and classification of interest and penalties, and accounting in
interim periods. FIN 48 is effective for fiscal years beginning after
December 15, 2006, thereby requiring application of its provisions,
including the threshold criteria for recognition, to all tax positions
of AXA Financial Group at January 1, 2007. The cumulative effect of
applying FIN 48, if any, is to be reported as an adjustment to the
opening balance of retained earnings. In addition, annual disclosures
with respect to income taxes have been expanded by FIN 48 and require
inclusion of a tabular reconciliation of the total amounts of
unrecognized tax benefits at the beginning and end of the reporting
period. Management is currently assessing the potential impacts of
adoption of FIN 48.
On September 19, 2005, the AICPA released SOP 05-1, "Accounting by
Insurance Enterprises for Deferred Acquisition Costs in Connection with
Modifications or Exchanges of Insurance Contracts". The SOP requires
identification of transactions that result in a substantial change in an
insurance contract. Transactions subject to review include internal
contract exchanges, contract modifications via amendment, rider or
endorsement and elections of benefits, features or rights contained
within the contract. If determined that a substantial change has
occurred, the related deferred policy acquisition costs ("DAC"), VOBA
and other related balances must be written off. The SOP is effective for
transactions occurring in fiscal years beginning after December 15,
2006, with earlier adoption encouraged. Restatement of previously issued
annual financial statements is not permitted, and disclosure of the pro
forma effects of retroactive application or the pro forma effect on the
year of adoption is not required. The adoption of SOP 05-1 is not
expected to have a material impact on AXA Financial Group's results of
operations or financial position.
Closed Blocks
-------------
As a result of demutualization, Closed Blocks were established by AXA
Equitable and MONY Life in 1992 and 1998, respectively, for the benefit
of certain individuals' participating policies in force as of respective
dates of demutualization. Assets, liabilities and earnings of each
Closed Block are specifically identified to support its own
participating policyholders.
Assets allocated to the Closed Block inure solely to the benefit of each
Closed Block's policyholders and will not revert to the benefit of AXA
Financial. No reallocation, transfer, borrowing or lending of assets can
be made between each insurance company's Closed Block and other portions
of that company's General Account, any of its Separate Accounts or any
affiliate of that insurer without the approval of the New York
Superintendent of Insurance (the "Superintendent"). Closed Block assets
and liabilities are carried on the same basis as similar assets and
liabilities held in the General Account.
The excess of Closed Block liabilities over Closed Block assets
(adjusted to exclude the impact of related amounts in accumulated other
comprehensive income) represents the expected maximum future post-tax
earnings from the Closed Block that would be recognized in income from
continuing operations over the period the policies and contracts in the
Closed Block remain in force. As of January 1, 2001, AXA Financial Group
has developed an actuarial calculation of the expected timing of the AXA
Equitable Closed Block's earnings. Further, in connection with the MONY
Acquisition, AXA Financial Group has developed an actuarial calculation
of the expected timing of the MONY Life Closed Block earnings as of July
1, 2004.
F-14
If the actual cumulative earnings from the Closed Block are greater than
the expected cumulative earnings, only the expected earnings will be
recognized in net income. Actual cumulative earnings in excess of
expected cumulative earnings at any point in time are recorded as a
policyholder dividend obligation because they will ultimately be paid to
Closed Block policyholders as an additional policyholder dividend unless
offset by future performance that is less favorable than originally
expected. If a policyholder dividend obligation has been previously
established and the actual Closed Block earnings in a subsequent period
are less than the expected earnings for that period, the policyholder
dividend obligation would be reduced (but not below zero). If, over the
period the policies and contracts in the Closed Block remain in force,
the actual cumulative earnings of the Closed Block are less than the
expected cumulative earnings, only actual earnings would be recognized
in income from continuing operations. If the Closed Block has
insufficient funds to make guaranteed policy benefit payments, such
payments will be made from assets outside the Closed Block.
Many expenses related to Closed Block operations, including amortization
of DAC and VOBA, are charged to operations outside of the Closed Block;
accordingly, net revenues of the Closed Block do not represent the
actual profitability of the Closed Block operations. Operating costs and
expenses outside of the Closed Block are, therefore, disproportionate to
the business outside of the Closed Block.
Investments
-----------
The carrying values of fixed maturities identified as available for sale
are reported at estimated fair value. Changes in estimated fair value
are reported in comprehensive income. The amortized cost of fixed
maturities is adjusted for impairments in value deemed to be other than
temporary. The redeemable preferred stock investments reported in fixed
maturities include real estate investment trusts ("REIT") perpetual
preferred stock, other perpetual preferred stock and redeemable
preferred stock. These securities may not have a stated maturity, may
not be cumulative and do not provide for mandatory redemption by the
issuer.
Mortgage loans on real estate are stated at unpaid principal balances,
net of unamortized discounts and valuation allowances. Valuation
allowances are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or on its
collateral value if the loan is collateral dependent. However, if
foreclosure is or becomes probable, the collateral value measurement
method is used.
Impaired mortgage loans without provision for losses are loans where the
fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest
income on loans where the present value method is used to measure
impairment is accrued on the net carrying value amount of the loan at
the interest rate used to discount the cash flows. Changes in the
present value attributable to changes in the amount or timing of
expected cash flows are reported as investment gains or losses.
Real estate held for the production of income, including real estate
acquired in satisfaction of debt, is stated at depreciated cost less
valuation allowances. At the date of foreclosure (including in-substance
foreclosure), real estate acquired in satisfaction of debt is valued at
estimated fair value. Impaired real estate is written down to fair value
with the impairment loss being included in investment gains, net.
Depreciation of real estate held for production of income is computed
using the straight-line method over the estimated useful lives of the
properties, which generally range from 40 to 50 years.
Valuation allowances are netted against the asset categories to which
they apply.
Policy loans are stated at unpaid principal balances.
Partnerships, investment companies and joint venture interests in which
AXA Financial Group has control and a majority economic interest (that
is, greater than 50% of the economic return generated by the entity) or
those that meet FIN 46(R) requirements for consolidation are
consolidated; those in which AXA Financial Group does not have control
and a majority economic interest and those that do not meet FIN 46(R)
requirements for consolidation are reported on the equity basis of
accounting and are included either with equity real estate or other
equity investments, as appropriate.
Equity securities include common stock and non-redeemable preferred
stock classified as available for sale securities, are carried at
estimated fair value and are included in other equity investments.
Trading securities, which include equity securities and fixed
maturities, are carried at estimated fair value.
F-15
Short-term investments are stated at amortized cost that approximates
fair value and are included with other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks
and highly liquid debt instruments purchased with an original maturity
of three months or less.
All securities owned including United States government and agency
securities, mortgage-backed securities, futures and forwards
transactions are recorded in the consolidated financial statements on a
trade date basis.
Derivatives
-----------
AXA Financial Group primarily uses derivatives for asset/liability risk
management, for hedging individual securities and certain equity
exposures and to reduce its exposure to interest rate fluctuations on
its long-term debt obligations. Various derivative instruments are used
to achieve these objectives, including interest rate floors, futures and
interest rate swaps. None of the derivatives were designated as
qualifying hedges under SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities".
The Insurance Group issues certain variable annuity products with
Guaranteed Minimum Death Benefit ("GMBD") and Guaranteed Minimum Income
Benefit ("GMIB") features. The risk associated with the GMDB feature is
that under-performance of the financial markets could result in GMDB
benefits, in the event of death, being higher than what accumulated
policyholder account balances would support. The risk associated with
the GMIB feature is that under-performance of the financial markets
could result in GMIB benefits, in the event of election, being higher
than what accumulated policyholders account balances would support. For
both GMDB and GMIB, AXA Financial Group retains basis risk and risk
associated with actual versus expected assumptions for mortality, lapse
and election rate. AXA Financial Group regularly enters into futures
contracts to hedge such risks. The futures contracts are managed to
correlate with changes in the value of the GMDB and GMIB feature that
result from financial markets movements. In addition, AXA Financial
Group has purchased reinsurance contracts to mitigate the risks
associated with the impact of potential market fluctuations on future
policyholder elections of GMIB features contained in certain annuity
contracts issued by AXA Financial Group. Reinsurance contracts covering
GMIB exposure are considered derivatives under SFAS No. 133 and,
therefore, must be reported in the balance sheet at their fair value.
GMIB reinsurance fair values are reported in the consolidated balance
sheets in Other assets. Changes in GMIB reinsurance fair values are
reflected in Commissions, fees and other income in the consolidated
statements of earnings. Since there is no readily available market for
GMIB reinsurance contracts, the determination of their fair values is
based on models which involve numerous estimates and subjective
judgments including those regarding expected market rates of return and
volatility, GMIB election rates, contract surrender rates and mortality
experience. There can be no assurance that ultimate actual experience
will not differ from management's estimates. See Note 8 of Notes to
Consolidated Financial Statements.
Margins on individual insurance and annuity contracts are affected by
interest rate fluctuations. If interest rates fall, crediting interest
rates and dividends would be adjusted subject to competitive pressures.
In addition, policies are subject to minimum rate guarantees. To hedge
exposure to lower interest rates, AXA Financial Group has used interest
rate floors.
AXA Financial Group is exposed to equity market fluctuations through
investments in Separate Accounts. AXA Financial Group enters into
exchange traded equity futures contracts to minimize such risk.
AXA Financial is exposed to counterparty risk attributable to hedging
transactions entered into with counterparties. Exposure to credit risk
is controlled with respect to each counterparty through a credit
appraisal and approval process. Each counterparty is currently rated 1
by the National Association of Insurance Commissioners ("NAIC").
All derivatives outstanding at December 31, 2006 and 2005 are recognized
on the balance sheet at their fair values and all outstanding
equity-based and treasury futures contracts were exchange-traded and are
net settled daily. All gains and losses on derivative financial
instruments are reported in earnings.
F-16
Net Investment Income, Investment Gains (Losses), Net and Unrealized
--------------------------------------------------------------------
Investment Gains (Losses)
-------------------------
Net investment income and realized investment gains (losses), net
(together "investment results") related to certain participating group
annuity contracts which are passed through to the contractholders are
offset by amounts reflected as interest credited to policyholders'
account balances.
Realized investment gains (losses) are determined by identification with
the specific asset and are presented as a component of revenue. Changes
in the valuation allowances are included in investment gains or losses.
Realized and unrealized holding gains (losses) on trading securities are
reflected in net investment income.
Unrealized investment gains and losses on fixed maturities and equity
securities available for sale held by AXA Financial Group are accounted
for as a separate component of accumulated comprehensive income, net of
related deferred income taxes, amounts attributable to certain pension
operations principally consisting of group non-participating wind-up
annuity products ("Wind-up Annuities"), Closed Blocks policyholders
dividend obligation, DAC and VOBA related to universal life and
investment-type products and participating traditional life contracts.
Fair Value of Other Financial Instruments
-----------------------------------------
AXA Financial Group defines fair value as the quoted market prices for
those instruments that are actively traded in financial markets. In
cases where quoted market prices are not available, fair values are
estimated using present value or other valuation techniques. The fair
value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument,
including estimates of the timing and amount of expected future cash
flows and the credit standing of counterparties. Such estimates do not
reflect any premium or discount that could result from offering for sale
at one time AXA Financial Group's entire holdings of a particular
financial instrument, nor do they consider the tax impact of the
realization of unrealized gains or losses. In many cases, the fair value
estimates cannot be substantiated by comparison to independent markets,
nor can the disclosed value be realized in immediate settlement of the
instrument.
Certain financial instruments are excluded from fair value disclosures,
particularly insurance liabilities other than financial guarantees and
investment contracts. Fair market values of off-balance-sheet financial
instruments of the Insurance Group were not material at December 31,
2006 and 2005.
Fair values for mortgage loans on real estate are estimated by
discounting future contractual cash flows using interest rates at which
loans with similar characteristics and credit quality would be made.
Fair values for foreclosed mortgage loans and problem mortgage loans are
limited to the estimated fair value of the underlying collateral if
lower.
Fair values of policy loans are estimated by discounting the face value
of the loans from the time of the next interest rate review to the
present, at a rate equal to the excess of the current estimated market
rates over the current interest rate charged on the loan.
The estimated fair values for AXA Financial Group's association plan
contracts, supplementary contracts not involving life contingencies
("SCNILC") and annuities certain, which are included in policyholders'
account balances, and guaranteed interest contracts are estimated using
projected cash flows discounted at rates reflecting expected current
offering rates.
The fair values for variable deferred annuities and single premium
deferred annuities, included in policyholders' account balances, are
estimated as the discounted value of projected account values. Current
account values are projected to the time of the next crediting rate
review at the current crediting rates and are projected beyond that date
at the greater of current estimated market rates offered on new policies
or the guaranteed minimum crediting rate. Expected cash flows and
projected account values are discounted back to the present at the
current estimated market rates.
Fair values for long-term debt are determined using published market
values, where available, or contractual cash flows discounted at market
interest rates. The estimated fair values for non-recourse mortgage debt
are determined by discounting contractual cash flows at a rate that
takes into account the level of current market interest rates and
collateral risk. The estimated fair values for recourse mortgage debt
are determined by discounting contractual cash flows at a rate based
upon current interest rates of other companies with credit
F-17
ratings similar to AXA Financial Group. AXA Financial Group's carrying
value of short-term borrowings approximates their estimated fair value.
Recognition of Insurance Income and Related Expenses
----------------------------------------------------
Premiums from universal life and investment-type contracts are reported
as deposits to policyholders' account balances. Revenues from these
contracts consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances.
Premiums from participating and non-participating traditional life and
annuity policies with life contingencies generally are recognized as
income when due. Benefits and expenses are matched with such income so
as to result in the recognition of profits over the life of the
contracts. This match is accomplished by means of the provision for
liabilities for future policy benefits and the deferral and subsequent
amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium
payments due over a significantly shorter period than the total period
over which benefits are provided, premiums are recorded as revenue when
due with any excess profit deferred and recognized in income in a
constant relationship to insurance in-force or, for annuities, the
amount of expected future benefit payments.
Premiums from individual health contracts are recognized as income over
the period to which the premiums relate in proportion to the amount of
insurance protection provided.
DAC and VOBA
------------
Acquisition costs that vary with and are primarily related to the
acquisition of new and renewal insurance business, including
commissions, underwriting, agency and policy issue expenses, are
deferred. DAC is subject to recoverability testing at the time of policy
issue and loss recognition testing at the end of each accounting period.
VOBA, which arose from the acquisition of MONY, was established in
accordance with business combination purchase accounting guidance. VOBA
is the actuarially determined present value of estimated future gross
profits of insurance contracts in force at the date of the acquisition.
VOBA is amortized over the expected life of the contracts (approximately
10-30 years) according to the type of contract using the methods
described below as applicable. VOBA is subject to loss recognition
testing at the end of each accounting period.
For universal life products and investment-type products, DAC and VOBA
are amortized over the expected total life of the contract group as a
constant percentage of estimated gross profits arising principally from
investment results, Separate Account fees, mortality and expense margins
and surrender charges based on historical and anticipated future
experience, updated at the end of each accounting period. The effect on
the amortization of DAC and VOBA of revisions to estimated gross profits
is reflected in earnings in the period such estimated gross profits are
revised. A decrease in expected gross profits would accelerate DAC and
VOBA amortization. Conversely, an increase in expected gross profits
would slow DAC and VOBA amortization. The effect on the DAC and VOBA
assets that would result from realization of unrealized gains (losses)
is recognized with an offset to accumulated comprehensive income in
consolidated shareholder's equity as of the balance sheet date.
A significant assumption in the amortization of DAC and VOBA on variable
and interest-sensitive life insurance and variable annuities relates to
projected future Separate Account performance. Management sets expected
future gross profit assumptions related to Separate Account performance
using a long-term view of expected average market returns by applying a
reversion to the mean approach. In applying this approach to develop
estimates of future returns, it is assumed that the market will return
to an average gross long-term return estimate, developed with reference
to historical long-term equity market performance and subject to
assessment of the reasonableness of resulting estimates of future return
assumptions. For purposes of making this reasonableness assessment,
management has set limitations as to maximum and minimum future rate of
return assumptions, as well as a limitation on the duration of use of
these maximum or minimum rates of return. Currently, the average gross
long-term annual return estimate is 9.0% (6.8% net of product weighted
average Separate Account fees), and the gross maximum and minimum annual
rate of return limitations are 15.0% (12.8% net of product weighted
average Separate Account fees) and 0% (-2.2% net of product
F-18
weighted average Separate Account fees), respectively. The maximum
duration over which these rate limitations may be applied is 5 years.
This approach will continue to be applied in future periods. If actual
market returns continue at levels that would result in assuming future
market returns of 15% for more than 5 years in order to reach the
average gross long-term return estimate, the application of the 5 year
maximum duration limitation would result in an acceleration of DAC and
VOBA amortization. Conversely, actual market returns resulting in
assumed future market returns of 0% for more than 5 years would result
in a required deceleration of DAC and VOBA amortization. As of December
31, 2006, current projections of future average gross market returns
assume a 0.5% return for 2007, which is within the maximum and minimum
limitations, and assume a reversion to the mean of 9% after 7 quarters.
In addition, projections of future mortality assumptions related to
variable and interest-sensitive life products are based on a long-term
average of actual experience. This assumption is updated quarterly to
reflect recent experience as it emerges. Improvement of life mortality
in future periods from that currently projected would result in future
deceleration of DAC and VOBA amortization. Conversely, deterioration of
life mortality in future periods from that currently projected would
result in future acceleration of DAC and VOBA amortization. Generally,
life mortality experience has been improving in recent years.
Other significant assumptions underlying gross profit estimates relate
to contract persistency and general account investment spread.
For participating traditional life policies (substantially all of which
are in the Closed Blocks), DAC and VOBA are amortized over the expected
total life of the contract group as a constant percentage based on the
present value of the estimated gross margin amounts expected to be
realized over the life of the contracts using the expected investment
yield. At December 31, 2006, the average rate of assumed investment
yields, excluding policy loans, for AXA Equitable was 6.0% grading to
6.5% over 10 years and for MONY Life was 5.0%. Estimated gross margin
includes anticipated premiums and investment results less claims and
administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends. The effect on the amortization
of DAC and VOBA of revisions to estimated gross margins is reflected in
earnings in the period such estimated gross margins are revised. The
effect on the DAC and VOBA assets that would result from realization of
unrealized gains (losses) is recognized with an offset to accumulated
comprehensive income in consolidated shareholder's equity as of the
balance sheet date.
For non-participating traditional life policies, DAC and VOBA are
amortized in proportion to anticipated premiums. Assumptions as to
anticipated premiums are estimated at the date of policy issue and are
consistently applied during the life of the contracts. Deviations from
estimated experience are reflected in earnings in the period such
deviations occur. For these contracts, the amortization periods
generally are for the total life of the policy.
Contractholder Bonus Interest Credits
-------------------------------------
Contractholder bonus interest credits are offered on certain deferred
annuity products in the form of either immediate bonus interest credited
or enhanced interest crediting rates. The interest crediting expense
associated with these contractholder bonus interest credits is deferred
and amortized over the lives of the underlying contracts in a manner
consistent with the amortization of DAC. Unamortized balances are
included in Other assets.
Policyholders' Account Balances and Future Policy Benefits
----------------------------------------------------------
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account
values represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals.
The Insurance Group issues certain variable annuity products with a GMDB
feature, guaranteed minimum accumulation benefits ("GMAB") and
guaranteed minimum withdrawal benefits for life ("WBL"). The Insurance
Group also issues certain variable annuity products that contain a GMIB
feature which, if elected by the policyholder after a stipulated waiting
period from contract issuance, guarantees a minimum lifetime annuity
based on predetermined annuity purchase rates that may be in excess of
what the contract account value can purchase at then-current annuity
purchase rates. This minimum lifetime annuity is based on predetermined
annuity purchase rates applied to a guaranteed minimum income benefit
base. Reserves for GMDB and GMIB obligations are calculated on the basis
of actuarial assumptions related to projected benefits and related
contract charges generally over the lives of the contracts using
assumptions consistent with those used in estimating gross profits for
purposes of amortizing DAC and VOBA. The determination
F-19
of this estimated liability is based on models which involve numerous
estimates and subjective judgments, including those regarding expected
market rates of return and volatility, contract surrender rates,
mortality experience, and, for GMIB, GMIB election rates. Assumptions
regarding Separate Account performance used for purposes of this
calculation are set using a long-term view of expected average market
returns by applying a reversion to the mean approach, consistent with
that used for DAC and VOBA amortization. There can be no assurance that
ultimate actual experience will not differ from management's estimates.
For reinsurance contracts other than those covering GMIB exposure,
reinsurance recoverable balances are calculated using methodologies and
assumptions that are consistent with those used to calculate the direct
liabilities.
For participating traditional life policies, future policy benefit
liabilities are calculated using a net level premium method on the basis
of actuarial assumptions equal to guaranteed mortality and dividend fund
interest rates. The liability for annual dividends represents the
accrual of annual dividends earned. Terminal dividends are accrued in
proportion to gross margins over the life of the contract.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on
the basis of actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy
issue as to mortality and persistency are based on the Insurance Group's
experience that, together with interest and expense assumptions,
includes a margin for adverse deviation. When the liabilities for future
policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future policy
benefits and expenses for that product, DAC and VOBA are written off and
thereafter, if required, a premium deficiency reserve is established by
a charge to earnings. Benefit liabilities for traditional annuities
during the accumulation period are equal to accumulated contractholders'
fund balances and, after annuitization, are equal to the present value
of expected future payments. Interest rates used in establishing such
liabilities range from 2.00% to 10.9% for life insurance liabilities and
from 2.25% to 8.7% for annuity liabilities.
Individual health benefit liabilities for active lives are estimated
using the net level premium method and assumptions as to future
morbidity, withdrawals and interest. Benefit liabilities for disabled
lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.
While management believes its disability income ("DI") reserves have
been calculated on a reasonable basis and are adequate, there can be no
assurance reserves will be sufficient to provide for future liabilities.
Policyholders' Dividends
------------------------
The amount of policyholders' dividends to be paid (including dividends
on policies included in the Closed Blocks) is determined annually by AXA
Equitable and MONY Life's boards of directors. The aggregate amount of
policyholders' dividends is related to actual interest, mortality,
morbidity and expense experience for the year and judgment as to the
appropriate levels of statutory surplus to be retained by AXA Equitable
and MONY Life.
At December 31, 2006, participating policies, including those in the
Closed Blocks, represent approximately 15.3% ($52.0 billion) of directly
written life insurance in-force, net of amounts ceded.
Separate Accounts
-----------------
Generally, Separate Accounts established under New York State and
Arizona State Insurance Law are not chargeable with liabilities that
arise from any other business of the Insurance Group. Separate Accounts
assets are subject to General Account claims only to the extent Separate
Accounts assets exceed Separate Accounts liabilities. Assets and
liabilities of the Separate Accounts represent the net deposits and
accumulated net investment earnings less fees, held primarily for the
benefit of contractholders, and for which the Insurance Group does not
bear the investment risk. Separate Accounts' assets and liabilities are
shown on separate lines in the consolidated balance sheets. Assets held
in the Separate Accounts are carried at quoted market values or, where
quoted values are not readily available, at estimated fair values as
determined by the Insurance Group. The assets and liabilities of four
Separate Accounts are presented and accounted for as General Account
assets and liabilities due to the fact that not all of the investment
performance in those Separate Accounts is passed through to
policyholders. Two of those Separate Accounts were reclassified to the
general account in connection with the adoption of SOP 03-1 as of
January 1, 2004.
F-20
The investment results of Separate Accounts on which the Insurance Group
does not bear the investment risk are reflected directly in Separate
Accounts liabilities and are not reported in revenues in the
consolidated statements of earnings. For 2006, 2005 and 2004, investment
results of such Separate Accounts were gains of $5,897.0 million,
$3,548.0 million and $2,308.0 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate
Accounts liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all policies including those
funded Separate Accounts are included in revenues.
