UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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:
Name of each exchange on
Title of each class which registered
- ------------------------------------- ----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
None
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
No voting or non-voting common equity of the registrant is held by
non-affiliates of the registrant as of March 28, 2002.
As of March 28, 2002, 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.
TABLE OF CONTENTS
Part I Page
Item 1. Business.............................................. 1-1
Overview.............................................. 1-1
Recent Events......................................... 1-1
Segment Information................................... 1-2
Discontinued Operations............................... 1-5
General Account Investment Portfolio.................. 1-5
Employees and Financial Professionals................. 1-6
Competition........................................... 1-6
Regulation............................................ 1-7
Parent Company........................................ 1-8
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
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters................................. 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
Part III
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*..................................... 12-1
Item 13. Certain Relationships and Related Transactions*....... 13-1
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 14-1
Signatures ...................................................... S-1
Index to
Exhibits ...................................................... E-1
*Omitted pursuant to General Instruction I to Form 10-K
Part I, Item 1.
BUSINESS 1
Overview
AXA Financial 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 $480.99 billion at December 31, 2001. AXA
Financial conducts operations in two business segments. The financial advisory
and insurance business conducted by AXA Advisors, AXA Network, AXA Distributors
and Equitable Life and their subsidiaries is reported in the Financial
Advisory/Insurance segment. The investment management business conducted by
Alliance Capital Management L.P., a Delaware limited partnership, and its
subsidiaries ("Alliance"), is reported in the Investment Management segment. For
additional information on AXA Financial's business segments, see "Results Of
Continuing Operations By Segment" included in the management narrative
("Management Narrative") provided in lieu of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 20 of Notes
to Consolidated Financial Statements. AXA, a French holding company for an
international group of insurance and related financial services companies, is
the Holding Company's sole shareholder. 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".
Recent Events
In 2001, AXA's management announced, in view of the decline in financial markets
and challenging overall economic environment, the implementation of a global
cost reduction program aimed at reducing administrative expenses by 10%
groupwide. In the United States in 2001 and early 2002, AXA Financial reduced
staff levels and other overhead costs and reorganized its field operations from
18 regions to six divisions. These measures are designed to reduce costs and
achieve greater efficiencies.
AXA Financial's losses for insurance claims arising in connection with the
September 11, 2001 terrorist attacks are approximately $14.2 million after
reinsurance coverages and taxes. These terrorist attacks and the responsive
actions have significantly adversely affected general economic, market and
political conditions. For additional information, see "General Account
Investment Portfolio".
In November 2000, AXA and AXA Merger Corp., a wholly owned subsidiary of AXA,
commenced a joint exchange offer for all outstanding publicly held shares of
common stock of the Holding Company. As a result, as of December 31, 2000, AXA
and its subsidiaries owned approximately 92.4% of the issued and outstanding
Holding Company shares. AXA and its subsidiaries acquired the remaining issued
and outstanding Holding Company shares as of January 2, 2001, resulting in the
Holding Company becoming a wholly owned subsidiary of AXA.
On November 3, 2000, AXA Financial sold its 63.0% interest in Donaldson, Lufkin
& Jenrette, Inc. ("DLJ") to Credit Suisse Group ("CSG") for $2.29 billion in
cash and $4.86 billion (or 25.2 million shares) in CSG common stock. By January
26, 2001, AXA Financial had disposed of all of the CSG common stock acquired in
the transaction. For additional information about the DLJ sale, see "Management
Narrative -- General" and Notes 1, 5 and 8 of Notes to the Consolidated
Financial Statements.
1 As used in this Form 10-K, the term "AXA Financial" refers to AXA
Financial, Inc., a Delaware corporation (the "Holding Company") and its
consolidated subsidiaries. The term "Holding Company Group" refers
collectively to the Holding Company and to its non-operating subsidiaries.
The term "Financial Advisory/Insurance Group" refers collectively to The
Equitable Life Assurance Society of the United States ("Equitable Life"), a
New York stock life insurance corporation, to Equitable Life's wholly owned
subsidiaries, The Equitable of Colorado, Inc. ("EOC") and AXA Distributors,
LLC and its subsidiaries, successor to Equitable Distributors, Inc.
(collectively, "AXA Distributors"), to AXA Advisors, LLC, a Delaware
limited liability company ("AXA Advisors"), and to AXA Network, LLC, a
Delaware limited liability company and its subsidiaries (collectively "AXA
Network"). The term "Insurance Group" refers collectively to Equitable Life
and certain of its affiliates engaged in insurance-related businesses. The
term "General Account" refers to the assets held in the respective general
accounts of Equitable Life and EOC and all of the investment assets held in
certain of Equitable Life's separate accounts on which the Insurance Group
bears the investment risk. The term "Separate Accounts" refers to the
separate account investment assets of Equitable Life 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 Block) and does not
include assets held in the General Account associated primarily with the
Insurance Group's discontinued Wind-Up Annuity line of business ("Other
Discontinued Operations").
1-1
In October 2000, Alliance acquired the business and assets and assumed the
liabilities of Sanford C. Bernstein, Inc. ("Bernstein") for an aggregate value
of $3.50 billion ($1.48 billion in cash and 40.8 million newly issued units
representing assignments of beneficial ownership of limited partnership
interests of Alliance ("Alliance Units"). AXA Financial's consolidated economic
interest in Alliance is approximately 52.3% after giving effect to consummation
of the Bernstein acquisition. For additional information about the Bernstein
acquisition, see "Management Narrative -- General" and Note 1 of Notes to
Consolidated Financial Statements.
Segment Information
Financial Advisory/Insurance
The Financial Advisory/Insurance Group offers a variety of traditional, variable
and interest-sensitive life insurance products, variable and fixed-interest
annuity products, mutual fund and other investment products and asset management
services to individuals, small groups, small and medium-size businesses, state
and local governments and not-for-profit organizations, as well as financial
planning services to individuals. It also administers traditional participating
group annuity contracts with conversion features, generally for corporate
qualified pension plans, and association plans which provide full service
retirement programs for individuals affiliated with professional and trade
associations. The Financial Advisory/Insurance segment accounted for
approximately $4.91 billion (or 62.8% of total revenues, after intersegment
eliminations) for the year ended December 31, 2001. This segment includes
Separate Accounts for individual and group insurance and annuity products.
Financial Advisory/Insurance segment products are marketed on a retail basis in
all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands
by AXA Advisors, a broker-dealer, and AXA Network, an insurance general agency,
through a retail sales force of approximately 7,000 financial professionals. In
addition, AXA Distributors, a broker-dealer subsidiary of Equitable Life,
distributes Equitable Life products on a wholesale basis through major
securities firms, other broker-dealers and banks. Association plans are marketed
directly to clients by the Insurance Group. As of December 31, 2001, the
Insurance Group had more than three million policy and contractholders.
Equitable Life, which was established in the State of New York in 1859, is among
the largest life insurance companies in the United States. For additional
information on this segment, see "Management Narrative - Results Of Continuing
Operations By Segment - Financial Advisory/Insurance", Note 20 of Notes to
Consolidated Financial Statements, as well as "Employees and Agents",
"Competition" and "Regulation".
Products and Services. The Financial Advisory/Insurance Group offers a portfolio
of insurance, annuity and investment products and services, including financial
planning services, an asset management account and money management products,
designed to meet a broad range of its customers' needs throughout their
financial life-cycles. The focus on financial planning is intended to add
significant value to client service and provides a foundation for building
long-term relationships with customers by identifying a customer's financial
goals in light of his or her unique situation. Insurance products, among other
products, include individual variable and interest-sensitive life insurance
policies and variable annuity contracts, which in 2001 accounted for 20.2% and
61.2%, respectively of total sales of life insurance and annuity products.
Variable life insurance products include Incentive Life sm, Equitable Life's
flagship life insurance product, as well as a second-to-die policy and a product
for the corporate owned life insurance ("COLI") market. The Insurance Group is
among the country's leading issuers of variable life insurance and variable
annuity products.
Equitable Life also offers traditional whole life insurance, universal life
insurance and term life insurance policies.
Variable annuity products include Equi-Vest(R) and Accumulator sm, which are
individual variable deferred annuities, and the Momentum sm series of group
annuities for the employer retirement plan market. Individual variable deferred
annuities may be purchased on either a single or flexible premium basis; group
annuities generally have recurring premium from the retirement plans they fund.
Most individual variable annuity products offer one or more enhanced features,
such as an extra-credit to the initial account value, a dollar cost averaging
account that pays an above-market rate of interest while new money is being
transferred into investment portfolios, an enhanced death benefit (Protection
Plus(R)) and Equitable Life's minimum guaranteed income benefit. In addition, in
January 2001, Equitable Life introduced Accumulator Advisor sm, a variable
annuity designed specifically for use in fee-based securities brokerage
accounts.
Equitable Life also offers individual single premium deferred annuities
including Guaranteed Growth Annuity, introduced in September 2001, which credit
an initial and subsequent annually declared interest rates, and payout annuity
products which include traditional immediate annuities, variable immediate
annuities, which provide lifetime periodic payments that fluctuate with the
performance of underlying investment portfolios, and the Income Manager sm,
which provides guaranteed lifetime payments with cash values during an initial
period.
1-2
The continued growth of third-party assets under management remains a strategic
objective of AXA Financial, which seeks to increase the percentage of its income
that is fee-based and derived from managing funds, including Separate Account
assets, for its clients (who bear the investment risk and reward). Over the past
five years, Separate Account assets for individual variable life and variable
annuities have increased by $21.99 billion to $39.66 billion at December 31,
2001, including approximately $37.58 billion invested through EQ Advisors Trust
("EQAT"), a mutual fund offering variable life and annuity contractholders
investment portfolios advised by Alliance and by unaffiliated investment
advisors. At December 31, 2001, EQAT had 40 investment portfolios, 16 of which
were managed by Alliance, representing 75.2% of the assets in EQAT, and 24 of
which were managed by unaffiliated investment advisors. Equitable Life serves as
Investment Manager of EQAT.
In January 2002, Equitable Life launched the AXA Premier Funds, a family of
multi-manager, sub-advised retail mutual funds which provide investors with
diversified investment strategies based on their individual needs and risk
tolerance. The AXA Premier Funds feature ten mutual funds, including eight
equity funds, one bond fund and one money market fund. Eighteen money management
firms serve as sub-advisers to the AXA Premier Funds, including Alliance, AXA
Investment Managers, AXA Rosenberg and Bernstein Investment Research, a unit of
Alliance. In addition, commencing on January 14, 2002, these investment fund
options are also offered within the Equitable Life variable annuity product
array through AXA Premier VIP Trust, a new trust established for this purpose.
In addition to products issued by the Insurance Group, financial professionals
through AXA Network have access to products and services from unaffiliated
insurers and from other financial services firms, including life, health and
long-term care insurance products, annuity products and mutual funds and other
investment products and services.
Markets. The Financial Advisory/Insurance Group's targeted customers include
affluent and emerging affluent individuals who are seeking financial planning
advice, such as professionals and owners of small businesses, as well as
employees of public schools, universities, not-for-profit entities and certain
other tax-exempt organizations, and existing customers. Variable life insurance
is targeted particularly at executive benefit plans, the estate planning market
and the market for business continuation needs (e.g., the use of variable life
insurance to fund buy/sell agreements and similar arrangements), as well as the
middle-to-upper income life protection markets. Target markets for variable
annuities include, in addition to the personal retirement savings market, the
tax-exempt markets (particularly retirement plans for educational and
not-for-profit organizations), corporate pension plans (particularly 401(k)
defined contribution plans covering 25 to 3,000 employees) and the IRA
retirement planning market. The Income Manager sm series of annuity products
includes products designed to address the growing market of those at or near
retirement who need to convert retirement savings into retirement income. Mutual
funds and other investment products are intended for new and existing financial
planning, annuity and brokerage clients to add breadth and depth to the range of
needs-based services and products the Financial Advisory/Insurance Group is able
to provide.
Distribution. Retail distribution of products and services is accomplished by
approximately 7,000 financial professionals of AXA Advisors and/or AXA Network,
approximately 3,200 of whom are fully credentialed to offer a broad array of
insurance and investment products and who account for the substantial majority
of our production. Field operations are organized into six divisions across the
United States. Wholesale distribution of products is undertaken through AXA
Distributors, which at year end 2001 had 560 selling agreements, including
arrangements with five major wirehouse firms, 85 banks or similar financial
institutions, and 470 broker-dealers and financial planners. Three major
securities firms were responsible for approximately 13.9%, 9.7% and 6.2%
respectively of AXA Distributors' 2001 premiums and deposits. In 2001, AXA
Distributors was responsible for approximately 23.4% of product sales. In 2001,
AXA Distributors launched the Online Wholesaler sm, providing online access to
resources and tools to enable its financial advisors to better serve the needs
of their customers.
Reinsurance. The Insurance Group now cedes 90% of mortality risk on
substantially all new variable life, universal life and term life policies, and
generally limits risk retention on new policies to a maximum of $5.0 million on
single-life policies, and $15.0 million on second-to-die policies. New policies
are automatically reinsured, subject to limits that range from $25.0 million to
$50.0 million per policy, depending upon the product. For amounts applied for in
excess of those limits, facultative reinsurance is sought. A contingent
liability exists with respect to reinsurance ceded should the reinsurers be
unable to meet their obligations. Therefore, the Insurance Group carefully
evaluates the financial condition of its reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. The Insurance Group is not 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 3.3%
of the total policy life reserves of the Insurance Group (including Separate
Accounts).
The Insurance Group also cedes a percentage of its exposure on certain variable
annuity products. For additional information, see Note 2 of Notes to
Consolidated Financial Statements.
1-3
The Insurance Group acts as a retrocessionaire by assuming life reinsurance from
reinsurers. Mortality risk through reinsurance assumed is limited to $5.0
million on single-life policies and on second-to-die policies.
In July 2000, Equitable Life transferred, at no gain or loss, all the risk of
its directly written disability income business for years 1993 and prior to
Centre Life Insurance Company, a subsidiary of Zurich Financial Services
("Centre Life"). The transfer of risk to Centre Life was accomplished through an
indemnity reinsurance contract. The cost of the arrangement will be amortized
over the expected lives of the contracts reinsured and will not have a
significant impact on the results of operations in any specific period. For
additional information about this indemnity reinsurance contract and the
Insurance Group's reinsurance agreements in general, see Note 13 of Notes to
Consolidated Financial Statements.
Investment Management
General. The Investment Management segment is comprised of the operations of
Alliance, which provides diversified investment management and related services
to the Insurance Group and globally to a broad range of other clients, including
(a) institutional investors, consisting of unaffiliated entities such as
corporate and public employee pension funds, endowment funds, domestic and
foreign institutions and governments, by means of separate accounts,
sub-advisory relationships resulting from the efforts of the institutional
marketing department, structured products, group trusts, and mutual funds and
classes of mutual fund shares sold exclusively to institutional investors and
high net worth individuals, (b) private clients, consisting of high net worth
individuals, trusts and estates, charitable foundations, partnerships, private
and family corporations and other entities, by means of separate accounts, hedge
funds, and certain other vehicles, (c) individual investors by means of retail
mutual funds sponsored by Alliance, its subsidiaries and affiliated joint
venture companies including cash management products such as money market funds
and deposit accounts and sub-advisory relationships in respect of mutual funds
sponsored by third parties resulting from the efforts of Alliance's mutual fund
marketing department and "managed account" products and (d) institutional
investors by means of in-depth research, portfolio strategy trading and
brokerage-related services. Alliance and its subsidiaries provide investment
management, distribution and shareholder and administrative services to the
mutual funds described in this paragraph. The acquisition of Bernstein, a
leading value investment manager, complements Alliance's growth investment
orientation, adds significantly to the base of high net worth clients and
provides Alliance with institutional research capabilities. The Investment
Management segment in 2001 accounted for approximately $3.0 billion (or 38.4%)
of total revenues, after intersegment eliminations. As of December 31, 2001,
Alliance had approximately $455.4 billion in assets under management including
approximately $258.6 billion from institutional investors, $40.2 billion for
private clients and approximately $156.6 billion from retail mutual fund
accounts. As of December 31, 2001, assets of AXA and the Insurance Group,
including investments in EQAT, represented approximately 18.4% of Alliance's
total assets under management, and approximately 6.4% of Alliance's total
revenues.
Interest in Alliance. At December 31, 2001, the Holding Company, Equitable Life
and certain subsidiaries had combined holdings equaling an approximate 52.3%
economic interest in Alliance's operations, including the general partnership
interest held indirectly by Equitable Life as the sole shareholder of the
general partner of Alliance Capital Management Holding L.P. ("Alliance Holding")
and Alliance. Alliance Holding is subject to an annual 3.5% Federal tax on its
proportionate share of the gross business income of Alliance. Alliance, as a
private partnership, is not subject to this 3.5% tax. Alliance Holding and
Alliance are generally not subject to state and local income taxes, with the
exception of the New York City unincorporated business tax of 4%.
For additional information about Alliance, including its results of operations,
see "Regulation" and "Management Narrative - Results Of Continuing Operations By
Segment - Investment Management" and Alliance's Annual Report on Form 10-K for
the year ended December 31, 2001.
Assets Under Management and Fees. AXA Financial continues to pursue its strategy
of increasing third-party assets under management. The Investment Management
segment continues to add third-party assets under management, and to provide
asset management services to the Insurance Group. Of the $480.99 billion of
assets under management at December 31, 2001, $392.59 billion (or 81.6%) were
managed for third parties, including $345.64 billion from unaffiliated third
parties and $46.95 billion for the Separate Accounts, and $36.15 billion were
managed principally for the General Account and invested assets of subsidiaries.
Of the $2.02 billion of fees for assets under management received for the year
ended December 31, 2001, $1.99 billion were received from third parties,
including $1.90 billion from unaffiliated third parties and $87.56 million in
respect of Separate Accounts, and $36.28 million in respect of the General
Account. For additional information on assets under management, see "Management
Narrative - Results Of Continuing Operations By Segment - Assets Under
Management".
1-4
Discontinued Operations
In November 2000, AXA Financial sold its interest in DLJ. DLJ's operations
comprised the Investment Banking and Brokerage segment and are now reflected in
the consolidated financial statements as discontinued operations. Other
Discontinued Operations includes primarily Wind-Up Annuity products, the terms
of which were fixed at issue, which were sold to corporate sponsors of
terminating qualified defined benefit plans. At December 31, 2001, $932.9
million of contractholder liabilities were outstanding. For additional
information about discontinued operations, see Note 8 of Notes to Consolidated
Financial Statements.
General Account Investment Portfolio
General. The General Account consists of a diversified portfolio of investments.
The General Account liabilities can be divided into two primary types,
participating and non-participating. For participating products, the investment
results of the underlying assets determine, to a large extent, the return to the
policyholder, and the Insurance Group's profits are earned from investment
management, mortality and other charges. For non-participating or
interest-sensitive products, the Insurance Group's profits are earned from a
positive spread between the investment return and the crediting or reserve
interest rate.
The Insurance Group has developed an asset/liability management approach with
separate investment objectives for specific classes of product liabilities, such
as insurance, annuity and group pension. As part of this approach, the Insurance
Group develops investment guidelines for each product line which 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.
The Closed Block assets are a part of continuing operations and have been
combined in the Management Narrative on a line-by-line basis with assets outside
of the Closed Block. Therefore, the Closed Block assets are included in the
table below. Most individual investments in the portfolios of Other Discontinued
Operations are also included in General Account Investment Assets. For more
information on the Closed Block, see Notes 2 and 7 of Notes to Consolidated
Financial Statements.
The following table summarizes General Account Investment Assets by asset
category at December 31, 2001.
General Account Investment Assets
Net Amortized Cost (1)
(Dollars in Millions)
Amount % of Total
------------------ ------------------
Fixed maturities (2)................... $ 23,506.4 68.9%
Mortgages.............................. 4,375.8 12.8
Equity real estate..................... 877.8 2.6
Other equity investments............... 843.8 2.5
Policy loans........................... 4,099.9 12.0
Cash and short-term investments(3)..... 418.7 1.2
------------------ ------------------
Total.................................. $ 34,122.4 100.0%
================== ==================
<FN>
(1) Net Amortized Cost is the cost of the General Account Investment Assets
(adjusted for permanent impairment, if any) less depreciation and
amortization, where applicable, and less valuation allowances on mortgage
and real estate portfolios.
(2) Excludes unrealized gains of $478.4 million on fixed maturities classified
as available for sale. Fixed maturities includes approximately $1.89
billion net amortized cost of below 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.
</FN>
Certain investments contained in the General Account's investment portfolio
include securities issued by companies in industries that could be adversely
affected by future terrorist acts and any responsive actions. These industries
could include commercial airlines, hotels and property and casualty insurers and
reinsurers. As of December 31, 2001, directly held investments in fixed income
or equities involving companies in the above-mentioned industries represented
approximately 2.0% of the General Account investment portfolio.
1-5
Investment Surveillance. 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 certain assets by the Insurance Group's
Surveillance Committee which evaluates whether any investments are other than
temporarily impaired, whether specific investments should be classified as
problems, potential problems or restructures, and whether specific investments
should be put on an interest non-accrual basis.
Employees and Financial Professionals
As of December 31, 2001, AXA Financial had approximately 9,400 employees. Of
these, approximately 4,880 were employed by the Financial Advisory/Insurance
Group and approximately 4,540 were employed by Alliance. In addition, the
Financial Advisory/Insurance Group had a sales force of approximately 7,000
financial professionals, including approximately 370 field force managers.