Recognition of Investment Management Revenues and Related Expenses
------------------------------------------------------------------
Commissions, fees and other income principally include Investment
Management advisory and service fees. Investment Management advisory and
service base fees, generally calculated as a percentage, referred to as
basis points ("BPs"), of assets under management, are recorded as
revenue as the related services are performed; they include brokerage
transactions charges received by SCB LLC, for certain retail, private
client and institutional investment client transactions. Certain
investment advisory contracts provide for a performance-based fee, in
addition to or in lieu of a base fee, that is calculated as either a
percentage of absolute investment results or a percentage of the related
investment results in excess of a stated benchmark over a specified
period of time. Performance-based fees are recorded as revenue at the
end of each measurement period. Institutional research services revenue
consists of brokerage transaction charges received by SCB LLC and SCBL,
for in-depth research and other services provided to institutional
investors. Brokerage transaction charges earned and related expenses are
recorded on a trade date basis. Distribution revenues and shareholder
servicing fees are accrued as earned.
Commissions paid to financial intermediaries in connection with the sale
of shares of open-end AllianceBernstein mutual funds sold without a
front-end sales charge are capitalized as deferred sales commissions and
amortized over periods not exceeding five and one-half years, the
periods of time during which the deferred sales commissions are
generally recovered from distribution services fees received from those
funds and from contingent deferred sales commissions ("CDSC") received
from shareholders of those funds upon the redemption of their shares.
CDSC cash recoveries are recorded as reductions of unamortized deferred
sales commissions when received.
AllianceBernstein's management tests the deferred sales commission asset
for recoverability quarterly. AllianceBernstein's management determines
recoverability by estimating undiscounted future cash flows to be
realized from this asset, as compared to its recorded amount, as well as
the estimated remaining life of the deferred sales commission asset over
which undiscounted future cash flows are expected to be received.
Undiscounted future cash flows consist of ongoing distribution services
fees and CDSC. Distribution services fees are calculated as a percentage
of average assets under management related to back-end load shares. CDSC
is based on the lower of cost or current value, at the time of
redemption, of back-end load shares redeemed and the point at which
redeemed during the applicable minimum holding period under the mutual
fund distribution system.
Significant assumptions utilized to estimate future average assets under
management and undiscounted future cash flows from back-end load shares
include expected future market levels and redemption rates. Market
assumptions are selected using a long-term view of expected average
market returns based on historical returns of broad market indices.
Future redemption rate assumptions are determined by reference to actual
redemption experience over the one-year, three-year and five-year
periods ended December 31, 2006. These assumptions are updated
periodically. Estimates of undiscounted future cash flows and the
remaining life of the deferred sales commission asset are made from
these assumptions and the aggregate undiscounted cash flows are compared
to the recorded value of the deferred sales commission asset. If
AllianceBernstein's management determines in the future that the
deferred sales commission asset is not recoverable, an impairment
condition would exist and a loss would be measured as the amount by
which the recorded amount of the asset exceeds its estimated fair value.
Estimated fair value is determined using AllianceBernstein's
management's best estimate of future cash flows discounted to a present
value amount.
Goodwill and Other Intangible Assets
------------------------------------
Goodwill represents the excess of the purchase price over the fair value
of identifiable assets of acquired companies and relates principally to
the Bernstein Acquisition, purchases of AllianceBernstein units and the
MONY Acquisition. Goodwill is tested annually for impairment.
F-21
Intangible assets related to the Bernstein Acquisition and purchases of
AllianceBernstein Units include costs assigned to contracts of
businesses acquired. These costs continue to be amortized on a
straight-line basis over estimated useful lives of twenty years.
The insurance distribution network intangible asset, related to the MONY
Acquisition, is amortized on a straight-line basis with an estimated
useful life of 10-20 years.
Other Accounting Policies
-------------------------
Capitalized internal-use software is amortized on a straight-line basis
over the estimated useful life of the software.
AXA Financial and certain of its consolidated subsidiaries and
affiliates file a consolidated Federal income tax return. MONY Life,
MLOA and USFL file a consolidated Federal income tax return. Certain
non-life insurance subsidiaries of MONY Life file a separate
consolidated Federal Income tax return. Current Federal income taxes are
charged or credited to operations based upon amounts estimated to be
payable or recoverable as a result of taxable operations for the current
year. Deferred income tax assets and liabilities are recognized based on
the difference between financial statement carrying amounts and income
tax bases of assets and liabilities using enacted income tax rates and
laws.
Discontinued operations include real estate held-for-sale.
Real estate investments meeting the following criteria are classified as
real estate held-for-sale:
o Management having the authority to approve the action commits the
organization to a plan to sell the property.
o The property is available for immediate sale in its present
condition subject only to terms that are usual and customary for
the sale of such assets.
o An active program to locate a buyer and other actions required to
complete the plan to sell the asset have been initiated and are
continuing.
o The sale of the asset is probable and transfer of the asset is
expected to qualify for recognition as a completed sale within
one year.
o The asset is being actively marketed for sale at a price that is
reasonable in relation to its current fair value.
o Actions required to complete the plan indicate that it is
unlikely that significant changes to the plan will be made or
that the plan will be withdrawn.
Real estate held-for-sale is stated at depreciated cost less valuation
allowances. Valuation allowances on real estate held-for-sale are
computed using the lower of depreciated cost or current estimated fair
value, net of disposition costs. Depreciation is discontinued on real
estate held-for-sale.
Real estate held-for-sale is included in the Other assets line in the
consolidated balance sheets. The results of operations for real estate
held-for-sale in each of the three years ended December 31, 2006 were
not significant.
F-22
3) INVESTMENTS
Fixed Maturities and Equity Securities
--------------------------------------
The following table provides additional information relating to fixed
maturities and equity securities.
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------- ----------------- ----------------- ----------------
(IN MILLIONS)
DECEMBER 31, 2006
-----------------
Fixed Maturities:
Available for Sale:
Corporate...................... $ 30,561.1 $ 728.8 $ 388.4 $ 30,901.5
Mortgage-backed................ 2,187.7 2.8 41.6 2,148.9
U.S. Treasury, government
and agency securities........ 2,034.1 38.9 15.5 2,057.5
States and political
subdivisions................. 181.5 17.8 1.0 198.3
Foreign governments............ 294.5 38.5 1.0 332.0
Redeemable preferred stock..... 2,305.2 81.2 32.8 2,353.6
----------------- ----------------- ----------------- ----------------
Total Available for Sale..... $ 37,564.1 $ 908.0 $ 480.3 $ 37,991.8
================= ================= ================= ================
Equity Securities:
Available for sale............... $ 119.6 $ 5.5 $ .8 $ 124.3
Trading securities............... 408.0 35.4 9.9 433.5
----------------- ----------------- ----------------- ----------------
Total Equity Securities............ $ 527.6 $ 40.9 $ 10.7 $ 557.8
================= ================= ================= ================
December 31, 2005
-----------------
Fixed Maturities:
Available for Sale:
Corporate...................... $ 30,765.1 $ 1,038.0 $ 286.2 $ 31,516.9
Mortgage-backed................ 2,685.3 9.3 42.2 2,652.4
U.S. Treasury, government
and agency securities........ 2,169.3 52.4 11.7 2,210.0
States and political
subdivisions................. 204.6 19.9 .3 224.2
Foreign governments............ 336.1 41.8 .5 377.4
Redeemable preferred stock..... 1,833.3 106.1 16.2 1,923.2
----------------- ----------------- ----------------- ----------------
Total Available for Sale..... $ 37,993.7 $ 1,267.5 $ 357.1 $ 38,904.1
================= ================= ================= ================
Equity Securities:
Available for sale............... $ 82.5 $ 6.1 $ 2.3 $ 86.3
Trading securities............... 262.5 24.5 3.2 283.8
----------------- ----------------- ----------------- ----------------
Total Equity Securities............ $ 345.0 $ 30.6 $ 5.5 $ 370.1
================= ================= ================= ================
At December 31, 2006 and 2005, respectively, AXA Financial had trading
fixed maturities with an amortized cost of $30.5 million and $30.5
million and carrying values of $31.6 million and $30.5 million. Gross
unrealized gains on trading fixed maturities were $.5 million and zero
for 2006 and 2005, respectively.
For publicly traded fixed maturities and equity securities, estimated
fair value is determined using quoted market prices. For fixed
maturities without a readily ascertainable market value, AXA Financial
Group determines estimated fair values using a discounted cash flow
approach, including provisions for credit risk, generally based on the
assumption such securities will be held to maturity. Such estimated fair
values do not necessarily represent the values for which these
securities could have been sold at the dates of the consolidated balance
sheets. At December 31, 2006 and 2005, securities without a readily
ascertainable market value having an amortized cost of $6,768.2 million
and $6,600.6 million, respectively, had estimated fair values of
$6,840.4 million and $6,782.2 million, respectively.
F-23
The contractual maturity of bonds at December 31, 2006 is shown below:
AVAILABLE FOR SALE
-------------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
----------------- -----------------
(IN MILLIONS)
Due in one year or less............................................... $ 1,359.8 $ 1,364.9
Due in years two through five......................................... 7,655.9 7,814.7
Due in years six through ten.......................................... 14,867.6 14,867.1
Due after ten years................................................... 9,187.9 9,442.6
----------------- -----------------
Subtotal......................................................... 33,071.2 33,489.3
Mortgage-backed securities............................................ 2,187.7 2,148.9
----------------- -----------------
Total................................................................. $ 35,258.9 $ 35,638.2
================= =================
Bonds not due at a single maturity date have been included in the above
table in the year of final maturity. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
AXA Financial Group's management, with the assistance of its investment
advisors, monitors the investment performance of its portfolio. This
review process includes a quarterly review of certain assets by the
Insurance Group's Investments Under Surveillance Committee that
evaluates whether any investments are other than temporarily impaired.
Based on the analysis, a determination is made as to the ability of the
issuer to service its debt obligations on an ongoing basis. If this
ability is deemed to be other than temporarily impaired, then the
appropriate provisions are taken.
The following table discloses fixed maturities (2,519 issues) that have
been in a continuous unrealized loss position for less than a
twelve-month period and greater than a twelve month period as of
December 31, 2006:
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
--------------------------- --------------------------- ----------------------------
GROSS GROSS GROSS
ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED
FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES
------------- ------------ ------------ ------------ ------------ ------------
(IN MILLIONS)
Fixed Maturities:
Corporate.............. $ 4,664.8 $ 54.3 $ 9,752.3 $ 334.1 $ 14,417.1 $ 388.4
Mortgage-backed........ 243.6 1.7 1,681.6 39.9 1,925.2 41.6
U.S. Treasury,
government and
agency securities.... 276.2 1.1 785.6 14.4 1,061.8 15.5
States and political
subdivisions......... - - 28.1 1.0 28.1 1.0
Foreign governments.... 44.8 .4 36.5 .6 81.3 1.0
Redeemable
preferred stock...... 202.3 2.7 760.9 30.1 963.2 32.8
------------- ------------ ------------ ------------ ------------ ------------
Total Temporarily
Impaired Securities.... $ 5,431.7 $ 60.2 $ 13,045.0 $ 420.1 $ 18,476.7 $ 480.3
============= ============ ============ ============ ============ ============
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting primarily of public high
yield bonds. These corporate high yield securities are classified as
other than investment grade by the various rating agencies, i.e., a
rating below Baa3/BBB- or NAIC designation of 3 (medium grade), 4 or 5
(below investment grade) or 6 (in or near default). At December 31,
2006, approximately $893.9 million, or 2.4%, of the $37,564.1 million
aggregate amortized cost of fixed maturities held by AXA Financial Group
was considered to be other than investment grade.
At December 31, 2006, the carrying value of fixed maturities which were
non-income producing for the twelve months preceding that date was $4.3
million.
F-24
Mortgage Loans
--------------
The payment terms of mortgage loans on real estate may from time to time
be restructured or modified. The investment in restructured mortgage
loans on real estate, based on amortized cost, amounted to $69.2 million
and $70.6 million at December 31, 2006 and 2005, respectively. Gross
interest income on these loans included in net investment income totaled
$4.4 million, $5.4 million and $7.4 million in 2006, 2005 and 2004,
respectively. Gross interest income on restructured mortgage loans on
real estate that would have been recorded in accordance with the
original terms of such loans amounted to $5.1 million, $6.4 million and
$9.3 million in 2006, 2005 and 2004, respectively.
Impaired mortgage loans along with the related investment valuation
allowances follow:
DECEMBER 31,
----------------------------------------
2006 2005
------------------ -------------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances....... $ 91.0 $ 93.0
Impaired mortgage loans without investment valuation allowances.... 7.1 13.4
------------------ -------------------
Recorded investment in impaired mortgage loans..................... 98.1 106.4
Investment valuation allowances.................................... (13.0) (13.4)
------------------ -------------------
Net Impaired Mortgage Loans........................................ $ 85.1 $ 93.0
================== ===================
During 2006, 2005 and 2004, respectively, AXA Financial Group's average
recorded investment in impaired mortgage loans was $99.4 million, $115.4
million and $165.1 million. Interest income recognized on these impaired
mortgage loans totaled $5.9 million, $10.9 million and $11.4 million for
2006, 2005 and 2004, respectively.
Mortgage loans on real estate are placed on nonaccrual status once
management believes the collection of accrued interest is doubtful. Once
mortgage loans on real estate are classified as nonaccrual loans,
interest income is recognized under the cash basis of accounting and the
resumption of the interest accrual would commence only after all past
due interest has been collected or the mortgage loan on real estate has
been restructured to where the collection of interest is considered
likely. At December 31, 2006 and 2005, respectively, the carrying value
of mortgage loans on real estate that had been classified as nonaccrual
loans was $68.6 million and $74.8 million.
Equity Real Estate
------------------
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. For
2005, real estate of $1.4 million was acquired in satisfaction of debt;
none was acquired in either 2006 or 2004. At December 31, 2006 and 2005,
AXA Financial Group owned $217.6 million and $230.4 million,
respectively, of real estate acquired in satisfaction of debt.
Accumulated depreciation on real estate was $232.8 million and $214.5
million at December 31, 2006 and 2005, respectively. Depreciation
expense on real estate totaled $21.9 million, $23.7 million and $24.7
million for 2006, 2005 and 2004, respectively.
F-25
Investment valuation allowances for mortgage loans and equity real
estate and changes thereto follow:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Balances, beginning of year........................ $ 13.4 $ 11.8 $ 20.5
Additions charged to income........................ 10.1 5.2 3.9
Deductions for writedowns and
asset dispositions............................... (.9) (3.6) (12.6)
----------------- ----------------- -----------------
Balances, End of Year.............................. $ 22.6 $ 13.4 $ 11.8
================= ================= =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 12.9 $ 13.4 $ 11.8
Equity real estate............................... 9.7 - -
----------------- ----------------- -----------------
Total.............................................. $ 22.6 $ 13.4 $ 11.8
================= ================= =================
Equity Method Investments
-------------------------
Included in other equity investments are interests in limited
partnership interests and investment companies accounted for under the
equity method with a total carrying value of $1,419.6 million and
$1,200.9 million, respectively, at December 31, 2006 and 2005. Included
in equity real estate are interests in real estate joint ventures
accounted for under the equity method with a total carrying value of
$70.9 million and $119.6 million, respectively, at December 31, 2006 and
2005. AXA Financial Group's total equity in net earnings for these real
estate joint ventures and limited partnership interests was $185.8
million, $187.9 million and $63.4 million, respectively, for 2006, 2005
and 2004.
Summarized below is the combined financial information only for those
real estate joint ventures and for those limited partnership interests
accounted for under the equity method in which AXA Financial Group has
an investment of $10.0 million or greater and an equity interest of 10%
or greater (7 and 8 individual ventures at December 31, 2006 and 2005,
respectively) and AXA Financial Group's carrying value and equity in net
earnings for those real estate joint ventures and limited partnership
interests:
DECEMBER 31,
-------------------------------------
2006 2005
----------------- -----------------
(IN MILLIONS)
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 421.7 $ 527.4
Investments in securities, generally at estimated fair value........... 294.8 118.4
Cash and cash equivalents.............................................. 10.6 27.5
Other assets........................................................... 24.4 18.6
----------------- -----------------
Total Assets........................................................... $ 751.5 $ 691.9
================= =================
Borrowed funds - third party........................................... $ 278.1 $ 282.7
Other liabilities...................................................... 115.7 12.4
----------------- -----------------
Total liabilities...................................................... 393.8 295.1
----------------- -----------------
Partners' capital...................................................... 357.7 396.8
----------------- -----------------
Total Liabilities and Partners' Capital................................ $ 751.5 $ 691.9
================= =================
AXA Financial Group's Carrying Value in
These Entities Included Above..................................... $ 100.1 $ 135.6
================= =================
F-26
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures................ $ 88.5 $ 98.2 $ 102.1
Net revenues of other limited partnership interests... 16.7 6.3 19.8
Interest expense - third party........................ (18.5) (18.2) (17.8)
Other expenses........................................ (62.8) (62.2) (65.3)
----------------- ----------------- -----------------
Net Earnings.......................................... $ 23.9 $ 24.1 $ 38.8
================= ================= =================
AXA Financial Group's Equity in Net Earnings of
These Entities Included Above.................... $ 16.4 $ 11.6 $ 13.9
================= ================= =================
Derivatives
-----------
At December 31, 2006, AXA Financial Group had open exchange-traded
futures positions on the S&P 500, Russell 1000, NASDAQ 100 and European,
Australasia, Far East ("EAFE") indices, having initial margin
requirements of $140.7 million. Contracts are net settled daily. At
December 31, 2006, AXA Financial Group had open exchange-traded futures
positions on the 10-year U.S. Treasury Note, having initial margin
requirements of $4.2 million.
The outstanding notional amounts of derivative financial instruments
purchased and sold at December 31, 2006 and 2005 were:
DECEMBER 31,
-------------------------------------
2006 2005
----------------- -----------------
(IN MILLIONS)
Notional Amount by Derivative Type:
Options:
Floors.......................................................... $ 32,000 $ 24,000
Exchange traded U.S. Treasuries and equity index futures........ 3,536 2,208
Interest rate swaps................................................. 2,360 3,740
----------------- -----------------
Total............................................................... $ 37,896 $ 29,948
================= =================
At December 31, 2006 and 2005 and during the years then ended, there
were no financial instruments that contained implicit or explicit terms
that met the definition of an embedded derivative component that needed
to be separated from the host contract and accounted for as a derivative
under the provisions of SFAS No. 133.
F-27
4) GOODWILL AND OTHER INTANGIBLE ASSETS
Financial Advisory/Insurance - MONY Acquisition
Goodwill related to the MONY Acquisition, none of which is expected to
be deductible for tax purposes, totaled $414.6 million and $425.8
million at December 31, 2006 and 2005, respectively.
The following presents a summary of other intangible assets, including
VOBA, as of December 31, 2006 and 2005 related to the MONY Acquisition:
GROSS
CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET
------------- ---------------- -------------
(IN MILLIONS)
DECEMBER 31, 2006
-----------------
Intangible assets subject to amortization:
VOBA............................................... $ 868.8 $ (179.3)(1) $ 689.5
Insurance distribution network..................... 64.0 (12.1) 51.9
------------ ------------ ----------
Total intangible assets subject to amortization...... $ 932.8 $ (191.4) $ 741.4
============ ============ ==========
December 31, 2005
-----------------
Intangible assets subject to amortization:
VOBA............................................... $ 868.8 $ (88.4)(1) $ 780.4
Insurance distribution network..................... 64.0 (7.3) 56.7
------------ ------------ ----------
Total intangible assets subject to amortization...... $ 932.8 $ (95.7) $ 837.1
============ ============ ==========
(1) Includes reactivity to unrealized investment gains/losses reflected
in other comprehensive income.
For 2006, 2005 and the six months ended December 31, 2004, total
amortization expense related to these intangible assets was $101.3
million, $66.7 million and $34.9 million, respectively. Intangible
assets amortization expense is estimated to range from $67.2 million in
2007 to $55.4 million in 2011.
Investment Management
---------------------
The carrying value of goodwill related to AllianceBernstein totaled $4.0
billion at December 31, 2006 and 2005.
The gross carrying amount of AllianceBernstein related intangible assets
were $642.7 million and $665.2 million at December 31, 2006 and 2005,
respectively and the accumulated amortization of these intangible assets
were $254.1 million and $226.6 million at December 31, 2006 and 2005,
respectively. Amortization expense related to the AllianceBernstein
intangible assets totaled $27.6 million, $27.6 million and $26.1 million
for 2006, 2005 and 2004, respectively.
At December 31, 2006 and 2005, respectively, net deferred sales
commissions totaled $194.9 million and $196.6 million and are included
within the Investment Management Segment's Other assets. The estimated
amortization expense of deferred sales commissions, based on the
December 31, 2006 net asset balance for each of the next five years is
$77.8 million, $54.1 million, $39.3 million, $18.3 million and $4.9
million.
F-28
5) FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The carrying values and estimated fair values for financial instruments
not otherwise disclosed in Notes 3, 6, 10 and 16 of Notes to
Consolidated Financial Statements are presented below:
DECEMBER 31,
--------------------------------------------------------------------
2006 2005
-------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
--------------- --------------- --------------- ----------------
(IN MILLIONS)
AXA Financial Group:
--------------------
Mortgage loans on real estate......... $ 4,664.6 $ 4,703.1 $ 4,702.5 $ 4,813.3
Other limited partnership interests... 1,405.8 1,405.8 1,187.5 1,187.5
Policy loans.......................... 5,007.5 5,402.2 4,946.5 5,415.0
Policyholders liabilities:
Investment contracts................ 18,451.3 18,508.4 19,532.1 19,900.5
Long-term debt........................ 1,607.0 1,713.6 1,921.9 2,069.9
Closed Blocks:
--------------
Mortgage loans on real estate......... $ 1,501.8 $ 1,511.8 $ 1,490.5 $ 1,528.0
Other equity investments.............. 2.2 2.2 3.3 3.3
Policy loans.......................... 2,211.1 2,368.6 2,288.2 2,483.8
SCNILC liability...................... 10.4 10.3 11.4 11.6
Wind-up Annuities:
------------------
Mortgage loans on real estate......... $ 2.9 $ 3.0 $ 6.7 $ 7.1
Other equity investments.............. 2.3 2.3 3.1 3.1
Guaranteed interest contracts......... 5.8 6.0 6.5 6.4
Long-term debt........................ 101.7 101.7 101.7 101.7
F-29
6) CLOSED BLOCKS
The operations of the AXA Equitable and MONY Life Closed Blocks are
managed separately.