Competition
Financial Advisory/Insurance. There is strong competition among companies
seeking clients for the types of products and services provided by the Financial
Advisory/Insurance Group. The market for financial planning products and
services has become increasingly competitive because of increased activity by
insurance companies, brokerage houses and independent financial planners. Many
other insurance companies offer one or more products similar to those offered by
the Insurance Group and in some cases through similar marketing techniques. In
addition, there is competition with banks and other financial institutions for
sales of insurance, annuity and other investment products and services and with
mutual funds, investment advisers and other financial entities for the
investment of savings dollars. The principal competitive factors affecting the
Financial Advisory/Insurance Group's business are price, financial and
claims-paying ratings, size, strength, professionalism and objectivity of the
sales force, range of product lines, product quality, reputation, visibility and
name recognition in the marketplace, quality of service and, with respect to
variable insurance and annuity products, mutual funds and other investment
products, investment management performance.
Ratings are an important factor in establishing the competitive position of
insurance companies. As of March 28, 2002, the financial strength or
claims-paying rating of Equitable Life was AA from Standard & Poor's Corporation
(3rd highest of 22 ratings; with outlook revised to negative), Aa3 from Moody's
Investors Service (4th highest of 21 ratings), A+ from A.M. Best Company, Inc.
(2nd highest of 15 ratings), and AA from Fitch Investors Service, L.P. (3rd
highest of 24 ratings). As of March 28, 2002, AXA Financial's long-term debt
rating was A+ from Standard & Poor's Corporation (5th highest of 22 ratings;
with outlook revised to negative), A2 from Moody's Investors Services (6th
highest of 21 ratings) and A+ from Fitch Investors Service, L.P. (5th highest of
24 ratings).
Investment Management. The financial services industry is highly competitive and
new entrants continually are attracted to it. No single competitor, or any small
group of competitors, is dominant in the industry. Alliance is subject to
substantial competition in all aspects of its business. Pension fund,
institutional and corporate assets are managed by investment management firms,
broker-dealers, banks and insurance companies. Many of these financial
institutions have substantially greater resources than Alliance. Alliance
competes with other providers of institutional investment products primarily on
the basis of the range of investment products offered, the investment
performance of such products and the services provided to clients. Consultants
also play a major role in the selection of managers for pension funds.
Many of the firms competing with Alliance for institutional clients also offer
mutual fund shares and cash management services to individual investors.
Competitiveness in this area is chiefly a function of the range of mutual funds
and cash management services offered, investment performance, quality in
servicing customer accounts and the capacity to provide financial incentives to
financial intermediaries through distribution assistance and administrative
services payments funded by "Rule 12b-1" distribution plans and the investment
adviser's own resources.
AXA, AXA Financial, Equitable Life and certain of their direct and indirect
subsidiaries provide financial products and services, some of which are
competitive with those offered by Alliance. Alliance's partnership agreement
specifically allows Equitable Life and its subsidiaries (other than the general
partner of Alliance ) to compete with Alliance and to exploit opportunities that
may be available to Alliance. In addition, Alliance provides investment
management services to unaffiliated insurance companies.
Management from time to time continues to explore selective acquisition
opportunities in AXA Financial's insurance and investment management businesses.
1-6
Regulation
State 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 of the United States, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands and Canada and nine of Canada's
twelve provinces and territories. Equitable Life is domiciled in New York and is
primarily regulated by the Superintendent (the "Superintendent") of the New York
Insurance Department (the "NYID"). EOC is domiciled in Colorado and is primarily
regulated by the Commissioner of Insurance of the Colorado Division of
Insurance. The extent of state 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. Additionally, the New York Insurance Law limits
sales commissions and certain other marketing expenses that may be incurred by
Equitable Life. Each of Equitable Life and EOC 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 Equitable Life's
and EOC's operations and accounts, and make occasional requests for particular
information from the Insurance Group. In January 1998 the Florida Attorney
General and the Florida Department of Insurance issued subpoenas to Equitable
Life, and in December 1999 the Florida Attorney General issued an additional
subpoena to Equitable Life, in each case requesting, among other things,
documents relating to various sales practices. Equitable Life has responded to
the subpoenas. A number of states have enacted legislation requiring insurers
who sold policies in Europe prior to and during the Second World War to file
information concerning those policies with state authorities. Although Equitable
Life intends to comply with these laws with respect to its own activities, the
ability of AXA and its European affiliates to comply may be impacted by various
factors including the availability of relevant information after the passage of
more than 50 years and privacy laws in effect in various European countries,
which could result in state regulatory authorities seeking to take enforcement
actions against AXA and its U.S. affiliates, including Equitable Life, even
though Equitable Life does not control AXA.
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, loans and shareholder
dividend payments by insurers. Depending on their size, such transactions and
payments may be subject to prior notice or approval by the NYID. Equitable Life
has agreed with the NYID that similar approval requirements also apply to
transactions between (i) material subsidiaries of Equitable Life and (ii) the
Holding Company (and certain affiliates, including AXA). In 2001 Equitable Life
paid an aggregate of $1.7 billion in shareholder dividends, and expects to pay
additional dividends in 2002.
Statutory Surplus and Capital. Insurance regulators have the discretionary
authority to limit or prohibit new issuances of business to policyholders within
their jurisdiction when, in their judgment, such regulators determine that the
issuing company is not maintaining adequate statutory surplus or capital.
Federal Initiatives. Although the Federal government generally does not directly
regulate the insurance business, many Federal laws affect the business in a
variety of ways. There are a number of existing, newly enacted or recently
proposed Federal initiatives which may significantly affect the Insurance Group,
including employee benefits regulation and removal of barriers preventing banks
from engaging in the insurance and mutual fund businesses. In June 2001, tax
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 a return to 2001 law for the
year 2011 and thereafter. These provisions could have an adverse impact on sales
of life insurance in connection with estate planning. Other provisions of the
legislation increased amounts which may be contributed to tax qualified
retirement plans and could have a positive impact on funding levels of tax
qualified retirement products. Management cannot predict what other proposals
may be made, what legislation, if any, may be introduced or enacted or what the
effect of any such legislation might be.
Securities Laws. The Holding Company, 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 Securities and Exchange
Commission (the "SEC") and under certain state securities laws. The SEC conducts
regular examinations of the Insurance Group's operations, and makes occasional
requests for particular information from the Insurance Group. Certain Separate
Accounts of Equitable Life 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 Equitable Life are also registered under the Securities Act
of 1933, as amended (the "Securities Act"). AXA Advisors, AXA Distributors,
Alliance Fund Distributors, Inc., Sanford C. Bernstein & Co., LLC and certain
other subsidiaries of AXA Financial 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. ("NASD").
1-7
Broker-dealers are subject to regulation by state securities administrators in
those states in which they conduct business. The SEC, other governmental
regulatory authorities, including state securities administrators, and the NASD
may institute administrative or judicial proceedings which may result in
censure, fine, the issuance of cease-and-desist orders, the suspension or
expulsion of a broker-dealer or member, its officers or employees or other
similar consequences.
As broker-dealers registered with the SEC, the Broker-Dealers are subject to the
capital requirements of the SEC and/or 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.
Equitable Life, AXA Advisors, Alliance and certain affiliates of Alliance also
are registered as investment advisors under the Investment Advisers Act of 1940,
as amended (the "Investment Advisers Act"). Many of the investment companies
managed by Alliance, including a variety of mutual funds and other pooled
investment vehicles, are registered with the SEC under the Investment Company
Act. All aspects of the investment advisory activities of Equitable Life, AXA
Advisors and Alliance are subject to various Federal and state laws and
regulations and to the laws in those foreign countries in which they conduct
business.
Privacy of Customer Information. Federal law and regulation require financial
institutions to protect the security and confidentiality of customer information
and to notify customers about their policies and practices relating to their
collection, disclosure and protection of customer information. Federal and state
laws also regulate disclosures of customer information. Congress and state
legislatures are expected to consider additional regulation relating to privacy
and other aspects of customer information.
Parent Company
AXA, the sole shareholder of the Holding Company, 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 operates
primarily in Western Europe, North America, the Asia/Pacific region and, to a
lesser extent, in other regions including the Middle East, Africa and South
America. 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 the Holding Company 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 the Holding Company, 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,
the "Voting Trust Agreement"). Pursuant to the Voting Trust Agreement, AXA and
its affiliates ("AXA Parties") have deposited the shares of the Holding
Company'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
the Holding Company or Equitable Life.
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 attaching 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 the
Holding Company or Equitable Life). 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 which 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 Voting Trust has an initial term ending in 2002 and is
subject to extension with the prior approval of the Superintendent. Management
expects the term of the Voting Trust to be extended.
1-8
Part I, Item 2.
PROPERTIES
Financial Advisory/Insurance
Equitable Life 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 the Holding Company's and Equitable Life's headquarters. Additionally,
Equitable Life leases an aggregate of approximately 113,000 square feet of
office space at two other locations in New York, NY. Equitable Life also has the
following significant leases: 218,000 square feet in Secaucus, NJ under a lease
that expires in 2011 for its Annuity Operations use; 185,000 square feet in
Charlotte, NC, under a lease that expires in 2013 for use by its National
Operations Center; 113,000 square feet in Alpharetta, GA, under a lease that
expires in 2006 for its Distribution Organizations' training and support use;
and 67,800 square feet in Leonia, NJ, under a lease that expires in 2009 for its
Information Technology processing use. In addition, Equitable Life leases
property both domestically and abroad, the majority of which houses sales and
distribution operations. Management believes its facilities are adequate for its
present needs in all material respects. For additional information, see Note 18
of Notes to Consolidated Financial Statements.
Equitable Life 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 Equitable Life.
Investment Management
Alliance's principal executive offices at 1345 Avenue of the Americas, New York,
NY are occupied pursuant to a lease that extends until 2019. Alliance currently
occupies approximately 566,011 square feet of space at this location. Alliance
also occupies approximately 114,097 square feet of space at 135 West 50th
Street, New York, NY, and approximately 187,203 square feet of space at 767
Fifth Avenue, New York, NY, under leases expiring in 2016, and 2002 and 2005,
respectively. Alliance also occupies approximately 4,594 square feet of space at
709 Westchester Avenue, White Plains, NY, 45,242 square feet of space at 925
Westchester Avenue, White Plains, NY, 4,341 square feet of space at One North
Broadway, White Plains, NY, and 127,136 square feet of space at One North
Lexington, White Plains, NY, under leases expiring in 2008, 2008, 2008 and 2013,
respectively. Alliance and two of its subsidiaries occupy approximately 134,261
square feet of space in Secaucus, New Jersey, approximately 92,067 square feet
of space in San Antonio, Texas, and approximately 60,653 square feet of space in
Scranton, Pennsylvania, under leases expiring in 2016, 2009, and 2005,
respectively.
Alliance also leases space in 11 cities in the United States and its
subsidiaries and affiliates lease space in London, England, Tokyo, Japan and 25
other cities outside the United States.
2-1
LEGAL PROCEEDINGS
The matters set forth in Note 17 of Notes to the Holding Company's Consolidated
Financial Statements for the year ended December 31, 2001 (Item 8 of this
report) are incorporated herein by reference, with the following additional
information.
In McEachern, in February 2002, the court denied the plaintiff's motion to
remand and granted defendants' motion to dismiss, but permitted plaintiff until
April 1, 2002 to file an amended complaint in Federal Court.
In Malholtra, plaintiffs have amended their complaint in response to defendants'
motion to dismiss.
In the Mississippi Actions, four additional lawsuits were filed by seven
additional plaintiffs. In March 2002, the Circuit Court of Sunflower County, in
one of the previously filed lawsuits, granted Equitable Life's motion, joined by
the agent defendant, to dismiss that action with prejudice. Plaintiffs, in that
case, have filed a notice to appeal.
In American National Bank, after the District Court denied defendants' motion to
assert certain defenses and counterclaims, Equitable Life commenced an action,
in December 2001, entitled The Equitable Life Assurance Society of the United
States v. American National Bank and Trust Company of Chicago, as trustee f/b/o
Emerald Investments LP and Emerald Investments LP, in the United States District
Court for the Northern District of Illinois. The complaint arises out of the
same facts and circumstances as described in American National Bank. Equitable
Life's complaint alleges common law fraud and equitable rescission in connection
with certain annuities issued by Equitable Life. Equitable Life seeks
unspecified money damages, rescission, punitive damages and attorneys' fees. In
March 2002, defendants filed an answer to Equitable Life's complaint and
asserted counterclaims. Defendants' counterclaims allege common law fraud,
violations of the Federal and Illinois Securities Acts and violations of the
Illinois and New York Consumer Fraud Acts. Defendants seek unspecified money
damages, punitive damages and attorneys' fees.
In Uhrik, the stipulation of settlement has been filed with the Delaware Court
of Chancery.
In Miller, the court issued an order granting defendants' joint motion to
dismiss the complaint, but permitted plaintiffs until April 1, 2002 to file an
amended complaint comporting with its order.
In March 2002, the Federal District Court in the Middle District of Florida,
Tampa Division granted defendants' motion to transfer the Roy Complaint to the
Federal District Court in the District of New Jersey. Also in March 2002, a
complaint entitled Gissen v. Alliance Capital Management LP and Alliance Premier
Growth Fund ("Gissen Complaint") was filed in Federal District Court in the
District of New Jersey against Alliance and Premier Growth Fund. The allegations
and relief sought in the Gissen Complaint are virtually identical to the Benak
Complaint.
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
AND RELATED STOCKHOLDER MATTERS
Prior to the close of business on January 2, 2001, the Holding Company's Common
Stock was listed on the New York Stock Exchange ("NYSE") under the symbol AXF.
Following January 2, 2001, all of the Holding Company's Common Stock is owned by
AXA and certain of its affiliates.
The dividends declared and the high and low reported closing sales prices on the
NYSE with respect to the Holding Company's Common Stock for each quarterly
period for the last fiscal year in which the Holding Company's Common Stock was
listed on the NYSE were as follows:
Common Stock Data
First Quarter Second Quarter Third Quarter Fourth Quarter
Price Range and Dividends 2000 2000 2000 2000
- ------------------------------------- ----------------- ------------------- ---------------- -----------------
High................................. $ 37.50 $ 43.56 $ 52.50 $ 56.81
Low.................................. $ 26.13 $ 30.31 $ 35.00 $ 49.69
Dividends Declared................... $ .025 $ .025 $ .025 $ .025
In 2001, the Holding Company paid shareholder dividends of $1.7 billion. For
information on the Holding Company's present and future ability to pay
dividends, see "Liquidity and Capital Resources" of Management Narrative (Item 7
of this report).
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 that follows
should be read in conjunction with the consolidated financial statements and
related footnotes included elsewhere in this report.
GENERAL
Certain non-recurring events have impacted AXA Financial's results of
operations. In fourth quarter 2000 and January 2001, AXA and AXA Merger acquired
the approximately 40% minority interest share of the Holding Company's Common
Stock. As a result of this purchase, AXA Financial's management amended the
terms of substantially all of the outstanding Holding Company stock options.
Approximately $751.4 million of expenses, principally related to modifications
to and accelerated vesting of Holding Company stock options that resulted from
the AXA minority interest buyout, are included in pre-tax earnings from
continuing operations for 2000. In January 2001, AXA Merger was merged into the
Holding Company, resulting in AXA Financial becoming a wholly owned subsidiary
of AXA. See Notes 1 and 2 of Notes to Consolidated Financial Statements for
further information.
Also in 2000, AXA Financial sold its interest in DLJ for cash and CSG stock
totaling $7.15 billion. See Notes 1 and 8 of Notes to Consolidated Financial
Statements for further information. In 2001 and 2000, respectively, $27.1
million of realized income and $159.9 million of realized and unrealized losses
on the CSG shares were included in net investment income. The remaining CSG
shares were sold in first quarter 2001.
In October 2000, Alliance purchased Bernstein. The cash portion of the
consideration came from the Holding Company's purchase of new Alliance Units
earlier in that year. For further information on the Bernstein acquisition, see
Note 1 of Notes to Consolidated Financial Statements. The amortization of
goodwill and intangible assets, substantially related to the acquisition of
Bernstein, totaled $206.1 million and $79.2 million in 2001 and 2000,
respectively.
CONSOLIDATED RESULTS OF OPERATIONS
Total revenues increased $665.4 million in 2001 due to increases in both the
Financial Advisory/Insurance and Investment Management segments. Lower
investment losses in the Financial Advisory/Insurance segment and the inclusion
of Bernstein related revenues in the Investment Management segment's results for
the full year in 2001 were partially offset by lower net investment income and
the decline in policy fees and premiums experienced in 2001 in the Financial
Advisory/Insurance segment.
When the above mentioned $751.4 million of minority interest buyout related
expenses in 2000 are excluded, total benefits and other deductions increased
$423.0 million in 2001 as compared to 2000. Higher compensation and benefits in
both segments, higher amortization of intangible assets and increased rent
expense principally related to the Bernstein acquisition in the Investment
Management segment were partially offset by lower operating costs in the
Financial Advisory/Insurance segment principally due to lower consulting
expenses.
Earnings from continuing operations before Federal income taxes and minority
interest were $894.2 million for 2001, an increase of $993.8 billion from the
$99.6 million loss reported in the prior year. The increase was principally
attributed to lower net losses on high yield maturities in 2001 and to the
one-time $751.4 million charge related to AXA's minority interest acquisition in
2000.
Federal income tax expense totaled $219.6 million in 2001 as compared to the
$42.5 million tax benefit reported in 2000, as the results of continuing
operations returned to a positive level in 2001. The 2001 expense included a
$28.2 million release of tax audit reserves as compared to a $17.9 million
increase in reserves in 2000. Minority interest in net income of consolidated
subsidiaries increased $10.0 million as a result of the full year impact of the
decrease in AXA Financial's ownership interest in Alliance that resulted from
the issuance of new Alliance Units to third parties in fourth quarter 2000 in
conjunction with the Bernstein acquisition.
Net earnings were $424.8 million for 2001 compared to $2.42 billion for 2000.
The higher net earnings in 2000 were principally due to the $2.32 billion gain
related to the sale of AXA Financial's interest in DLJ and to net earnings of
the Investment Banking and Brokerage segment of $376.2 million through the date
of sale.
7-1
RESULTS OF CONTINUING OPERATIONS BY SEGMENT
Financial Advisory/Insurance.
Financial Advisory/Insurance - Results of Operations
(In Millions)
2001 2000
----------------- ------------------
Universal life and investment-type product policy fee income...................... $ 1,342.3 $ 1,413.3
Premiums.......................................................................... 1,019.9 1,175.0
Net investment income............................................................. 2,349.8 2,585.3
Investment (losses) gains, net.................................................... (204.6) (833.6)
Commissions, fees and other income................................................ 405.0 414.0
----------------- ------------------
Total revenues............................................................... 4,912.4 4,754.0
----------------- ------------------
Policyholders' benefits........................................................... 1,886.9 2,060.3
Interest credited to policyholders' account balances.............................. 981.7 1,048.5
Compensation and benefits......................................................... 784.5 582.8
Commissions....................................................................... 477.8 533.2
Deferred policy acquisition costs, net............................................ (458.5) (469.1)
All other operating costs and expenses............................................ 838.5 1,640.7
----------------- ------------------
Total benefits and
other deductions.......................................................... 4,510.9 5,396.4
----------------- ------------------
Earnings (Loss) from Continuing Operations before Federal Income Taxes............ $ 401.5 $ (642.4)
================= ==================
2001 Compared to 2000 - The Financial Advisory/Insurance segment generated
pre-tax earnings from continuing operations of $401.5 million in 2001, compared
to $(642.4) million in losses in the prior year period. The 2000 pre-tax losses
included $746.3 million of expenses related to AXA's minority interest purchase
and $147.3 million of investment losses on CSG shares received as part of the
proceeds from the sale of DLJ.
Segment revenues increased $158.4 million (3.3%) over the prior year period as
$629.0 million in lower investment losses were partially offset by declines in
the other revenue lines. Premiums decreased $155.1 million in 2001 principally
related to lower DI premiums due to the indemnity reinsurance agreement entered
into in July 2000. Policy fee income decreased $71.0 million principally due to
lower Separate Account balances resulting from market depreciation. Net
investment income declined $235.5 million principally due to lower earnings on
equity interests, lower yields on fixed maturities and the impact of a smaller
average asset base. Net investment (loss) income from other equity investments
totaled $(66.0) million in 2001 as compared to $33.7 million in 2000, including
the $27.1 million of realized income and the $147.3 million of realized and
unrealized losses, respectively, on CSG shares. The negative results on the
equity investment portfolio in 2001 reflected lower values and were principally
due to weak equity markets, tight credit conditions and a reduction in new stock
offerings. Investment losses, net decreased by $629.0 million in 2001
principally as a result of lower losses associated with high yield securities.
These losses in 2001 included $287.5 million of writedowns primarily of high
yield fixed maturities and $72.4 million of net realized gains on fixed
maturities sold from the General Account portfolio compared to $635.5 million of
writedowns primarily on high yield securities and $159.2 million of net realized
losses in 2000. In addition, there were lower investment losses of $6.6 million
and $10.4 million on mortgage loans and other equity investments, respectively,
and $33.0 million higher gains on equity real estate in 2001 as compared to the
corresponding portfolios results in 2000. Commissions, fees and other income
declined $9.0 million in 2001 as compared to 2000 principally due to lower gross
investment management fees received from EQ Advisors Trust due to a smaller
asset base and lower mutual fund and investment product sales.