AXA Equitable Closed Block
--------------------------
Summarized financial information for the AXA Equitable Closed Block
follows:
DECEMBER 31, December 31,
2006 2005
----------------- -----------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other.... $ 8,759.5 $ 8,866.1
Policyholder dividend obligation..................................... 3.2 73.7
Other liabilities.................................................... 29.1 28.6
----------------- -----------------
Total Closed Block liabilities....................................... 8,791.8 8,968.4
----------------- -----------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $5,967.6 and $5,761.5)......................... 6,019.4 5,908.7
Mortgage loans on real estate........................................ 809.4 930.3
Policy loans......................................................... 1,233.1 1,284.4
Cash and other invested assets....................................... 6.8 56.2
Other assets......................................................... 286.2 304.4
----------------- -----------------
Total assets designated to the Closed Block.......................... 8,354.9 8,484.0
----------------- -----------------
Excess of Closed Block liabilities over assets designated to
the Closed Block.................................................. 436.9 484.4
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains, net of deferred income tax
expense of $17.0 and $25.7 and policyholder dividend
obligation of $3.2 and $73.7.................................... 31.6 47.8
----------------- -----------------
Maximum Future Earnings To Be Recognized From Closed Block
Assets and Liabilities............................................ $ 468.5 $ 532.2
================= =================
AXA Equitable Closed Block revenues and expenses were as follows:
2006 2005 2004
--------------- ----------------- ------------------
(IN MILLIONS)
REVENUES:
Premiums and other income............................ $ 428.1 $ 449.3 $ 471.0
Investment income (net of investment
expenses of $0.1, $0, and $0.3)................... 520.2 525.9 554.8
Investment gains, net................................ 1.7 1.2 18.6
--------------- ----------------- ------------------
Total revenues....................................... 950.0 976.4 1,044.4
--------------- ----------------- ------------------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits and dividends................ 852.2 842.5 883.8
Other operating costs and expenses................... 3.0 3.4 3.5
--------------- ----------------- ------------------
Total benefits and other deductions.................. 855.2 845.9 887.3
--------------- ----------------- ------------------
Net revenues before income taxes..................... 94.8 130.5 157.1
Income tax expense................................... (31.1) (45.6) (56.4)
--------------- ----------------- ------------------
Net Revenues......................................... $ 63.7 $ 84.9 $ 100.7
=============== ================= ==================
F-30
Reconciliation of the policyholder dividend obligation is as follows:
DECEMBER 31,
--------------------------------------
2006 2005
----------------- ------------------
(IN MILLIONS)
Balance, beginning of year............................................. $ 73.7 $ 264.3
Unrealized investment losses .......................................... (70.5) (190.6)
----------------- ------------------
Balance, End of Year .................................................. $ 3.2 $ 73.7
================= ==================
Impaired mortgage loans along with the related investment valuation
allowances follows:
DECEMBER 31,
-------------------------------------
2006 2005
----------------- -----------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances........... $ 17.8 $ 59.1
Impaired mortgage loans without investment valuation allowances........ .1 4.0
----------------- -----------------
Recorded investment in impaired mortgage loans......................... 17.9 63.1
Investment valuation allowances........................................ (7.3) (7.1)
----------------- -----------------
Net Impaired Mortgage Loans............................................ $ 10.6 $ 56.0
================= =================
During 2006, 2005 and 2004, AXA Equitable's Closed Block's average
recorded investment in impaired mortgage loans was $59.9 million, $61.4
million and $62.6 million, respectively. Interest income recognized on
these impaired mortgage loans totaled $3.3 million, $4.1 million and
$4.7 million for 2006, 2005 and 2004, respectively.
Valuation allowances amounted to $7.3 million and $7.1 million on
mortgage loans on real estate at December 31, 2006 and 2005,
respectively. Writedowns of fixed maturities amounted to $1.4 million,
$7.7 million and $10.8 million for 2006, 2005 and 2004, respectively.
MONY Life Closed Block
----------------------
Summarized financial information for the MONY Life Closed Block is as
follows:
DECEMBER 31,
--------------------------------------
2006 2005
---------------- -----------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other.... $ 7,202.8 $ 7,332.4
Policyholder dividend obligation..................................... 109.6 142.5
Other liabilities.................................................... 35.6 31.0
---------------- -----------------
Total Closed Block liabilities....................................... 7,348.0 7,505.9
---------------- -----------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $4,277.6 and $4,399.0).......................... 4,237.2 4,397.8
Mortgage loans on real estate........................................ 692.4 560.1
Policy loans......................................................... 977.9 1,003.7
Cash and other invested assets....................................... 54.7 135.8
Other assets......................................................... 333.9 295.1
---------------- -----------------
Total assets designated to the Closed Block.......................... 6,296.1 6,392.5
---------------- -----------------
Excess of Closed Block liabilities over assets designated to
the Closed Block .................................................. 1,051.9 1,113.4
Amounts included in accumulated other comprehensive income:
Net unrealized investment losses, net of policyholder
dividend obligation of $40.3 and $1.2............................ - -
Maximum Future Earnings To Be Recognized From
---------------- -----------------
Closed Block Assets and Liabilities................................ $ 1,051.9 $ 1,113.4
================ =================
F-31
MONY Life Closed Block revenues and expenses follow:
Six Months
Ended
December 31,
2006 2005 2004
--------------- ----------------- --------------------
(IN MILLIONS)
REVENUES:
Premiums and other income............................ $ 363.0 $ 410.0 $ 229.9
Investment income (net of investment
expenses of $6.3, $5.8, and $2.9)................. 342.0 340.9 172.3
Investment (losses) gains, net....................... (2.0) (3.9) 13.1
--------------- ----------------- --------------------
Total revenues....................................... 703.0 747.0 415.3
--------------- ----------------- --------------------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits and dividends................ 604.5 644.8 362.8
Other operating costs and expenses................... 4.0 4.5 2.6
--------------- ----------------- --------------------
Total benefits and other deductions.................. 608.5 649.3 365.4
--------------- ----------------- --------------------
Net revenues before income taxes..................... 94.5 97.7 49.9
Income tax expense................................... (33.0) (34.2) (17.4)
--------------- ----------------- --------------------
Net Revenues......................................... $ 61.5 $ 63.5 $ 32.5
=============== ================= ====================
Reconciliation of the MONY Life policyholder dividend obligation is as
follows:
2006 2005
---------------- -----------------
(IN MILLIONS)
Balance, beginning of year........................................... $ 142.5 $ 250.8
Applicable to net revenues........................................... 6.2 (4.1)
Unrealized investment losses......................................... (39.1) (104.2)
---------------- -----------------
Balance, End of Year................................................. $ 109.6 $ 142.5
================ =================
Impaired mortgage loans along with the related investment valuation
allowances follows:
DECEMBER 31,
-------------------------------------
2006 2005
----------------- -----------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances........... $ - $ -
Impaired mortgage loans without investment valuation allowances........ .2 .8
----------------- -----------------
Recorded investment in impaired mortgage loans......................... .2 .8
Investment valuation allowances........................................ - -
----------------- -----------------
Net Impaired Mortgage Loans............................................ $ .2 $ .8
================= =================
During 2006, 2005 and six months ended December 31, 2004, MONY Life's
Closed Block's average recorded investment in impaired mortgage loans
was $.6 million, $1.1 million and $1.6 million, respectively. Interest
income recognized on these impaired mortgage loans totaled zero, $.1
million and $.1 million for 2006, 2005 and 2004, respectively.
There were no valuation allowances on mortgage loans on real estate at
December 31, 2006 and 2005. Writedowns of fixed maturities amounted to
$4.7 million, $2.5 million and $.3 million for 2006, 2005 and six months
ended December 31, 2004, respectively.
F-32
7) CONTRACTHOLDER BONUS INTEREST CREDITS
Changes in the deferred asset for contractholder bonus interest credits
are as follows:
DECEMBER 31,
--------------------------------------
2006 2005
----------------- ------------------
(IN MILLIONS)
Balance, beginning of year............................................. $ 555.0 $ 461.0
Contractholder bonus interest credits deferred ........................ 155.4 142.4
Amortization charged to income ........................................ (59.7) (48.4)
----------------- ------------------
Balance, End of Year .................................................. $ 650.7 $ 555.0
================= ==================
8) GMDB, GMIB AND NO LAPSE GUARANTEE FEATURES
A) Variable Annuity Contracts - GMDB and GMIB
------------------------------------------
AXA Equitable, MONY Life and MLOA issue certain variable annuity
contracts with GMDB and GMIB features that guarantee one of the
following:
o Return of Premium: the benefit is the greater of current account
value or premiums paid (adjusted for withdrawals);
o Ratchet: the benefit is the greatest of current account value,
premiums paid (adjusted for withdrawals), or the highest account
value on any anniversary up to contractually specified ages
(adjusted for withdrawals);
o Roll-Up: the benefit is the greater of current account value or
premiums paid (adjusted for withdrawals) accumulated at
contractually specified interest rates up to specified ages; or
o Combo: the benefit is the greater of the ratchet benefit or the
roll-up benefit.
The following table summarizes the GMDB and GMIB liabilities, before
reinsurance ceded, reflected in the General Account in future policy
benefits and other policyholders liabilities:
GMDB GMIB TOTAL
----------------- ----------------- -----------------
(IN MILLIONS)
Balance at January 1, 2004......................... $ 69.3 $ 85.6 $ 154.9
MONY Life and MLOA balances at acquisition....... 1.1 - 1.1
Paid guarantee benefits.......................... (48.6) - (48.6)
Other changes in reserve......................... 46.7 32.1 78.8
----------------- ----------------- -----------------
Balance at December 31, 2004....................... 68.5 117.7 186.2
Paid guarantee benefits.......................... (42.7) (2.2) (44.9)
Other changes in reserve......................... 90.0 58.3 148.3
----------------- ----------------- -----------------
Balance at December 31, 2005....................... 115.8 173.8 289.6
Paid guarantee benefits......................... (34.1) (3.3) (37.4)
Other changes in reserve........................ 82.7 58.1 140.8
----------------- ----------------- -----------------
Balance at December 31, 2006....................... $ 164.4 $ 228.6 $ 393.0
================= ================= =================
F-33
Related GMDB reinsurance ceded amounts were:
GMDB
-----------------
(IN MILLIONS)
Balance at January 1, 2004......................... $ 17.2
MONY Life and MLOA balances at acquisition... (.4)
Paid guarantee benefits ceded.................... (11.5)
Other changes in reserve......................... 4.0
-----------------
Balance at December 31, 2004....................... 9.3
Paid guarantee benefits ceded.................... (12.2)
Other changes in reserve......................... 25.8
-----------------
Balance at December 31, 2005....................... 22.9
Paid guarantee benefits.......................... (9.2)
Other changes in reserve......................... 10.4
-----------------
Balance at December 31, 2006....................... $ 24.1
=================
The December 31, 2006 values for those variable annuity contracts
in-force on such date with GMDB and GMIB features are presented in the
following table. For contracts with the GMDB feature, the net amount at
risk in the event of death is the amount by which the GMDB benefits
exceed related account values. For contracts with the GMIB feature, the
net amount at risk in the event of annuitization is the amount by which
the present value of the GMIB benefits exceeds related account values,
taking into account the relationship between current annuity purchase
rates and the GMIB guaranteed annuity purchase rates. Since variable
annuity contracts with GMDB guarantees may also offer GMIB guarantees in
the same contract, the GMDB and GMIB amounts listed are not mutually
exclusive:
RETURN
OF
PREMIUM RATCHET ROLL-UP COMBO TOTAL
------------ --------------- ------------- ------------- ---------------
(DOLLARS IN MILLIONS)
GMDB:
-----
Account values invested in:
General Account............. $ 11,535 $ 733 $ 319 $ 677 $ 13,264
Separate Accounts........... $ 26,570 $ 9,495 $ 7,653 $ 23,337 $ 67,055
Net amount at risk, gross...... $ 313 $ 424 $ 1,447 $ 93 $ 2,277
Net amount at risk, net of
amounts reinsured........... $ 312 $ 276 $ 883 $ 41 $ 1,512
Average attained age of
contractholders............. 49.8 61.2 64.3 61.2 53.0
Percentage of contractholders
over age 70................. 7.8% 21.0% 33.6% 21.1% 12.0%
Range of contractually
specified interest rates.... N/A N/A 3%-6% 3%-6%
GMIB:
-----
Account values invested in:
General Account............. N/A N/A $ 118 $ 882 $ 1,000
Separate Accounts........... N/A N/A $ 5,422 $ 31,737 $ 37,159
Net amount at risk, gross...... N/A N/A $ 277 $ - $ 277
Net amount at risk, net of
amount reinsured............ N/A N/A $ 71 $ - $ 71
Weighted average years
remaining until
annuitization............... N/A N/A 2.5 8.4 7.4
Range of contractually
specified interest rates ... N/A N/A 3%-6% 3%-6%
F-34
B) Separate Account Investments by Investment Category Underlying GMDB
-------------------------------------------------------------------
and GMIB Features
-----------------
The total account values of variable annuity contracts with GMDB and GMIB
features include amounts allocated to the guaranteed interest option
which is part of the General Account and variable investment options
which invest through Separate Accounts in variable insurance trusts. The
following table presents the aggregate fair value of assets, by major
investment category, held by Separate Accounts that support variable
annuity contracts with GMDB and GMIB benefits and guarantees. The
investment performance of the assets impacts the related account values
and, consequently, the net amount of risk associated with the GMDB and
GMIB benefits and guarantees. Since variable annuity contracts with GMDB
benefits and guarantees may also offer GMIB benefits and guarantees in
each contract, the GMDB and GMIB amounts listed are not mutually
exclusive:
INVESTMENT IN VARIABLE INSURANCE TRUST MUTUAL FUNDS
DECEMBER 31, December 31,
2006 2005
---------------- ------------------
(IN MILLIONS)
GMDB:
-----
Equity.................................................................. $ 45,083 $ 38,207
Fixed income............................................................ 4,824 4,817
Balanced................................................................ 14,927 9,193
Other................................................................... 2,221 1,919
---------------- ------------------
Total................................................................... $ 67,055 $ 54,136
================ ==================
GMIB:
-----
Equity.................................................................. $ 22,966 $ 17,668
Fixed income............................................................ 2,756 2,642
Balanced................................................................ 10,442 5,852
Other................................................................... 995 685
---------------- ------------------
Total................................................................... $ 37,159 $ 26,847
================ ==================
C) Hedging Programs for GMDB and GMIB Features
-------------------------------------------
In 2003, AXA Equitable initiated a program intended to provide an
economic hedge against certain risks associated with the GMDB feature of
the Accumulator(R) series of variable annuity products sold beginning in
April 2002. In 2004, the program was expanded to provide an economic
hedge against certain risks associated with the GMIB feature of the
Accumulator(R) series of variable annuity products sold beginning in
2004. This program currently utilizes exchange-traded futures contracts
that are dynamically managed in an effort to reduce the economic impact
of unfavorable changes in GMDB and GMIB exposures attributable to
movements in the equity and fixed income markets. At December 31, 2006,
the total account value and net amount at risk of the hedged
Accumulator(R) series of variable annuity contracts were $41,597 million
and $52 million, respectively, with the GMDB feature and $24,409 million
and zero, respectively, with the GMIB feature.
Although these programs are designed to provide economic protection
against the impact adverse market conditions may have with respect to
GMDB and GMIB guarantees, they do not qualify for hedge accounting
treatment under SFAS No. 133. Therefore, SFAS No. 133 requires gains or
losses on the futures contracts used in these programs, including current
period changes in fair value, to be recognized in investment income in
the period in which they occur, and may contribute to earnings
volatility.
D) Variable and Interest-Sensitive Life Insurance Policies - No Lapse
------------------------------------------------------------------
Guarantee
---------
The no lapse guarantee feature contained in variable and
interest-sensitive life insurance policies keeps them in force in
situations where the policy value is not sufficient to cover monthly
charges then due. The no lapse guarantee remains in effect so long as the
policy meets a contractually specified premium funding test and certain
other requirements.
The following table summarizes the no lapse guarantee liabilities
reflected in the General Account in future policy benefits and other
policyholders liabilities, and related reinsurance ceded:
F-35
REINSURANCE
DIRECT LIABILITY CEDED NET
------------------- ------------------ ------------------
(IN MILLIONS)
Balance at January 1, 2004......................... $ 37.4 $ - $ 37.4
Impact of adoption of SOP 03-1................... (23.4) - (23.4)
MONY Life and MLOA balances at acquisition... .5 - .5
Other changes in reserves........................ 6.5 - 6.5
------------------- ------------------ ------------------
Balance at December 31, 2004....................... 21.0 - 21.0
Other changes in reserves....................... 14.0 - 14.0
------------------- ------------------ ------------------
Balance at December 31, 2005....................... 35.0 - 35.0
Other changes in reserves....................... 31.8 - 31.8
------------------- ------------------ ------------------
Balance at December 31, 2006....................... $ 66.8 $ - $ 66.8
=================== ================== ==================
9) REINSURANCE AGREEMENTS
The Insurance Group assumes and cedes reinsurance with other insurance
companies. The Insurance Group evaluates the financial condition of its
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Ceded reinsurance does not relieve the originating insurer
of liability.
The Insurance Group reinsures most of its new variable life, universal
life and term life policies on an excess of retention basis. The
Insurance Group maintains a maximum retention on single-life policies of
$25 million and on second-to-die policies of $30 million, again with any
excess being 100% reinsured. For certain segments of its business, the
Insurance Group ceded a proportional share of its mortality risk, as
follows: 40% of the business underwritten by AXA Equitable on a
guaranteed or simplified issue basis was ceded on a yearly renewable
term basis. In addition, for business underwritten by USFL, amounts in
excess of its retention were ceded on a yearly renewable term basis; in
2006, the maximum retention amounts were $2.5 million for single-life
policies and $3.0 million for second-to-die policies. The Insurance
Group also reinsures the entire risk on certain substandard underwriting
risks and in certain other cases. Likewise, certain risks that would
otherwise be reinsured on a proportional basis have been retained.
At December 31, 2006, AXA Financial Group had reinsured in the aggregate
approximately 34% of its current exposure to the GMDB obligation on
annuity contracts in-force and, subject to certain maximum amounts or
caps in any one period, approximately 74.0% of its current liability
exposure resulting from the GMIB feature. See Note 8 of Notes to
Consolidated Financial Statements.
Based on management's estimates of future contract cash flows and
experience, the estimated fair values of the GMIB reinsurance contracts,
considered derivatives under SFAS No. 133, at December 31, 2006 and 2005
were $117.8 million and $132.7 million, respectively. The (decrease)
increase in estimated fair value was $(14.9) million, $42.7 million and
$61.0 million for 2006, 2005 and 2004, respectively.
At December 31, 2006 and 2005, respectively, reinsurance recoverables
related to insurance contracts amounted to $3.33 billion and $3.22
billion. Reinsurance payables related to insurance contracts totaling
$31.0 million and $29.2 million are included in other liabilities in the
consolidated balance sheets at December 31, 2006 and 2005, respectively.
The Insurance Group cedes substantially all of its group life and health
business to a third party insurer. Insurance liabilities ceded totaled
$262.6 million and $288.4 million at December 31, 2006 and 2005,
respectively.
The Insurance Group also cedes a portion of its extended term insurance
and paid up life insurance and substantially all of its individual
disability income business through various coinsurance agreements.
In addition to the sale of insurance products, the Insurance Group acts
as a professional retrocessionaire by assuming life and annuity
reinsurance from professional reinsurers. The Insurance Group has also
assumed accident, health, aviation and space risks by participating in
or reinsuring various reinsurance pools and arrangements. Reinsurance
assumed reserves at December 31, 2006 and 2005 were $644.3 million and
$646.1 million, respectively.
F-36
The following table summarizes the effect of reinsurance (excluding
group life and health):
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Direct premiums.................................... $ 1,618.9 $ 1,647.6 $ 1,290.4
Reinsurance assumed................................ 197.3 171.9 183.7
Reinsurance ceded.................................. (234.6) (170.7) (198.3)
----------------- ----------------- -----------------
Premiums........................................... $ 1,581.6 $ 1,648.8 $ 1,275.8
================= ================= =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 152.8 $ 169.3 $ 134.8
================= ================= =================
Policyholders' Benefits Ceded...................... $ 524.4 $ 441.8 $ 422.5
================= ================= =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 53.8 $ 50.9 $ 50.2
================= ================= =================
Individual Disability Income and Major Medical
----------------------------------------------
Claim reserves and associated liabilities net of reinsurance ceded for
individual DI and major medical policies were $93.6 million and $92.0
million at December 31, 2006 and 2005, respectively. At December 31,
2006 and 2005, respectively, $1,407.1 million and $1,390.0 million of DI
reserves and associated liabilities were ceded through indemnity
reinsurance agreements with a singular reinsurance group. Incurred
benefits (benefits paid plus changes in claim reserves) and benefits
paid for individual DI and major medical policies are summarized below:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Incurred benefits related to current year.......... $ 36.0 $ 35.7 $ 35.2
Incurred benefits related to prior years........... 9.9 50.4 13.2
----------------- ----------------- -----------------
Total Incurred Benefits............................ $ 45.9 $ 86.1 $ 48.4
================= ================= =================
Benefits paid related to current year.............. $ 14.2 $ 14.9 $ 13.0
Benefits paid related to prior years............... 30.1 44.9 33.5
----------------- ----------------- -----------------
Total Benefits Paid................................ $ 44.3 $ 59.8 $ 46.5
================= ================= =================
F-37
10) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
DECEMBER 31,
--------------------------------------
2006 2005
---------------- -----------------
(IN MILLIONS)
Short-term debt:
Promissory note, 5.27%............................................... $ 248.3 $ 248.3
Current portion of long-term debt.................................... - 399.7
AllianceBernstein commercial paper................................... 334.9 -
---------------- -----------------
Total short-term debt................................................ 583.2 648.0
---------------- -----------------
Long-term debt:
AXA Financial:
Senior Notes, 7.75%, due through 2010.............................. 478.5 478.1
Senior Notes, 6.5%, due 2008....................................... 250.0 249.8
Senior Debentures, 7.0%, due 2028.................................. 348.1 348.0
Senior Notes, 8.35%, due 2010...................................... 328.7 336.7
---------------- -----------------
Total AXA Financial............................................ 1,405.3 1,412.6
---------------- -----------------
MONY Companies:
Surplus Notes, 11.25%, due 2024.................................... 1.9 1.9
Senior Notes, 4.73%, due 2017...................................... - 300.0
---------------- -----------------
Total MONY Companies........................................... 1.9 301.9
---------------- -----------------
AXA Equitable:
Surplus Notes, 7.70%, due 2015..................................... 199.8 199.8
---------------- -----------------
Total AXA Equitable............................................ 199.8 199.8
---------------- -----------------
AllianceBernstein:
Other.............................................................. - 7.6
---------------- -----------------
Total AllianceBernstein........................................ - 7.6
---------------- -----------------
Total long-term debt................................................. 1,607.0 1,921.9
---------------- -----------------
Total Short-term and Long-term Debt.................................. $ 2,190.2 $ 2,569.9
================ =================
Short-term Debt
---------------
On July 9, 2004, AXA and certain of its subsidiaries, including AXA
Financial Group, entered into a (euro)3.5 billion global revolving
credit facility and a $650 million letter of credit facility, which
mature on July 9, 2009, with a group of 30 commercial banks and other
lenders. Under the terms of the revolving credit facility, up to $500.0
million is available to AXA Financial Group for general corporate
purposes, while the letter of credit facility makes up to $500 million
available to AXA Bermuda.
AXA Equitable has a $350.0 million, one-year promissory note, of which
$101.7 million is included within Wind-up Annuities. The promissory
note, which matures in March 2007, is related to wholly owned real
estate. Certain terms of the promissory note, such as interest rate and
maturity date, are negotiated annually.
At December 31, 2006 and 2005, AXA Financial Group had pledged real
estate of $326.0 million and $320.8 million, respectively, as collateral
for certain short-term debt.
In August 2001, AllianceBernstein issued $400.0 million 5.625% notes
pursuant to a shelf registration statement that originally permitted
AllianceBernstein to issue up to $600.0 million in senior debt
securities. AllianceBernstein currently has $200.0 million available
under the shelf registration statement for future issuances. The
proceeds from the AllianceBernstein notes were used to reduce commercial
paper and credit facility borrowings and for other general partnership
purposes. The AllianceBernstein notes matured in August 2006.
AllianceBernstein used cash flow from operations as well as proceeds
from the issuance of commercial paper to retire the notes at maturity.