7-2
Total benefits and other deductions in 2001 decreased $885.5 million from 2000
principally due to the minority interest buyout expenses mentioned above. When
this amount is excluded, the decrease totaled $139.2 million as the $201.7
million higher compensation and benefits costs were more than offset by a $173.4
million decrease in policyholders' benefits and a $66.8 million decrease in
interest credited. The increase in compensation and benefits was primarily due
to severance benefits for certain former AXA Financial senior officers and
employees associated with cost reduction programs, partially offset by the $74.0
million credit recognized in 2001 resulting from the reduction of the SARs
liability. Lower first year commissions resulting from lower sales were
substantially offset by lower DAC capitalization. The decrease in policyholders'
benefits was due primarily to the decline in DI benefits that were reinsured in
July 2000 and the reserve impact of lower premiums in 2001, partially offset by
less favorable mortality including provisions for expected policyholders'
benefits associated with the September 11, 2001 terrorist attacks. Interest
credited to policyholders' account balances decreased due to lower crediting
rates.
First year premiums and deposits for life and annuity products in 2001 decreased
from prior year levels by $1.09 billion to $4.82 billion primarily due to $1.04
billion lower sales of individual annuities. Management believes the decline in
variable annuity sales that began in the second half of 2000 and continued in
2001 was primarily due to the impact of weaker equity markets and the downturn
in the U.S. economy. Fourth quarter 2001 annuity deposits totaled $1.34 billion,
an increase of 7.8% from the comparable prior year's quarter, and included
$410.1 million in sales of a new single premium deferred annuity product
launched at the end of September 2001. Renewal premiums and deposits decreased
by $156.6 million to $4.39 billion in 2001 due to declines in DI attributable to
the reinsurance agreement entered into in 2000. Mutual fund sales decreased
$323.3 million to $3.25 billion in 2001.
Policy and contract surrenders and withdrawals decreased $795.0 million to $4.87
billion during 2001 compared to 2000. The annuities' surrender rate decreased
from 9.6% in 2000 to 9.1% in 2001. The trends in surrenders and withdrawals
continue to fall within the range of expected experience.
Investment Management. The table below presents the operating results of the
Investment Management segment, consisting principally of Alliance's operations.
7-3
Investment Management - Results of Operations
(In Millions)
2001 2000
--------------- ----------------
Revenues:
Investment advisory and services fees(1).............................. $ 2,023.8 $ 1,689.9
Distribution revenues................................................. 544.6 621.6
Institutional research services revenues.............................. 265.8 56.3
Shareholder servicing fees............................................ 96.3 85.6
Other revenues, net (1)............................................... 69.8 70.2
--------------- ----------------
Total revenues.................................................... 3,000.3 2,523.6
--------------- ----------------
Expenses:
Employee compensation and benefits.................................... 927.8 651.9
Distribution plan payments............................................ 488.0 476.0
Amortization of deferred sales commissions............................ 230.8 219.7
All other promotion and servicing expenses............................ 174.6 148.7
Amortization of goodwill and intangibles.............................. 206.1 79.2
All other operating expenses.......................................... 480.3 405.3
--------------- ----------------
Total expenses.................................................... 2,507.6 1,980.8
--------------- ----------------
Earnings from Continuing Operations before
Federal Income Taxes and Minority Interest............................ $ 492.7 $ 542.8
=============== ================
<FN>
(1) Includes fees earned by Alliance totaling $38.9 million and $39.6 million
in 2001 and 2000, respectively, for services provided to the Insurance
Group.
</FN>
2001 Compared to 2000 - Investment Management's results of operations for 2001
were $492.7 million, a decrease of $50.1 million from the prior year. Revenues
totaled $3.00 billion in 2001, an increase of $476.7 million from 2000,
principally due to $333.9 million higher investment advisory and services fees
and $209.5 million higher institutional research service fees, partially offset
by a $77.0 million decrease in distribution revenues. Investment advisory and
services fees include brokerage transaction charges for SCB. The increase in
investment advisory and services fees primarily resulted from increases in
average assets under management primarily as a result of the Bernstein
acquisition which caused the results of Bernstein to be included in 2001 and in
fourth quarter 2000 and an increase in performance fees of $6.9 million to $79.4
million in 2001. These higher performance fees were principally the result of
certain hedge funds investing in value stocks during 2001. The decrease in
distribution revenues was principally due to lower average mutual fund assets
under management attributed to market depreciation. Institutional research
services revenues were $265.8 million for 2001 and $56.3 million for fourth
quarter 2000 as a result of the Bernstein acquisition. Other revenues, net for
2000 included $29.8 million of interest earned on the proceeds from the Holding
Company's purchase of Alliance Units in June 2000.
The segment's total expenses were $2.51 billion in 2001, $527.2 million higher
than in 2000. The resolution of a class action lawsuit in 2000 resulted in the
recognition of a one-time, non-cash gain of $23.9 million, which reduced all
other operating expenses for the 2000 period. When this one-time gain is
excluded, Investment Management's total expenses increased $503.3 million in
2001 primarily due to increases of $275.9 million in employee compensation and
benefits, $126.9 million in higher amortization of goodwill and intangibles and
a $49.0 million increase in mutual fund promotional expenditures. These
promotion and servicing increases were primarily due to higher floor brokerage
expenses in connection with the Bernstein acquisition and higher amortization of
deferred sales commissions. The increase in employee compensation and benefits
was due to higher base compensation and commissions reflecting increased
headcounts, principally in connection with the Bernstein acquisition, along with
salary increases and higher incentive compensation resulting from higher
performance fees and the full year impact of a new deferred compensation plan
adopted in connection with the Bernstein acquisition. The increase in
amortization of goodwill and intangibles reflects the full year impact of the
amortization related to the Bernstein acquisition in fourth quarter 2000.
7-4
Assets Under Management
A breakdown of assets under management follows:
Assets Under Management
(In Millions)
December 31,
--------------------------------------
2001 2000
------------------ ------------------
Third party (1).......................................................... $ 397,894 $ 393,633
General Account and other(2)............................................. 36,153 37,740
Separate Accounts........................................................ 46,947 51,706
------------------ ------------------
Total Assets Under Management.......................................... $ 480,994 $ 483,079
================== ==================
<FN>
(1) Includes $4.98 billion and $4.91 billion of assets managed on behalf of AXA
affiliates at December 31, 2001 and 2000, respectively. Also included in
2001 are $7.5 billion in assets related to a new Australian joint venture
between Alliance and an AXA affiliate. Third party assets under management
include 100% of the estimated fair value of real estate owned by joint
ventures in which third party clients own an interest.
(2) Includes invested assets of AXA Financial not managed by Alliance,
principally cash and short-term investments and policy loans, totaling
approximately $7.11 billion and $9.02 billion at December 31, 2001 and
2000, respectively, as well as mortgages and equity real estate totaling
$5.66 billion and $6.41 billion December 31, 2001 and 2000, respectively.
</FN>
The decrease in Separate Account assets under management resulted from market
depreciation which more than offset net new deposits.
Alliance's assets under management grew to $455.40 billion in 2001 from $453.68
billion in 2000 primarily as a result of net asset inflows and the new
Australian joint venture relationship, offset by market depreciation.
Other Discontinued Operations. Earnings from Other Discontinued Operations of
$43.9 million in 2001 as compared to $58.6 million in 2000 reflect primarily the
impact of favorable investment results, both realized during 2001 and projected
for future years, on Other Discontinued Operations' allowance for future losses.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company
In January 2001, upon the merger of AXA Merger Corp. into the Holding Company,
the 53.4 million shares of Holding Company Common Stock held by AXA Merger Corp.
were exchanged for 100% of AXA's shares of AXA Merger common stock and 20.7
million shares of treasury stock were retired. In addition, the $3.0 billion
loan to AXA Merger made by the Holding Company in December 2000 was
extinguished. The loan proceeds had been used to fund a portion of the AXA
minority interest buyout in December 2000. In first quarter 2001, the Holding
Company borrowed $1.10 billion from AXA under a renewable financing agreement
and used the proceeds to partially fund second quarter 2001 tax payments related
to the gain on the sale of DLJ. The borrowings were repaid in April 2001 with
dividend proceeds of $1.50 billion received from Equitable Life. In June 2001,
the Holding Company cancelled its $1.00 billion revolving credit facility. In
December 2001, the Holding Company paid a cash dividend of $200.0 million with
$200.0 million of dividends received from Equitable Life.
Sources of Liquidity. The Holding Company's cash requirements include debt
service, operating expenses, taxes, shareholder dividends to AXA, certain
employee benefits and providing funding to certain non-Insurance Group
subsidiaries to meet their capital requirements. Pre-tax debt service totaled
$132.4 million in 2001, while general and administrative expenses were $70.6
million which included $27.9 million related to amortization of goodwill and
intangible assets resulting from the Bernstein acquisition and a one time charge
of $10.9 million of severance costs related to the AXA minority interest buyout.
In January 2001, AXA Merger Corp.'s debt to the Holding Company was extinguished
at the date of merger. Since the Holding Company's December 1999 assumption of
primary liability from Equitable Life for all current and future obligations of
certain of its benefit plans, the Holding Company paid $55.8 million and $63.2
million in benefits, all of which was reimbursed by subsidiaries of the Holding
Company in 2001 and 2000, respectively. In 2001, the Holding Company paid
Federal income taxes totaling $1.85 billion on the gain on the sale of DLJ
(including $858.2 million related to Equitable Life's portion of the proceeds)
as well as approximately $197.4 million of cash payments related to the exercise
of Holding Company Common Stock options.
7-5
At December 31, 2001, the Holding Company held cash and short-term investments
and U.S. Treasury securities of approximately $93.7 million and investment grade
publicly traded bonds totaling $8.1 million. Other primary sources of liquidity
for the Holding Company include (i) dividends from Equitable Life, (ii)
distributions from Alliance, (iii) dividends, distributions or sales proceeds
from less liquid investment assets and (iv) borrowings from AXA. Cash
distributions from Alliance totaled $102.4 million and $32.5 million in 2001 and
2000, respectively. The Holding Company held common stock and less liquid
investment assets having an aggregate carrying value of approximately $78.5
million at December 31, 2001. Management believes the primary sources of
liquidity described above are sufficient to meet the Holding Company's cash
requirements for several years.
Equitable Life
The principal sources of Equitable Life's cash flows are premiums, deposits and
charges on policies and contracts, investment income, repayments of principal
and proceeds from sales of fixed maturities, sales of other General Account
Investment Assets and dividends and distributions from subsidiaries.
Equitable Life'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 discontinued operations;
shareholder dividends to AXA Financial; and operating expenses, including debt
service. Equitable Life'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. Management from time
to time explores selective acquisition opportunities in insurance and investment
management businesses.
Sources of Liquidity. Equitable Life's primary source of short-term liquidity to
support continuing and discontinued insurance operations is a pool of highly
liquid, high quality short-term instruments structured to provide liquidity in
excess of the expected cash requirements. At December 31, 2001, this asset pool
included an aggregate of $485.2 million in highly liquid short-term investments,
as compared to $2.14 billion at December 31, 2000. In addition, a substantial
portfolio of public bonds including U.S. Treasury and agency securities and
other investment grade fixed maturities is available to meet Equitable Life's
liquidity needs.
In fourth quarter 2000, Equitable Life received cash proceeds of $1.05 billion
from the sale of its shares in DLJ and a further $557.3 million from sales of a
portion of the CSG shares through December 31, 2000. All remaining shares of CSG
stock were sold during first quarter 2001. These proceeds funded the $1.5
billion shareholder dividend paid in April 2001.
Other liquidity sources include dividends and distributions from Alliance. In
2001, Equitable Life received cash distributions from Alliance and Alliance
Holding of $313.2 million as compared to $341.2 million in 2000.
Management believes there is sufficient liquidity in the form of short-term
assets and its bond portfolio together with cash flows from operations,
scheduled maturities of fixed maturities and borrowings available under its
commercial paper program and bank credit facilities to satisfy Equitable Life's
liquidity needs.
Factors Affecting Liquidity. Equitable Life's liquidity needs are affected by
fluctuations in mortality and other benefit payments and in 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 shareholder. In 2001 and 2000, respectively, Equitable Life paid
shareholder dividends totaling $1.7 billion and $250.0 million. Management
believes the Insurance Group has adequate internal sources of funds for its
presently anticipated needs.
Alliance
Alliance's principal sources of liquidity have been cash flows from operations
and the issuance, both publicly and privately, of debt and Alliance Units.
Alliance 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. In 2001 and 2000,
respectively, subsidiaries of Alliance purchased Alliance Holding units totaling
$36.2 million and $146.6 million for deferred and other compensation plans.
Management believes Alliance's substantial equity base, its access to public and
private debt and its cash flows from operations will provide the financial
resources to meet its capital and general business requirements. For further
information, see Alliance's Annual Report on Form 10-K for the year ended
December 31, 2001.
7-6
Supplementary Information
AXA Financial is involved in a number of ventures and transactions with AXA and
certain of its affiliates. At December 31, 2001, Equitable Life had a $400.0
million, 5.89% loan outstanding with AXA Insurance Holding Co., Ltd., a Japanese
subsidiary of AXA. All payments, including interest, are guaranteed by AXA.
Alliance provides investment management and related services to AXA and AXA
Financial and certain of their subsidiaries and affiliates. In 2001, Alliance
entered into joint ventures with an Australian affiliate of AXA and recognized
management fees of $12.3 million in 2001. The Holding Company, Equitable Life
and Alliance, along with other AXA affiliates, participate in certain cost
sharing and servicing agreements which include technology and professional
development arrangements. Payments by the Holding Company and Equitable Life to
AXA totaled approximately $17.5 million in 2001, while Alliance's payments were
approximately $0.9 million. See Notes 12 and 20 of Notes to the Consolidated
Financial Statements and Alliance's Report on Form 10-K for the year ended
December 31, 2001 for information on related party transactions.
A schedule of future payments under certain of AXA Financial's consolidated
contractual obligations follows:
Contractual Obligations - December 31, 2001
(In Millions)
Payments Due by Period
----------------------------------------------------------------
Less than Over
Total 1 year 1 - 3 years 4 - 5 years 5 years
--------------- --------------- --------------- --------------- ---------------
Contractual obligations:
Long-term debt................... $ 2,761.5 $ 304.7 $ 376.8 $ 800.0 $ 1,280.0
Operating leases................. 1,440.7 114.6 220.2 184.9 921.0
--------------- --------------- --------------- --------------- ---------------
Total Contractual
Obligations................. $ 4,202.2 $ 419.3 $ 597.0 $ 984.9 $ 2,201.0
=============== =============== =============== =============== ===============
AXA Financial also has contractual obligations to the policy and contractholders
of its various life insurance and annuity products and/or their designated
beneficiaries. These obligations include paying death claims and making annuity
payments. The timing of such payments will depend upon such factors as the
mortality and persistency of its customer base.
In addition, AXA Financial has obligations under contingent commitments at
December 31, 2001, including: Equitable Life and Alliance's respective revolving
credit facilities and commercial paper programs; Alliance's $100.0 million ECN
program; the Insurance Group's $18.4 million line of credit and its $10.5
million letters of credit relating to reinsurance; and AXA Financial's
guarantees or commitments to make contributions of up to $8.5 million to
affiliated real estate joint ventures and to provide equity financing to certain
limited partnerships of $274.9 million. Information on these contingent
commitments can be found in Notes 9 and 16 of Notes to Consolidated Financial
Statements.
Further, AXA Financial 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. Under these laws, insurers doing business in these states can
be assessed amounts up to prescribed limits to protect policyholders of
companies which become impaired or insolvent. In the aftermath of the September
11, 2001 terrorist attacks, while traditional indicators continue to be used to
monitor insurers' financial condition, the ability of otherwise fiscally healthy
insurers, or even the insurance industry, to absorb further catastrophic losses
of such a nature cannot be predicted.
CRITICAL ACCOUNTING POLICIES
AXA Financial's management narrative is based upon AXA Financial's consolidated
financial statements that have been prepared in accordance with GAAP. 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 disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. On an on-going basis, AXA Financial
evaluates its estimates, including those related to investments, recognition of
insurance income and related expenses, DAC, future policy benefits, recognition
of Investment Management revenues and related expenses and pension cost. AXA
Financial 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.
7-7
AXA Financial 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 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'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 Expenses - Profits on traditional
life policies and annuity contracts with life contingencies emerge from the
matching of benefits and other expenses against the related premiums. 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. Secular trends and AXA Financial's own mortality, morbidity, persistency
and claims experience have a direct impact on the benefits and expenses reported
in any given period.
DAC - The level of operating expenses of the Insurance Group that can be
deferred is another significant factor in that business's reported profitability
in any given period. Additionally, for universal life and investment-type
contracts and participating traditional life policies, DAC amortization may be
affected by changes in estimated gross profits and margins principally related
to investment, 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.
Future Policy Benefits - Future policy benefit liabilities for traditional
policies are based on actuarial assumptions as to such factors as mortality,
persistency, interest and expenses, and in the case of participating policies,
expected annual and terminal dividends. Premium deficiency reserves are based
upon estimates of future gross premiums, expected policy benefits and other
expenses. GAAP prohibits the recording of reserves for expected payments
resulting from guaranteed minimum death benefit and guaranteed minimum income
benefit features of certain variable products. The allowance for future losses
for the discontinued Wind-Up Annuities is based upon numerous estimates and
subjective judgments regarding the expected performance of the related invested
assets 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
which could affect segment results include, but are not limited to, the
performance of the financial markets and the investment performance 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 the Company's best-estimate of
long-term actuarial and/or 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.
7-8
FORWARD-LOOKING STATEMENTS
AXA Financial's management has made in this report, and from time to time may
make in its public filings and press releases as well as in oral presentations
and discussions, forward-looking statements concerning AXA Financial's
operations, economic performance and financial condition. Forward-looking
statements include, among other things, discussions concerning AXA Financial's
potential exposure 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," "expects," "projects," "should," "probably," "risk," "target,"
"goals," "objectives," or similar expressions. AXA Financial claims the
protection afforded by the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and 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. Actual results
could differ materially from those anticipated by forward-looking statements due
to a number of important factors including those discussed elsewhere in this
report and in AXA Financial's other public filings, press releases, oral
presentations and discussions. The following discussion highlights some of the
more important factors that could cause such differences.
Market Risk. AXA Financial's businesses are subject to market risks arising from
its insurance asset/liability management, investment management and trading
activities. The primary market risk exposures result from interest rate
fluctuations, equity price movements and changes in credit quality. The
Investment Management segment's market risk exposure now includes interest rate
fluctuations on its long-term debt issued in 2001. The nature of each of these
risks is discussed under the caption "Quantitative and Qualitative Disclosures
About Market Risk" contained herein and in Note 15 of Notes to Consolidated
Financial Statements.
Financial Advisory/Insurance. The Insurance Group's future sales of life
insurance and annuity products and financial planning services are dependent on
numerous factors including: successful implementation of AXA Financial's
strategy; the intensity of competition from other insurance companies, banks and
other financial institutions; conditions in the securities markets; the strength
and professionalism of distribution channels; the continued development of
additional channels; the financial and claims-paying ratings of Equitable Life;
its reputation and visibility in the market place; its ability to develop,
distribute and administer competitive products and services in a timely,
cost-effective manner; and its investment management performance. In addition,
the nature and extent of competition and the markets for products sold by the
Insurance Group may be materially affected by changes in laws and regulations,
including changes relating to savings, retirement funding and taxation. See
"Business - Regulation". The profitability of the Insurance Group depends on a
number of factors, including levels of gross operating expenses and the amounts
which can be deferred as DAC and software capitalization, successful
implementation of expense-reduction initiatives, secular trends, AXA Financial's
mortality, morbidity, persistency and claims experience, and profit margins
between investment results from General Account Investment Assets and interest
credited on individual insurance and annuity products; the adequacy of reserves
and the extent to which subsequent experience differs from management's
estimates and assumptions used in determining those reserves; and the effects of
recent and any further terrorist attacks and the results of the war on
terrorism. The performance of General Account Investment Assets depends, among
other things, on levels of interest rates and the markets for equity securities
and real estate, the need for asset valuation allowances and writedowns, and the
performance of equity investments which have created, and in the future may
create, significant volatility in investment income.
Investment Management. Alliance's revenues are largely dependent on the total
value and composition of assets under its management and are, therefore,
affected by the performance of financial markets, the investment performance of
sponsored investment products and separately managed accounts, additions and
withdrawals of assets, purchases and redemptions of mutual funds and shifts of
assets between accounts or products with different fee structures as well as
general economic conditions, future acquisitions, competitive conditions and
government regulations, including tax rates. See "Results of Continuing
Operations by Segment - Investment Management".
7-9
Other Discontinued Operations. The determination of the allowance for future
losses for the discontinued Wind-Up Annuities continues to involve numerous
estimates and subjective judgments including those regarding expected
performance of investment assets, ultimate mortality experience and other
factors which affect investment and benefit projections. 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 Other
Discontinued Operations differ from management's current best estimates
underlying the allowance, the difference would be reflected as earnings or loss
from discontinued operations within the consolidated statements of earnings. 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 allowance are likely to result.
Technology and Information Systems. AXA Financial's information 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
information purposes. Any significant difficulty associated with the operation
of such systems, or any material delay or inability to develop needed system
capabilities, could have a material adverse effect on AXA Financial's results of
operations and, ultimately, its ability to achieve its strategic goals.
Legal Environment. A number of lawsuits have been filed against life and health
insurers involving insurers' sales practices, alleged agent misconduct, failure
to properly supervise agents 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
Financial's insurance subsidiaries, like other life and health insurers, are
involved in such litigation. While no such lawsuit has resulted in an award or
settlement of any material amount against AXA Financial to date, its results of
operations and financial condition 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 the Holding Company and its
subsidiaries. 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, examinations by
Federal and state regulators could result in adverse publicity, sanctions and
fines. For further information, see "Business - Regulation" and "Legal
Proceedings".
Future Accounting Pronouncements. In the future, new accounting pronouncements
may have material effects on AXA Financial's consolidated statements of earnings
and shareholders' equity. See Note 2 of Notes to Consolidated Financial
Statements for pronouncements issued but not effective at December 31, 2001.
Regulation. The businesses conducted by AXA Financial's subsidiaries 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 and investment
advisors. Changes in the regulatory environment could have a material impact on
operations and results. The activities of the Insurance Group are subject to the
supervision of the insurance regulators of each of the 50 states. See "Business
- - Regulation".
7-10
Part II, Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
AXA Financial's businesses are subject to market risks arising from its
insurance asset/liability management and asset management. Such risks are
evaluated and managed by each business on a decentralized basis. Primary market
risk exposures result from interest rate fluctuations, equity price movements
and changes in credit quality.
Investment Management
Alliance's investments are divided into two portfolios: available for sale
investments and other investments. Alliance's available for sale portfolio
primarily includes equity and fixed income mutual funds and money market
investments. The carrying value of money market investments approximates fair
value. Although these assets are purchased for long-term investment, the
portfolio strategy considers them available for sale due to changes in market
interest rates, equity prices and other relevant factors. Other investments
include Alliance's hedge fund investments. At December 31, 2001, Alliance's
estimates of its interest rate, equity price, derivative and credit quality
risks related to its investment portfolios were not material to AXA Financial.
At December 31, 2001, Alliance's fixed rate debt had an aggregate fair value of
$402.7 million. The potential fair value would increase to $421.3 million in
response to an immediate 100 basis point decrease in interest rates from those
prevailing at the end of 2001. For further information on Alliance's market
risk, see Alliance Holding's and Alliance's Annual Reports on Form 10-K for the
year ended December 31, 2001.
Insurance and Holding Company Groups
Insurance Group results significantly depend on profit margins between
investment results from General Account Investment Assets 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 can 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. 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 which make up 83.5% of the carrying value of General Account
Investment Assets at December 31, 2001. 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, 2001 would have on the fair value of fixed maturities and mortgage
loans:
7A-1
Interest Rate Risk Exposure
(In Millions)
December 31, 2001 December 31, 2000
----------------------------------------- ------------------------------------
Balance After Balance After
Fair +100 Basis Fair +100 Basis
Value Point Change Value Point Change
-------------------- -------------------- ---------------- -------------------
Continuing Operations:
Fixed maturities:
Fixed rate........................ $ 22,932.6 $ 21,813.0 $ 20,254.0 $ 19,265.3
Floating rate..................... 738.4 738.4 610.0 610.0
Mortgage loans...................... 4,438.5 4,265.8 4,767.0 4,584.7
Other Discontinued Operations:
Fixed maturities:
Fixed rate........................ $ 559.6 $ 527.3 $ 336.5 $ 317.0
Mortgage loans...................... 171.6 167.8 347.7 339.4
Holding Company Group:
Fixed maturities:
Fixed rate........................ $ 88.7 $ 85.6 $ 108.6 $ 107.2
Floating rate..................... 1.7 1.7 4.1 4.1
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 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. In addition, the General Account is exposed to equity price risk
from the excess of Separate Accounts assets over Separate Accounts liabilities.
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, 2001 and 2000:
Equity Price Risk Exposure
(In Millions)
December 31, 2001 December 31, 2000
----------------------------------------- ------------------------------------
Balance After Balance After
Fair -10% Equity Fair -10% Equity
Value Price Change Value Price Change
------------------ ---------------------- -------------- ---------------------
Insurance Group:
Continuing operations.............. $ 61.4 $ 55.3 $ 1,596.6 $ 1,436.9
Discontinued Operations............ 1.2 1.1 2.5 2.2
Excess of Separate Accounts assets
over Separate Accounts
liabilities...................... 71.7 64.5 73.8 66.4
Holding Company Group................ $ 5.0 $ 4.5 $ 3.7 $ 3.3
7A-2
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 2001 and 2000, the aggregate carrying value of policyholders
liabilities were $35,411.4 million and $34,844.7 million, respectively,
including $12,245.9 million and $11,977.2 million of liabilities, respectively,
related to the General Account's investment contracts. The aggregate fair value
of those investment contracts at years end 2001 and 2000 were $12,498.8 million
and $12,155.7 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 $12,636.5 million and $12,485.4 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 no material solvency risk to Equitable Life with respect to
interest rate movements up or down of 100 basis points from year end 2001 levels
or with respect to a 10% drop in equity prices from year end 2001 levels.
As more fully described in Notes 2 and 15 of Notes to Consolidated Financial
Statements, various derivative financial instruments are used to manage exposure
to fluctuations in interest rates, including interest rate caps and floors to
hedge crediting rates on interest-sensitive products, and interest rate futures
to offset a decline in interest rates between receipt of funds and purchase of
appropriate assets. 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 which take into
consideration current market values and estimates of potential future movements
in market values given potential fluctuations in market interest rates.
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 derivatives 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 2001 and 2000, the net market value exposures of the Insurance
Group's derivatives were $6.9 million and $7.5 million, respectively. There were
no swaps outstanding at either year end. The table that follows shows the
interest rate sensitivity of those derivatives, measured in terms of fair value.
These exposures will change as a result of ongoing portfolio and risk management
activities.
7A-3
Insurance Group - Derivative Financial Instruments
(In Millions, Except for Weighted Average Term)
Weighted
Average Balance After Balance After
Notional Term -100 Basis Fair +100 Basis
Amount (Years) Point Change Value Point Change
--------------- -------------- ----------------- ---------------- -------------------
December 31, 2001
Options:
Caps................... $ 6,675.0 1.65 $ 2.7 $ 7.0 $ 17.8
Other.................. 20.4 .24 (.1) (.1) (.1)
--------------- ----------------- ---------------- -------------------
Total.................... $ 6,695.4 1.65 $ 2.6 $ 6.9 $ 17.7
=============== ============== ================= ================ ===================
December 31, 2000
Options:
Caps................... $ 6,775.0 2.61 $ 1.4 $ 7.2 $ 24.3
Floors................. 2,000.0 1.28 1.6 .3 -
--------------- ------------------------------------ -------------------
Total.................... $ 8,775.0 2.31 $ 3.0 $ 7.5 $ 24.3
=============== ============== ==================================== ===================
At the end of 2001 and of 2000, the aggregate fair values of long-term debt
issued by Equitable Life and the Holding Company Group were $2.91 billion and
$2.46 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 2001 and of 2000.
Interest Rate Risk Exposure
(In Millions)
December 31, 2001 December 31, 2000
-------------------------------------- --------------------------------------
Balance After Balance After
Fair -100 Basis Fair -100 Basis
Value Point Change Value Point Change
----------------- -------------------- ------------------ -------------------
Continuing Operations:
Fixed rate........................ $ 629.6 $ 663.4 $ 599.7 $ 635.4
Floating rate..................... 248.3 248.3 248.3 248.3
Other Discontinued Operations:
Floating rate..................... $ 101.7 $ 101.7 $ 101.7 $ 101.7
Holding Company Group............... $ 1,529.3 $ 1,630.4 $ 1,514.9 $ 1,617.3
7A-4
Part II, Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
AXA FINANCIAL, INC.
Report of Independent Accountants....................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 2001 and 2000............... F-2
Consolidated Statements of Earnings, Years Ended December 31, 2001,
2000 and 1999....................................................... F-3
Consolidated Statements of Shareholders' Equity and Comprehensive
Income, Years Ended December 31, 2001, 2000 and 1999................ F-4
Consolidated Statements of Cash Flows, Years Ended December 31, 2001,
2000 and 1999....................................................... F-5
Notes to Consolidated Financial Statements............................ F-7
Report of Independent Accountants on Consolidated Financial Statement
Schedules........................................................... F-49
Consolidated Financial Statement Schedules:
Schedule I - Summary of Investments - Other than Investments in
Related Parties, December 31, 2001.................................... F-50
Schedule II - Balance Sheets (Parent Company),
December 31, 2001 and 2000............................................ F-51
Schedule II - Statements of Earnings (Parent Company),
Years Ended December 31, 2001, 2000 and 1999.......................... F-52
Schedule II - Statements of Cash Flows (Parent Company),
Years Ended December 31, 2001, 2000 and 1999.......................... F-53
Schedule III - Supplementary Insurance Information,
Years Ended December 31, 2001, 2000 and 1999.......................... F-54
Schedule IV - Reinsurance, Years Ended December 31, 2001,
2000 and 1999......................................................... F-57
FS-1
Report of Independent Accountants
To the Board of Directors and Shareholders of
AXA Financial, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' 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") at
December 31, 2001 and December 31, 2000, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of AXA
Financial's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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 provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
New York, New York
February 6, 2002, except as to Note 17, for which the date is February 28, 2002.
F-1
AXA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
----------------- -----------------
(In Millions)
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 23,355.0 $ 20,715.8
Held to maturity, at amortized cost..................................... - 256.7
Mortgage loans on real estate............................................. 4,333.3 4,712.6
Equity real estate........................................................ 875.7 1,017.8
Policy loans.............................................................. 4,100.7 4,034.6
Other equity investments.................................................. 768.4 2,430.9
Other invested assets..................................................... 741.4 788.8
----------------- -----------------
Total investments..................................................... 34,174.5 33,957.2
Cash and cash equivalents................................................... 830.2 2,479.5
Cash and securities segregated, at estimated fair value..................... 1,415.2 1,306.3
Broker-dealer related receivables........................................... 1,950.9 1,900.3
Deferred policy acquisition costs........................................... 5,513.7 5,128.8
Intangible assets, net...................................................... 3,928.4 4,066.2
Amounts due from reinsurers................................................. 2,233.7 2,097.9
Loans to affiliates......................................................... 400.0 3,000.0
Other assets................................................................ 3,515.2 3,618.7
Separate Accounts assets.................................................... 46,947.3 51,705.9
----------------- -----------------
Total Assets................................................................ $ 100,909.1 $ 109,260.8
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 20,939.1 $ 20,445.8
Future policy benefits and other policyholders liabilities.................. 13,539.4 13,432.1
Broker-dealer related payables.............................................. 1,265.5 1,283.0
Customers related payables.................................................. 1,814.5 1,636.9
Short-term and long-term debt............................................... 2,982.1 3,432.3
Federal income taxes payable................................................ 1,286.5 2,421.4
Other liabilities........................................................... 3,475.2 3,513.2
Separate Accounts liabilities............................................... 46,875.6 51,632.1
Minority interest in equity of consolidated subsidiaries.................... 1,255.2 1,275.8
Minority interest subject to redemption rights.............................. 651.4 681.1
----------------- -----------------
Total liabilities..................................................... 94,084.5 99,753.7
----------------- -----------------
Commitments and contingencies (Notes 13, 16, 17, 18 and 19)
SHAREHOLDERS' EQUITY
Series D convertible preferred stock........................................ - 219.6
Stock employee compensation trust........................................... - (219.6)
Common stock, at par value.................................................. 3.9 4.6
Capital in excess of par value.............................................. 1,016.7 4,753.8
Treasury stock.............................................................. - (629.6)
Retained earnings........................................................... 5,601.9 5,380.6
Accumulated other comprehensive income (loss)............................... 202.1 (2.3)
----------------- -----------------
Total shareholders' equity............................................ 6,824.6 9,507.1
----------------- -----------------
Total Liabilities and Shareholders' Equity.................................. $ 100,909.1 $ 109,260.8
================= =================
See Notes to Consolidated Financial Statements.
F-2
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
----------------- ----------------- ----------------
(In Millions)
REVENUES
Universal life and investment-type product policy fee
income...................................................... $ 1,342.3 $ 1,413.3 $ 1,257.5
Premiums...................................................... 1,019.9 1,175.0 1,177.1
Net investment income......................................... 2,423.1 2,668.2 2,837.3
Investment losses, net........................................ (207.7) (829.6) (213.6)
Commissions, fees and other income............................ 3,245.1 2,730.4 2,019.0
----------------- ----------------- -----------------
Total revenues.......................................... 7,822.7 7,157.3 7,077.3
----------------- ----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits....................................... 1,886.9 2,060.3 2,048.6
Interest credited to policyholders' account balances.......... 981.7 1,048.5 1,092.8
Compensation and benefits..................................... 1,705.6 1,232.8 1,021.7
Commissions................................................... 477.8 533.2 543.1
Distribution plan payments.................................... 488.0 476.0 346.6
Amortization of deferred sales commissions.................... 230.8 219.7 163.9
Interest expense.............................................. 235.0 226.7 146.5
Amortization of deferred policy acquisition costs............. 287.9 309.0 380.0
Capitalization of deferred policy acquisition costs........... (746.4) (778.1) (709.8)
Writedown of deferred policy acquisition costs................ - - 131.7
Rent expense.................................................. 185.0 146.4 113.9
Amortization of intangible assets, net........................ 206.1 79.2 4.9
Expenses related to AXA's minority interest acquisition....... - 751.4 -
Other operating costs and expenses............................ 990.1 951.8 817.4
----------------- ----------------- ----------------
Total benefits and other deductions..................... 6,928.5 7,256.9 6,101.3
----------------- ----------------- ----------------
Earnings (loss) from continuing operations before Federal
income taxes and minority interest.......................... 894.2 (99.6) 976.0
Federal income tax (expense) benefit.......................... (219.6) 42.5 (308.7)
Minority interest in net income of consolidated
subsidiaries................................................ (290.2) (280.2) (199.4)
----------------- ----------------- ----------------
Earnings (loss) from continuing operations.................... 384.4 (337.3) 467.9
Earnings from discontinued operations, net of Federal
income taxes:
Investment Banking and Brokerage segment.................. - 376.2 630.1
Other..................................................... 43.9 58.6 28.1
Gain on disposal of the discontinued Investment Banking and
Brokerage segment, net of Federal income taxes............ - 2,317.9 -
Cumulative effect of accounting change, net of Federal
income taxes................................................ (3.5) - -
----------------- ----------------- ----------------
Net Earnings.................................................. $ 424.8 $ 2,415.4 $ 1,126.1
================= ================= ================
F-3
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
----------------- ----------------- -----------------
(In Millions)
Series D convertible preferred stock, beginning of year......... $ 219.6 $ 239.7 $ 259.8
Exchange of Series D convertible preferred stock................ (54.6) (20.1) (20.1)
Redemption of Series D convertible preferred stock.............. (165.0) - -
----------------- ----------------- -----------------
Series D convertible preferred stock, end of year............... - 219.6 239.7
----------------- ----------------- -----------------
Stock employee compensation trust, beginning of year............ (219.6) (239.7) (259.8)
Exchange of Series D convertible preferred stock in the
stock employee compensation trust............................. 54.6 20.1 20.1
Redemption of Series D convertible preferred stock in the
stock employee compensation trust............................. 165.0 - -
----------------- ----------------- -----------------
Stock employee compensation trust, end of year.................. - (219.6) (239.7)
----------------- ----------------- -----------------
Common stock, at par value, beginning of year................... 4.6 4.5 2.2
Issuance of common stock........................................ - .1 2.3
Shares cancelled in connection with merger of
AXA Merger Corp............................................... (.5) - -
Treasury stock retired, at par value............................ (.2) - -
----------------- ----------------- -----------------
Common stock, at par value, end of year......................... 3.9 4.6 4.5
----------------- ----------------- -----------------
Capital in excess of par value, beginning of year............... 4,753.8 3,739.1 3,662.1
Decrease related to the merger of AXA Merger Corp............... (2,999.5) - -
Decrease from retirement of treasury stock...................... (629.4) - -
Other changes in additional capital in excess of par value...... (108.2) 1,014.7 77.0
----------------- ----------------- -----------------
Capital in excess of par value, end of year..................... 1,016.7 4,753.8 3,739.1
----------------- ----------------- -----------------
Treasury stock, beginning of year............................... (629.6) (490.8) (247.1)
Purchase of shares for treasury................................. - (138.8) (243.7)
Retirement of treasury stock.................................... 629.6 - -
----------------- ----------------- -----------------
Treasury stock, end of year..................................... - (629.6) (490.8)
----------------- ----------------- -----------------
Retained earnings, beginning of year............................ 5,380.6 3,008.6 1,926.1
Net earnings.................................................... 424.8 2,415.4 1,126.1
Dividends on common stock....................................... (200.0) (43.4) (43.6)
Decrease in retained earnings in connection with merger of
AXA Merger Corp............................................... (3.5) - -
----------------- ----------------- -----------------
Retained earnings, end of year.................................. 5,601.9 5,380.6 3,008.6
----------------- ----------------- -----------------
Accumulated other comprehensive (loss) income, beginning of
year.......................................................... (2.3) (422.5) 349.8
Other comprehensive income (loss)............................... 204.4 420.2 (772.3)
----------------- ----------------- -----------------
Accumulated other comprehensive income (loss), end of year...... 202.1 (2.3) (422.5)
----------------- ----------------- -----------------
Total Shareholders' Equity, End of Year......................... $ 6,824.6 $ 9,507.1 $ 5,838.9
================= ================= =================
COMPREHENSIVE INCOME
Net earnings.................................................... $ 424.8 $ 2,415.4 $ 1,126.1
----------------- ----------------- -----------------
Change in unrealized gains (losses), net of reclassification
adjustment.................................................... 204.8 417.4 (784.5)
Minimum pension liability adjustment............................ (.4) 2.8 12.2
----------------- ----------------- -----------------
Other comprehensive income (loss)............................... 204.4 420.2 (772.3)
----------------- ----------------- -----------------
Comprehensive Income............................................ $ 629.2 $ 2,835.6 $ 353.8
================= ================= =================
See Notes to Consolidated Financial Statements.
F-4
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
----------------- ----------------- -----------------
(In Millions)
Net earnings.................................................. $ 424.8 $ 2,415.4 $ 1,126.1
Adjustments to reconcile net earnings to net cash (used)
provided by operating activities:
Interest credited to policyholders' account balances........ 981.7 1,048.5 1,092.8
Universal life and investment-type product
policy fee income......................................... (1,342.3) (1,413.3) (1,257.5)
Net change in broker-dealer and customer
related receivables/payables.............................. 185.8 422.9 (119.9)
Investment losses (gains), net.............................. 207.7 829.6 (44.0)
Gain on disposal of the discontinued Investment Banking and
Brokerage segment......................................... - (2,317.9) -
Expenses related to AXA's minority interest acquisition..... - 702.7 -
Change in deferred policy acquisition costs................. (456.5) (462.4) (195.2)
Change in future policy benefits............................ (15.1) (825.6) 23.8
Change in property and equipment............................ (234.0) (326.4) (256.4)
Change in Federal income taxes.............................. (1,249.0) 1,769.6 132.5
Purchase of segregated cash and securities, net............. (108.8) (610.4) -
Other, net.................................................. 634.2 (333.0) (172.4)
----------------- ----------------- -----------------
Net cash (used) provided by operating activities.............. (971.5) 899.7 329.8
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................... 2,480.0 2,583.0 2,581.4
Sales....................................................... 9,289.8 8,652.2 8,236.4
Purchases................................................... (11,842.5) (8,676.9) (11,814.3)
Decrease (increase) in short-term investments............... 174.1 126.9 (183.3)
Sale of subsidiary.......................................... - 3,461.2 -
Acquisition of subsidiary................................... - (1,480.0) -
Loans to affiliates......................................... (400.0) (3,000.0) -
Other, net.................................................. (101.6) (149.8) (77.3)
----------------- ----------------- -----------------
Net cash (used) provided by investing activities............. (400.2) 1,516.6 (1,257.1)
----------------- ----------------- -----------------
F-5
AXA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(CONTINUED)
2001 2000 1999
----------------- ----------------- -----------------
(In Millions)
Cash flows from financing activities:
Policyholders' account balances:
Deposits.................................................. $ 3,198.8 $ 2,695.6 $ 2,403.3
Withdrawals and transfers to Separate Accounts............ (2,458.1) (3,941.8) (1,818.7)
Net (decrease) increase in short-term financings............ (803.1) 490.1 378.0
Additions to long-term debt................................. 398.7 496.5 .4
Repayments of long-term debt................................ (46.2) (35.1) (71.3)
Dividends paid on common stock.............................. (200.7) (42.8) (43.8)
Purchase of treasury stock.................................. - (138.7) (243.7)
Other, net.................................................. (367.0) (324.3) (38.0)
----------------- ----------------- -----------------
Net cash (used) provided by financing activities.............. (277.6) (800.5) 566.2
----------------- ----------------- -----------------
Change in cash and cash equivalents........................... (1,649.3) 1,615.8 (361.1)
Cash and cash equivalents, beginning of year.................. 2,479.5 863.7 1,224.8
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year........................ $ 830.2 $ 2,479.5 $ 863.7
================= ================= =================
Supplemental cash flow information
Interest Paid............................................... $ 207.0 $ 215.2 $ 177.4
================= ================= =================
Income Taxes Paid........................................... $ 1,485.8 $ 351.6 $ 70.2
================= ================= =================
See Notes to Consolidated Financial Statements.