F-38
In February 2006, AllianceBernstein entered into an $800.0 million
five-year revolving credit facility with a group of commercial banks and
other lenders. The revolving credit facility is intended to provide
back-up liquidity for AllianceBernstein's commercial paper program,
which increased from $425.0 million to $800.0 million in May 2006. Under
the revolving credit facility, the interest rate, at the option of
AllianceBernstein, is a floating rate generally based upon a defined
prime rate, a rate related to the London Interbank Offered Rate
("LIBOR") or the Federal Funds rate. The revolving credit facility
contains covenants that, among other things, require AllianceBernstein
to meet certain financial ratios. AllianceBernstein was in compliance
with the covenants as of December 31, 2006.
As of December 31, 2006, AllianceBernstein maintained a $100.0 million
extendible commercial notes ("ECN") program as a supplement to
commercial paper program. ECNs are short-term uncommitted debt
instruments that do not require back-up liquidity support.
In 2006, SCB LLC entered into four separate uncommitted credit facility
agreements with various banks, each for $100.0 million. As of December
31, 2006, there were no amounts outstanding under these credit
facilities. During the first quarter 2007, SCB LLC increased three of
the agreements to $200.0 million each and entered into an additional
agreement for $100.0 million with a new bank.
Long-term Debt
--------------
At December 31, 2006, AXA Financial Group was not in breach of any debt
covenants.
In April 2002, MONY Holdings, LLC ("MONY Holdings"), then a wholly owned
subsidiary of MONY, issued $300.0 million of floating rate insured debt
securities (the "Insured Notes") through a structured financing tied to
the performance of MONY Life's Closed Block. Maturing on January 21,
2017, the Insured Notes were to pay interest only through January 21,
2008, at which time principal payments would begin based on an
amortization schedule. Interest was payable quarterly at an annual rate
equal to three month LIBOR plus 55 BPs. Concurrent with the issuance of
the Insured Notes, MONY Holdings entered into an interest rate swap
contract, fixing the interest rate at 6.44%. When the 75 BPs for the
cost of insurance to guarantee the scheduled principal and interest
payments and the debt issuance costs are added, the annual cost of the
Insured Notes was 7.36%. On April 21, 2006, AXA Financial prepaid the
$300.0 million Insured Notes for $319.3 million, which included
principal, accrued interest, bond call premium and swap settlement
payments using funds borrowed from AXA and available cash.
11) RELATED PARTY TRANSACTIONS
In September 2001, AXA Equitable loaned $400.0 million to AXA Insurance
Holding Co. Ltd., a subsidiary of AXA. This investment has an interest
rate of 5.89% and matures on June 15, 2007. All payments, including
interest payable semi-annually, are guaranteed by AXA.
In July 2004, AXA Financial issued Subordinated Notes to AXA, AXA Group
Life Insurance (Japan) and AXA Insurance Co. (Japan) in the amounts of
$510.0 million, $500.0 million and $270.0 million, respectively. The
$1.28 billion in proceeds from these borrowings were used to fund the
MONY Acquisition. The Subordinated Notes have a maturity date of July
15, 2019 and a floating interest rate, which resets semiannually on July
15 and January 15. Concurrently, AXA Financial entered into an interest
rate swap with AXA, converting the floating rate on these Subordinated
Notes to a fixed rate of 5.11% for the first three years. Including the
impact of the swap, the 2006, 2005 and 2004 interest cost related to the
Subordinated Notes totaled approximately $84.4 million, $73.4 million
and $32.2 million, respectively.
In December 2004, AXA Financial issued Subordinated Notes to AXA in the
amount of $200.0 million. The proceeds from this borrowing were used to
fund the acquisition of additional AllianceBernstein Units. The
Subordinated Notes matured on June 20, 2006. During 2006, AXA Financial
repaid the Subordinated Notes.
The $319.3 million prepayment of the Insured Notes was funded with
$260.0 million borrowed from AXA and available cash. The AXA borrowing
matures in April 2011 and has a floating rate of interest that resets
semi-annually. During 2006, AXA Financial repaid the $260.0 million,
borrowing.
In December 2005, AXA Financial issued a note to AXA in the amount of
$100.0 million with an interest rate of 5.23% and matured on June 13,
2006. The proceeds from this borrowing were used to pay for the
F-39
exercise of the call options on AXA ADRs to fund employee stock benefit
plans. During 2006, AXA Financial repaid the $100.0 million note.
Various AXA affiliates cede a portion of their life and health insurance
business through reinsurance agreements to AXA Cessions, an AXA
affiliated reinsurer. AXA Cessions, in turn, retrocedes a quota share
portion of these risks to AXA Equitable on a one-year term basis.
Premiums earned in 2006 under this arrangement totaled approximately
$1.1 million.
AXA Financial, AXA Equitable, MONY Life and AllianceBernstein, along
with other AXA affiliates, participate in certain intercompany cost
sharing and service agreements including technology and professional
development arrangements. Payments by AXA Financial Group to AXA under
such agreements totaled approximately $29.9 million, $33.8 million and
$31.6 million in 2006, 2005 and 2004, respectively. Payments by AXA and
AXA affiliates to AXA Financial Group under such agreements totaled
approximately $27.9 million, $36.2 million and $39.2 million in 2006,
2005 and 2004, respectively. Included in the payments by AXA and AXA
affiliates to AXA Financial Group are $12.6 million, $12.7 million and
$12.7 million from AXA Tech, which represent the net amount of payments
resulting from services and facilities provided by AXA Financial Group
to AXA Tech of $111.0 million, $110.9 million and $106.4 million less
the payments for services provided by AXA Tech to AXA Financial Group of
$98.4 million, $98.2 million and $93.7 million for 2006, 2005 and 2004,
respectively.
Commissions, fees and other income includes certain revenues for
services provided to mutual funds managed by AllianceBernstein. These
revenues are described below:
2006 2005 2004
----------------- ---------------- ------------------
(IN MILLIONS)
Investment advisory and services fees.............. $ 840.5 $ 728.5 $ 744.7
Distribution revenues.............................. 421.0 397.8 447.3
Other revenues - shareholder servicing fees........ 97.2 99.3 116.0
Other revenues - other............................. 6.9 8.0 8.8
Institutional research services.................... 1.4 3.5 5.3
12) EMPLOYEE BENEFIT PLANS
AXA Financial Group (other than AllianceBernstein) sponsors qualified
and non-qualified defined benefit plans covering substantially all
employees (including certain qualified part-time employees), managers
and certain agents. These pension plans are non-contributory and their
benefits are based on a cash balance formula and/or, for certain
participants, years of service and average earnings over a specified
period in the plans. AllianceBernstein maintains a qualified,
non-contributory, defined benefit retirement plan covering current and
former employees who were employed by AllianceBernstein in the United
States prior to October 2, 2000. AllianceBernstein's benefits are based
on years of credited service, average final base salary and primary
social security benefits. AXA Financial Group uses a December 31
measurement date for its pension and postretirement plans.
In connection with the MONY Acquisition and consistent with the terms of
the related merger agreement, continuing employees of MONY are being
provided with employee benefit plans substantially comparable in the
aggregate to those provided to them as employees of MONY, including
postretirement health and welfare plans of MONY and its principal
subsidiaries. MONY's qualified and non-qualified pension benefits
generally are based on years of service and final average annual
compensation.
Generally, AXA Financial Group's funding policy is to make the minimum
contribution required by the Employee Retirement Income Security Act of
1974 ("ERISA"). AXA Financial Group made cash contributions of $4.4
million in 2006. No significant cash contributions to AXA Financial
Group's qualified plans are expected to be required to satisfy their
minimum funding requirements for 2007.
F-40
Components of net periodic pension expense for AXA Financial Group's
qualified and non-qualified plans including MONY's qualified and
non-qualified plans since its date of the MONY Acquisition were as
follows:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Service cost....................................... $ 57.0 $ 54.9 $ 47.5
Interest cost on projected benefit obligations..... 174.4 178.1 161.5
Expected return on assets.......................... (217.3) (207.1) (187.3)
Net amortization and deferrals..................... 100.3 97.3 79.1
----------------- ----------------- -----------------
Net Periodic Pension Expense....................... $ 114.4 $ 123.2 $ 100.8
================= ================= =================
The plans' projected benefit obligations under AXA Financial Group's
qualified and non-qualified plans were comprised of:
DECEMBER 31,
-------------------------------------
2006 2005
----------------- -----------------
(IN MILLIONS)
Benefit obligations, beginning of year................................ $ 3,407.4 $ 3,156.8
Service cost.......................................................... 50.0 48.9
Interest cost......................................................... 174.4 178.1
Actuarial (gains) losses ............................................. (131.6) 219.2
Benefits paid......................................................... (225.6) (195.6)
----------------- -----------------
Benefit Obligations, End of Year...................................... $ 3,274.6 $ 3,407.4
================= =================
At December 31, 2006, AXA Financial Group adopted SFAS No. 158,
requiring recognition, in the consolidated balance sheet, of the funded
status of its defined benefit pension plans, measured as the difference
between plan assets at fair value and the projected benefit obligations.
The following table discloses the change in plan assets and the
reconciliation of the funded status of AXA Financial Group's qualified
and non-qualified pension plans to amounts included in the accompanying
consolidated balance sheets:
DECEMBER 31,
-----------------------------------
2006 2005
---------------- -----------------
(IN MILLIONS)
Plan assets at fair value, beginning of year.............................. $ 2,671.1 $ 2,530.0
Actual return on plan assets.............................................. 339.8 233.1
Contributions............................................................. 4.4 78.7
Benefits paid and fees.................................................... (203.8) (170.7)
---------------- -----------------
Plan assets at fair value, end of year.................................... 2,811.5 2,671.1
Projected benefit obligations............................................. 3,274.6 3,407.4
---------------- -----------------
Underfunding of plan assets over projected benefit obligations............ (463.1) (736.3)
Unrecognized prior service cost........................................... - (3.1)
Unrecognized net loss from past experience different
from that assumed....................................................... - 1,203.3
Unrecognized net asset at transition...................................... - (1.1)
Additional minimum pension liability...................................... - (141.2)
---------------- -----------------
(Accrued) Prepaid Pension Cost, Net....................................... $ (463.1) $ 321.6
================ =================
Prepaid and accrued pension costs were $135.6 million and $598.7
million, respectively, at December 31, 2006 and $868.3 million and
$546.7 million, respectively, at December 31, 2005. The additional
minimum pension liability at December 31, 2005 is reflected in AXA
Financial Group's consolidated balance sheet as an intangible asset to
the extent of unrecognized prior service cost of $21.3 million, with the
remainder recognized as a reduction of shareholder's equity, net of tax,
of $77.9 million, respectively. The aggregate projected benefit
obligations and fair value of plan assets for pension plans with
projected benefit obligations in excess of plan assets were $653.1
million and $54.4 million, respectively, at December 31, 2006, and
$3,407.4 million and $2,671.1 million, respectively, at December 31,
2005. The aggregate accumulated
F-41
benefit obligation and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets were $572.5
million and $54.4 million, respectively, at December 31, 2006, and
$583.2 million and $48.7 million, respectively, at December 31, 2005.
The accumulated benefit obligations for all defined benefit pension
plans were $3,089.2 million and $3,188.7 million at December 31, 2006
and 2005, respectively.
The following table illustrates the incremental line-by-line effect of
applying SFAS No. 158 for the pension plans in the December 31, 2006
consolidated balance sheet:
Before After
Application Application
of SFAS of SFAS
No.158 Adjustments No.158
----------------- ----------------- -----------------
(In Millions)
Goodwill and other intangible assets, net.......... $ 4,885.4 $ (16.5) $ 4,868.9
Other assets ...................................... 4,094.8 (681.7) 3,413.1
Total assets....................................... 169,443.9 (698.2) 168,745.7
Income taxes payable............................... 2,386.8 (264.7) 2,122.1
Other liabilities.................................. 4,975.2 60.9 5,036.1
Minority interest in equity of
consolidated subsidiaries........................ 1,634.5 (2.9) 1,631.6
Total liabilities.................................. 158,933.8 (206.7) 158,727.1
Accumulated other comprehensive loss............... 112.6 (491.5) (378.9)
Total shareholder's equity......................... 10,510.1 (491.5) 10,018.6
The following table discloses the amounts included in accumulated other
comprehensive income at December 31, 2006 that have not yet been
recognized as components of net periodic pension cost:
DECEMBER 31,
2006
----------------------
(IN MILLIONS)
Unrecognized net actuarial loss ...................................................... $ 853.2
Unrecognized prior service cost (credit).............................................. (2.3)
Unrecognized net transition obligation (asset)........................................ (.8)
----------------------
Total ........................................................................... $ 850.1
======================
The estimated net loss, prior service cost, and net transition asset to
be reclassified from accumulated other comprehensive income and
recognized as components of net periodic pension cost over the next year
are $70.1 million, $.8 million, and zero, respectively. The following
table discloses the estimated fair value of plan assets and the
percentage of estimated fair value to total plan assets for the
qualified plans of AXA Financial Group at December 31, 2006 and 2005.
DECEMBER 31,
--------------------------------------------------------
2006 2005
--------------------------------------------------------
ESTIMATED Estimated
FAIR VALUE % Fair Value %
------------------- ------- ------------------- --------
(DOLLARS IN MILLIONS)
Corporate and government debt securities........ $ 469.4 16.7 $ 542.2 20.3
Equity securities............................... 2,084.9 74.2 1,825.2 68.3
Equity real estate ............................. 245.5 8.7 221.8 8.3
Short-term investments.......................... 11.7 .4 81.9 3.1
------------------- ------- ------------------- --------
Total Plan Assets............................... $ 2,811.5 100.0 $ 2,671.1 100.0
=================== ======= =================== ========
The primary investment objective of the qualified plans of AXA Financial
Group is to maximize return on assets, giving consideration to prudent
risk. The asset allocation is designed with a long-term investment
horizon, based on target investment of 65% equities, 25% fixed income
and 10% real estate. Emphasis is given to equity investments, given
their higher expected rate of return. Fixed income investments are
F-42
included to provide less volatile return. Real estate investments offer
diversity to the total portfolio and long-term inflation protection.
A secondary investment objective of the qualified plans of AXA Financial
Group is to minimize variation in annual net periodic pension cost over
the long term and to fund as much of the future liability growth as
practical. Specifically, a reasonable total rate of return is defined as
income plus realized and unrealized capital gains and losses such that
the growth in projected benefit obligation is less than the return on
investments plus contributions.
The assumed discount rates for measurement of the benefit obligations at
December 31, 2006 and 2005 each reflect the rates at which pension
benefits then could be effectively settled. Specifically at December 31,
2006, projected nominal cash outflows to fund expected annual benefits
payments under AXA Financial's and MONY's qualified and non-qualified
pension and postretirement benefit plans were discounted using a
published high-quality bond yield curve. The discount rate of 5.75%
disclosed below as having been used to measure the benefits obligation
at December 31, 2006 represents the level equivalent discount rate that
produces the same present value measure of the benefits obligation as
the aforementioned discounted cash flow analysis. The following table
discloses the weighted-average assumptions used to measure AXA Financial
Group's pension benefit obligations and net periodic pension cost at and
for the years ended December 31, 2006 and 2005.
AXA FINANCIAL GROUP
---------------------------
2006 2005
---------- -------------
Discount rate:
Benefit obligation............................................... 5.75% 5.25%
Periodic cost.................................................... 5.25% 5.75%
Rate of compensation increase:
Benefit obligation and periodic cost............................. 6.00% 6.00%
Expected long-term rate of return on plan assets (periodic cost)... 8.50% 8.50%
As noted above, the qualified pension plans' target asset allocation is
65% equities, 25% fixed maturities, and 10% real estate. Management
reviewed the historical investment returns and future expectation for
returns from these asset classes to conclude that a long-term expected
rate of return of 8.5% is reasonable.
Prior to 1987, the qualified plan of AXA Equitable funded participants'
benefits through the purchase of non-participating annuity contracts
from AXA Equitable. Benefit payments under these contracts were
approximately $20.3 million, $21.7 million and $23.2 million for 2006,
2005 and 2004, respectively.
In addition to the pension plans described above, the AXA Financial
Group maintains a number of qualified defined contribution plans,
including the 401(k) Plan. Certain financial professionals of AXA
Advisors who were formerly financial professionals of MONY Life
participate in a qualified money purchase pension plan and non-qualified
excess defined contribution plans. The aggregate cost recognized for
these plans in the consolidated financial statements of AXA Financial
Group for the years 2006 and 2005 amounted to $33.5 million and $26.2
million, respectively.
AXA Financial Group provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from AXA Financial Group based on years of
service and age. The life insurance benefits are related to age and
salary at retirement for certain grandfathered retirees, and a flat
dollar amount for others. AXA Financial Group continues to fund the
postretirement benefits costs for these plans on a pay-as-you-go basis.
For 2006, 2005 and 2004, postretirement benefits payments were made in
the amounts of $53.1 million, $48.1 million and $35.0 million,
respectively, net of employee contributions.
F-43
Components of AXA Financial Group's net postretirement benefits costs
follow:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Service costs...................................... $ 6.4 $ 7.1 $ 5.6
Interest cost on accumulated postretirement
benefits obligation.............................. 35.5 37.3 36.7
Amortization of unrecognized prior service cost.... - (6.6) (6.0)
Net amortization and deferrals..................... 9.3 9.9 11.6
Curtailment gain................................... (45.4) - -
Plan recalculation adjustment (1).................. - 28.5 -
Other.............................................. (5.4) - -
----------------- ----------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ .4 $ 76.2 $ 47.9
================= ================= =================
(1) Included an adjustment in third quarter 2005 of the survivor income
benefits liability related to prior periods.
On March 16, 2006, AXA Financial announced that, effective December 31,
2006, active participants no longer will earn additional age and/or
service credits toward the cost sharing rules for retiree health
coverage. New hires on or after March 16, 2006 will not be eligible for
any company subsidy towards retiree health coverage. As a result, AXA
Financial recognized a one-time curtailment gain of $45.4 million in
first quarter 2006 and a reduction in the aggregate accumulated
postretirement benefits obligation of its retiree medical plans of
approximately $15.4 million. This reduction resulted from remeasurement
of the benefits obligations coincident with the announcement of the
changes in benefits entitlements and is accounted for prospectively as
unrecognized prior service cost in a manner similar to a plan amendment.
In second quarter 2006, AXA Financial recognized a $12.9 million
reduction in the net liability for retiree life insurance for claim
payments not previously reflected. There was no change in the projected
benefit obligation.
The following table sets forth the postretirement benefits plans'
status, reconciled to amounts recognized in AXA Financial Group's
consolidated financial statements:
DECEMBER 31,
-------------------------------------
2006 2005
----------------- -----------------
(IN MILLIONS)
Accumulated postretirement benefits obligation,
beginning of year.................................................... $ 704.6 $ 699.1
Service cost........................................................... 6.4 7.1
Interest cost.......................................................... 35.5 37.3
Contributions and benefits paid........................................ (48.9) (48.1)
Medicare Part D Subsidy................................................ (4.3) -
Actuarial (gains) losses .............................................. (34.9) (12.3)
Plan amendments........................................................ (15.4) 21.5
Plan recalculation adjustment(1)....................................... 7.5 -
----------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 650.5 704.6
----------------- -----------------
Unrecognized prior service cost........................................ 45.1
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... - (185.2)
----------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 650.5 $ 564.5
================= =================
(1) Included an adjustment in 2006 of the postretirement liability
related to prior periods.
The following table illustrates the incremental line-by-line effect of
applying SFAS No. 158 for these plans in the December 31, 2006
consolidated balance sheet:
F-44
Before After
Application Application
of SFAS of SFAS
No.158 Adjustments No.158
----------------- ----------------- -----------------
(In Millions)
Income taxes payable............................... $ 2,170.7 $ (48.6) $ 2,122.1
Other liabilities ................................. 4,897.3 138.8 5,036.1
Total liabilities.................................. 158,636.9 90.2 158,727.1
Accumulated other comprehensive income............. (288.7) (90.2) (378.9)
Total shareholder's equity......................... 10,108.8 (90.2) 10,018.6
The following table discloses the amounts included in accumulated other
comprehensive income at December 31, 2006 that have not yet been
recognized as components of net periodic postretirement benefits cost.
DECEMBER 31,
2006
----------------------
(IN MILLIONS)
Unrecognized net actuarial loss....................................................... $ 151.4
Unrecognized prior service cost (credit).............................................. (12.6)
Unrecognized net transition obligation (asset)........................................ -
----------------------
Total............................................................................ $ 138.8
======================
The estimated net gain and negative prior service cost to be
reclassified from accumulated other comprehensive income and recognized
as components of net periodic postretirement benefit cost over the next
year are $8.6 million and $1.2 million, respectively.
The assumed discount rates for measuring the postretirement benefit
obligations at December 31, 2006 and 2005 were determined in
substantially the same manner as earlier described for measuring the
pension benefit obligations. The following table discloses the
weighted-average assumptions used to measure AXA Financial Group's
postretirement benefit obligations and related net periodic cost at and
for the years ended December 31, 2006 and 2005.
2006 2005
----------------- ----------------
Discount rate:
Benefit obligation............................................. 5.75% 5.25%
Periodic cost.................................................. 5.25% 5.75%
In 1993 and 1992, AXA Financial and MONY, respectively, announced a
limit on the amount that would be contributed toward retiree healthcare.
AXA Financial's contribution limit was reached in 2003, and MONY's limit
was reached in 2002. Thus, for 2004, no healthcare cost trend was
assumed since it had no material effect on the liability or expense of
the postretirement healthcare plans. In 2005 and 2006, the
postretirement healthcare plans of AXA Financial and MONY reflected an
anticipated subsidy from Medicare Part D, which is assumed to increase
with the healthcare cost trend. Since the subsidy is used to offset the
plans' obligations, an increase in the healthcare cost trend rate
results in a decrease in the liability and the corresponding expense.
For AXA Financial, if the health care cost trend rate assumptions were
increased by 1.0%, the accumulated postretirement benefits obligation as
of December 31, 2006 would be decreased by 1.6% and the sum of the
service cost and interest cost would be a decrease of 1.5%. For MONY, if
the healthcare cost trend rate assumptions were increased by 1.0%, the
accumulated postretirement benefits obligation as of December 31, 2006
would be decreased by 1.5% and a decrease of 1.2% on the sum of the
service cost and interest cost.
AXA Financial Group sponsors a post-employment health and life insurance
continuation plan for disabled former employees. The accrued liabilities
for these post-employment benefits were $20.1 million and $39.7 million,
respectively, at December 31, 2006 and 2005. Components of net
post-employment benefits cost follow:
F-45
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Service cost ...................................... $ 6.0 $ 5.8 $ 7.2
Interest cost on projected benefit obligations..... 1.3 1.8 2.2
Net amortization and deferrals..................... - - .1
Plan recalculation adjustment (1).................. (12.1) - -
----------------- ----------------- -----------------
Net Periodic Post-employment Benefits Cost......... $ (4.8) $ 7.6 $ 9.5
================= ================= =================
(1) Included an adjustment in 2006 of the post-employment liability
related to prior periods.
The following table sets forth an estimate of future benefits expected to
be paid in each of the next five years, beginning January 1, 2007, and in
the aggregate for the five years thereafter. These estimates are based on
the same assumptions used to measure the respective benefit obligations
at December 31, 2006 and include benefits attributable to estimated
future employee service.
POSTRETIREMENT BENEFITS
-------------------------------------------------------------------------
HEALTH
----------------------------------------------------------
GROSS ESTIMATED NET
PENSION LIFE ESTIMATED MEDICARE PART D ESTIMATED
BENEFITS INSURANCE PAYMENT SUBSIDY PAYMENT
------------ -------------- ----------------- -------------------- ------------------
(IN MILLIONS)
2007............... $ 227.6 $ 24.2 $ 35.2 $ 5.0 $ 30.2
2008............... 237.9 24.5 34.4 5.4 29.0
2009............... 248.3 24.9 33.5 5.9 27.6
2010............... 244.0 25.1 32.6 6.3 26.3
2011............... 245.9 25.4 31.5 6.8 24.7
Years 2012 - 2016.. 1,267.9 128.2 137.1 41.4 95.7
AllianceBernstein maintains several unfunded deferred compensation plans
for the benefit of certain eligible employees and executives. The
AllianceBernstein Capital Accumulation Plan was frozen on December 31,
1987 and no additional awards have been made. For the active plans,
benefits vest over a period ranging from 3 to 8 years and are amortized
as compensation and benefit expense. ACMC, Inc. ("ACMC"), a subsidiary
of AXA Financial Group, is obligated to make capital contributions to
AllianceBernstein in amounts equal to benefits paid under the Capital
Accumulation Plan and the contractual unfunded deferred compensation
arrangements. In connection with the acquisition of Bernstein,
AllianceBernstein adopted the SCB Deferred Compensation Award Plan ("SCB
Plan") and agreed to invest $96.0 million per annum for three years to
fund purchases of AllianceBernstein Holding L.P. ("AllianceBernstein
Holding") units or an AllianceBernstein sponsored money market fund in
each case for the benefit of certain individuals who were stockholders
or principals of Bernstein or hired to replace them. AXA Financial Group
has recorded compensation and benefit expenses in connection with these
deferred compensation plans totaling $243.8 million, $186.2 million and
$146.7 million for 2006, 2005 and 2004, respectively.
13) SHARE-BASED AND OTHER COMPENSATION PROGRAMS
For 2006, AXA Financial Group recognized $41.8 million of compensation
costs under SFAS No. 123(R) for employee stock options, including $27.6
million resulting from unvested awards at January 1, 2006. On March 31,
2006, 3.8 million nonstatutory stock options to purchase AXA ordinary
shares were awarded under The AXA Stock Option Plan for AXA Financial
Employees and Associates, of which approximately 2.6 million have a four
year graded vesting schedule, with one-third vesting on each of the
second, third and fourth anniversaries of the grant date and
approximately 1.2 million have a 4-year cliff-vesting term. The cost of
that award is attributed over the shorter of the employees' four year
service-vesting term or to the date at which retirement eligibility is
achieved and subsequent service no longer is required for continued
vesting of the award. All of the options granted on March 31, 2006 have
a 10-year contractual term. Information about options outstanding and
exercisable at December 31, 2006 also is presented. The number of AXA
ADRs authorized to be issued pursuant to option grants and, as further
described below, restricted stock grants under The AXA Financial, Inc.
1997 Stock Incentive Plan (the "Stock Incentive Plan") is approximately
124.5 million less the number of shares issued pursuant to option grants
under The AXA
F-46
Financial, Inc. 1991 Stock Incentive Plan (the predecessor plan to the
Stock Incentive Plan). A summary of the activity in the AXA, AXA
Financial and AllianceBernstein option plans during 2006 follows:
Options Outstanding
----------------------------------------------------------------------------------------------------
AXA Ordinary Shares AXA ADRs AllianceBernstein Holding Units
-------------------------------- ------------------------------- -------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
Outstanding Exercise Outstanding Exercise Outstanding Exercise
(In Millions) Price (In Millions) Price (In Millions) Price
-------------- --------------- --------------- -------------- --------------- --------------
Options outstanding at
January 1, 2006........ 3.5 (euro) 20.87 38.6 $ 24.06 7.5 $ 40.45
Options granted.......... 4.0 (euro) 28.40 .7 $ 23.26 - (2) $ 65.02
Options exercised........ - (9.1) $ 22.08 (2.6) $ 38.40
Options forfeited, net... (.1) (euro) - (3.4) $ 33.57 (.1) $ 38.19
Options expired.......... - - -
-------------- --------------- ---------------
Options Outstanding at
December 31, 2006...... 7.4 (euro) 24.82 26.8 $ 23.40 4.8 $ 41.62
============== =============== =============== ============== =============== ==============
Aggregate Intrinsic
Value(1)............... (euro) 43.2 $ 463.1 $ 186.9
=============== ============== ==============
Weighted Average
Remaining Contractual
Term (in years)........ 8.90 4.40 4.37
============== =============== ===============
Options Exercisable at
December 31, 2006...... - - 20.2 $ 23.40 4.4 $ 42.24
============== =============== =============== ============== =============== ==============
Aggregate Intrinsic
Value(1)............... - $ 342.4 $ 169.3
=============== ============== ==============
Weighted Average
Remaining Contractual
Term (in years)........ - 3.39 4.30
============== =============== ===============
(1) Intrinsic value, presented in millions, is calculated as the excess
of the closing market price on December 31, 2006 of the respective
underlying shares over the strike prices of the option awards.
(2) AllianceBernstein grants totaled 9,712 units in 2006.
Cash proceeds received from employee exercises of options to purchase
AXA ADRs in 2006 was $201.3 million. The intrinsic value related to
employee exercises of options to purchase AXA ADRs during 2006, 2005 and
2004 were $132.1 million, $68.3 million and $18.8 million, respectively,
resulting in amounts currently deductible for tax purposes of $44.9
million, $22.9 million and $6.2 million, respectively, for the periods
then ended. Under SFAS No. 123(R), $34.8 million windfall tax benefits
resulted from employee stock option exercises during 2006.
At December 31, 2006, AXA Financial held 9.3 million AXA ADRs in
treasury at a weighted average cost of approximately $24.00 per ADR, of
which approximately 9.0 million were designated to fund future exercises
of outstanding employee stock options and the remainder of approximately
.3 million units was available for general corporate purposes, including
funding other stock-based compensation programs. These AXA ADRs were
obtained primarily by exercise of call options that had been purchased
by AXA Financial beginning in fourth quarter 2004 to mitigate the U.S.
dollar price and foreign exchange risks associated with funding
exercises of employee stock options. Remaining outstanding and
unexercised at December 31, 2006 are call options to purchase 8.9
million AXA ADRs at strike prices ranging from $30.41 to $32.37, each
having a cap equal to approximately 150% of its strike price, at which
time the option automatically would be exercised. These call options
expire on November 23, 2009. During 2006, AXA Financial utilized
approximately 5.6 million AXA ADRs from treasury to fund exercises of
employee stock options. Employee options outstanding at December 31,
2006 to purchase AXA ordinary shares begin to become exercisable in
March 2007 and their future exercises are expected to be funded by newly
issued AXA ordinary shares.
Prior to adoption of SFAS No. 123(R), AXA Financial Group had elected to
continue accounting for employee stock option awards under APB No. 25
and, therefore, no compensation cost for these awards was recognized in
the consolidated statement of earnings in 2005 and 2004. The following
table illustrates the
F-47
effect on net income had compensation expense for employee stock option
awards been measured and recognized by AXA Financial Group under the
fair-value-based method of SFAS No. 123, "Accounting for Stock-Based
Compensation". These pro forma disclosures are not adjusted from amounts
previously reported and, therefore, retain the original grant-date fair
values of the underlying awards, continue to attribute cost over the
awards' service-vesting periods and do not include estimates of
pre-vesting forfeitures.
2005 2004
---------------- -----------------
(In Millions)
Net income as reported............................................... $ 1,073.8 $ 944.9
Less: total stock-based employee compensation
expense determined under fair value method for
all awards, net of income tax benefit.............................. (23.4) (25.0)
---------------- -----------------
Pro Forma Net Earnings............................................... $ 1,050.4 $ 919.9
================ =================
For the purpose of estimating the fair value of employee stock option
awards granted on or after January 1, 2006, AXA Financial Group
continues to apply the Black-Scholes-Merton formula and the same
methodologies for developing the input assumptions as previously had
been used to prepare the pro forma disclosures required by SFAS No. 123.
Shown below are the relevant input assumptions used to derive the fair
values of options awarded in 2006, 2005 and 2004, respectively. For
employee stock options with graded vesting terms and service conditions
granted on or after January 1, 2006, AXA Financial Group elected under
SFAS No. 123(R) to retain its practice of valuing these as singular
awards and to change to the graded-vesting method of attribution,
whereby the cost is recognized separately over the requisite service
period for each individual one-third of the options vesting on the
second, third and fourth anniversaries of the grant date.
AXA Ordinary AllianceBernstein
Shares AXA ADRs Holding Units
---------------------- --------------------- ------------------------------
2006 2005 2005 2004 2006 2005 2004
--------------------- --------------------- ------------------------------
Dividend yield............ 3.48% 3.15% 3.01% 2.24% 6% 6.2% 3.5%
Expected volatility....... 28% 25% 25% 43% 31% 31% 32%
Risk-free interest rate... 3.77% 3.09% 4.27% 2.86% 4.9% 3.7% 4.0%
Expected life in years.... 5.0 5.0 5.0 5.0 6.5 3.0 5.0
Weighted average fair
value per option at
grant date.............. $7.45 $4.30 $4.85 $6.94 $12.35 $7.04 $8.00
As of December 31, 2006, approximately $32.3 million of unrecognized
compensation cost related to unvested employee stock option awards, net
of estimated pre-vesting forfeitures, is expected to be recognized by
AXA Financial Group over a weighted average period of 1.8 years.
Under the Stock Incentive Plan, AXA Financial grants restricted AXA ADRs
to employees of its subsidiaries. Generally, all outstanding restricted
AXA ADR grants have a 7-year vesting schedule with potential accelerated
vesting based on performance. Under The Equity Plan for Directors (the
"Equity Plan"), AXA Financial grants non-officer directors restricted
AXA ADRs and unrestricted AXA ADRs annually. Similarly,
AllianceBernstein awards restricted AllianceBernstein Holding units to
independent directors of its General Partner. In addition, under its
Century Club Plan, awards of restricted AllianceBernstein Holding units
that vest ratably over three years are made to eligible
AllianceBernstein employees whose primary responsibilities are to assist
in the distribution of company-sponsored mutual funds. For 2006, 2005
and 2004 AXA Financial Group recognized compensation costs of $7.4
million, under SFAS No. 123(R) and $13.9 million and $14.5 million,
respectively, under APB No. 25 for awards outstanding under these plans.
Consistent with existing practice of AXA Financial Group prior to
adoption of SFAS No. 123(R), grant-date fair value continues to be
measured by the closing price of the shares awarded and the result
generally is attributed over the shorter of the performance period, the
requisite service
F-48
period, or to the date at which retirement eligibility is achieved and
subsequent service no longer is required for continued vesting of the
award.
At December 31, 2006, approximately 60,692 restricted AllianceBernstein
Holding units outstanding under the Century Club Plan remain unvested.
At December 31, 2006, approximately $2.1 million of recognized
compensation cost related to these unvested awards, net of estimated
pre-vesting forfeitures, is expected to be recognized over a weighted
average period of 1.6 years. Restricted AXA ADRs vested in 2006, 2005
and 2004 had aggregate vesting date fair values of approximately $13.5
million, $19.2 million and $12.7 million, respectively. In 2005, 244,790
restricted AXA ADRs were granted having an aggregate grant-date fair
value of $6.6 million. The following table summarizes unvested
restricted AXA ADR activity for 2006.
WEIGHTED
SHARES OF AVERAGE
RESTRICTED GRANT DATE
STOCK FAIR VALUE
----------------- -----------------
Unvested as of January 1, 2006....................................... 867,387 $ 19.94
Granted.............................................................. 78,865 $ 35.16
Vested............................................................... 381,836 $ 16.98
Forfeited............................................................ 50,381
-----------------
Unvested as of December 31, 2006..................................... 514,035 $ 23.91
=================
On March 31, 2006, under the terms of the AXA Performance Unit Plan
2006, the AXA Management Board awarded 722,854 unearned performance
units to employees of AXA Financial subsidiaries. During each year that
the performance unit awards are outstanding, a pro-rata portion of the
units may be earned based on criteria measuring the performance of AXA
and AXA Financial Group. The extent to which performance targets are met
determines the number of performance units earned, which may vary
between 0% and 130% of the number of performance units at stake.
Performance units earned under the 2006 plan cliff-vest on the second
anniversary of their date of award. When fully-vested, the performance
units earned will be settled in cash, or in some cases, a combination of
cash (70%) and stock (30%), the latter equity portion having transfer
restrictions for a two-year period. For 2006 awards, the price used to
value the performance units at settlement will be the average opening
price of the AXA ordinary share for the last 20 trading days of the
vesting period converted to U.S. dollars using the Euro to U.S. dollar
exchange rate on March 28, 2008.
For 2006, 2005 and 2004, AXA Financial Group recognized compensation
costs of $38.3 million, under SFAS No. 123(R) and $8.1 million and $1.0
million, respectively, under APB No. 25 for performance units earned to
date. Substantially similar to existing practice of AXA Financial Group
prior to adoption of SFAS No. 123(R), the change in fair value of these
awards in 2006 was measured by the closing price of the underlying AXA
ordinary shares or AXA ADRs and adjustment was made to reflect the
impact of expected and actual pre-vesting forfeitures. In addition,
similar to adoption of SFAS No. 123(R) for employee stock option awards,
the cost of performance units awarded on or after January 1, 2006, such
as those granted on March 31, 2006, were attributed over the shorter of
the cliff-vesting period or to the date at which retirement eligibility
is achieved. The value of performance units earned and reported in Other
liabilities in the consolidated balance sheets at December 31, 2006 and
2005 was $45.8 million and $9.1 million, respectively, including
incremental awards earned under the 2005 and 2004 plans from having
exceeded the targeted performance criteria established in those years by
14.6% and 11.1%, respectively. Approximately 720,691 outstanding
performance units are at risk to achievement of 2006 performance
criteria, including approximately 50% of the award granted on March 31,
2006.
Following completion of the merger of AXA Merger Corp. with and into AXA
Financial in January 2001, certain employees exchanged fully vested
in-the-money AXA ADR options for tandem Stock Appreciation Rights/AXA
ADR non-statutory options ("tandem SARs/NSOs") of then-equivalent
intrinsic value. AXA Financial recorded compensation expense for these
fully-vested awards of $8.6 million, $35.2 million and $16.2 million,
for 2006, 2005 and 2004, respectively, reflecting the impact in those
periods of the change in the market price of the AXA ADR on the
cash-settlement value of the SARs component of the outstanding tandem
SARs/NSOs. The value of these tandem SARs/NSOs at December 31, 2006 and
2005 was $24.9 million and $57.5 million, respectively. At December 31,
2006, 1.6 million tandem SARs/NSOs were outstanding, having weighted
average remaining expected and contractual terms of 1.11 and 2.22 years,
respectively, and for which the SARs component had maximum value of
$24.9 million. During 2006, 2005 and 2004, respectively, approximately
2.8 million, .7 million and zero million, of these awards were exercised
at an aggregate cash-settlement value of $41.2 million, $7.5 million and
zero million.
F-49
On March 31, 2006, 59,644 Stock Appreciation Rights ("SARs") with a
4-year cliff-vesting schedule were granted to certain associates of AXA
Financial subsidiaries. These SARs entitle the holder to a cash payment
equal to any appreciation in the value of the AXA ordinary share over
29.22 Euros as of the date of exercise. Similar to the SARs component of
the tandem SARs/NSOs, awards remaining unexercised at expiry of their
10-year contractual term will be automatically exercised on the
expiration date. At December 31, 2006, .2 million SARs were outstanding,
having weighted average remaining contractual term of 6.03 years. The
accrued value of SARs at December 31, 2006 and 2005 was $2.9 million and
$1.0 million, respectively, and recorded as liabilities in the
consolidated balance sheets. For 2006, AXA Financial Group recorded
compensation expense for SARs of $1.9 million, under SFAS No. 123(R)
reflecting the impact in those periods of the changes in their fair
values as determined by applying the Black Scholes-Merton formula and
assumptions used to price employee stock option awards. For 2005 and
2004, AXA Financial Group recorded compensation expense of $.6 million
and $.03 million, respectively, under APB No. 25 reflecting the impact
in those periods of the change in the market price of the underlying AXA
ordinary share or AXA ADR on the value of the outstanding SARs.
In fourth quarter 2006, eligible employees of AXA Financial's
subsidiaries participated in AXA's global offering to purchase newly
issued AXA stock, subject to plan limits, under the terms of AXA
Shareplan 2006. Similar to the AXA Shareplan programs previously offered
in 2001 through 2005, the plan offered two investment alternatives that,
with limited exceptions, restrict the sale or transfer of the purchased
shares for a period of five years. "Investment Option A" permitted
participants to purchase AXA ADRs at a 20% formula discounted price.
"Investment Option B" permitted participants to purchase AXA ordinary
shares at a 15.21% formula discounted price on a leveraged basis with a
guaranteed return of initial investment plus 75.0% of any appreciation
in the value of the total shares purchased. Under SFAS No. 123(R), AXA
Financial Group recognized compensation expense of $39.0 million in
connection with AXA Shareplan 2006, representing the aggregate discount
provided to participants for their purchase of AXA stock, as adjusted
for the post-vesting, five-year holding period. No compensation expense
was recorded in 2006, 2005 and 2004, respectively, in connection with
shares subscribed under previous years' AXA Shareplan offerings.
Participants in AXA Shareplans 2005 and 2004 primarily invested under
Investment Option B for the purchase of approximately 5.7 million and
6.8 million AXA ordinary shares, respectively. The discounted pricing
offered to participants in those programs for the purchase of AXA
ordinary shares under Investment Option B was 17.5% and 20%,
respectively, and the appreciation percentage was 86.1% and 79.0%,
respectively.
Under SFAS No. 123(R), AXA Financial Group recognized compensation
expense for payroll deductions authorized and applied in 2006 under the
terms of the AXA Financial, Inc. Qualified Stock Purchase Plan to
purchase AXA ADRs of 182,225, at an aggregate discount of $1.1 million,
representing a discount of 15% from the closing market value of the AXA
ADR at the purchase dates defined in the annual offering document
(generally the last trading day of each month). Prior to adoption of
SFAS No. 123(R) on January 1, 2006, no compensation expense was recorded
in connection with this plan. Under the terms of the AXA Financial, Inc.
Non-Qualified Stock Purchase Plan, total AXA ADRs of 340,083, 381,302
and 407,715 were purchased during 2006, 2005 and 2004, respectively,
including those purchased with employer matching contributions for which
AXA Financial Group recorded compensation expense of $1.6 million, $1.3
million, and $1.2 million in 2006, 2005 and 2004, respectively.
F-50
14) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income follow:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Fixed maturities................................... $ 2,326.8 $ 2,330.7 $ 2,091.1
Mortgage loans on real estate...................... 362.1 363.2 325.3
Equity real estate................................. 124.8 142.9 160.6
Other equity investments........................... 200.9 187.2 165.3
Policy loans....................................... 316.7 317.0 286.7
Short-term investments............................. 91.9 45.3 28.2
Derivative investments ............................ (290.7) (67.5) (117.6)
Broker-dealer related receivables ................. 226.5 124.8 45.5
Trading securities ................................ 53.4 28.6 14.5
Other investment income............................ 43.4 17.1 28.4
----------------- ----------------- -----------------
Gross investment income.......................... 3,455.8 3,489.3 3,028.0
Investment expenses................................ (153.5) (183.2) (196.4)
Interest expense................................... (187.8) (95.9) (32.8)
----------------- ----------------- -----------------
Net Investment Income.............................. $ 3,114.5 $ 3,210.2 $ 2,798.8
================= ================= =================
For 2006, 2005 and 2004, respectively, investment results on derivative
positions, which were included in net investment income, included gross
gains of $201.3 million $127.9 million and $47.0 million and gross
losses of $492.0 million, $196.6 million and $164.4 million. For 2006
and 2005, respectively, net unrealized losses of $15.2 million and $3.7
million were recognized from floor contracts. For 2006 and 2005, net
realized (losses) gains of $(249.5) million and $(140.9) million and net
unrealized (losses) gains of $(37.7) million and 59.2 million were
recognized from futures contracts utilized in the GMDB and GMIB hedging
programs.
In second quarter 2004, AXA Financial Group entered into a series of
interest rate swaps on AXA Financial long-term debt to reduce fixed
interest payments on these obligations through mid-2006, resulting in
net swap (losses) revenues of $(6.2) million, $(10.5) million and $2.2
million for 2006, 2005 and 2004, respectively, reported in net
investment income, including amounts accrued at December 31, 2006.
Investment gains (losses), net, including changes in the valuation
allowances, follow:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Fixed maturities................................... $ (20.3) $ 6.9 $ 24.3
Mortgage loans on real estate...................... 2.6 (.1) 7.5
Equity real estate................................. 8.9 4.0 11.7
Other equity investments........................... 21.2 31.1 30.5
Other (1).......................................... 32.6 14.5 2.0
----------------- ----------------- -----------------
Investment Gains (Losses), Net..................... $ 45.0 $ 56.4 $ 76.0
================= ================= =================
(1) In 2006, AllianceBernstein issued units to its employees under
long-term incentive plans. As a result of this transaction, AXA
Financial Group recorded a non-cash $33.0 million realized gain.
Writedowns of fixed maturities amounted to $37.5 million, $38.0 million
and $54.2 million for 2006, 2005 and 2004, respectively. Writedowns of
mortgage loans on real estate and equity real estate were $2.4 million
and zero, respectively, for 2005 and $10.6 million and $0.8 million,
respectively, for 2004; there were no writedowns in 2006.
For 2006, 2005 and 2004, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $1,573.5
million, $2,498.8 million and $3,864.7 million. Gross gains of $44.3
million, $58.0 million and $63.2 million and gross losses of $32.2
million, $40.2 million and $11.3 million were
F-51
realized on these sales in 2006, 2005 and 2004, respectively. The change
in unrealized investment (losses) gains related to fixed maturities
classified as available for sale for 2006, 2005 and 2004 amounted to
$(482.5) million, $(1,223.6) million and $188.4 million, respectively.
For 2006, 2005, and 2004, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $61.4 million, $72.4 million
and $77.6 million, respectively.
Changes in unrealized gains (losses) reflect changes in fair value of
only those fixed maturities and equity securities classified as
available for sale and do not reflect any changes in fair value of
policyholders' account balances and future policy benefits.