F-6
AXA FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) ORGANIZATION
AXA Financial, Inc. (the "Holding Company," and collectively with its
consolidated subsidiaries, "AXA Financial") is a diversified financial
services organization serving a broad spectrum of insurance and
investment management customers. AXA Financial's financial advisory and
insurance product businesses are conducted principally by its wholly
owned life insurance subsidiary, The Equitable Life Assurance Society of
the United States ("Equitable Life"), its insurance general agency, AXA
Network, LLC (together with its subsidiaries, collectively, "AXA
Network"), and its broker dealer, AXA Advisors, LLC ("AXA Advisors").
AXA Financial's investment management and related services business is
conducted by Alliance Capital Management L.P. ("Alliance"). The
investment banking and brokerage business was conducted by Donaldson,
Lufkin & Jenrette, Inc. ("DLJ"). AXA Financial sold its interest in DLJ
on November 3, 2000. The Investment Banking and Brokerage segment is
reported as discontinued operations for the years ended December 31,
2000 and 1999.
In October 2000, Alliance acquired substantially all of the assets and
liabilities of Sanford C. Bernstein Inc. ("Bernstein") for an aggregate
current value of approximately $3.50 billion: $1.48 billion in cash and
40.8 million newly issued units in Alliance ("Alliance Units"). The
Holding Company provided Alliance with the cash portion of the
consideration by purchasing approximately 32.6 million Alliance Units
for $1.60 billion in June 2000. The acquisition was accounted for under
the purchase method with the results of Bernstein included in the
consolidated financial statements from the acquisition date. The excess
of purchase price over the fair value of net assets acquired resulted in
the recognition of goodwill and intangible assets of approximately $3.40
billion and is being amortized over an estimated overall 20 year life.
In connection with the issuance of Alliance Units to former Bernstein
shareholders, AXA Financial recorded a non-cash gain of $501.7 million
(net of related Federal income tax of $270.1 million) which is reflected
as an addition to capital in excess of par value. AXA Financial's
consolidated economic interest in Alliance was 52.3% at December 31,
2001. In 1999, Alliance reorganized into Alliance Capital Management
Holding L.P. ("Alliance Holding") and Alliance. Alliance Holding's
principal asset is its interest in Alliance and it functions as a
holding entity through which holders of its publicly traded units own an
indirect interest in Alliance, the operating partnership. AXA Financial
exchanged substantially all of its Alliance Holding units for Alliance
Units.
AXA, a French holding company for an international group of insurance
and related financial services companies, has been the Holding Company's
largest shareholder since 1992. In October 2000, the Board of Directors
of the Holding Company, acting upon a unanimous recommendation of a
special committee of independent directors, approved an agreement with
AXA for the acquisition of the approximately 40% of outstanding Holding
Company Common Stock it did not already own. Under terms of the
agreement, the minority shareholders of the Holding Company received
$35.75 in cash and 0.295 of an AXA American Depositary Receipt ("AXA
ADR") (before giving effect to AXA's May 2001 four-for-one stock split
and related change in ADRs' parity) for each Holding Company share. On
January 2, 2001, AXA Merger Corp. ("AXA Merger"), a wholly-owned
subsidiary of AXA, was merged with and into the Holding Company,
resulting in AXA Financial becoming a wholly owned subsidiary of AXA. As
a result of its merger into the Holding Company, AXA Merger's obligation
to repay the $3.0 billion loan to the Holding Company was extinguished
resulting in a decrease in consolidated shareholders' equity of $3.0
billion. In conjunction with the minority interest buyout, 53.4 million
shares of Common Stock purchased by AXA Merger were exchanged for the
common shares of AXA Merger held by AXA and 20.7 million treasury shares
held by the Holding Company were retired.
F-7
2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The preparation of the accompanying consolidated financial statements in
conformity with U.S. generally accepted accounting principles ("GAAP")
requires management to make estimates and assumptions (including normal,
recurring accruals) that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. The accompanying consolidated financial statements
reflect all adjustments (which include only normal recurring
adjustments) necessary in the opinion of management to present fairly
the consolidated financial position of AXA Financial and its
consolidated results of operations and cash flows for the periods
presented.
The accompanying consolidated financial statements include the accounts
of the Holding Company; Equitable Life; those of their subsidiaries
engaged in insurance related businesses (collectively, the "Insurance
Group"); other subsidiaries, principally Alliance, AXA Advisors and AXA
Network; and those trusts, partnerships and joint ventures in which AXA
Financial has control and a majority economic interest.
All significant intercompany transactions and balances except those with
discontinued operations (see Note 8) have been eliminated in
consolidation. The years "2001," "2000" and "1999" refer to the years
ended December 31, 2001, 2000 and 1999, respectively. Certain
reclassifications have been made in the amounts presented for prior
periods to conform those periods with the current presentation.
Closed Block
When it demutualized on July 22, 1992, Equitable Life established a
Closed Block for the benefit of certain individual participating
policies which were in force on that date. The assets allocated to the
Closed Block, together with anticipated revenues from policies included
in the Closed Block, were reasonably expected to be sufficient to
support such business, including provision for the payment of claims,
certain expenses and taxes, and for continuation of dividend scales
payable in 1991, assuming the experience underlying such scales
continues.
Assets allocated to the Closed Block inure solely to the benefit of the
Closed Block policyholders and will not revert to the benefit of the
Holding Company. No reallocation, transfer, borrowing or lending of
assets can be made between the Closed Block and other portions of
Equitable Life's General Account, any of its Separate Accounts or any
affiliate of Equitable Life 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 represents the expected future
post-tax contribution from the Closed Block which would be recognized in
income over the period the policies and contracts in the Closed Block
remain in force.
Discontinued Operations
In 1991, management discontinued the business of certain pension
operations ("Other Discontinued Operations"). Other Discontinued
Operations at December 31, 2001 principally consists of the Group
Non-Participating Wind-Up Annuities ("Wind-Up Annuities"), 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, 2001 is adequate to provide for all future
losses; however, the quarterly allowance review continues to involve
numerous estimates and subjective judgments regarding the expected
performance of invested assets ("Discontinued Operations Investment
Assets") held by Other Discontinued Operations. 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 the discontinued operations differ from management's current best
estimates and assumptions underlying the allowance for future losses,
the difference would be reflected in the consolidated statements of
earnings in discontinued operations. 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
allowance are likely to result (see Note 8).
Discontinued operations also includes the Investment Banking and
Brokerage segment which is discussed in Note 8.
F-8
New Accounting Pronouncements
On January 1, 2001, AXA Financial adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, as amended, that established new
accounting and reporting standards for all derivative instruments,
including certain derivatives embedded in other contracts, and for
hedging activities. Free-standing derivative instruments maintained by
AXA Financial at January 1, 2001 included interest rate caps, floors and
collars intended to hedge crediting rates on interest-sensitive
individual annuity contracts and certain reinsurance contracts. Based
upon guidance from the Financial Accounting Standards Board ("FASB") and
the Derivatives Implementation Group ("DIG"), caps, floors and collars
could not be designated in a qualifying hedging relationship under SFAS
No. 133 and, consequently, require mark-to-market accounting through
earnings for changes in their fair values beginning January 1, 2001. In
accordance with the transition provisions of SFAS No. 133, AXA Financial
recorded a cumulative-effect-type charge to earnings of $3.5 million to
recognize the difference between the carrying values and fair values of
free standing derivative instruments at January 1, 2001. With respect to
adoption of the requirements on embedded derivatives, AXA Financial
elected a January 1, 1999 transition date, thereby effectively
"grandfathering" existing accounting for derivatives embedded in hybrid
instruments acquired, issued, or substantively modified before that
date. As a consequence of this election, coupled with interpretive
guidance from the FASB and the DIG with respect to issues specifically
related to insurance contracts and features, adoption of the new
requirements for embedded derivatives had no material impact on AXA
Financial's results of operation or its financial position. Upon its
adoption of SFAS No. 133, AXA Financial reclassified $256.7 million of
held-to-maturity securities as available-for-sale. This reclassification
resulted in an after-tax cumulative-effect-type adjustment of $8.9
million in other comprehensive income, representing the after-tax
unrealized gain on these securities at January 1, 2001.
AXA Financial adopted the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 00-3, which
established new accounting and reporting standards for demutualizations,
prospectively as of January 1, 2001 with no financial impact upon
initial implementation. Prior period reclassifications have been made to
include Closed Block assets, liabilities, revenues and expenses on a
line-by-line basis as required by SOP 00-3.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" provides the accounting and
reporting rules for sales, securitizations, servicing of receivables and
other financial assets, for secured borrowings and collateral
transactions and extinguishments of liabilities. SFAS No. 140 emphasizes
the legal form of the transfer rather than the previous accounting that
was based upon the risks and rewards of ownership. SFAS No. 140 is
effective for transfers after March 31, 2001 and is principally applied
prospectively. During 2001, no significant transactions were impacted by
SFAS No. 140.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets". SFAS
No. 141 requires all business combinations initiated after June 30, 2001
to be accounted for using only the purchase method. Under SFAS No. 142,
goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be tested for impairment. Other intangible
assets will continue to be amortized over their useful lives and
periodically tested for recoverability. Adoption of SFAS No. 142 is
required as of January 1, 2002, at which time the amortization of
goodwill ceases. Amortization of goodwill and other intangible assets
for 2001 was approximately $123.8 million, net of minority interest of
$82.3 million, of which $109.5 million, net of minority interest of
$72.4 million, related to goodwill. Impairment losses for goodwill and
indefinite-lived intangible assets that result from initial application
of SFAS No. 142 will be reported as the cumulative effect of a change in
accounting principle. Management's preliminary analysis suggests that no
impairment of goodwill should result upon adoption of SFAS No. 142.
Management will be formally assessing the impairment aspect of
implementation of SFAS No. 142 during 2002. SFAS No. 144, effective
beginning in first quarter 2002, retains many of the fundamental
recognition and measurement provisions previously required by SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
of", except for the removal of goodwill from its scope and inclusion of
specific guidance on cash flow recoverability testing and the criteria
that must be met to classify a long-lived asset as held-for-sale. SFAS
No. 144 has no effect on the earnings of AXA Financial upon its adoption
on January 1, 2002.
F-9
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. Those fixed maturities which AXA
Financial has both the ability and the intent to hold to maturity are
stated principally at amortized cost. The amortized cost of fixed
maturities is adjusted for impairments in value deemed to be other than
temporary.
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, 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 (losses), net. 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.
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 and joint venture interests in which AXA Financial has
control and a majority economic interest (that is, greater than 50% of
the economic return generated by the entity) are consolidated; those in
which AXA Financial does not have control and a majority economic
interest are reported on the equity basis of accounting and are included
either with equity real estate or other equity investments, as
appropriate.
Equity securities includes common stock classified as both trading and
available for sale securities and non-redeemable preferred stock; they
are carried at estimated fair value and are included in other equity
investments.
Short-term investments are stated at amortized cost which 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 as well as 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.
Net Investment Income, Investment Gains (Losses), Net and Unrealized
Investment Gains (Losses)
Net investment income and realized investment gains (losses), net
("investment results") related to certain participating group annuity
contracts which are passed through to the contractholders are offset in
amounts reflected as interest credited to policyholders' account
balances.
F-10
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 are accounted for as
a separate component of accumulated comprehensive income, net of related
deferred Federal income taxes, amounts attributable to Other
Discontinued Operations, Closed Block policyholders dividend obligation,
participating group annuity contracts and deferred policy acquisition
costs ("DAC") related to universal life and investment-type products and
participating traditional life contracts.
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 income 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.
Deferred Policy Acquisition Costs
Acquisition costs, including commissions, underwriting, agency and
policy issue expenses, all of which vary with and primarily are related
to new business, 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.
For universal life products and investment-type products, DAC is
amortized over the expected total life of the contract group as a
constant percentage of estimated gross profits arising principally from
investment results, 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 of
revisions to estimated gross profits is reflected in earnings in the
period such estimated gross profits are revised. The effect on the DAC
asset that would result from realization of unrealized gains (losses) is
recognized with an offset to accumulated comprehensive income in
consolidated shareholders' equity as of the balance sheet date.
For participating traditional life policies (substantially all of which
are in the Closed Block), DAC is 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, 2001, the expected investment yield, excluding policy
loans, was 8.0% over a 40 year period. 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 of revisions to estimated gross margins is reflected in earnings
in the period such estimated gross margins are revised. The effect on
the DAC asset that would result from realization of unrealized gains
(losses) is recognized with an offset to accumulated comprehensive
income in consolidated shareholders' equity as of the balance sheet
date.
F-11
For non-participating traditional life policies, DAC is 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.
In second quarter 1999, management completed a study of the cash flows
and liability characteristics of its insurance product lines as compared
to the expected cash flows of the underlying assets. That analysis
reflected an assessment of the potential impact on future operating cash
flows from current economic conditions and trends, including rising
interest rates and securities market volatility and the impact of
increasing competitiveness within the insurance marketplace (evidenced,
for example, by the proliferation of bonus annuity products) on in force
business. The review indicated that changes to the then-current invested
asset allocation strategy were required to reposition assets with
greater price volatility away from products with demand liquidity
characteristics to support those products with lower liquidity needs. To
implement these findings, the existing investment portfolio was
reallocated, and prospective investment allocation targets were revised.
The reallocation of the assets impacted investment results by product,
thereby impacting the future gross margin estimates utilized in the
amortization of DAC for universal life and investment-type products. The
revisions to estimated future gross profits resulted in an after-tax
writedown of DAC of $85.6 million (net of a Federal income tax benefit
of $46.1 million) in 1999.
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.
Equitable Life issues certain variable annuity products with a
guaranteed minimum death benefit ("GMDB") feature. Equitable Life also
issues certain variable annuity products that contain a guaranteed
minimum income benefit ("GMIB") feature which, if elected by the
policyholder upon annuitization after a stipulated waiting period from
contract issuance, guarantees a minimum lifetime annuity that may be in
excess of what the contract account value can purchase at current
annuity purchase rates. Equitable Life bears the risk that a protracted
significant downturn in the financial markets could result in GMDB and
GMIB benefits being higher than what accumulated policyholder account
balances would support. Equitable Life partially reinsures its exposure
to the GMDB liability and reinsures approximately 80.0% of its liability
exposure resulting from the GMIB feature. GAAP prohibits the recording
of reserves for the potential benefit payments resulting from these
features.
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 which, 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 is 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 2.25% to 10.9% for life insurance liabilities and
from 2.25% to 8.37% for annuity liabilities.
F-12
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.
Claim reserves and associated liabilities net of reinsurance ceded for
individual DI and major medical policies were $104.2 million and $120.3
million at December 31, 2001 and 2000, respectively. At December 31,
2001 and 2000, respectively, $1,101.8 million and $1,046.5 million of DI
reserves and associated liabilities were ceded through an indemnity
reinsurance agreement principally with a single reinsurer (see Note 13).
Incurred benefits (benefits paid plus changes in claim reserves) and
benefits paid for individual DI and major medical policies are
summarized as follows:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Incurred benefits related to current year.......... $ 44.0 $ 56.1 $ 150.7
Incurred benefits related to prior years........... (10.6) 15.0 64.7
----------------- ---------------- -----------------
Total Incurred Benefits............................ $ 33.4 $ 71.1 $ 215.4
================= ================ =================
Benefits paid related to current year.............. $ 10.7 $ 14.8 $ 28.9
Benefits paid related to prior years............... 38.8 106.0 189.8
----------------- ---------------- -----------------
Total Benefits Paid................................ $ 49.5 $ 120.8 $ 218.7
================= ================ =================
Policyholders' Dividends
The amount of policyholders' dividends to be paid (including dividends
on policies included in the Closed Block) is determined annually by
Equitable Life's board 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 level of statutory surplus to be retained by Equitable Life.
At December 31, 2001, participating policies, including those in the
Closed Block, represent approximately 19.0% ($38.5 billion) of directly
written life insurance in force, net of amounts ceded.
Separate Accounts
Separate Accounts established under New York State Insurance Law
generally 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
exceeds 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. They are shown as
separate lines in the consolidated balance sheets. The Insurance Group
bears the investment risk on assets held in one Separate Account;
therefore, such assets are carried on the same basis as similar assets
held in the General Account portfolio. Assets held in the other Separate
Accounts are carried at quoted market values or, where quoted values are
not available, at estimated fair values as determined by the Insurance
Group.
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 2001, 2000 and 1999, investment
results of such Separate Accounts were (losses) gains of $(2,214.4)
million, $8,051.7 million and $6,045.5 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 Separate Accounts are
included in revenues.
F-13
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 fees are recorded as revenue as the related services are
performed. Certain investment advisory contracts provide for a
performance fee, in addition to or in lieu of a base fee, that is
calculated as a percentage of the related investment results in excess
of a stated benchmark over a specified period of time. Performance fees
are recorded as revenue at the end of the measurement period.
Transaction charges earned and related expenses are recorded on a trade
date basis. Distribution revenues and shareholder servicing fees are
accrued as earned.
Institutional research services revenue consists of brokerage
transaction charges and underwriting syndicate revenues related to
services provided to institutional investors. Brokerage transaction
charges earned and related expenses are recorded on a trade date basis.
Syndicate participation and underwriting revenues include gains, losses
and fees, net of syndicate expenses, arising from securities offerings
in which Sanford C. Bernstein & Co., LLC ("SCB"), a wholly owned
subsidiary of Alliance, acts as an underwriter or agent. Syndicate
participation and underwriting revenues are recorded on the offering
date.
Sales commissions paid to financial intermediaries in connection with
the sale of shares of open-end Alliance mutual funds sold without a
front-end sales charge are capitalized and amortized over periods not
exceeding five and one-half years, the period of time during which
deferred sales commissions 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
the redemption of their shares. Contingent deferred sales charges reduce
unamortized deferred sales commissions when received. At December 31,
2001 and 2000, respectively, deferred sales commissions totaled $648.2
million and $715.7 million and are included within Other assets.
Other Accounting Policies
In accordance with regulations of the Securities and Exchange Commission
("SEC"), securities with a fair value of $1.42 billion have been
segregated in a special reserve bank custody account at December 31,
2001 for the exclusive benefit of securities broker dealer or brokerage
customers under Rule 15c3-3 under the Securities Exchange Act of 1934,
as amended.
Intangible assets consist principally of goodwill resulting from
acquisitions and costs assigned to contracts of businesses acquired.
Goodwill is being amortized on a straight-line basis over estimated
useful lives ranging from twenty to forty years. Costs assigned to
investment contracts of businesses acquired are being amortized on a
straight-line basis over estimated useful lives of twenty years.
Impairment of intangible assets is evaluated by comparing the
undiscounted cash flows expected to be realized from those intangible
assets to their recorded values, pursuant to SFAS No. 121. If the
expected future cash flows are less than the carrying value of
intangible assets, an impairment loss is recognized for the difference
between the carrying amount and the estimated fair value of those
intangible assets.
Capitalized internal-use software is amortized on a straight-line basis
over the estimated useful life of the software.
The Holding Company and its consolidated subsidiaries file a
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.
Minority interest subject to redemption rights represents the 40.8
million private Alliance Units issued to former Bernstein shareholders
in connection with Alliance's acquisition of Bernstein. The Holding
Company has agreed to provide liquidity to these former Bernstein
shareholders after a two-year lock-out period ending October 2002 by
allowing the 40.8 million Alliance Units to be sold to the Holding
Company at the prevailing market price over the subsequent eight years
but generally not more than 20% of such Units in any one annual period.
F-14
AXA Financial accounts for its stock option and other stock-based
compensation plans in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. In accordance with the opinion,
stock option awards result in compensation expense only if the current
market price of the underlying stock exceeds the option strike price at
the grant date. See Note 11 for the pro forma disclosures required by
SFAS No. 123, "Accounting for Stock-Based Compensation".
3) INVESTMENTS
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, 2001
Fixed Maturities:
Available for Sale:
Corporate..................... $ 18,637.8 $ 665.9 $ 292.3 $ 19,011.4
Mortgage-backed............... 2,436.1 39.2 5.5 2,469.8
U.S. Treasury, government
and agency securities....... 1,113.5 62.3 1.5 1,174.3
States and political
subdivisions................ 138.9 6.8 1.3 144.4
Foreign governments........... 143.1 15.6 1.0 157.7
Redeemable preferred stock.... 404.7 16.5 23.8 397.4
----------------- ----------------- ----------------- ----------------
Total Available for Sale.... $ 22,874.1 $ 806.3 $ 325.4 $ 23,355.0
================= ================= ================= ================
Equity Securities:
Available for sale.............. $ 59.9 $ 5.8 $ 1.6 $ 64.1
Trading securities.............. 4.9 .9 3.4 2.4
----------------- ----------------- ----------------- ----------------
Total Equity Securities........... $ 64.8 $ 6.7 $ 5.0 $ 66.5
================= ================= ================= ================
December 31, 2000
Fixed Maturities:
Available for Sale:
Corporate..................... $ 16,478.5 $ 328.6 $ 363.9 $ 16,443.2
Mortgage-backed............... 2,304.5 20.2 7.8 2,316.9
U.S. Treasury, government
and agency securities....... 1,226.4 51.3 .4 1,277.3
States and political
subdivisions................ 125.4 4.8 1.1 129.1
Foreign governments........... 191.4 17.8 5.3 203.9
Redeemable preferred stock.... 341.0 13.5 9.1 345.4
----------------- ----------------- ----------------- ----------------
Total Available for Sale.... $ 20,667.2 $ 436.2 $ 387.6 $ 20,715.8
================= ================= ================= ================
Total Held to Maturity.......... $ 256.7 $ 10.5 $ .3 $ 266.9
================= ================= ================= ================
Equity Securities:
Available for sale.............. $ 36.5 $ 2.2 $ 6.0 $ 32.7
Trading securities.............. 1,607.1 2.5 46.3 1,563.3
----------------- ----------------- ----------------- ----------------
Total Equity Securities........... $ 1,643.6 $ 4.7 $ 52.3 $ 1,596.0
================= ================= ================= ================
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
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, 2001 and 2000, securities without a readily ascertainable
market value having an amortized cost of $5,419.4 million and $5,165.1
million, respectively, had estimated fair values of $5,510.8 million and
$5,183.2 million, respectively.