The net unrealized investment gains (losses) included in the
consolidated balance sheets as a component of accumulated other
comprehensive income and the changes for the corresponding years,
including Wind-up Annuities on a line-by-line basis, follow:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Balance, beginning of year......................... $ 423.4 $ 925.3 $ 901.5
Changes in unrealized investment (losses) gains.... (494.8) (1,227.1) 168.7
Changes in unrealized investment losses (gains)
attributable to:
Participating group annuity contracts,
Closed Blocks policyholder dividend
obligation and other......................... 134.2 289.5 (103.7)
DAC and VOBA.................................... 91.6 171.3 (22.1)
Deferred income taxes........................... 107.8 264.4 (19.1)
----------------- ----------------- -----------------
Balance, End of Year............................... $ 262.2 $ 423.4 $ 925.3
================= ================= =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities............................. $ 439.3 $ 936.3 $ 2,192.6
Other equity investments..................... 5.1 2.9 1.7
Other........................................ - - (28.0)
----------------- ----------------- -----------------
Total........................................ 444.4 939.2 2,166.3
Amounts of unrealized investment (gains) losses
attributable to:
Participating group annuity contracts,
Closed Blocks policyholder dividend
obligation and other..................... 48.7 (85.5) (375.0)
DAC and VOBA............................... (99.0) (190.6) (361.9)
Deferred income taxes...................... (131.9) (239.7) (504.1)
----------------- ----------------- -----------------
Total.............................................. $ 262.2 $ 423.4 $ 925.3
================= ================= =================
15) INCOME TAXES
A summary of the income tax expense in the consolidated statements of
earnings follows:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Income tax expense:
Current expense.................................. $ 533.3 $ 291.6 $ 342.0
Deferred expense................................. (14.7) 303.4 53.7
----------------- ----------------- -----------------
Total.............................................. $ 518.6 $ 595.0 $ 395.7
================= ================= =================
F-52
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
income taxes and minority interest by the expected Federal income tax
rate of 35%. The sources of the difference and their tax effects follow:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Expected income tax expense........................ $ 730.9 $ 727.8 $ 540.4
Minority interest.................................. (163.1) (127.2) (110.5)
Separate Accounts investment activity.............. (48.6) (91.4) (63.3)
Non-taxable investment income...................... (23.5) (20.7) (22.6)
Adjustment of tax audit reserves................... (82.4) 19.1 7.7
Non-deductible goodwill and other
intangible assets................................ 5.0 4.8 4.3
State income taxes................................. 50.4 34.9 3.9
AllianceBernstein income and foreign taxes......... 48.7 43.6 25.6
Other.............................................. 1.2 4.1 10.2
----------------- ----------------- -----------------
Income Tax Expense................................. $ 518.6 $ 595.0 $ 395.7
================= ================= =================
The components of the net deferred income taxes are as follows:
DECEMBER 31, 2006 December 31, 2005
-------------------------------- ---------------------------------
ASSETS LIABILITIES Assets Liabilities
--------------- --------------- --------------- ----------------
(IN MILLIONS)
Compensation and related benefits...... $ 664.4 $ - $ 248.3 $ -
Reserves and reinsurance............... 1,436.0 - 1,221.3 -
DAC and VOBA........................... - 2,647.0 - 2,421.5
Unrealized investment gains............ - 121.3 - 242.2
Investments............................ - 818.9 - 762.9
Other.................................. 125.1 - 212.7 -
--------------- --------------- --------------- ----------------
Total.................................. $ 2,225.5 $ 3,587.2 $ 1,682.3 $ 3,426.6
=============== =============== =============== ================
AXA Financial recognized a net tax benefit in third quarter 2006 of
$163.5 million. This benefit was related to the settlement of an IRS
audit of the 1997-2001 tax years, partially offset by additional tax
reserves established for subsequent tax periods. Of the net tax benefit
of $163.5 million, $103.8 million related to the continuing operations,
$53.9 million to the disposition of the discontinued Investment Banking
and Brokerage segment and $5.8 million to the discontinued Wind-up
Annuities. In 2005, the Internal Revenue Service ("IRS") began an
examination of AXA Financial Group's 2002 and 2003 returns and MONY's
returns from 2002 through the acquisition by AXA Financial. Management
believes these audits will have no material adverse effect on AXA
Financial Group's consolidated results of operations or financial
position.
16) DISCONTINUED OPERATIONS
AXA Financial Group's discontinued operations include Wind-up Annuities,
equity real estate held-for-sale, Advest, Enterprise and the
discontinued Investment Banking and Brokerage segment. The following
table reconciles the Earnings (losses) from discontinued operations, net
of income taxes and Gains (losses) on disposal of discontinued
operations, net of income taxes to the amounts reflected in the
consolidated statements of earnings for the three years ended
December 31, 2006:
F-53
2006 2005 2004
------------- ------------ --------------
(IN MILLIONS)
EARNINGS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES:
Wind-up Annuities........................................... $ 30.2 $ 15.2 $ 7.9
Real estate held-for-sale................................... 6.8 5.9 1.0
Disposal of business - Advest............................... - (6.7) 1.2
Disposal of business - Enterprise........................... (6.1) (0.8) .1
------------- ------------ --------------
Total....................................................... $ 30.9 $ 13.6 $ 10.2
============= ============ ==============
GAINS (LOSSES) ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF INCOME TAXES:
Real estate held-for-sale................................... $ 62.1 $ - $ 31.1
Discontinued Investment Banking and Brokerage segment....... 53.9 - 53.2
Disposal of business - Advest............................... 4.1 (85.4) -
Disposal of business - Enterprise........................... (2.9) - -
------------- ------------ --------------
Total....................................................... $ 117.2 $ (85.4) $ 84.3
============= ============ ==============
Disposal of Businesses
----------------------
In October 2006, AXA Financial and its subsidiaries, AXA Equitable,
Enterprise Capital Management, Inc. ("Enterprise Capital") and
Enterprise Fund Distributors, Inc., ("EFD") entered into an agreement
contemplating the transfer to Goldman Sachs Asset Management L.P.
("GSAM") of assets of the business of serving as sponsor of and
investment manager to 27 of the 31 funds of AXA Enterprise Multimanager
Funds Trust, AXA Enterprise Funds Trust and The Enterprise Group of
Funds, Inc. (collectively, the "AXA Enterprise Funds") and the
reorganization of such funds to corresponding mutual funds managed by
GSAM. These 27 funds have approximately $4.2 billion in assets under
management as of December 31, 2006. The reorganization of the 27 funds
is subject to regulatory and fund shareholder approvals and is expected
to close in the second quarter of 2007. Of the remaining four funds not
included in the GSAM reorganization, which together have approximately
$700 million in assets under management as of December 31, 2006, one
fund is being liquidated and AXA Financial is considering possible
alternatives for the dispositions of the other three funds, which
alternatives include a possible transaction with another investment
advisor or liquidation. Proceeds from the transaction with GSAM are
dependant upon assets under management at the time of the
reorganization. A total of $9.9 million pre-tax ($6.4 million post-tax)
related to a permanent impairment writedown and additional amortization
expense on the AXA Enterprise Funds investment management contracts and
mutual fund distribution fee intangible assets, established as part of
the MONY Acquisition, and $4.5 million pre-tax of costs ($2.9 million
post-tax) to sell were recorded in 2006. As a result of management's
disposition plan, AXA Enterprise Funds advisory and distribution
contracts and operations are now reported in Discontinued Operations and
prior years balances were restated to conform to this presentation. At
December 31, 2006 and 2005, total assets related to these operations
were $87.5 million and $116.1 million, respectively, and were included
in Other assets. At December 31, 2006 and 2005 total liabilities related
to these operations were $13.3 million and $27.3 million, respectively,
and were included in Other liabilities.
The gross carrying amount of AXA Enterprise Funds related intangible
assets were $76.9 million and $85.2 million at December 31, 2006 and
2005, respectively, and the accumulated amortization of these intangible
assets were $16.6 million and $12.1 million, respectively. Amortization
expense related to the AXA Enterprise Funds intangible assets totaled
$4.5 million, $6.9 million and $5.2 million for 2006, 2005 and 2004,
respectively.
On December 2, 2005, AXA Financial Group sold Advest to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Advest was a
wholly owned subsidiary of AXA Financial Group and part of its Financial
Advisory/Insurance segment. In accordance with the terms of the
agreement, Merrill Lynch purchased all of the issued and outstanding
capital stock of Advest for $400 million in cash subject to adjustments
in certain circumstances. AXA Financial Group's post-tax proceeds from
the sale were $300.6 million. AXA Financial Group's pre-tax loss is $1.4
million, with a post-tax loss to AXA Financial Group of $85.4 million.
This transaction reduced AXA Financial Group's goodwill by $189.1
million, representing approximately 31% of the total goodwill related to
the MONY Acquisition in 2004. In 2006, a pre-tax gain on the disposal of
discontinued operations of $6.3 million ($4.1 million post-tax) resulted
from the settlement of contingencies related to the 2005 sale of Advest.
F-54
Results of Advest are reported as discontinued operations in these
consolidated financial statements and related footnotes. Total revenues
for Advest for the eleven months ended November 30, 2005 and for the six
months ended December 31, 2004 were $297.6 million and $166.5 million,
respectively. Total benefits and deductions for Advest for the eleven
months ended November 30, 2005 and the six months ended December 31,
2004 were $308.6 million and $166.3 million, respectively. Net (loss)
earnings for Advest for the eleven months ended November 30, 2005 and
the six months ended December 31, 2004 were $(6.7) million and $1.2
million, respectively.
In June 2004, AXA Financial Group recorded a gain on disposal of the
discontinued Investment Banking and Brokerage segment of $53.2 million,
net of income taxes of $28.7 million. The gain resulted from the
reduction of state tax liabilities related to the 2000 sale of
Donaldson, Lufkin & Jenrette, Inc. In third quarter 2006, AXA Financial
recorded an additional $53.9 million gain on disposal of this
discontinued segment related to the settlement of an IRS audit of the
2000 tax year.
Wind-up Annuities
-----------------
In 1991, management discontinued the business of Wind-up Annuities, the
terms of which were fixed at issue, which were sold to corporate
sponsors of terminated qualified defined benefit plans, for which a
premium deficiency reserve has been established. Management reviews the
adequacy of the allowance for future losses each quarter and makes
adjustments when necessary. Management believes the allowance for future
losses at December 31, 2006 is adequate to provide for all future
losses; however, the determination of the allowance involves numerous
estimates and subjective judgments regarding the expected performance of
invested assets held by Wind-up Annuities ("Discontinued Operations
Investment Assets"). There can be no assurance the losses provided for
will not differ from the losses ultimately realized. To the extent
actual results or future projections of Wind-up Annuities differ from
management's current estimates and assumptions underlying the allowance
for future losses, the difference would be reflected in the consolidated
statements of earnings in Wind-up Annuities. In particular, to the
extent income, sales proceeds and holding periods for equity real estate
differ from management's previous assumptions, periodic adjustments to
the loss allowance are likely to result.
Summarized financial information for Wind-up Annuities follows:
DECEMBER 31,
--------------------------------------
2006 2005
---------------- -----------------
(IN MILLIONS)
BALANCE SHEETS
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $752.7 and $796.9).............................. $ 764.8 $ 823.5
Equity real estate................................................... 169.5 197.5
Mortgage loans on real estate........................................ 2.9 6.7
Other invested assets................................................ 2.6 3.2
---------------- -----------------
Total investments.................................................. 939.8 1,030.9
Cash and cash equivalents............................................ .1 -
Other assets......................................................... 13.7 13.6
---------------- -----------------
Total Assets......................................................... $ 953.6 $ 1,044.5
================ =================
Policyholders liabilities............................................ $ 788.2 $ 817.2
Allowance for future losses.......................................... 1.0 60.1
Other liabilities.................................................... 164.4 167.2
---------------- -----------------
Total Liabilities.................................................... $ 953.6 $ 1,044.5
================ =================
F-55
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
STATEMENTS OF EARNINGS
Investment income (net of investment
expenses of $19.0, $18.4 and $17.2).............. $ 71.3 $ 70.0 $ 68.5
Investment gains (losses), net..................... 6.0 (.3) 3.6
Policy fees, premiums and other income............. - - -
----------------- ----------------- -----------------
Total revenues..................................... 77.3 69.7 72.1
Benefits and other deductions...................... 84.7 87.1 99.4
Losses charged to the
allowance for future losses...................... (7.4) (17.4) (27.3)
----------------- ----------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing the allowance
for future losses................................ 37.1 23.2 12.0
Income tax expense................................. (6.9) (8.0) (4.1)
----------------- ----------------- -----------------
Earnings from Wind-up Annuities.................... $ 30.2 $ 15.2 $ 7.9
================= ================= =================
AXA Financial Group's quarterly process for evaluating the allowance for
future losses applies the current period's results of Wind-up Annuities
against the allowance, re-estimates future losses and adjusts the
allowance, if appropriate. Additionally, as part of AXA Financial
Group's annual planning process, investment and benefit cash flow
projections are prepared. These updated assumptions and estimates
resulted in a release of allowance in each of the three years presented
above.
During 2004, Wind-up Annuities' average recorded investment in impaired
mortgage loans was $8.4 million; and interest income recognized on these
impaired mortgage loans totaled $1.0 million. There were no related
amounts reported in 2006 and 2005.
Income tax expense for Wind-up Annuities in 2006 included a $5.8 million
tax benefit in connection with the settlement of an IRS audit of the
1997-2001 tax years.
Real Estate Held-For-Sale
-------------------------
In 2006, three real estate properties with a total book value of $159.8
million that had been previously reported in equity real estate were
reclassified as real estate held-for-sale. Prior periods have been
restated to reflect these properties as discontinued operations. In
third quarter 2006, one of the held-for-sale properties was sold
resulting in a gain of $97.3 million ($63.2 million post-tax) while, in
fourth quarter 2006, the sale of a second property resulted in a loss of
$1.7 million ($1.1 million post-tax). At December 31, 2006 and 2005,
equity real estate held-for-sale was $32.2 million and $170.0 million,
respectively, and was included in Other assets.
17) ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income represents cumulative
gains and losses on items that are not reflected in earnings. The
balances for the past three years follow:
DECEMBER 31,
--------------------------------------------------------
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Unrealized gains on investments.................... $ 262.2 $ 423.4 $ 925.3
Defined benefit pension and other
postretirement plans ............................ (641.1) - -
Minimum pension liability.......................... - (77.9) (59.2)
----------------- ----------------- -----------------
Total Accumulated Other
Comprehensive (Loss) Income ..................... $ (378.9) $ 345.5 $ 866.1
================= ================= =================
F-56
The components of other comprehensive loss for the past three years
follow:
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Net unrealized (losses) gains on investments:
Net unrealized losses (gains) arising
during the period............................ $ (481.8) $ (1,182.4) $ 271.8
Losses reclassified into net earnings
during the period............................ (13.0) (44.7) (103.1)
----------------- ----------------- -----------------
Net unrealized (losses) gains on investments....... (494.8) (1,227.1) 168.7
Adjustments for policyholders liabilities, DAC
and VOBA and deferred income taxes.............. 333.6 725.2 (144.9)
----------------- ----------------- -----------------
Change in unrealized (losses) gains, net of
adjustments.................................... (161.2) (501.9) 23.8
Change in minimum pension liability................ 18.5 (18.7) (30.4)
----------------- ----------------- -----------------
Total Other Comprehensive Loss .................... $ (142.7) $ (520.6) $ (6.6)
================= ================= =================
18) COMMITMENTS AND CONTINGENT LIABILITIES
Debt Maturities
---------------
At December 31, 2006, aggregate maturities of the long-term debt,
including any current portion of long-term debt, based on required
principal payments at maturity were $248.3 million for 2007, $250.0
million for 2008, zero for 2009, $780.0 million for 2010, zero for 2011
and $551.9 million thereafter.
Leases
------
AXA Financial Group has entered into operating leases for office space
and certain other assets, principally information technology equipment
and office furniture and equipment. Future minimum payments under
non-cancelable operating leases for 2007 and the four successive years
are $203.5 million, $198.3 million, $176.1 million, $170.3 million,
$163.8 million and $1,566.2 million thereafter. Minimum future sublease
rental income on these non-cancelable operating leases for 2007 and the
four successive years is $16.8 million, $18.0 million, $15.6 million,
$15.9 million, $16.6 million and $73.9 million thereafter.
At December 31, 2006, the minimum future rental income on non-cancelable
operating leases for wholly owned investments in real estate for 2007
and the four successive years is $107.5 million, $116.8 million, $115.6
million, $115.5 million, $115.7 million and $900.8 million thereafter.
AXA Financial Group has entered into capital leases for certain
information technology equipment. Future minimum payments under
non-cancelable capital leases for 2007 and the four successive years are
$.3 million, $.3 million, $.2 million, zero and zero, respectively.
MONY Acquisition
----------------
As of December 31, 2006, former MONY stockholders holding approximately
3.6 million shares of MONY common stock, representing approximately 7.1%
of MONY common stock outstanding at July 8, 2004 (the effective date of
the MONY Acquisition), have demanded appraisal pursuant to Section 262
of the General Corporation Law of the State of Delaware and have not
withdrawn their demands. For further information, see Note 19 of Notes
to Consolidated Financial Statements. The fair value of shares of MONY
common stock to be determined in the appraisal process, which is the
amount that will be payable by AXA Financial Group to the holders of
shares subject to the appraisal, could be greater or less than the
$31.00 per share paid to former MONY stockholders who did not demand
appraisal under Delaware law.
In 2004, as a result of the integration of MONY, AXA Financial Group
restructured certain operations to reduce expenses and recorded pre-tax
provisions of $45.6 million related to severance and $33.0 million
related to the write-off of capitalized software in connection with the
integration. During 2006, 2005 and 2004, total severance payments made
to employees totaled $18.1 million, $19.2 million and $5.0 million,
respectively. At December 31, 2006, the remaining severance liability
totaled $6.6 million.
F-57
Included in liabilities assumed in the purchase business combination of
MONY were liabilities for change in control and other employee
agreements of $139.3 million, severance of $32.9 million and $88.7
million for vacating certain MONY leases. During 2006, 2005 and 2004,
total payments made related to these liabilities totaled $20.6 million,
$43.8 million and $150.3 million, respectively. At December 31, 2006,
the remaining $34.1 million of liabilities were primarily related to
MONY Companies' leases.
Guarantees and Other Commitments
--------------------------------
AXA Financial Group provides certain guarantees or commitments to
affiliates, investors and others. At December 31, 2006, these
arrangements include commitments by AXA Financial Group, to provide
equity financing of $697.8 million to certain limited partnerships under
certain conditions. Management believes AXA Financial Group will not
incur material losses as a result of these commitments.
AXA Equitable is the obligor under certain structured settlement
agreements it had entered into with unaffiliated insurance companies and
beneficiaries. To satisfy its obligations under these agreements, AXA
Equitable owns single premium annuities issued by previously wholly
owned life insurance subsidiaries. AXA Equitable has directed payment
under these annuities to be made directly to the beneficiaries under the
structured settlement agreements. A contingent liability exists with
respect to these agreements should the previously wholly owned
subsidiaries be unable to meet their obligations. Management believes
the need for AXA Equitable to satisfy those obligations is remote.
AXA Financial Group had $1,491.3 million of undrawn letters of credit
related to reinsurance at December 31, 2006. AXA Financial Group had
$74.5 million in commitments under existing mortgage loan agreements at
December 31, 2006.
In February 2002, AllianceBernstein signed a $125.0 million agreement
with a commercial bank under which it guaranteed certain obligations of
SCB LLC incurred in the ordinary course of its business in the event SCB
LLC is unable to meet these obligations. At December 31, 2006,
AllianceBernstein was not required to perform under the agreement and
had no liability outstanding in connection with the agreement.
19) LITIGATION
A putative class action entitled STEFANIE HIRT, ET AL. V. THE EQUITABLE
RETIREMENT PLAN FOR EMPLOYEES, MANAGERS AND AGENTS, ET AL. was filed in
the District Court for the Southern District of New York in August 2001
against The Equitable Retirement Plan for Employees, Managers and Agents
(the "Retirement Plan") and The Officers Committee on Benefit Plans of
Equitable Life, as Plan Administrator. The action was brought by five
participants in the Retirement Plan and purports to be on behalf of "all
Plan participants, whether active or retired, their beneficiaries and
Estates, whose accrued benefits or pension benefits are based on the
Plan's Cash Balance Formula". The complaint challenged the change,
effective January 1, 1989, in the pension benefit formula from a final
average pay formula to a cash balance formula. Plaintiffs alleged that
the change to the cash balance formula violated ERISA by reducing the
rate of accruals based on age, failed to comply with ERISA's notice
requirements and improperly applied the formula to retroactively reduce
accrued benefits. The relief sought includes a declaration that the cash
balance plan violated ERISA, an order enjoining the enforcement of the
cash balance formula, reformation and damages. In April 2002, plaintiffs
filed a motion seeking to certify a class of "all Plan participants,
whether active or retired, their beneficiaries and Estates, whose
accrued benefits or pension benefits are based on the Plan's Cash
Balance Formula". Also in April 2002, plaintiffs agreed to dismiss with
prejudice their claim that the change to the cash balance formula
violated ERISA by improperly applying the formula to retroactively
reduce accrued benefits. That claim was dismissed. In March 2003,
plaintiffs filed an amended complaint elaborating on the remaining
claims in the original complaint and adding additional class and
individual claims alleging that the adoption and announcement of the
cash balance formula and the subsequent announcement of changes in the
application of the cash balance formula failed to comply with ERISA. By
order dated May 2003, the District Court, as requested by the parties,
certified the case as a class action, including a sub-class of all
current and former Plan participants, whether active, inactive or
retired, their beneficiaries or estates, who were subject to a 1991
change in application of the cash balance formula. In September 2006,
the district court granted summary judgment in favor of the defendants.
The court ruled that (a) the cash balance provisions of the Equitable
Plan do not violate the age discrimination provisions of ERISA, (b)
while the notice of plan changes provided to participants in 1990 was
not adequate, the notice of plan changes provided to participants in
1992 satisfied the ERISA notice requirements regarding delivery and
content, and (c) the claims of the named plaintiffs are barred by
statute of limitations. The Court found that other individual class
F-58
members were not precluded from asserting claims for additional benefit
accruals from January 1991 through January 1993 to the extent that such
individuals could show that the statute of limitations did not bar their
claims. In October 2006, plaintiffs filed a notice of appeal. Defendants
have cross-appealed.
In September 2004, a petition for appraisal entitled CEDE & CO. V. AXA
FINANCIAL, INC. was filed in the Delaware Court of Chancery by an
alleged former MONY stockholder. The petition seeks a judicial appraisal
of the value of the MONY shares held by former MONY stockholders holding
approximately 3.6 million shares of MONY common stock who demanded
appraisal pursuant to Section 262 of the General Corporation Law of the
State of Delaware and have not withdrawn their demands. On or about
November 4, 2004, a petition for appraisal entitled HIGHFIELDS CAPITAL
LTD. V. AXA FINANCIAL, INC. was filed in the Delaware Court of Chancery
by another alleged former MONY stockholder. The relief sought by the
Highfields Capital petition is substantially identical to that sought
pursuant to the CEDE & CO. petition. In February 2005, the Delaware
Court of Chancery consolidated the two actions for all purposes. The
parties are engaged in discovery. The trial is scheduled for April 2007.
In April 2004, a purported nationwide class action lawsuit was filed in
the Circuit Court for Madison County, Illinois entitled MATTHEW
WIGGENHORN V. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES. The
lawsuit alleges that AXA Equitable uses stale prices for the foreign
securities within the investment divisions of its variable insurance
products. The complaint further alleges that AXA Equitable's use of
stale pricing diluted the returns of the purported class. The complaint
also alleges that AXA Equitable breached its fiduciary duty to the class
by allowing market timing in general within AXA Equitable's variable
insurance products, thereby diluting the returns of the class. In June
2005, this case was transferred by the Judicial Panel on Multidistrict
Litigation to the U.S. District Court in Maryland, where other
market-timing related litigation is pending. In June 2005, plaintiff
filed an amended complaint. In July 2005, AXA Equitable filed a motion
to dismiss the amended complaint. In June 2006, AXA Equitable's motion
to dismiss the amended complaint was granted. The plaintiff filed a
notice of appeal in June 2006.
In June 2006, AXA Equitable received a demand for arbitration from
Centre Life Insurance Company ("Centre Life") seeking to rescind the
100% quota share reinsurance agreement, effective July 1, 2000 between
Centre Life and AXA Equitable, under which Centre Life reinsures
portions of AXA Equitable's individual disability income insurance
business. The arbitration demand alleges that AXA Equitable provided
Centre Life with inaccurate and incomplete data upon which Centre Life
relied in order to establish the reinsurance premium paid by AXA
Equitable as consideration in the transaction. The demand alternatively
seeks damages for the increase in reserves Centre Life alleges it was
caused to record as a result of the difference in the data it originally
relied upon and its present assessment of the data. The demand further
alleges that Centre Life has paid expenses relating to the business in
excess of its liability under the reinsurance agreement. Discovery is
ongoing.
Beginning with the first action commenced in July 2006, there are three
putative class actions pending in Federal court, MEOLA V. AXA ADVISORS,
ET AL., in the District Court for the Northern District of California,
LENNON, ET. AL. V. AXA ADVISORS, ET. AL., in the District Court for the
Central District of California, and BOLEA V. AXA ADVISORS, LLC, ET.AL.,
in the District Court for the Western District of Pennsylvania, against
AXA Equitable, alleging certain wage and hour violations. Each of the
cases seek substantially the same relief under essentially the same
theories of recovery (i.e., violation of the Fair Labor Standards Act
("FLSA") for failure to pay minimum wage and overtime and violation of
similar provisions under state labor laws in the respective states).
Plaintiffs in MEOLA and BOLEA seek certification of nationwide
collection action under the FLSA, and plaintiffs in all actions seek
certification of statewide class actions under the respective California
and Pennsylvania state labor laws covering all "securities brokers" from
2002-2006. In addition, plaintiffs seek compensatory damages,
restitution of all wages improperly withheld or deducted, punitive
damages, penalties, and attorneys' fees. In January 2007, AXA Equitable
removed LENNON to Federal court and filed answers in MEOLA and LENNON.
ALLIANCEBERNSTEIN LITIGATION
In April 2002, a consolidated complaint entitled IN RE ENRON CORPORATION
SECURITIES LITIGATION ("Enron Complaint") was filed in the United States
District Court for the Southern District of Texas, Houston Division,
against numerous defendants, including AllianceBernstein, alleging that
AllianceBernstein violated Sections 11 and 15 of the Securities Act of
1933, as amended ("Securities Act"), with respect to a registration
statement filed by Enron Corp. In January 2007, the Court issued a final
judgment dismissing the Enron Complaint as the allegations therein
pertained to AllianceBernstein. The parties have agreed that there will
be no appeal.
F-59
Market Timing-Related Matters
In October 2003, a purported class action complaint entitled HINDO, ET
AL. V. ALLIANCEBERNSTEIN GROWTH & INCOME FUND, ET AL. ("Hindo
Complaint") was filed against AllianceBernstein, AllianceBernstein
Holding, AllianceBernstein Corporation, AXA Financial, certain
investment company funds (the "U.S. Funds") distributed by
AllianceBernstein Investments, Inc., a wholly-owned subsidiary of
AllianceBernstein, the registrants and issuers of those funds, certain
officers of AllianceBernstein (the "AllianceBernstein defendants"), and
certain other unaffiliated defendants, as well as unnamed Doe
defendants. The Hindo Complaint was filed in the United States District
Court for the Southern District of New York by alleged shareholders of
two of the U.S. Funds. The Hindo Complaint alleges that certain of the
AllianceBernstein defendants failed to disclose that they improperly
allowed certain hedge funds and other unidentified parties to engage in
"late trading" and "market timing" of U.S. Fund securities, violating
Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of
the Exchange Act, and Sections 206 and 215 of the Investment Advisers
Act of 1940 (the "Advisers Act"). Plaintiffs seek an unspecified amount
of compensatory damages and rescission of their contracts with
AllianceBernstein, including recovery of all fees paid to
AllianceBernstein pursuant to such contracts.
Since October 2003, additional lawsuits making factual allegations
generally similar to those in the Hindo Complaint were filed in various
Federal and state courts against AllianceBernstein and certain other
defendants. All state court actions against AllianceBernstein either
were voluntarily dismissed or removed to Federal court.
In February 2004, the Judicial Panel on Multidistrict Litigation ("MDL
Panel") transferred all Federal actions to the United States District
Court for the District of Maryland ("Mutual Fund MDL"). All of the
actions removed to the Federal court also were transferred to the Mutual
Fund MDL. In September 2004, plaintiffs filed consolidated amended
complaints with respect to four claim types: mutual fund shareholder
claims; mutual fund derivative claims; derivative claims brought on
behalf of AllianceBernstein Holding; and claims brought under ERISA by
participants in the Profit Sharing Plan for Employees of
AllianceBernstein. All four complaints included substantially identical
factual allegations, which appear to be based in large part on the SEC
Order and the NYAG Assurance of Discontinuance (the "NYAG AoD").
In April 2006, AllianceBernstein and attorneys for the plaintiffs in the
mutual fund shareholder claims, mutual fund derivative claims, and ERISA
claims entered into a confidential memorandum of understanding ("MOU")
containing their agreement to settle these claims. The agreement will be
documented by a stipulation of settlement and will be submitted for
court approval at a later date. The settlement amount was disbursed. The
derivative claims brought on behalf of AllianceBernstein Holding, in
which plaintiffs seek an unspecified amount of damages, remain pending.
In April 2005, a complaint entitled THE ATTORNEY GENERAL OF THE STATE OF
WEST VIRGINIA V. AIM ADVISORS, INC., ET AL. ("WVAG Complaint") was filed
against AllianceBernstein, AllianceBernstein Holding, and various other
unaffiliated defendants. The WVAG Complaint was filed in the Circuit
Court of Marshall County, West Virginia by the Attorney General of the
State of West Virginia. The WVAG Complaint makes factual allegations
generally similar to those in the Hindo Complaint. In October 2005, the
WVAG Complaint was transferred to the Mutual Fund MDL. In August 2005,
the WV Securities Commissioner signed a Summary Order to Cease and
Desist, and Notice of Right to Hearing ("Summary Order") addressed to
AllianceBernstein and AllianceBernstein Holding. The Summary Order
claims that AllianceBernstein and AllianceBernstein Holding violated the
West Virginia Uniform Securities Act and makes factual allegations
generally similar to those in the SEC Order and NYAG AoD. In September
2006, AllianceBernstein and AllianceBernstein Holding filed an answer
and moved to dismiss the Summary Order with the WV Securities
Commissioner.
Revenue Sharing-Related Matters
In June 2004, a purported class action complaint entitled AUCOIN, ET AL.
V. ALLIANCE CAPITAL MANAGEMENT L.P., ET AL. ("Aucoin Complaint") was
filed against AllianceBernstein, AllianceBernstein Holding, the General
Partner, AXA Financial, AllianceBernstein Investments, Inc., a
wholly-owned subsidiary of AllianceBernstein, certain current and former
directors of the U.S. Funds, and unnamed Doe defendants. The Aucoin
Complaint names the U.S. Funds as nominal defendants. The Aucoin
Complaint was filed in the United States District Court for the Southern
District of New York by an alleged shareholder of the AllianceBernstein
Growth & Income Fund. The Aucoin Complaint alleges, among other things,
(i) that certain of the defendants improperly authorized the payment of
excessive commissions and other fees from U.S. Fund assets to
broker-dealers in exchange for preferential marketing services, (ii)
that certain of the defendants misrepresented and omitted from
registration statements and other reports material facts
F-60
concerning such payments, and (iii) that certain defendants caused such
conduct as control persons of other defendants. The Aucoin Complaint
asserts claims for violation of Sections 34(b), 36(b) and 48(a) of the
Investment Company Act, Sections 206 and 215 of the Advisers Act, breach
of common law fiduciary duties, and aiding and abetting breaches of
common law fiduciary duties. Plaintiffs seek an unspecified amount of
compensatory damages and punitive damages, rescission of their contracts
with AllianceBernstein, including recovery of all fees paid to
AllianceBernstein pursuant to such contracts, an accounting of all U.S.
Fund-related fees, commissions and soft dollar payments, and restitution
of all unlawfully or discriminatorily obtained fees and expenses.
In February 2005, plaintiffs filed a consolidated amended class action
complaint (the "Aucoin Consolidated Amended Complaint") that asserts
claims substantially similar to the Aucoin Complaint and the nine
additional subsequently filed lawsuits. In October 2005, the District
Court dismissed each of the claims set forth in the Aucoin Consolidated
Amended Complaint, except for plaintiffs' claim under Section 36(b) of
the Investment Company Act. In January 2006, the District Court granted
defendants' motion for reconsideration and dismissed the remaining claim
under Section 36(b) of the Investment Company Act. In May 2006, the
District Court denied plaintiffs' motion for leave to file their amended
complaint. In July 2006, plaintiffs filed a notice of appeal, which was
subsequently withdrawn subject to plaintiff right to reinstate at a
later date.
-----------------------------------
Although the outcome of litigation generally cannot be predicted with
certainty, management intends to vigorously defend against the
allegations made by the plaintiffs in the actions described above and
believes that the ultimate resolution of the litigations described above
involving AXA Financial and/or its subsidiaries should not have a
material adverse effect on the consolidated financial position of AXA
Financial Group. Management cannot make an estimate of loss, if any, or
predict whether or not any of the litigations described above will have
a material adverse effect on AXA Financial Group's consolidated results
of operations in any particular period.
In addition to the type of matters described above, a number of lawsuits
have been filed against life and health insurers in the jurisdictions in
which AXA Equitable, MONY Life, and their respective insurance
subsidiaries do business involving insurers' sales practices, alleged
agent misconduct, alleged failure to properly supervise agents, contract
administration and other matters. Some of the lawsuits have resulted in
the award of substantial judgments against other insurers, including
material amounts of punitive damages, or in substantial settlements. In
some states, juries have substantial discretion in awarding punitive
damages. AXA Equitable, AXA Life, MONY Life, MLOA and USFL, like other
life and health insurers, from time to time are involved in such
litigations. Some of these actions and proceedings filed against AXA
Financial and its subsidiaries have been brought on behalf of various
alleged classes of claimants and certain of these claimants seek damages
of unspecified amounts. While the ultimate outcome of such matters
cannot be predicted with certainty, in the opinion of management no such
matter is likely to have a material adverse effect on AXA Financial
Group's consolidated financial position or results of operations.
However, it should be noted that the frequency of large damage awards,
including large punitive damage awards that bear little or no relation
to actual economic damages incurred by plaintiffs in some jurisdictions,
continues to create the potential for an unpredictable judgment in any
given matter.
20) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
AXA Equitable and MONY Life are restricted as to the amounts they may
pay as dividends to AXA Financial. Under the New York Insurance Law, a
domestic life insurer may, without prior approval of the Superintendent,
pay a dividend to its shareholders not exceeding an amount calculated
based on a statutory formula. This formula would permit AXA Equitable
and MONY Life to pay shareholder dividends not greater than $649.6
million and $107.0 million, respectively, during 2007. Payment of
dividends exceeding this amount requires the insurer to file notice of
its intent to declare such dividends with the Superintendent who then
has 30 days to disapprove the distribution. For 2006, 2005 and 2004, the
AXA Equitable and MONY Life statutory net income totaled $804.8 million,
$901.3 million and $135.9 million, respectively. Statutory surplus,
capital stock and Asset Valuation Reserve ("AVR") totaled $9,178.1
million and $7,351.2 million at December 31, 2006 and 2005,
respectively. In 2006, 2005 and 2004, respectively, AXA Equitable paid
$600.0 million, $500.0 million and $500.0 million in shareholder
dividends. In 2006, 2005 and 2004, respectively, MONY Life paid $35.0
million, $75.0 million and $33.0 million in shareholder dividends.
F-61
At December 31, 2006, the AXA Equitable and MONY Life, in accordance
with various government and state regulations, had $53.0 million of
securities deposited with such government or state agencies.
At December 31, 2006 and for the year then ended, there were no
differences in net income and capital and surplus resulting from
practices prescribed and permitted by the State of New York Insurance
Department (the "NYID") and those prescribed by NAIC Accounting
Practices and Procedures effective at December 31, 2006.
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The differences between statutory surplus and
capital stock determined in accordance with Statutory Accounting
Principles ("SAP") and total shareholder's equity under GAAP are
primarily: (a) the inclusion in SAP of an AVR intended to stabilize
surplus from fluctuations in the value of the investment portfolio; (b)
future policy benefits and policyholders' account balances under SAP
differ from GAAP due to differences between actuarial assumptions and
reserving methodologies; (c) certain policy acquisition costs are
expensed under SAP but deferred under GAAP and amortized over future
periods to achieve a matching of revenues and expenses; (d) under SAP,
Federal income taxes are provided on the basis of amounts currently
payable with provisions made for deferred amounts that reverse within
one year while under GAAP, deferred taxes are recorded for temporary
differences between the financial statements and tax basis of assets and
liabilities where the probability of realization is reasonably assured,
(e) the valuation of assets under SAP and GAAP differ due to different
investment valuation and depreciation methodologies, as well as the
deferral of interest-related realized capital gains and losses on fixed
income investments; (f) the valuation of the investment in
AllianceBernstein and AllianceBernstein Holding under SAP reflects a
portion of the market value appreciation rather than the equity in the
underlying net assets as required under GAAP; (g) the provision for
future losses of the discontinued Wind-Up Annuities business is only
required under GAAP; (h) reporting the surplus notes as a component of
surplus in SAP but as a liability in GAAP; (i) computer software
development costs are capitalized under GAAP but expensed under SAP; (j)
certain assets, primarily pre-paid assets, are not admissible under SAP
but are admissible under GAAP and (k) the fair valuing of all acquired
assets and liabilities including VOBA and intangible assets required for
GAAP purchase accounting.
The following reconciles the AXA Equitable and MONY Life's statutory
change in surplus and capital stock and statutory surplus and capital
stock determined in accordance with accounting practices prescribed by
the NYID with AXA Financial Group's consolidated net earnings and equity
on a GAAP basis.
F-62
2006 2005 2004
----------------- ----------------- -----------------
(IN MILLIONS)
Net change in statutory surplus and
capital stock.................................... $ 1,487.4 $ 917.3 $ 104.0
Change in AVR...................................... 339.5 301.8 510.8
----------------- ----------------- -----------------
Net change in statutory surplus, capital stock
and AVR.......................................... 1,826.9 1,219.1 614.8
Adjustments:
Future policy benefits and policyholders'
account balances............................... (11.3) 104.3 (403.2)
DAC and VOBA..................................... 652.8 663.2 563.3
Deferred income taxes............................ 608.8 (180.9) 126.8
Valuation of investments......................... (67.9) (48.1) 2.0
Valuation of investment subsidiary............... (2,224.8) (1,340.1) (460.3)
Acquisition costs associated with the
integration of the MONY Companies.............. - - 367.9
Capital contribution to the MONY Companies....... - - (277.9)
Change in fair value of guaranteed minimum income
benefit reinsurance contracts.................. (14.9) 42.7 61.0
Shareholder dividends paid...................... 635.0 575.0 533.0
Changes in non-admitted assets................... (151.3) 253.2 (97.7)
AXA Financial and other subsidiaries............. 4.1 (161.5) (18.2)
Other, net....................................... (5.0) (84.0) (81.5)
GAAP adjustments for Wind-up Annuities........... 28.8 30.9 14.9
----------------- ----------------- -----------------
AXA Financial Group's Consolidated
Net Earnings..................................... $ 1,281.2 $ 1,073.8 $ 944.9
================= ================= =================
DECEMBER 31,
-------------------------------------------------------
2006 2005 2004
---------------- ---------------- ------------------
(IN MILLIONS)
Statutory surplus and capital stock................... $ 7,567.1 $ 6,079.7 $ 5,162.4
AVR................................................... 1,611.0 1,271.5 969.7
---------------- ---------------- ------------------
Statutory surplus, capital stock and AVR.............. 9,178.1 7,351.2 6,132.1
Adjustments:
Future policy benefits and policyholders'
account balances.................................. (2,630.3) (2,450.0) (2,554.3)
DAC and VOBA........................................ 9,299.4 8,562.3 7,731.5
Deferred income taxes............................... (881.5) (1,563.3) (1,670.0)
Valuation of investments............................ 988.2 1,429.8 2,640.3
Valuation of investment subsidiary.................. (5,538.2) (3,313.4) (1,973.3)
Fair value of guaranteed minimum income benefit
reinsurance contracts............................ 117.7 132.7 90.0
Non-admitted assets................................. 1,263.9 1,425.0 1,171.8
Issuance of surplus notes........................... (625.9) (739.8) (816.6)
Goodwill related to the MONY Acquisition............ 414.6 427.5 616.6
Adjustment to initially apply SFAS No. 158, - -
net of income taxes ............................. (581.7)
AXA Financial and other subsidiaries................ (1,076.5) (1,795.8) (2,184.3)
Other, net.......................................... 150.7 (139.7) (23.6)
GAAP adjustments for Wind-up Annuities.............. (59.9) (80.6) (96.4)
---------------- ---------------- ------------------
AXA Financial Group's Consolidated
Shareholder's Equity................................ $ 10,018.6 $ 9,245.9 $ 9,063.8
================ ================ ==================
F-63
21) BUSINESS SEGMENT INFORMATION
The following tables reconcile segment revenues and earnings from
continuing operations before income taxes to total revenues and earnings
as reported on the consolidated statements of earnings and segment
assets to total assets on the consolidated balance sheets, respectively.
2006 2005 2004
----------------- ----------------- ------------------
(IN MILLIONS)
SEGMENT REVENUES:
Financial Advisory/Insurance....................... $ 7,931.7 $ 7,723.5 $ 6,498.7
Investment Management (1).......................... 4,004.7 3,267.4 3,061.9
Consolidation/elimination.......................... (90.0) (98.7) (82.8)
----------------- ----------------- ------------------
Total Revenues..................................... $ 11,846.4 $ 10,892.2 $ 9,477.8
================= ================= ==================
(1) Intersegment investment advisory and other fees of approximately
$120.8 million, $123.7 million and $118.4 million for 2006, 2005 and
2004, respectively, are included in total revenues of the Investment
Management segment.
2006 2005 2004
----------------- ----------------- ------------------
(IN MILLIONS)
SEGMENT EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST:
Financial Advisory/Insurance....................... $ 960.1 $ 1,218.7 $ 872.2
Investment Management.............................. 1,128.3 860.6 672.7
Consolidation/elimination.......................... - - (.9)
----------------- ----------------- ------------------
Total Earnings from Continuing Operations before
Income Taxes and Minority Interest.............. $ 2,088.4 $ 2,079.3 $ 1,544.0
================= ================= ==================
DECEMBER 31,
------------------------------------
2006 2005
---------------- ------------------
(IN MILLIONS)
SEGMENT ASSETS:
Financial Advisory/Insurance............................................ $ 151,821.7 $ 138,473.8
Investment Management................................................... 16,938.7 15,853.4
Consolidation/elimination .............................................. (14.7) 12.9
---------------- ------------------
Total Assets............................................................ $ 168,745.7 $ 154,340.1
================ ==================
In accordance with SEC regulations, securities with a fair value of
$1.86 billion and $1.72 billion have been segregated in a special
reserve bank custody account at December 31, 2006 and 2005,
respectively, for the exclusive benefit of securities broker-dealer or
brokerage customers under Rule 15c3-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
F-64
22) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 2006 and 2005 are summarized
below:
THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------- --------------- ----------------- -----------------
(IN MILLIONS)
2006
----
Total Revenues...................... $ 2,755.4 $ 3,100.2 $ 2,873.6 $ 3,117.2
=============== =============== ================= =================
Earnings from Continuing
Operations........................ $ 272.6 $ 372.4 $ 301.4 $ 186.7
=============== =============== ================= =================
Net Earnings ....................... $ 281.6 $ 372.9 $ 442.0 $ 184.7
=============== =============== ================= =================
2005
----
Total Revenues...................... $ 2,724.0 $ 2,670.5 $ 2,638.7 $ 2,859.0
=============== =============== ================= =================
Earnings from Continuing
Operations........................ $ 274.3 $ 294.7 $ 200.5 $ 376.1
=============== =============== ================= =================
Net Earnings........................ $ 276.4 $ 297.7 $ 215.2 $ 284.5
=============== =============== ================= =================
F-65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholder of
AXA Financial, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated March 15, 2007 appearing on page F-1 of this Annual Report on Form 10-K
also included an audit of the financial statement schedules listed in Item
15(a)(2) of this Form 10-K. In our opinion, based on our audits and the reports
of other auditors, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 15, 2007
F-66
AXA FINANCIAL, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2006
ESTIMATED CARRYING
TYPE OF INVESTMENT COST (A) FAIR VALUE VALUE
- ------------------ ---------------- ----------------- -----------------
(IN MILLIONS)
Fixed maturities:
U.S. government, agencies and authorities........... $ 2,034.1 $ 2,057.5 $ 2,057.5
State, municipalities and political subdivisions.... 181.5 198.3 198.3
Foreign governments................................. 294.5 332.0 332.0
Public utilities.................................... 3,798.0 3,871.9 3,871.9
All other corporate bonds........................... 28,950.8 29,178.5 29,178.5
Redeemable preferred stocks......................... 2,305.2 2,353.6 2,353.6
---------------- ----------------- -----------------
Total fixed maturities.............................. 37,564.1 37,991.8 37,991.8
---------------- ----------------- -----------------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other............ 119.6 124.3 124.3
Mortgage loans on real estate.......................... 4,664.6 4,703.1 4,664.6
Real estate............................................ 297.1 Xxx 297.1
Real estate acquired in satisfaction of debt........... 217.6 Xxx 217.6
Real estate joint ventures............................. 70.9 Xxx 70.9
Policy loans........................................... 5,007.5 5,402.2 5,007.5
Other limited partnership interests and
equity investments.................................. 1,611.0 1,611.0 1,611.0
Trading securities..................................... 438.5 465.1 465.1
Other invested assets.................................. 1,119.6 1,119.6 1,119.6
---------------- ----------------- -----------------
Total Investments...................................... $ 51,110.5 $ 51,417.1 $ 51,569.5
================ ================= =================
(A) Cost for fixed maturities represents original cost, reduced by repayments
and writedowns and adjusted for amortization of premiums or accretion of
discount; cost for equity securities represents original cost reduced by
writedowns; cost for other limited partnership interests represents
original cost adjusted for equity in earnings and reduced by distributions.
F-67
AXA FINANCIAL, INC.
SCHEDULE II
BALANCE SHEETS (PARENT COMPANY)
DECEMBER 31, 2006 AND 2005
2006 2005
----------------- ----------------
(IN MILLIONS)
ASSETS
Investment in consolidated subsidiaries................................ $ 12,294.3 $ 11,764.2
Fixed maturities available for sale, at estimated fair value
(amortized costs, $5.5 and $8.0).................................... 5.5 8.4
Other invested assets.................................................. 22.6 15.7
----------------- ----------------
Total investments................................................ 12,322.4 11,788.3
Cash and cash equivalents.............................................. 144.1 83.7
Loans to affiliates.................................................... 425.5 540.5
Intangible assets, net................................................. 533.6 577.7
Income taxes receivable................................................ 429.7 327.3
Other assets........................................................... 512.1 477.6
----------------- ----------------
TOTAL ASSETS........................................................... $ 14,367.4 $ 13,795.1
================= ================
LIABILITIES
Short-term and long-term debt.......................................... $ 1,405.3 $ 1,412.6
Loans from affiliates.................................................. 1,280.0 1,580.0
Liability for employee benefit plans................................... 1,318.4 1,171.4
Accrued liabilities.................................................... 345.1 385.2
----------------- ----------------
Total liabilities................................................ 4,348.8 4,549.2
----------------- ----------------
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, 500 million shares authorized,
436.2 million shares issued and outstanding......................... 3.9 3.9
Capital in excess of par value......................................... 1,122.4 1,047.8
Retained earnings...................................................... 9,494.7 8,213.5
Accumulated other comprehensive (loss) income.......................... (378.9) 345.5
Treasury shares, at cost............................................... (223.5) (364.8)
----------------- ----------------
Total shareholder's equity....................................... 10,018.6 9,245.9
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................. $ 14,367.4 $ 13,795.1
================= ================
The financial information of AXA Financial, Inc. ("AXA Financial") should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto.