F-15
The contractual maturity of bonds at December 31, 2001 is shown below:
Available for Sale
------------------------------------
Amortized Estimated
Cost Fair Value
---------------- -----------------
(In Millions)
Due in one year or less.............................................. $ 374.6 $ 376.9
Due in years two through five........................................ 4,844.7 4,993.8
Due in years six through ten......................................... 8,302.5 8,462.1
Due after ten years.................................................. 6,511.5 6,655.0
Mortgage-backed securities........................................... 2,436.1 2,469.8
---------------- -----------------
Total................................................................ $ 22,469.4 $ 22,957.6
================ =================
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.
The Insurance Group's fixed maturity investment portfolio includes
corporate high yield securities consisting of public high yield bonds,
redeemable preferred stocks and directly negotiated debt in leveraged
buyout transactions. The Insurance Group seeks to minimize the higher
than normal credit risks associated with such securities by monitoring
concentrations in any single issuer or in a particular industry group.
Certain of these corporate high yield securities are classified as other
than investment grade by the various rating agencies, i.e., a rating
below Baa or National Association of Insurance Commissioners ("NAIC")
designation of 3 (medium grade), 4 or 5 (below investment grade) or 6
(in or near default). At December 31, 2001, approximately 7.9% of the
$22,469.4 million aggregate amortized cost of bonds held by AXA
Financial was considered to be other than investment grade.
The Insurance Group holds equity in limited partnership interests which
primarily invest in securities considered to be other than investment
grade. The carrying values at December 31, 2001 and 2000 were $701.9
million and $834.9 million, respectively.
At December 31, 2001, the carrying value of fixed maturities which were
non-income producing for the twelve months preceding that date was
$170.1 million.
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 $31.5 million
and $116.9 million at December 31, 2001 and 2000, respectively. Gross
interest income on these loans included in net investment income
aggregated $3.2 million, $9.7 million and $10.3 million in 2001, 2000
and 1999, 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 $4.2 million, $11.0 million
and $11.7 million in 2001, 2000 and 1999, respectively.
Impaired mortgage loans along with the related investment valuation
allowances follow:
December 31,
----------------------------------------
2001 2000
------------------- -------------------
(In Millions)
Impaired mortgage loans with investment valuation allowances....... $ 114.2 $ 170.9
Impaired mortgage loans without investment valuation allowances.... 30.6 5.8
------------------- -------------------
Recorded investment in impaired mortgage loans..................... 144.8 176.7
Investment valuation allowances.................................... (19.2) (45.7)
------------------- -------------------
Net Impaired Mortgage Loans........................................ $ 125.6 $ 131.0
=================== ===================
F-16
During 2001, 2000 and 1999, respectively, AXA Financial's average
recorded investment in impaired mortgage loans was $141.7 million,
$169.8 million and $178.8 million. Interest income recognized on these
impaired mortgage loans totaled $7.2 million, $12.4 million and $15.3
million ($.4 million, $.5 million and $.3 million recognized on a cash
basis) for 2001, 2000 and 1999, respectively.
The Insurance Group's investment in equity real estate is through direct
ownership and through investments in real estate joint ventures. At
December 31, 2001 and 2000, the carrying value of equity real estate
held for sale amounted to $216.6 million and $587.0 million,
respectively. For 2001, 2000 and 1999, respectively, real estate of
$64.8 million, $21.6 million and $20.5 million was acquired in
satisfaction of debt. At December 31, 2001 and 2000, AXA Financial owned
$376.5 million and $364.2 million, respectively, of real estate acquired
in satisfaction of debt of which $11.1 million and $21.3 million,
respectively, are held as real estate joint ventures.
Accumulated depreciation on real estate was $160.3 million and $209.9
million at December 31, 2001 and 2000, respectively. Depreciation
expense on real estate totaled $16.1 million, $21.7 million and $22.5
million for 2001, 2000 and 1999, respectively.
Investment valuation allowances for mortgage loans and equity real
estate and changes thereto follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Balances, beginning of year........................ $ 126.2 $ 177.9 $ 257.2
Additions charged to income........................ 40.0 68.2 83.1
Deductions for writedowns and
asset dispositions............................... (78.6) (119.9) (162.4)
----------------- ---------------- -----------------
Balances, End of Year.............................. $ 87.6 $ 126.2 $ 177.9
================= ================ =================
Balances, end of year comprise:
Mortgage loans on real estate.................... $ 19.3 $ 50.5 $ 32.1
Equity real estate............................... 68.3 75.7 145.8
----------------- ---------------- -----------------
Total.............................................. $ 87.6 $ 126.2 $ 177.9
================= ================ =================
F-17
4) JOINT VENTURES AND PARTNERSHIPS
Included in equity real estate or other equity investments, as
appropriate, is AXA Financial's interest in real estate joint ventures
and in limited partnership interests accounted for under the equity
method with a total carrying value of $883.9 million and $1,037.2
million, respectively, at December 31, 2001 and 2000. AXA Financial's
total equity in net (losses) earnings for these real estate joint
ventures and limited partnership interests was $(37.4) million, $242.2
million and $89.1 million, respectively, for 2001, 2000 and 1999.
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 has an
investment of $10.0 million or greater and an equity interest of 10% or
greater (10 and 14 individual ventures at December 31, 2001 and 2000,
respectively) and AXA Financial's carrying value and equity in net
(losses) earnings for those real estate joint ventures and limited
partnership interests:
December 31,
------------------------------------
2001 2000
---------------- -----------------
(In Millions)
BALANCE SHEETS
Investments in real estate, at depreciated cost........................ $ 570.5 $ 657.7
Investments in securities, generally at estimated fair value........... 255.7 226.6
Cash and cash equivalents.............................................. 23.7 34.5
Other assets........................................................... 39.4 63.5
---------------- -----------------
Total Assets........................................................... $ 889.3 $ 982.3
================ =================
Borrowed funds - third party........................................... $ 269.6 $ 53.8
Borrowed funds - AXA Financial......................................... - 12.9
Other liabilities...................................................... 20.3 22.5
---------------- -----------------
Total liabilities...................................................... 289.9 89.2
---------------- -----------------
Partners' capital...................................................... 599.4 893.1
---------------- -----------------
Total Liabilities and Partners' Capital................................ $ 889.3 $ 982.3
================ =================
AXA Financial's carrying value in these entities included above........ $ 188.2 $ 214.6
================ =================
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
STATEMENTS OF EARNINGS
Revenues of real estate joint ventures............. $ 95.6 $ 147.6 $ 180.5
Revenues of other limited partnership interests.... 29.8 16.5 85.0
Interest expense - third party..................... (11.5) (17.0) (26.6)
Interest expense - AXA Financial................... (.7) (2.0) (2.5)
Other expenses..................................... (58.2) (88.0) (133.0)
----------------- ---------------- -----------------
Net Earnings....................................... $ 55.0 $ 57.1 $ 103.4
================= ================ =================
AXA Financial's equity in net earnings of these
entities included above.......................... $ 13.2 $ 17.8 $ 9.5
================= ================ =================
F-18
5) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The sources of net investment income follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Fixed maturities................................... $ 1,668.9 $ 1,777.0 $ 1,835.3
Mortgage loans on real estate...................... 361.6 387.1 398.7
Equity real estate................................. 166.2 207.2 271.5
Other equity investments........................... (66.0) 21.2 174.7
Policy loans....................................... 268.2 258.3 246.8
Other investment income............................ 244.4 228.7 159.5
----------------- ---------------- -----------------
Gross investment income.......................... 2,643.3 2,879.5 3,086.5
Investment expenses................................ (220.2) (211.3) (249.2)
----------------- ---------------- -----------------
Net Investment Income.............................. $ 2,423.1 $ 2,668.2 $ 2,837.3
================= ================ =================
Investment (losses) gains including changes in the valuation allowances
follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Fixed maturities................................. $ (225.2) $ (796.5) $ (297.4)
Mortgage loans on real estate.................... (11.4) (18.0) (1.9)
Equity real estate............................... 34.5 1.6 (15.8)
Other equity investments......................... (12.6) (20.9) 95.9
Issuance and sales of Alliance Units............. (3.1) 3.9 5.5
Other............................................ 10.1 .3 .1
----------------- ---------------- -----------------
Investment Losses, Net......................... $ (207.7) $ (829.6) $ (213.6)
================= ================ =================
Writedowns of fixed maturities amounted to $287.5 million, $635.5
million and $226.5 million for 2001, 2000 and 1999, respectively,
including $499.2 million in fourth quarter 2000.
For 2001, 2000 and 1999, respectively, proceeds received on sales of
fixed maturities classified as available for sale amounted to $7,372.3
million, $7,685.5 million and $7,782.7 million. Gross gains of $156.2
million, $79.7 million and $76.2 million and gross losses of $115.9
million, $220.9 million and $220.2 million, respectively, were realized
on these sales. The change in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for 2001,
2000 and 1999 amounted to $430.9 million, $958.7 million and $(1,674.4)
million, respectively.
In conjunction with the sale of DLJ in 2000, AXA Financial received 25.2
million shares in Credit Suisse Group ("CSG") common stock, 6.3 million
shares of which were immediately repurchased by CSG at closing. The CSG
shares were designated as trading account securities. In December 2000,
6.5 million shares of the CSG shares were sold to AXA at fair value for
$1.2 billion. The $1.56 billion carrying value of CSG shares that were
held by AXA Financial at December 31, 2000 were sold in January 2001.
Net investment income included realized gains of $27.1 million in 2001
and included realized losses of $116.6 million and unrealized holding
losses of $43.3 million in 2000 on the CSG shares.
F-19
On January 1, 1999, investments in publicly-traded common equity
securities in the General Account and Holding Company portfolios within
other equity investments amounting to $149.8 million were transferred
from available for sale securities to trading securities. As a result of
this transfer, unrealized investment gains of $87.3 million ($45.7
million net of related DAC and Federal income taxes) were recognized as
realized investment gains in the consolidated statements of earnings. In
2001 and 2000, respectively, net unrealized and realized holding gains
(losses) on trading account equity securities of $25.0 million and
$(159.4) million were included in net investment income in the
consolidated statements of earnings. These trading securities had a
carrying value of $2.4 million and $1,563.3 million and costs of $4.9
million and $1,607.1 million at December 31, 2001 and 2000,
respectively.
For 2001, 2000 and 1999, investment results passed through to certain
participating group annuity contracts as interest credited to
policyholders' account balances amounted to $96.7 million, $110.6
million and $131.5 million, respectively.
The net unrealized investment gains (losses) included in the
consolidated balance sheets as a component of accumulated comprehensive
income and the changes for the corresponding years, including Other
Discontinued Operations on a line by line basis, follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Balance, beginning of year......................... $ 11.0 $ (406.4) $ 378.1
Changes in unrealized investment gains (losses).... 439.0 980.9 (1,831.4)
Changes in unrealized investment (gains) losses
attributable to:
Participating group annuity contracts,
Closed Block policyholder dividend obligation
and other.................................... (48.6) (18.3) 25.0
DAC............................................. (71.6) (262.1) 493.1
Deferred Federal income taxes................... (114.0) (283.1) 528.8
----------------- ---------------- -----------------
Balance, End of Year............................... $ 215.8 $ 11.0 $ (406.4)
================= ================ =================
Balance, end of year comprises:
Unrealized investment gains (losses) on:
Fixed maturities................................ $ 497.6 $ 64.9 $ (908.7)
Other equity investments........................ 4.3 (3.6) (22.2)
Other........................................... (2.8) (1.2) 10.1
----------------- ---------------- -----------------
Total........................................ 499.1 60.1 (920.8)
Amounts of unrealized investment (losses) gains
attributable to:
Participating group annuity contracts,
Closed Block policyholder dividend obligation
and other.................................... (63.9) (15.3) 3.0
DAC............................................. (99.9) (28.3) 233.8
Deferred Federal income taxes................... (119.5) (5.5) 277.6
----------------- ---------------- -----------------
Total.............................................. $ 215.8 $ 11.0 $ (406.4)
================= ================ =================
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.
F-20
6) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) represents cumulative
gains and losses on items that are not reflected in earnings. The
balances for the past three years follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Unrealized gains (losses) on investments........... $ 215.8 $ 11.0 $ (406.4)
Minimum pension liability.......................... (13.7) (13.3) (16.1)
----------------- ---------------- -----------------
Total Accumulated Other
Comprehensive Income (Loss)...................... $ 202.1 $ (2.3) $ (422.5)
================= ================ =================
The components of other comprehensive income (loss) for the past three
years follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Net unrealized gains (losses) on investments:
Net unrealized gains (losses) arising during
the period..................................... $ 528.2 $ 190.2 $ (1,637.4)
(Gains) losses reclassified into net earnings
during the period.............................. (89.2) 790.7 (194.0)
----------------- ---------------- -----------------
Net unrealized gains (losses) on investments....... 439.0 980.9 (1,831.4)
Adjustments for policyholders liabilities, DAC
and deferred Federal income taxes................ (234.2) (563.5) 1,046.9
----------------- ---------------- -----------------
Change in unrealized gains (losses), net of
adjustments...................................... 204.8 417.4 (784.5)
Change in minimum pension liability................ (.4) 2.8 12.2
----------------- ---------------- -----------------
Total Other Comprehensive Income (Loss)............ $ 204.4 $ 420.2 $ (772.3)
================= ================ =================
7) CLOSED BLOCK
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 which 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 has
developed an actuarial calculation of the expected timing of the Closed
Block earnings.
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, 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.
F-21
Summarized financial information for the Closed Block is as follows:
December 31, December 31,
2001 2000
----------------- -----------------
(In Millions)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances
and other.......................................................... $ 9,049.9 $ 9,026.4
Other liabilities.................................................... 53.6 35.6
----------------- -----------------
Total Closed Block liabilities....................................... 9,103.5 9,062.0
----------------- -----------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $4,600.4 and $4,373.5).......................... 4,705.7 4,408.0
Mortgage loans on real estate........................................ 1,514.4 1,581.8
Policy loans......................................................... 1,504.4 1,557.7
Cash and other invested assets....................................... 141.0 174.7
Other assets......................................................... 214.7 238.9
----------------- -----------------
Total assets designated to the Closed Block.......................... 8,080.2 7,961.1
----------------- -----------------
Excess of Closed Block liabilities over assets designated to
the Closed Block................................................... 1,023.3 1,100.9
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains, net of deferred Federal
income tax of $20.4 and $12.2.................................... 37.8 22.7
----------------- -----------------
Maximum Future Earnings To Be Recognized From Closed Block
Assets and Liabilities............................................. $ 1,061.1 $ 1,123.6
================= =================
F-22
Closed Block revenues and expenses were as follows:
2001 2000 1999
---------------- ---------------- --------------------
(In Millions)
REVENUES:
Premiums and other income.......................... $ 571.5 $ 594.7 $ 619.1
Investment income (net of investment
expenses of $3.0, $8.1, and $15.8)............... 583.5 578.7 574.2
Investment losses, net............................. (42.3) (35.8) (11.3)
---------------- ---------------- --------------------
Total revenues.................................... 1,112.7 1,137.6 1,182.0
---------------- ---------------- --------------------
BENEFITS AND
OTHER DEDUCTIONS:
Policyholders' benefits and dividends.............. 1,009.3 1,025.2 1,024.7
Other operating costs and expenses................. 4.7 5.2 5.5
---------------- ---------------- --------------------
Total benefits and other deductions................ 1,014.0 1,030.4 1,030.2
---------------- ---------------- --------------------
Net revenues before Federal income taxes........... 98.7 107.2 151.8
Federal income taxes............................... (36.2) (38.2) (60.3)
---------------- ---------------- --------------------
Net Revenues....................................... $ 62.5 $ 69.0 $ 91.5
================ ================ ====================
Impaired mortgage loans along with the related investment valuation
allowances follows:
December 31,
------------------------------------
2001 2000
---------------- -----------------
(In Millions)
Impaired mortgage loans with investment valuation allowances........... $ 26.7 $ 26.7
Impaired mortgage loans without investment valuation allowances........ 6.5 4.0
---------------- -----------------
Recorded investment in impaired mortgages.............................. 33.2 30.7
Investment valuation allowances........................................ (5.8) (8.7)
---------------- -----------------
Net Impaired Mortgage Loans............................................ $ 27.4 $ 22.0
================ =================
During 2001, 2000 and 1999, the Closed Block's average recorded
investment in impaired mortgage loans was $30.8 million, $31.0 million
and $37.0 million, respectively. Interest income recognized on these
impaired mortgage loans totaled $1.2 million, $2.0 million and $3.3
million ($.1 million, $.1 million and $.3 million recognized on a cash
basis) for 2001, 2000 and 1999, respectively.
Valuation allowances amounted to $5.7 million and $9.1 million on
mortgage loans on real estate and $9.8 million and $17.2 million on
equity real estate at December 31, 2001 and 2000, respectively.
Writedowns of fixed maturities amounted to $30.8 million and $27.7
million for 2001 and 2000, respectively, including $23.3 million in
fourth quarter 2001.
F-23
8) DISCONTINUED OPERATIONS
Investment Banking and Brokerage Segment
The discontinued Investment Banking and Brokerage segment included DLJ
and served institutional, corporate, governmental and individual clients
both domestically and internationally. DLJ's businesses included
securities underwriting, sales and trading, merchant banking, financial
advisory services, investment research, venture capital, correspondent
brokerage services, online interactive brokerage services and asset
management.
On November 3, 2000, AXA Financial sold its interest in DLJ to CSG. AXA
Financial received $2.29 billion in cash and $4.86 billion (or 25.2
million shares) in CSG common stock. The fair value of the stock
consideration was based upon the exchange rate and stock price at the
time the transaction closed. CSG repurchased $1.18 billion (6.3 million
shares) of its common stock from AXA Financial at closing. AXA Financial
recognized a gain on the DLJ sale of $2.32 billion (net of $1.99 billion
in taxes).
Revenues from the Investment Banking and Brokerage segment were $7,056.3
million and $7,388.6 million for 2000 and 1999, respectively. Net
earnings are net of Federal income taxes totaling $173.5 million and
$188.4 million for 2000 and 1999, respectively. The 1999 net earnings
included a non-cash realized gain of $212.3 million related to DLJ's
offering of a new class of common stock to track the performance of
DLJdirect.
Other Discontinued Operations
Summarized financial information for Other Discontinued Operations
follows:
December 31,
--------------------------------------
2001 2000
----------------- -----------------
(In Millions)
BALANCE SHEETS
Mortgage loans on real estate........................................ $ 160.3 $ 330.9
Equity real estate................................................... 252.0 350.9
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $542.9 and $321.5).............................. 559.6 336.5
Other equity investments............................................. 22.3 43.1
Other invested assets................................................ .4 1.9
----------------- -----------------
Total investments.................................................. 994.6 1,063.3
Cash and cash equivalents............................................ 41.1 84.3
Other assets......................................................... 152.6 148.8
----------------- -----------------
Total Assets......................................................... $ 1,188.3 $ 1,296.4
================= =================
Policyholders liabilities............................................ $ 932.9 $ 966.8
Allowance for future losses.......................................... 139.9 159.8
Other liabilities.................................................... 115.5 169.8
----------------- -----------------
Total Liabilities.................................................... $ 1,188.3 $ 1,296.4
================= =================
F-24
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
STATEMENTS OF EARNINGS
Investment income (net of investment
expenses of $25.3, $37.0 and $49.3).............. $ 91.6 $ 102.2 $ 98.7
Investment gains (losses), net..................... 33.6 (6.6) (13.4)
Policy fees, premiums and other income............. .2 .7 .2
----------------- ---------------- -----------------
Total revenues..................................... 125.4 96.3 85.5
Benefits and other deductions...................... 100.7 106.9 104.8
Earnings credited (losses charged) to allowance
for future losses................................ 24.7 (10.6) (19.3)
----------------- ---------------- -----------------
Pre-tax loss from operations....................... - - -
Pre-tax earnings from releasing the allowance
for future losses................................ 46.1 90.2 43.3
Federal income tax expense......................... (2.3) (31.6) (15.2)
----------------- ---------------- -----------------
Earnings from Other
Discontinued Operations.......................... $ 43.8 $ 58.6 $ 28.1
================= ================ =================
AXA Financial's quarterly process for evaluating the allowance for
future losses applies the current period's results of other discontinued
operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. Additionally, as part of AXA Financial's
annual planning process which takes place in the fourth quarter of each
year, 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.
Valuation allowances of $4.8 million and $2.9 million on mortgage loans
on real estate and $5.0 million and $11.4 million on equity real estate
were held at December 31, 2001 and 2000, respectively. During 2001, 2000
and 1999, other discontinued operations' average recorded investment in
impaired mortgage loans was $32.2 million, $11.3 million and $13.8
million, respectively. Interest income recognized on these impaired
mortgage loans totaled $2.5 million, $.9 million and $1.7 million ($1.0
million, $.5 million and $.0 million recognized on a cash basis) for
2001, 2000 and 1999, respectively.