F-68
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF EARNINGS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
2006 2005 2004
---------------- ----------------- ----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REVENUES
Equity in earnings from continuing operations
of consolidated subsidiaries before cumulative
effect of accounting change........................... $ 1,330.1 $ 1,301.7 $ 1,017.5
Net investment income (loss)............................. 39.0 39.7 (8.5)
Investment gains (losses), net........................... 3.4 (0.7) (1.2)
---------------- ----------------- -----------------
Total revenues..................................... 1,372.5 1,340.7 1,007.8
---------------- ----------------- -----------------
EXPENSES
Interest expense......................................... 196.5 170.2 130.0
Amortization of goodwill and intangible assets........... 5.5 4.6 3.2
General and administrative expenses...................... 34.3 28.7 43.4
---------------- ----------------- -----------------
Total expenses..................................... 236.3 203.5 176.6
---------------- ----------------- -----------------
Earnings from continuing operations before
income taxes ......................................... 1,136.2 1,137.2 831.2
Income tax (expense) benefit ............................ (3.1) 8.4 23.2
---------------- ----------------- -----------------
Earnings from continuing operations...................... 1,133.1 1,145.6 854.4
Earnings from discontinued operations, net of
income taxes.......................................... 30.9 13.6 10.2
Gains (losses) on disposal of discontinued
operations, net of income taxes....................... 117.2 (85.4) 84.3
Cumulative effect of accounting changes, net of
income taxes.......................................... - - (4.0)
---------------- ----------------- -----------------
Net Earnings............................................. $ 1,281.2 $ 1,073.8 $ 944.9
================ ================= =================
F-69
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF CASH FLOWS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
2006 2005 2004
----------------- ----------------- ---------------
(DOLLARS IN MILLIONS)
Net earnings............................................. $ 1,281.2 $ 1,073.8 $ 944.9
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in net earnings of subsidiaries.............. (1,415.4) (1,315.5) (1,054.8)
Dividends from subsidiaries......................... 768.2 639.7 554.9
Investment (gains) losses, net...................... (3.4) 0.7 1.2
Change in income tax receivable..................... (28.8) (8.0) (138.3)
Other............................................... 108.3 98.9 96.2
----------------- ----------------- -----------------
Net cash provided by operating activities................ 493.5 489.6 404.1
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments.............................. 6.8 3.8 2.6
Sales.................................................. 2.4 14.4 26.7
Acquisition of The MONY Group, Inc..................... - - (1,369.2)
Purchase of AllianceBernstein Units.................... - - (225.0)
Purchases.............................................. (3.8) (2.8) -
Proceeds from repayment of loans to affiliates......... 115.0 - -
Contribution to subsidiaries........................... (268.4) - (118.6)
Other.................................................. (7.9) (18.9) 17.8
------------- -------------- -------------
Net cash used in investing activities.................... (155.9) (3.5) (1,665.7)
----------------- ----------------- -----------------
Cash flows from financing activities:
Repayment of long-term debt............................ - (275.0) (300.0)
Increase in short-term debt............................ 10.0 17.8 -
Proceeds in loans from Affiliates...................... 335.0 11.1 1,568.9
Repayment of loans from Affiliates..................... (635.0) - -
(Sale) purchase of treasury shares..................... (4.3) (372.6) 0.4
Other ................................................. 17.1 27.8 (29.8)
----------------- ----------------- -----------------
Net cash used in financing activities.................... (277.2) (590.9) 1,239.5
----------------- ----------------- -----------------
Change in cash and cash equivalents...................... 60.4 (104.8) (22.1)
Cash and cash equivalents, beginning of year............. 83.7 188.5 210.6
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year................... $ 144.1 $ 83.7 $ 188.5
================= ================= =================
Supplemental cash flow information:
Interest Paid.......................................... $ 78.0 $ 123.5 $ 105.0
================= ================= =================
Income Taxes Refunded.................................. $ 19.3 $ - $ -
================= ================= =================
F-70
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2006
FUTURE POLICY POLICY
DEFERRED BENEFITS CHARGES (1)
POLICY POLICYHOLDERS' AND OTHER AND NET
ACQUISITION ACCOUNT POLICYHOLDERS' PREMIUM INVESTMENT
SEGMENT COSTS BALANCES FUNDS REVENUE INCOME
- ------------------------ --------------- ---------------- ----------------- --------------- ---------------
(IN MILLIONS)
Financial Advisory/
Insurance............ $ 8,609.9 $ 29,895.6 $ 22,754.7 $ 4,049.9 $ 2,951.3
Investment
Management.......... - - - - 132.9
Consolidation/
Elimination.......... - - - - 30.3
--------------- ---------------- ----------------- --------------- ---------------
Total.................. $ 8,609.9 $ 29,895.6 $ 22,754.7 $ 4,049.9 $ 3,114.5
=============== ================ ================= =============== ===============
AMORTIZATION
POLICYHOLDERS' OF DEFERRED (2)
BENEFITS AND POLICY OTHER
INTEREST ACQUISITION OPERATING
SEGMENT CREDITED COSTS EXPENSE
- ------------------------ ---------------- ----------------- -----------------
(IN MILLIONS)
Financial Advisory/
Insurance............ $ 4,214.1 $ 812.6 $ 2,000.7
Investment
Management.......... - - 2,820.6
Consolidation/
Elimination.......... - - (90.0)
---------------- ----------------- -----------------
Total.................. $ 4,214.1 $ 812.6 $ 4,731.3
================ ================= =================
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-71
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2005
FUTURE POLICY POLICY
DEFERRED BENEFITS CHARGES (1)
POLICY POLICYHOLDERS' AND OTHER AND NET
ACQUISITION ACCOUNT POLICYHOLDERS' PREMIUM INVESTMENT
SEGMENT COSTS BALANCES FUNDS REVENUE INCOME
- ------------------------ --------------- ---------------------------------- --------------- ---------------
(IN MILLIONS)
Financial Advisory/
Insurance............ $ 7,781.9 $ 30,817.4 $ 22,677.2 $ 3,739.0 $ 3,143.0
Investment
Management.......... - - - - 50.8
Consolidation/
Elimination.......... - - - - 16.4
--------------- ---------------------------------- --------------- ---------------
Total.................. $ 7,781.9 $ 30,817.4 $ 22,677.2 $ 3,739.0 $ 3,210.2
=============== ================================== =============== ===============
AMORTIZATION
POLICYHOLDERS' OF DEFERRED (2)
BENEFITS AND POLICY OTHER
INTEREST ACQUISITION OPERATING
SEGMENT CREDITED COSTS EXPENSE
- ------------------------ ---------------- ----------------- -----------------
(IN MILLIONS)
Financial Advisory/
Insurance............ $ 4,049.3 $ 682.0 $ 1,773.5
Investment
Management.......... - - 2,406.8
Consolidation/
Elimination.......... - - (98.7)
---------------- ----------------- -----------------
Total.................. $ 4,049.3 $ 682.0 $ 4,081.6
================ ================= =================
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-72
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2004
Policy
Charges (1) Policyholders'
and Net Benefits and
Premium Investment Interest
Segment Revenue Income Credited
- ------------------------------------------------------------------------- --------------- --------------- ----------------
(In Millions)
Financial Advisory/Insurance............................................. $ 2,973.6 $ 2,730.5 $ 3,514.0
Investment Management.................................................... - 39.2 -
Consolidation/Elimination................................................ - 29.0 -
--------------- --------------- ----------------
Total.................................................................... $ 2,973.6 $ 2,798.7 $ 3,514.0
=============== =============== ================
Amortization
of Deferred (2)
Policy Other
Acquisition Operating
Segment Costs Expense
- ------------------------------------------------------------------------- ----------------- ----------------
(In Millions)
Financial Advisory/Insurance............................................. $ 510.1 $ 1,602.6
Investment Management.................................................... - 2,389.0
Consolidation/Elimination................................................ - (81.9)
----------------- ----------------
Total.................................................................... $ 510.1 $ 3,909.7
================= ================
(1) Net investment income is based upon specific identification of portfolios
within segments.
(2) Operating expenses are principally incurred directly by a segment.
F-73
AXA FINANCIAL, INC.
SCHEDULE IV
REINSURANCE (A)
AT AND FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------------- ----------------- ---------------- --------------- ---------------
(DOLLARS IN MILLIONS)
2006
- ----
Life Insurance In-force...... $ 452,148.6 $ 154,656.3 $ 48,259.3 $ 345,751.6 13.96%
================ ================= ================ ===============
Premiums:
Life insurance and
annuities............... $ 1,492.8 $ 145.2 $ 172.6 $ 1,520.2 11.36%
Accident and health....... 126.1 89.4 24.7 61.4 40.23%
---------------- ----------------- ---------------- ---------------
Total Premiums............... $ 1,618.9 $ 234.6 $ 197.3 $ 1,581.6 12.48%
================ ================= ================ ===============
2005
- ----
Life Insurance In-force...... $ 437,434.5 $ 143,078.7 $ 50,606.1 $ 344,961.9 14.67%
================ ================= ================ ===============
Premiums:
Life insurance and
annuities............... $ 1,513.9 $ 82.4 $ 153.2 $ 1,584.7 9.67%
Accident and health....... 133.7 88.3 18.7 64.1 29.17%
---------------- ----------------- ---------------- ---------------
Total Premiums............... $ 1,647.6 $ 170.7 $ 171.9 $ 1,648.8 10.43%
================ ================= ================ ===============
2004
- ----
Life Insurance In-force...... $ 414,777.2 $ 130,202.9 $ 49,405.1 $ 333,979.4 14.79%
================ ================= ================ ===============
Premiums:
Life insurance and
annuities............... $ 1,095.4 $ 43.8 $ 158.3 $ 1,209.9 13.08%
Accident and health....... 195.0 154.5 25.4 65.9 38.54%
---------------- ----------------- ---------------- ---------------
Total Premiums............... $ 1,290.4 $ 198.3 $ 183.7 $ 1,275.8 14.40%
================ ================= ================ ===============
(A) Includes amounts related to the discontinued group life and health business.
F-74
PART II, ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
9-1
PART II, ITEM 9A.
CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of AXA Financial
Group's disclosure controls and procedures as of December 31, 2006. Based on
that evaluation, management, including the Chief Executive Officer and Chief
Financial Officer, concluded that AXA Financial Group's disclosure controls and
procedures are effective. There has been no change in the AXA Financial Group's
internal control over financial reporting that occurred during the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, AXA Financial Group's internal control over financial
reporting.
9A-1
PART II, ITEM 9B.
OTHER INFORMATION
None.
9B-1
PART III, ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction I to Form 10-K.
10-1
PART III, ITEM 11.
EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I to Form 10-K.
11-1
PART III, ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Omitted pursuant to General Instruction I to Form 10-K.
12-1
PART III, ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I to Form 10-K.
13-1
PART III, ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees for professional audit services rendered by
PricewaterhouseCoopers LLP ("PwC") for the audit of AXA Financial's annual
consolidated financial statements for 2006 and 2005, and fees for other services
rendered by PwC:
2006 2005
----------------- -----------------
(IN THOUSANDS)
Principal Accounting Fees and Services:
Audit fees ......................................................... $ 21,325 $ 8,851
Audit related fees.................................................. 2,187 1,234
Tax fees............................................................ 1,845 993
All other fees...................................................... 78 52
----------------- -----------------
Total.................................................................. $ 25,435 $ 11,130
================= =================
Audit fees for AXA Financial and AXA Equitable are paid pursuant to a single
engagement letter with PwC.
Audit related fees in both years principally consist of fees for Sarbanes-Oxley
Section 404 implementation and internal control reviews.
Tax fees consist of fees for tax preparation and tax consultation services.
All other fees consist of fees for miscellaneous non-audit services.
PwC began serving as the independent registered accounting firm for
AllianceBernstein and AllianceBernstein Holding in 2006 and audited
AllianceBernstein's and AllianceBernstein Holding's annual financial statements
for 2006. The fee table above includes audit fees and fees for other services
rendered to AllianceBernstein and AllianceBernstein Holding in 2006.
AXA Financial's audit committee has determined that all services to be
provided by its independent registered public accounting firm must be
reviewed and approved by the audit committee on a case-by-case basis
provided, however, that the audit committee has delegated to its
chairperson the ability to pre-approve any non-audit engagement where
the fees are expected to be less than or equal to $100,000 per
engagement. Any exercise of this delegated authority by the auditcommittee
chairperson is required to be reported at the next audit committee meeting.
The AllianceBernstein and AllianceBernstein Holding audit committees have
adopted pollicies to pre-approve audit and non-audit service engagements with
their independent registered public accounting firm. The independent registered
public accounting firm is to provide annually a comprehensive and detailed
schedule of each proposed audit and non-audit service to be performed. The audit
committee then affirmatively indicates its approval of the listed engagements.
Engagements that are not listed, but that are of similar scope and size to those
listed and approved may be deemed to be approved, if the fee for such service
is less than $100,000. In addition, each audit committee has delegated to its
chairman the ability to approve any permissible non-audit engagement where the
fees are expected to be less than $100,000.
All services provided by PwC in 2006 were pre-approved in accordance with the
procedures described above.
14-1
PART IV, ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) The following documents are filed as part of this report:
1. Financial Statements
The financial statements are listed in the Index to Consolidated
Financial Statements and Schedules on page FS-1.
2. Consolidated Financial Statement Schedules
The consolidated financial statement schedules are listed in the Index
to Consolidated Financial Statements and Schedules on page FS-1.
3. Exhibits
The exhibits are listed in the Index to Exhibits that begins on
page E-1.
15-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, AXA Financial, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 15, 2007 AXA FINANCIAL, INC.
By: /s/ Christopher M. Condron
------------------------------------------------------
Name: Christopher M. Condron
President and Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Henri de Castries Chairman of the Board, Director March 15, 2007
- --------------------------------------------
Henri de Castries
/s/ Christopher M. Condron President and Chief Executive Officer, March 15, 2007
- -------------------------------------------- Director
Christopher M. Condron
/s/ Richard S. Dziadzio Executive Vice President and March 15, 2007
- -------------------------------------------- Chief Financial Officer
Richard S. Dziadzio
/s/ Alvin H. Fenichel Senior Vice President and Controller March 15, 2007
- --------------------------------------------
Alvin H. Fenichel
/s/ Bruce W. Calvert Director March 15, 2007
- --------------------------------------------
Bruce W. Calvert
/s/ Denis Duverne Director March 15, 2007
- --------------------------------------------
Denis Duverne
/s/ Charlynn Goins Director March 15, 2007
- --------------------------------------------
Charlynn Goins
/s/ Anthony J. Hamilton Director March 15, 2007
- -------------------------------------------
Anthony J. Hamilton
/s/ Mary R. Henderson Director March 15, 2007
- -------------------------------------------
Mary R. Henderson
S-1
/s/ James F. Higgins Director March 15, 2007
- -------------------------------------------
James F. Higgins
/s/ Scott D. Miller Director March 15, 2007
- -------------------------------------------
Scott D. Miller
/s/ Joseph H. Moglia Director March 15, 2007
- -------------------------------------------
Joseph H. Moglia
/s/ Lorie A. Slutsky Director March 15, 2007
- -------------------------------------------
Lorie A. Slutsky
/s/ Ezra Suleiman Director March 15, 2007
- -------------------------------------------
Ezra Suleiman
/s/ Peter J. Tobin Director March 15, 2007
- -------------------------------------------
Peter J. Tobin
S-2
INDEX TO EXHIBITS
Number Description Method of Filing
------ ----------- ----------------
2.1 Acquisition Agreement dated as of June 20, Filed as Exhibit 2.1 to Alliance's Annual
2000, amended and restated as of Report on Form 10-K for the year ended
October 2, 2000, among AllianceBernstein, December 31, 2000 and incorporated herein by
AllianceBernstein Holding, Alliance reference
Capital Management LLC, Bernstein,
Bernstein Technologies Inc., SCB Partners
Inc., Sanford C. Bernstein & Co., LLC, and
SCB LLC
2.2 Purchase Agreement dated as of June 20, Filed as Exhibit 10.18 to Alliance's Annual
2000 by and among Alliance, AXA Financial Report on Form 10-K for the year ended
and Bernstein December 31, 2000 and incorporated herein by
reference
2.3 Financing Agreement dated as of June 20, Filed as Exhibit 10.19 to Alliance's Annual
2000 between AXA Financial and Alliance Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by
reference
2.4 Letter Agreement dated as of June 20, 2000 Filed as Exhibit 10.20 to Alliance's Annual
between AXA Financial and Bernstein Report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by
reference
2.5 Agreement and Plan of Merger dated as of Filed as Exhibit 2.1 to the registrant's
September 17, 2003 among AXA Financial, Current Report on Form 8-K dated September 18,
AIMA Acquisition Co. and MONY 2003 and incorporated herein by reference
2.6 Amendment No.1 to the Agreement and Plan Filed as Exhibit 2.1 to the registrant's
of Merger dated as of February 22, 2004 Current Report on Form 8-K dated February 23,
among AXA Financial, AIMA Acquisition Co. 2004 and incorporated herein by reference
and MONY
2.7 Acquisition agreement dated as September Filed as Exhibit 99.1 to the registrant's
14, 2005 between AXA Financial, Inc. and Current Report on Form 8-K dated September 14,
Merrill Lynch, Pierce, Fenner & Smith 2005 and incorporated herein by reference
Incorporated.
3.1 Restated Certificate of Filed as Exhibit 4.01(a) to Post-Effective
Incorporation of AXA Financial Amendment No. 1 to the registrant's Form S-3
Registration Statement (No. 333-03224),
dated May 27, 1997 and incorporated herein
by reference
3.2 Amendment to Restated Certificate of Filed as Exhibit 4.01(g) to Post-Effective
Incorporation of AXA Financial Amendment No. 1 to the registrant's
Form S-3 Registration Statement
(No. 333-03224), dated May 27, 1997 and
incorporated herein by reference
3.3 Corrected Certificate of Amendment of Filed as Exhibit 3 to the registrant's Current
Restated Certificate of Incorporation of Report on Form 8-K dated September 1, 1999 and
AXA Financial incorporated herein by reference
E-1
Number Description Method of Filing
------ ----------- ----------------
3.4 Amendment to the Restated Certificate of Filed as Exhibit 3.4 to the registrant's
Incorporation of AXA Financial dated May Form 10-Q for the quarter ended June 30, 2000
19, 2000 and incorporated herein by reference
3.5 By-laws of AXA Financial, as amended Filed as Exhibit 3.3 to the registrant's
effective March 23, 2000 Annual Report on Form 10-K for the year ended
December 31, 1999 and incorporated herein by
reference
4.1 Form of Certificate for AXA Financial's Filed as Exhibit 4(c) to the registrant's
Common Stock, par value $.01 per share Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992
and incorporated herein by reference
4.2 Indenture, dated as of December 1, 1993, Filed as Exhibit 4.02 to the registrant's
from AXA Financial to Chemical Bank, as Form S-4 Registration Statement
Trustee (No. 33-73102), dated December 17, 1993 and
incorporated herein by reference
4.3 Fourth Supplemental Indenture, dated Filed as Exhibit 4.18(a) to the registrant's
April 1, 1998, from AXA Financial to The Current Report on Form 8-K dated April 7, 1998
Chase Manhattan Bank (formerly known as and incorporated herein by reference
Chemical Bank), as Trustee, together with
forms of global Senior Note and
global Senior Indenture
4.4 Fifth Supplemental Indenture, dated July Filed as Exhibit 4.18(d) to the registrant's
28, 2000, from AXA Financial to The Chase Current Report on Form 8-K dated July 31, 2000
Manhattan Bank (formerly known as Chemical and incorporated herein by reference
Bank), as Trustee, together with the form
of global Senior Note
9.1(a) Voting Trust Agreement dated as of May 12, Filed as Exhibit 9 to the registrant's
1992, among AXA, Claude Bebear, Patrice Form S-1 Registration Statement
Garnier and Henri de Clermont-Tonnerre (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
9.1(b) First Amendment dated January 22, 1997 to Filed as Exhibit 9(b) to the registrant's
the Voting Trust Agreement dated as of Annual Report on Form 10-K for the year ended
May 12, 1992 December 31, 1997 and incorporated herein by
reference
9.1(c) Amended and Restated Voting Trust Filed as Exhibit 9.1(c) to the registrant's
Agreement dated May 12, 2002 Annual Report on Form 10-K for the year ended
December 31, 2002 and incorporated herein by
reference
10.1 Cooperation Agreement, dated as of July Filed as Exhibit 10(d) to the registrant's
18, 1991, as amended among AXA Equitable, Form S-1 Registration Statement
AXA Financial and AXA (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
10.2 Letter Agreement, dated May 12, 1992, Filed as Exhibit 10(e) to the registrant's
among AXA Equitable, AXA Financial and AXA Form S-1 Registration Statement
(No. 33-48115), dated May 26, 1992
and incorporated herein by reference
E-2
Number Description Method of Filing
------ ----------- ----------------
10.3 Amended and Restated Reinsurance Filed as Exhibit 10(o) to the registrant's
Agreement, dated as of March 29, 1990, Form S-1 Registration Statement
between AXA Equitable and First Equicor (No. 33-48115), dated May 26, 1992 and
Life Insurance Company incorporated herein by reference
10.4 The Amended and Restated Transfer Filed as Exhibit 19 to the registrant's
Agreement dated as of February 23, 1993, Statement on Schedule 13D dated July 29, 1993
as amended and restated on May 28, 1993, and incorporated herein by reference
among Alliance, Equitable Capital and
Equitable Investment Corporation
10.5 Management Compensation Arrangements with Filed as Exhibit 10.22 to the registrant's
Messrs. Bebear and de Castries Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by
reference
10.6 Exchange Agreement dated as of Filed as Exhibit 10.01 to registrant's Form
September 27, 1994, between AXA and AXA S-4 Registration Statement (No. 33-84462),
Financial dated September 28, 1994 and incorporated
herein by reference
10.7(a) Lease, dated as of July 20, 1995, between Filed as Exhibit 10.26(a) to the registrant's
1290 Associates, L.L.C. and AXA Equitable Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by
reference
10.7(b) First Amendment of Lease Agreement, dated Filed as Exhibit 10.26(b) to the registrant's
as of December 28, 1995, between 1290 Annual Report on Form 10-K for the year ended
Associates, L.L.C. and AXA Equitable December 31, 1996 and incorporated herein by
reference
10.7(c) Amended and Restated Company Lease Filed as Exhibit 10.26(c) to the registrant's
Agreement (Facility Realty), made as of Annual Report on Form 10-K for the year ended
May 1, 1996, by and between AXA Equitable December 31, 1996 and incorporated herein by
and the IDA reference
10.7(d) Amended and Restated Company Lease Filed as Exhibit 10.26(d) to the registrant's
Agreement (Project Property), made and Annual Report on Form 10-K for the year ended
entered into as of May 1, 1996, by and December 31, 1996 and incorporated herein by
between the IDA, AXA Equitable and EVLICO reference
E-3
Number Description Method of Filing
------ ----------- ----------------
10.7(e) Second Amendment of Lease, dated as of Filed as Exhibit 10.1 to the registrant's
May 1, 1997, between 1290 Partners L.P. Form 10-Q for the quarter ended June 30, 1997
and AXA Equitable and incorporated herein by reference
10.8 Employment Agreement dated May 11, 2001 Filed as Exhibit 10.16 to the registrant's
between AXA Financial, AXA Equitable and Form 10-Q for the quarter ended June 30, 2001
Christopher M. Condron + and incorporated herein by reference
13.1 AllianceBernstein Risk Factors Filed herewith
18 Preferability Letter from Filed as Exhibit 18 to the Registrant's Annual
PricewaterhouseCoopers LLP Report on Form 10-K for the year ended
December 31, 2002 and incorporated herein by
reference
21 Subsidiaries of the registrant Omitted pursuant to General Instruction I of
Form 10-K
23.1 Consent of PricewaterhouseCoopers LLP Filed herewith
23.2 Consent of KPMG LLP (regarding Filed herewith
AllianceBernstein L.P. and subsidiaries)
23.3 Consent of KPMG LLP (regarding Filed herewith
AllianceBernstein Holding L.P.)
31.1 Section 302 Certification made by the Filed herewith
registrant's Chief Executive Officer
31.2 Section 302 Certification made by the Filed herewith
registrant's Chief Financial Officer
32.1 Section 906 Certification made by the Filed herewith
registrant's Chief Executive Officer
32.2 Section 906 Certification made by the Filed herewith
registrant's Chief Financial Officer
+ Denotes management contract or compensatory plan.
E-4