At December 31, 2001 and 2000, other discontinued operations had real
estate acquired in satisfaction of debt with carrying values of $7.4
million and $4.5 million, respectively.
In 2001, Federal Income tax expense for other discontinued operations
reflected a $13.8 million reduction in taxes due to settlement of open
tax years.
F-25
9) SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consists of the following:
December 31,
--------------------------------------
2001 2000
----------------- -----------------
(In Millions)
Short-term debt...................................................... $ 285.9 $ 1,078.2
----------------- -----------------
Long-term debt:
Holding Company:
Senior notes, 7.75%, due through 2010.............................. 476.5 476.0
Senior notes, 6.5%, due 2008....................................... 249.5 249.4
Senior notes, 9%, due 2004......................................... 300.0 300.0
Senior notes, 7.30%, due through 2003.............................. 76.8 133.0
Senior debentures, 7.0%, due 2028.................................. 347.7 347.6
----------------- -----------------
Total Holding Company.......................................... 1,450.5 1,506.0
----------------- -----------------
Equitable Life:
Surplus notes, 6.95%, due 2005..................................... 399.7 399.6
Surplus notes, 7.70%, due 2015..................................... 199.7 199.7
Other.............................................................. - .4
----------------- -----------------
Total Equitable Life........................................... 599.4 599.7
----------------- -----------------
Alliance:
----------------- -----------------
Senior Notes, 5.625% due 2006...................................... 398.0 -
----------------- -----------------
Wholly owned and joint venture real estate:
Mortgage notes, 4.92%, due through 2017............................ 248.3 248.3
----------------- -----------------
Total long-term debt................................................. 2,696.2 2,354.0
----------------- -----------------
Total Short-term and Long-term Debt.................................. $ 2,982.1 $ 3,432.2
================= =================
Short-term Debt
In 2000, the Holding Company negotiated a $1.00 billion, 364-day
revolving credit facility to replace a promissory note from which the
proceeds were used to purchase new Alliance Units. This credit facility
was cancelled in June 2001.
Equitable Life has a $350.0 million bank 5-year credit facility and a
$250.0 million 364-day credit facility. The interest rates are based on
external indices dependent on the type of borrowing ranging from 2.09%
to 4.75%. There were no amounts outstanding under these credit
facilities at December 31, 2001.
Equitable Life has a commercial paper program with an issue limit of
$1.0 billion. This program is available for general corporate purposes
used to support Equitable Life's liquidity needs and is supported by
Equitable Life's existing $600.0 million bank credit facilities. At
December 31, 2001, there were no amounts outstanding under this program.
Equitable Life has an $18.4 million line of credit available relating to
reinsurance of which no amounts were outstanding at December 31, 2001.
During 1998, Alliance increased its commercial paper program to $425.0
million and entered into a $425.0 million five-year revolving credit
facility with a group of commercial banks to provide back-up liquidity
for the commercial paper program. Under the credit facility, the
interest rate, at the option of the borrower, 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. A facility
fee is payable on the total facility. Borrowings under the credit
facility and the commercial paper program may not exceed $425.0 million
in the aggregate. In July 1999, Alliance entered into a $200.0 million
F-26
three-year revolving credit facility with a group of commercial banks.
During October 2000, Alliance entered into a $250.0 million two-year
revolving credit facility. The terms of the $200.0 million and $250.0
million credit facilities are generally similar to the $425.0 million
credit facility. The revolving credit facilities will be used to fund
commission payments to financial intermediaries for the sale of Back-End
Load Shares under Alliance's mutual fund distribution system, capital
expenditures and for general working capital purposes. The revolving
credit facilities contain covenants which, among other things, require
Alliance to meet certain financial ratios. Alliance was in compliance
with the covenants at December 31, 2001. At December 31, 2001, Alliance
had commercial paper outstanding totaling $198.2 million at an effective
interest rate of 1.9%; there were no borrowings outstanding under
Alliance's revolving credit facilities.
In December 1999, Alliance established a $100.0 million extendible
commercial notes ("ECN") program as a supplement to its $425.0 million
commercial paper program. ECNs are short-term uncommitted debt
instruments that do not require back-up liquidity support. At December
31, 2001, $24.9 million at an effective interest rate of 1.9% was
outstanding under the ECN program.
Long-term Debt
Certain of the long-term debt agreements, principally mortgage notes,
have restrictive covenants related to the total amount of debt, net
tangible assets and other matters. At December 31, 2001, AXA Financial
is in compliance with all debt covenants.
At December 31, 2001 and 2000, respectively, AXA Financial has pledged
real estate of $314.5 million and $298.8 million as collateral for
certain long-term debt.
At December 31, 2001, aggregate maturities of the long-term debt based
on required principal payments at maturity for 2002 and the succeeding
four years are $304.7 million, $76.8 million, $300.0 million, $400.0
million and $400.0 million, respectively, and $1,280.0 million
thereafter.
In July 2000, the Holding Company issued $480.0 million 7.75% Senior
Notes due 2010. Substantially all of the net proceeds of $472.7 million
was used to repay a portion of the promissory note from which the
proceeds were used to purchase new Alliance Units in connection with the
Bernstein acquisition.
In August 2001, Alliance issued $400.0 million 5.625% notes due 2006 in
a public offering and are redeemable at any time. The registration
statement filed with the SEC allows for the issuance of up to $600.0
million in senior debt securities. The proceeds were used to reduce
commercial paper and credit facility borrowings and for other general
partnership purposes.
10) FEDERAL INCOME TAXES
A summary of the Federal income tax expense (benefit) in the
consolidated statements of earnings follows:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Federal income tax expense (benefit):
Current.......................................... $ (138.5) $ (123.1) $ 152.3
Deferred......................................... 358.1 80.6 156.4
----------------- ---------------- -----------------
Total.............................................. $ 219.6 $ (42.5) $ 308.7
================= ================ =================
F-27
The Federal income taxes attributable to consolidated operations are
different from the amounts determined by multiplying the earnings before
Federal income taxes and minority interest by the expected Federal
income tax rate of 35%. The sources of the difference and their tax
effects follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Expected Federal income tax expense (benefit)...... $ 313.1 $ (34.9) $ 341.6
Minority interest.................................. (103.1) (94.0) (58.5)
Non-deductible stock option compensation
expense.......................................... - 61.6 -
Adjustment of tax audit reserves................... (28.2) 17.9 11.7
Non-deductible goodwill............................ 30.3 10.4 -
Other.............................................. 7.5 (3.5) 13.9
----------------- ---------------- -----------------
Federal Income Tax Expense (Benefit)............... $ 219.6 $ (42.5) $ 308.7
================= ================ =================
The components of the net deferred Federal income taxes are as follows:
December 31, 2001 December 31, 2000
--------------------------------- ---------------------------------
Assets Liabilities Assets Liabilities
--------------- ---------------- --------------- ---------------
(In Millions)
Compensation and related benefits...... $ 218.6 $ - $ 240.8 $ -
Other.................................. 39.0 - 61.0 -
DAC, reserves and reinsurance.......... - 1,011.5 - 733.0
Investments............................ - 350.4 - 237.6
--------------- ---------------- --------------- ---------------
Total.................................. $ 257.6 $ 1,361.9 $ 301.8 $ 970.6
=============== ================ =============== ===============
The deferred Federal income taxes impacting operations reflect the net
tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The sources of these temporary differences
and their tax effects follow:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
DAC, reserves and reinsurance...................... $ 283.1 $ 403.3 $ 83.2
Investments........................................ 50.7 (139.9) 14.3
Compensation and related benefits.................. 19.5 (154.3) 24.5
Other.............................................. 4.8 (28.5) 34.4
----------------- ---------------- -----------------
Deferred Federal Income Tax Expense................ $ 358.1 $ 80.6 $ 156.4
================= ================ =================
Federal income taxes payable at December 31, 2000 included $1.85 billion
of taxes related to the gain on disposal of the discontinued Investment
Banking and Brokerage segment.
The Internal Revenue Service (the "IRS") is in the process of examining
AXA Financial's consolidated Federal income tax returns for the years
1992 through 1996. Management believes these audits will have no
material adverse effect on AXA Financial's consolidated results of
operations.
F-28
11) CAPITAL STOCK, STOCK APPRECIATION RIGHTS, AND OPTIONS
In 1993, the Holding Company established a Stock Employee Compensation
Trust ("SECT") to fund a portion of its obligations arising from its
various employee compensation and benefits programs. At that time, the
Holding Company sold 60,000 shares of Series D Preferred Stock,
convertible into 23.8 million shares of the Holding Company's common
stock ("Common Stock"), to the SECT in exchange for cash and a
promissory note of $299.9 million, for a total of $300.0 million. This
had no effect on AXA Financial's consolidated shareholders' equity as
the Series D Preferred Stock was reported as outstanding on AXA
Financial's consolidated balance sheets but was offset by a
contra-equity account. An increase in consolidated shareholders' equity
resulted only when shares of Series D Preferred Stock were released from
the SECT and converted into shares of Common Stock. The conversion of
the Series D Preferred Stock released from the SECT and the related
reduction in benefit liabilities were recorded at fair value. The SECT
terminated in December 2001 following the release of the shares of
Series D Preferred Stock which converted all assets of the SECT.
In September 2001, the SECT released 10,920 shares of Series D Preferred
Stock, having an approximate value of $203.5 million. The value of the
Series D Preferred Stock was remitted to Equitable Life to fund
designated benefit plans. Equitable Life reimbursed the Holding Company
for the value of the Series D Preferred Stock. This transaction had no
impact on consolidated shareholders' equity.
In conjunction with approval of the agreement for AXA's acquisition of
the minority interest in the Holding Company's Common Stock, generally
all outstanding options awarded under the 1997 and 1991 Stock Incentive
Plans were amended to become immediately and fully exercisable pursuant
to their terms upon expiration of the initial tender offer. In addition,
the agreement provided that at the effective time of the merger, the
terms of all outstanding options granted under those Plans would be
further amended and converted into options of equivalent intrinsic value
to acquire a number of AXA ordinary shares in the form of ADRs. Also
pursuant to the agreement, holders of non-qualified options were
provided with an alternative to elect cancellation of those options at
the effective time of the merger in exchange for a cash payment from AXA
Financial. For the year ended December 31, 2000, AXA Financial, Inc.
recognized compensation expense of $702.7 million, representing the cost
of these Plan amendments and modifications, approximately $349.9 million
of which has been accrued for the cash settlement of approximately 11.9
million non-qualified options. The remaining cost of approximately
$352.8 million as related to the conversion and exchange of option
shares was reflected as an addition to capital in excess of par value.
Beginning in 2001, under the 1997 Stock Incentive Plan, the Holding
Company can issue options to purchase AXA ADRs. The options, which
include Incentive Stock Options and Nonstatutory Stock Options, are
issued at the fair market value of the AXA ADRs on the date of grant.
Generally, one-third of stock options granted vest and become
exercisable on each of the first three anniversaries of the date such
options were granted. Options are currently exercisable up to 10 years
from the date of grant.
Following completion of the merger of AXA Merger with and into the
Holding Company, certain employees exchanged AXA ADR options for tandem
Stock Appreciation Rights ("SARs") and at-the-money AXA ADR options of
equivalent intrinsic value. The maximum obligation for the SARs is $85.3
million, based upon the underlying price of AXA ADRs at January 2, 2001,
the closing date of the aforementioned merger. AXA Financial recorded a
reduction in the SARs liability of $74.0 million for 2001, reflecting
the variable accounting for the SARs, based on the change in the market
value of AXA ADRs for the period ended December 31, 2001.
AXA Financial has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB No. 25.
Had compensation expense as related to options awarded under AXA
Financial's Stock Incentive Plans been determined based on SFAS No.
123's fair value based method, including the cost of the amendments and
modifications made in connection with AXA's acquisition of the minority
interest in the Holding Company, AXA Financial's pro forma net earnings
for 2001, 2000 and 1999 would have been $402.6 million, $2,838.2 million
and $1,063.3 million, respectively.
F-29
The Black-Scholes option pricing model was used in determining the fair
values of option awards used in the pro-forma disclosures above. The
option pricing assumptions for 2001, 2000 and 1999 follow:
Holding Company Alliance
----------------------------------------- ------------------------------
2001(1) 2000 1999 2001 2000 1999
------------- ------------- ------------ --------- --------- ----------
Dividend yield.... 1.52% 0.32% 0.31% 5.80% 7.20% 8.70%
Expected
volatility...... 29% 28% 28% 33% 30% 29%
Risk-free interest
rate............ 4.98% 6.24% 5.46% 4.5% 5.90% 5.70%
Expected life
in years........ 5 5 5 7.2 7.4 7
Weighted average
fair value per
option at
grant-date...... $9.42 $11.08 $10.78 $9.23 $8.32 $3.88
<FN>
(1) Beginning in 2001, the option pricing assumptions reflect
options granted by the Holding Company representing rights to
acquire AXA ADRs.
</FN>
A summary of the activity in the option shares of the Holding Company
and Alliance's option plans follows, including information about options
outstanding and exercisable at December 31, 2001. Outstanding options at
January 2, 2001 to acquire AXA ADRs reflect the conversion of 11.5
million share options of the Holding Company that remained outstanding
following the above-described cash settlement made pursuant to the
agreement for AXA's acquisition of the minority interest in the Holding
Company's Common Stock. All information presented below as related to
options to acquire AXA ADRs gives appropriate effect to AXA's May 2001
four-for-one stock split and the related changes in ADR parity for each
Holding Company share option:
Holding Company Alliance
------------------------------------ --------------------------------
Common
Stock Weighted Weighted
and Average Average
AXA ADRs Exercise Units Exercise
(In Millions) Price (In Millions) Price
----------------- ----------------- -------------- -----------------
Holding Company Option Shares:
Balance as of
December 31, 1998...... 21.4 $22.00 12.3 $14.92
Granted................ 4.3 $31.70 2.0 $30.18
Exercised.............. (2.4) $13.26 (1.5) $ 9.51
Forfeited.............. (.6) $24.29 (.3) $17.79
----------------- --------------
Balance as of
December 31, 1999...... 22.7 $24.60 12.5 $17.95
Granted................ 6.5 $31.06 4.7 $50.93
Exercised.............. (4.5) $18.57 (1.7) $10.90
Forfeited.............. (1.2) $26.15 (.1) $26.62
----------------- --------------
Balance as of
December 31, 2000...... 23.5 $27.20 15.4 $28.73
================= ===============
AXA ADR Option Shares:
Balance as of
January 2, 2001 18.3 $21.65
Granted................ 17.0 $31.55 2.5 $50.34
Exercised.............. (2.2) $11.57 (1.7) $13.45
Forfeited.............. (3.1) $32.02 (.3) $34.33
----------------- --------------
Balance as of
December 31, 2001...... 30.0 $26.89 15.9 $33.58
================= ==============
F-30
Information about options outstanding and exercisable at December 31,
2001 follows:
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (In Millions) Life (Years) Price (In Millions) Price
---------------------- --------------- ---------------- --------------- ----------------- --------------
AXA ADRs
----------------------
$ 6.325 -$ 9.01 1.9 2.25 $ 6.75 1.9 $ 6.75
$10.195 -$14.30 2.2 5.69 $13.32 2.2 $13.34
$15.995 -$22.84 5.2 7.29 $18.87 4.4 $18.74
$26.095 -$33.025 15.7 6.58 $30.97 2.6 $26.78
$36.03 5.0 7.48 $36.03 5.0 $36.03
--------------- ------------------
$ 6.325 -$36.03 30.0 6.51 $26.89 16.1 $23.24
=============== ==================
Alliance
----------------------
$ 7.97 -$18.78 4.7 4.20 $12.92 4.3 $12.48
$ 22.50 -$27.31 2.5 6.94 $26.29 1.4 $26.30
$ 30.25 -$46.78 1.7 7.93 $30.30 .6 $30.25
$ 48.50 -$50.56 4.9 9.18 $49.36 .5 $48.50
$ 51.10 -$58.50 2.1 8.95 $53.78 .5 $53.75
--------------- ------------------
$ 7.97 -$58.50 15.9 7.20 $33.57 7.3 $21.42
=============== ==================
AXA Financial's ownership interest in Alliance will continue to be
reduced upon the exercise of unit options granted to certain Alliance
employees. Options are exercisable over a period of up to ten years.
In 2001, AXA Financial granted to one senior executive officer AXA ADRs
having a value of $8.7 million on the effective date of the grant. The
AXA ADRs vest over three years. In 2001, AXA Financial recognized $1.2
million in compensation and benefit expense relating to this program.
In 1997, Alliance Holding established a long-term incentive compensation
plan under which grants are made to key employees for terms established
by Alliance Holding at the time of grant. These awards include options,
restricted Alliance Holding units and phantom restricted Alliance
Holding units, performance awards, other Alliance Holding unit based
awards, or any combination thereof. At December 31, 2001, approximately
12.4 million Alliance Holding units of a maximum 40.0 million units were
subject to options granted and 25,500 Alliance Holding units were
subject to awards made under this plan.
12) RELATED PARTY TRANSACTIONS
In December 2000, the Holding Company loaned AXA Merger $3.0 billion at
an annual rate of 6.96% with principal and interest payable March 14,
2001. The loan proceeds were used to partially fund the AXA Financial
minority interest buyout. Interest income totaled $5.3 million for 2000.
As a result of its merger into the Holding Company, AXA Merger's
obligation to repay this loan was extinguished in January 2001. This
non-cash event resulted in a decrease in AXA Financial's consolidated
shareholders' equity.
In March 2001, the Holding Company borrowed from AXA $1.10 billion due
March 30, 2001 under a renewable financing agreement. The proceeds were
used to partially fund Federal income tax payments in first quarter
2001. Both interest of $3.8 million and principal were paid in 2001.
In September 2001, Equitable Life 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.
F-31
The Holding Company, Equitable Life and Alliance, along with other AXA
affiliates, participate in certain cost sharing and servicing agreements
which include technology and professional development arrangements.
Payments by AXA Financial to AXA totaled approximately $18.4 million in
2001.
Commissions, fees and other income includes certain revenues for
services provided to mutual funds managed by Alliance described below:
2001 2000 1999
----------------- ---------------- ------------------
(In Millions)
Investment advisory and services fees.............. $ 1,088.2 $ 1,021.8 $ 895.8
Distribution revenues.............................. 544.6 621.6 441.8
Shareholder servicing fees......................... 87.2 85.6 62.3
Other revenues..................................... 11.0 11.6 9.9
Brokerage.......................................... 9.0 1.7 -
13) 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 effect of reinsurance (excluding group life and health) is
summarized as follows:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Direct premiums.................................... $ 990.0 $ 1,103.8 $ 1,039.5
Reinsurance assumed................................ 203.0 194.2 206.7
Reinsurance ceded.................................. (173.1) (123.0) (69.1)
----------------- ---------------- -----------------
Premiums........................................... $ 1,019.9 $ 1,175.0 $ 1,177.1
================= ================ =================
Universal Life and Investment-type Product
Policy Fee Income Ceded.......................... $ 86.9 $ 92.1 $ 69.7
================= ================ =================
Policyholders' Benefits Ceded...................... $ 370.3 $ 239.2 $ 155.6
================= ================ =================
Interest Credited to Policyholders' Account
Balances Ceded................................... $ 50.4 $ 46.5 $ 38.5
================= ================ =================
Since 1997, AXA Financial reinsures on a yearly renewal term basis 90%
of the mortality risk on new issues of certain term, universal and
variable life products. AXA Financial's retention limit on joint
survivorship policies is $15.0 million. All other in force business
above $5.0 million is reinsured. The Insurance Group also reinsures the
entire risk on certain substandard underwriting risks and in certain
other cases.
During July 2000, Equitable Life transferred, at no gain or loss, all
the risk of its directly written DI business for years 1993 and prior
through an indemnity reinsurance contract. The cost of the arrangement
will be amortized over the expected lives of the contracts reinsured and
will not have a significant impact on the results of operations in any
specific period.
At December 31, 2001 and 2000, respectively, reinsurance recoverables
related to insurance contracts amounting to $2,233.7 million and
$2,098.0 million, of which $1,060.4 million and $1,009.1 million relates
to one specific reinsurer, are included in Other assets and reinsurance
payables related to insurance contracts amounting to $798.5 million and
$730.3 million are included in Other liabilities in the consolidated
balance sheets.
The Insurance Group cedes 100% of its group life and health business to
a third party insurer. Insurance liabilities ceded totaled $444.2
million and $487.7 million at December 31, 2001 and 2000, respectively.
F-32
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 also
assumes accident, health, aviation and space risks by participating in
various reinsurance pools. Reinsurance assumed reserves at December 31,
2001 and 2000 were $540.2 million and $515.0 million, respectively.
14) EMPLOYEE BENEFIT PLANS
AXA Financial sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents. The pension plans are
non-contributory. Equitable Life's benefits are based on a cash balance
formula or years of service and final average earnings, if greater,
under certain grandfathering rules in the plans. Alliance's benefits are
based on years of credited service, average final base salary and
primary social security benefits. AXA Financial's funding policy is to
make the minimum contribution required by the Employee Retirement Income
Security Act of 1974 ("ERISA").
Components of net periodic pension credit for the qualified and
non-qualified plans were as follows:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Service cost....................................... $ 40.7 $ 37.2 $ 36.7
Interest cost on projected benefit obligations..... 152.0 146.4 133.3
Expected return on assets.......................... (218.9) (223.3) (189.8)
Net amortization and deferrals..................... 5.9 5.4 7.4
----------------- ---------------- -----------------
Net Periodic Pension Credit........................ $ (20.3) $ (34.3) $ (12.4)
================= ================ =================
The plans' projected benefit obligations under the qualified and
non-qualified plans was comprised of:
December 31,
------------------------------------
2001 2000
---------------- -----------------
(In Millions)
Benefit obligations, beginning of year................................. $ 2,024.6 $ 1,948.9
Service cost........................................................... 35.7 32.2
Interest cost.......................................................... 152.0 146.4
Actuarial losses (gains)............................................... 114.0 27.3
Benefits paid.......................................................... (141.7) (130.2)
---------------- -----------------
Benefit Obligations, End of Year....................................... $ 2,184.6 $ 2,024.6
================ =================
The change in plan assets and the funded status of the qualified and
non-qualified pension plans was as follows:
December 31,
------------------------------------
2001 2000
---------------- -----------------
(In Millions)
Plan assets at fair value, beginning of year........................... $ 2,113.8 $ 2,343.6
Actual return on plan assets........................................... (147.9) (115.7)
Contributions.......................................................... - -
Benefits paid and fees................................................. (126.4) (114.1)
---------------- -----------------
Plan assets at fair value, end of year................................. 1,839.5 2,113.8
Projected benefit obligations.......................................... 2,184.6 2,024.6
---------------- -----------------
(Underfunding) excess of plan assets over projected benefit
obligations.......................................................... (345.1) 89.2
Unrecognized prior service cost........................................ (7.3) (2.8)
Unrecognized net (gain) loss from past experience different
from that assumed.................................................... 641.9 162.2
Unrecognized net asset at transition................................... (1.6) (1.7)
Additional minimum pension liability................................... (61.1) -
---------------- -----------------
Prepaid Pension Cost, Net.............................................. $ 226.8 $ 246.9
================ =================
F-33
The prepaid pension cost for pension plans with assets in excess of
projected benefit obligations was $544.5 million and $483.5 million and
the accrued liability for pension plans with accumulated benefit
obligations in excess of plan assets was $317.7 million and $236.6
million at December 31, 2001 and 2000, respectively.
The pension plan assets include corporate and government debt
securities, equity securities, equity real estate and shares of group
trusts managed by Alliance. The discount rate and rate of increase in
future compensation levels used in determining the actuarial present
value of projected benefit obligations were 7.25% and 7.19%,
respectively, at December 31, 2001 and 7.75% and 7.19%, respectively, at
December 31, 2000. As of January 1, 2001 and 2000, the expected
long-term rate of return on assets for the retirement plan was 10.25%
and 10.5%, respectively.
AXA Financial recorded, as a reduction of shareholders' equity, an
additional minimum pension liability of $13.7 million, $13.3 million and
$16.1 million, net of Federal income taxes, at December 31, 2001, 2000
and 1999, respectively, primarily representing the excess of the
accumulated benefit obligation of the non-qualified pension plan over
the accrued liability and an intangible pension asset of $39.0 million
at December 31, 2001, representing the amount of unrecognized prior
service cost, which is reported in Other assets. The aggregate
accumulated benefit obligation and fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets were
$352.0 million and $30.3 million, respectively, at December 31, 2001 and
$285.3 million and $34.7 million, respectively, at December 31, 2000.
Prior to 1987, the qualified plan funded participants' benefits through
the purchase of non-participating annuity contracts from Equitable Life.
Benefit payments under these contracts were approximately $27.3 million,
$28.7 million and $30.2 million for 2001, 2000 and 1999, respectively.
AXA Financial provides certain medical and life insurance benefits
(collectively, "postretirement benefits") for qualifying employees,
managers and agents retiring from AXA Financial (i) on or after
attaining age 55 who have at least 10 years of service or (ii) on or
after attaining age 65 or (iii) whose jobs have been abolished and who
have attained age 50 with 20 years of service. The life insurance
benefits are related to age and salary at retirement. AXA Financial
continues to fund postretirement benefits costs on a pay-as-you-go basis
and, for 2001, 2000 and 1999, AXA Financial made estimated
postretirement benefits payments of $32.5 million, $39.3 million and
$29.5 million, respectively.
The following table sets forth the postretirement benefits plan's
status, reconciled to amounts recognized in AXA Financial's consolidated
financial statements:
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Service cost....................................... $ 4.8 $ 4.8 $ 4.7
Interest cost on accumulated postretirement
benefits obligation.............................. 31.8 35.5 34.4
Unrecognized prior service costs................... - - (7.0)
Net amortization and deferrals..................... (4.4) (3.2) 8.4
----------------- ---------------- -----------------
Net Periodic Postretirement Benefits Costs......... $ 32.2 $ 37.1 $ 40.5
================= ================ =================
December 31,
------------------------------------
2001 2000
---------------- -----------------
(In Millions)
Accumulated postretirement benefits obligation, beginning
of year.............................................................. $ 476.0 $ 471.0
Service cost........................................................... 4.8 4.8
Interest cost.......................................................... 31.8 35.5
Contributions and benefits paid........................................ (32.5) (39.3)
Actuarial (gains) losses............................................... (41.5) 4.0
---------------- -----------------
Accumulated postretirement benefits obligation, end of year............ 438.6 476.0
Unrecognized prior service cost........................................ 21.5 19.9
Unrecognized net loss from past experience different
from that assumed and from changes in assumptions.................... (50.7) (86.2)
---------------- -----------------
Accrued Postretirement Benefits Cost................................... $ 409.4 $ 409.7
================ =================
F-34
Since January 1, 1994, costs to AXA Financial for providing these
medical benefits available to retirees under age 65 are the same as
those offered to active employees and medical benefits will be limited
to 200% of 1993 costs for all participants.
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefits obligation was 10.0% in 2001,
gradually declining to 5% in the year 2011, and in 2000 was 7.0%,
gradually declining to 4.25% in the year 2010. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25%
and 7.75% at December 31, 2001 and 2000, respectively.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefits obligation as of December 31, 2001
would be increased .02%. The effect of this change on the sum of the
service cost and interest cost would be an increase of .9%. If the
health care cost trend rate assumptions were decreased by 1% the
accumulated postretirement benefits obligation as of December 31, 2001
would be decreased by 5.5%. The effect of this change on the sum of the
service cost and interest cost would be a decrease of 1.5%.
Alliance maintains several unfunded deferred compensation plans for the
benefit of certain eligible employees and executives. The 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, is
obligated to make capital contributions to Alliance 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, Alliance agreed to invest $96.0 million per
annum for three years to fund open market purchases of Alliance Holding
units or money market funds in each case for the benefit of certain
individuals who were stockholders or principals of Bernstein or were
hired to replace them. AXA Financial has recorded compensation and
benefit expenses in connection with the plans totaling $58.1 million,
$29.8 million and $13.8 million for 2001, 2000 and 1999, respectively
(including $34.6 million and $6.8 million for 2001 and 2000,
respectively, relating to the Bernstein deferred compensation plan).
15) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Insurance Group primarily uses derivatives for asset/liability risk
management and for hedging individual securities. Derivatives mainly are
utilized to reduce the Insurance Group's exposure to interest rate
fluctuations. Various derivative financial instruments are used to
achieve this objective, including interest rate caps and 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. In addition, AXA Financial periodically enters
into forward and futures contracts to hedge certain equity exposures.
Also, AXA Financial has purchased reinsurance contracts to mitigate the
risks associated with the impact of potential market fluctuations on
future policyholder elections of guaranteed minimum income benefit
features contained in certain annuity contracts issued by AXA Financial.
As earlier described in Note 2 of Notes to Consolidated Financial
Statements, AXA Financial adopted SFAS No. 133, as amended, on January
1, 2001. Consequently, all derivatives outstanding at December 31, 2001
are recognized on the balance sheet at their fair values. The
outstanding notional amounts of derivative financial instruments
purchased and sold were $6,675.0 million and $.3 million, respectively,
at December 31, 2001. These amounts principally consist of interest rate
cap contracts of Equitable Life that have a total fair value at December
31, 2001 of $13.6 million. At December 31, 2001 and during the year then
ended, there were no hybrid instruments that required bifurcation of an
embedded derivative component under the provisions of SFAS No. 133.
All gains and losses on derivative financial instruments utilized by the
Company in 2001 are reported in earnings for the current year as none of
the derivatives were designated to qualifying hedging relationships
under SFAS No. 133 either at initial adoption of the Statement or at
inception of the contracts. Gross gains and gross losses recognized on
derivative positions was $27.5 million and $20.2 million, respectively,
for 2001.
F-35
Fair Value of Financial Instruments
AXA Financial 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'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, particularly insurance
liabilities other than financial guarantees and investment contracts.
Fair market value of off-balance-sheet financial instruments of the
Insurance Group was not material at December 31, 2001 and 2000.
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'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 estimated fair values for variable deferred annuities and single
premium deferred annuities, which are included in policyholders' account
balances, are estimated by discounting the account value back from the
time of the next crediting rate review to the present, at a rate equal
to the excess of current estimated market rates offered on new policies
over the current crediting 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 which
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 ratings
similar to AXA Financial. AXA Financial's carrying value of short-term
borrowings approximates their estimated fair value.
F-36
The carrying value and estimated fair value for financial instruments
not previously disclosed in Notes 3, 7, 8 and 9 are presented below:
December 31,
--------------------------------------------------------------------
2001 2000
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- ---------------- --------------- ---------------
(In Millions)
Consolidated AXA Financial:
Mortgage loans on real estate.......... $ 4,333.3 $ 4,438.7 $ 4,712.6 $ 4,767.0
Other limited partnership interests.... 701.9 701.9 834.9 834.9
Policy loans........................... 4,100.7 4,476.4 4,034.6 4,290.0
Policyholders' account balances -
investment contracts................. 12,256.4 12,514.0 11,488.8 11,663.8
Long-term debt......................... 2,696.2 2,809.9 2,354.0 2,362.3
Closed Block:
Mortgage loans on real estate.......... $ 1,514.4 $ 1,532.6 $ 1,581.8 $ 1,582.6
Other equity investments............... 24.4 24.4 34.4 34.4
Policy loans........................... 1,504.4 1,664.8 1,557.7 1,667.6
SCNILC liability....................... 18.2 18.1 20.2 20.1
Other Discontinued Operations:
Mortgage loans on real estate.......... $ 160.3 $ 171.6 $ 330.9 $ 347.7
Fixed maturities....................... 559.6 559.6 336.5 336.5
Other equity investments............... 22.3 22.3 43.1 43.1
Guaranteed interest contracts.......... 18.8 16.1 26.4 23.4
Long-term debt......................... 101.7 101.7 101.8 101.7
16) COMMITMENTS AND CONTINGENT LIABILITIES
From time to time, AXA Financial has provided certain guarantees or
commitments to affiliates, investors and others. At December 31, 2001,
these arrangements include commitments by AXA Financial, under certain
conditions, to make capital contributions of up to $8.5 million to
affiliated real estate joint ventures and to provide equity financing to
certain limited partnerships of $274.9 million. Management believes AXA
Financial will not incur any material losses as a result of these
commitments.
Equitable Life is the obligor under certain structured settlement
agreements which it had entered into with unaffiliated insurance
companies and beneficiaries. To satisfy its obligations under these
agreements, Equitable Life owns single premium annuities issued by
previously wholly owned life insurance subsidiaries. Equitable Life 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 Equitable Life to satisfy those
obligations is remote.
The Insurance Group had $10.5 million of letters of credit outstanding
at December 31, 2001.
AXA Financial entered into continuity agreements with certain executives
of AXA Financial in connection with AXA's minority interest acquisition.
The remaining continuity agreements generally provide cash severance
payments ranging from 1.5 times to 2 times an executive's base salary
plus bonus and other benefits. Such cash severance payments will
generally be made if an executive's employment is terminated at any time
within two years from December 27, 2000 for any reason other than the
executive's death, disability, retirement or for cause, or if the
executive resigns for good reason as defined in the agreements. In
connection with cost reduction programs initiated in 2001, expenses
related to continuity agreements, severance, benefits and outplacement
were recorded, totaling $126.1 million related to the home office
initiative and $24.5 million related to the field restructuring
initiative. At December 31, 2001, in the event the remaining covered
executives' employment terminates under the circumstances described
above, cash severance payments that would be payable under these
continuity agreements approximate $30.0 million.
F-37
17) LITIGATION
A number of lawsuits have been filed against life and health insurers in
the jurisdictions in which Equitable Life and its subsidiaries do
business involving insurers' sales practices, alleged agent misconduct,
alleged failure to properly supervise agents, 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. Equitable Life, Equitable
Variable Life Insurance Company ("EVLICO," which was merged into
Equitable Life effective January 1, 1997, but whose existence continues
for certain limited purposes, including the defense of litigation) and
EOC, like other life and health insurers, from time to time are involved
in such litigations. Among litigations against Equitable Life, EVLICO
and EOC of the type referred to in this paragraph are the litigations
described in the following five paragraphs.
In January 1996, an amended complaint was filed in an action entitled
Frank Franze Jr. and George Busher, individually and on behalf of all
others similarly situated v. The Equitable Life Assurance Society of the
United States, and Equitable Variable Life Insurance Company in the
United States District Court for the Southern District of Florida. The
action was brought by two individuals who purchased variable life
insurance policies. The plaintiffs purport to represent a nationwide
class consisting of all persons who purchased variable life insurance
policies from Equitable Life and EVLICO between September 30, 1991 and
January 3, 1996. The amended complaint alleges that Equitable Life's and
EVLICO's agents were trained not to disclose fully that the product
being sold was life insurance. Plaintiffs allege violations of the
Federal securities laws and seek rescission of the contracts or
compensatory damages and attorneys' fees and expenses. Equitable Life
and EVLICO have answered the amended complaint, denying the material
allegations and asserting certain affirmative defenses. In May 1999, the
Magistrate Judge issued a Report and Recommendation recommending that
the District Judge deny Equitable Life's and EVLICO's motion for summary
judgment and grant plaintiffs' motion for class certification. In July
1999, Equitable Life and EVLICO filed Objections to the Report and
Recommendation and urged that the District Judge reject the Magistrate's
recommendations and grant Equitable Life's and EVLICO's motion for
summary judgment and deny plaintiffs' motion for class certification. In
October 2000, the District Judge affirmed the Magistrate's Report and
Recommendation and, accordingly, denied Equitable Life's and EVLICO's
motion for summary judgment and granted plaintiffs' motion for class
certification. In May 2001, with permission of the United States Court
of Appeals for the Eleventh Circuit, Equitable Life and EVLICO appealed
the District Court's order. Oral argument is scheduled for March 2002.
In March 2000, an action entitled Brenda McEachern v. The Equitable Life
Assurance Society of the United States and Gary Raymond, Jr. was
commenced against Equitable Life and one of its agents in Circuit Court,
Mobile County, Alabama, and asserts claims under state law. The action
was brought by an individual who alleges that she purchased a variable
annuity from Equitable Life in 1997. The action purports to be on behalf
of a class consisting of all persons who from January 1, 1989 (i)
purchased a variable annuity from Equitable Life to fund a qualified
retirement plan, (ii) were charged allegedly unnecessary fees for tax
deferral for variable annuities held in qualified retirement accounts,
or (iii) were sold a variable annuity while owning a qualified
retirement plan from Equitable Life. The complaint alleges various
improper sales practices, including misrepresentations in connection
with the use of variable annuities in a qualified retirement plan or
similar arrangement, charging inflated or hidden fees, and failure to
disclose unnecessary tax deferral fees. Plaintiff seeks damages,
including punitive damages, in an unspecified amount and attorneys' fees
and expenses. In May 2000, Equitable Life removed the case to the United
States District Court for the Southern District of Alabama and filed a
motion to dismiss the complaint, and plaintiff filed a motion to remand
the case to state court. The court has permitted limited discovery on
the issue of whether the Securities Litigation Uniform Standards Act
applies. In November 2001, plaintiff filed a motion for leave to join
additional plaintiffs.
In June 2000, an action entitled Raymond Patenaude v. The Equitable Life
Assurance Society of the United States, AXA Advisors, LLC and Equitable
Distributors, Inc. was commenced in the Superior Court of California,
County of San Diego. The complaint alleges that the defendants engaged
in fraudulent and deceptive practices in connection with the marketing
and sale of deferred annuity products to fund tax-qualified contributory
retirement plans. The named plaintiff purports to act as a private
attorney general on behalf of the general public of the State of
California under California consumer protection statutes and also
asserts individual common-law claims. On behalf of the named plaintiff
F-38
and the general public, the complaint asserts claims for unlawful,
unfair or fraudulent business acts and practices and for false or
misleading advertising. On behalf of the named plaintiff alone, the
complaint alleges claims for fraud, fraudulent concealment and deceit,
negligent misrepresentation and negligence. The complaint seeks
injunctive relief, restitution for members of the general public of the
State of California who have been harmed by defendants' conduct,
compensatory and punitive damages on behalf of the named plaintiff, and
attorneys' fees, costs and expenses. In July 2000, the defendants
removed the case to the United States District Court for the Southern
District of California and filed a motion to dismiss the complaint. In
October 2000, the District Court granted defendants' motion to dismiss
the action. In November 2000, the plaintiff appealed; the appeal is
fully briefed.
In October 2000, an action entitled Sham Malhotra, et al. v. The
Equitable Life Assurance Society of the United States, AXA Advisors, LLC
and Equitable Distributors, Inc. was commenced in the Supreme Court of
the State of New York, County of Nassau. The action was brought by two
individuals who purchased Equitable Life deferred annuity products. The
action purports to be on behalf of a class consisting of all persons who
purchased an individual deferred annuity contract or who received a
certificate to a group deferred annuity contract, sold by one of the
defendants, which was used to fund a contributory retirement plan or
arrangement qualified for favorable income tax treatment; excluded from
the class are officers, directors and agents of the defendants. The
complaint alleges that the defendants engaged in fraudulent and
deceptive practices in connection with the marketing and sale of
deferred annuity products to fund tax-qualified contributory retirement
plans. The complaint asserts claims for: deceptive business acts and
practices in violation of the New York General Business Law ("GBL"); use
of misrepresentations and misleading statements in violation of the New
York Insurance Law; false or misleading advertising in violation of the
GBL; fraud, fraudulent concealment and deceit; negligent
misrepresentation; negligence; unjust enrichment and imposition of a
constructive trust; declaratory and injunctive relief; and reformation
of the annuity contracts. The complaint seeks injunctive and declaratory
relief, an unspecified amount of compensatory and punitive damages,
restitution for all members of the class, and an award of attorneys'
fees, costs and expenses. In October 2000, the defendants removed the
action to the United States District Court for the Eastern District of
New York, and thereafter filed a motion to dismiss. Plaintiffs filed a
motion to remand the case to state court. In September 2001, the
District Court issued a decision granting defendants' motion to dismiss
and denying plaintiffs' motion to remand, and judgment was entered in
favor of the defendants. In October 2001, plaintiffs filed a motion
seeking leave to reopen the case for the purpose of filing an amended
complaint. In addition, plaintiffs filed a new complaint in the District
Court, alleging a similar class and similar facts. The new complaint
asserts causes of action for violations of Federal securities laws in
addition to the state law causes of action asserted in the previous
complaint. In January 2002, the defendants filed a motion to dismiss the
new action.
Between June 2000 and December 2001 twelve lawsuits were filed in the
state courts of Mississippi (the "Mississippi Actions") by more than 70
plaintiffs naming as defendants Equitable Life, EVLICO, EOC and various
present and former individual sales agents associated with Equitable
Life, EVLICO and/or EOC. The actions arise from the purchase by each of
the plaintiffs of various types of life insurance policies from
Equitable Life, EVLICO and/or EOC. The policies at issue include term,
variable and whole life policies purchased as early as 1954. The actions
allege misrepresentations in connection with the sale of life insurance
policies including that the defendants misrepresented the stated number
of years that premiums would need to be paid. Plaintiffs assert claims
for breach of contract, fraud, fraudulent inducement, misrepresentation,
conspiracy, negligent supervision and other tort claims. Plaintiffs seek
unspecified compensatory and punitive damages. The parties are engaged
in discovery in each of the pending actions.
F-39
In October 2000, an action entitled American National Bank and Trust
Company of Chicago, as trustee f/b/o Emerald Investments LP and Emerald
Investments LP v. AXA Client Solutions, LLC; The Equitable Life
Assurance Society of the United States; and AXA Financial, Inc. was
commenced in the United States District Court for the Northern District
of Illinois. The complaint alleges that the defendants (i) in connection
with certain annuities issued by Equitable Life breached an agreement
with the plaintiffs involving the execution of mutual fund transfers,
and (ii) wrongfully withheld withdrawal charges in connection with the
termination of such annuities. Plaintiffs seek unspecified lost profits
and injunctive relief, punitive damages and attorneys' fees. Plaintiffs
also seek return of the withdrawal charges. In February 2001, the
District Court granted in part and denied in part defendants' motion to
dismiss the complaint. In March 2001, plaintiffs filed an amended
complaint. The District Court granted defendants' motion to dismiss AXA
Client Solutions and the Holding Company from the amended complaint, and
dismissed the conversion claims in June 2001. The District Court denied
defendants' motion to dismiss the remaining claims. Equitable Life has
answered the amended complaint.
On September 12, 1997, the United States District Court for the Northern
District of Alabama, Southern Division, entered an order certifying
James Brown as the representative of a class consisting of "[a]ll
African-Americans who applied but were not hired for, were discouraged
from applying for, or would have applied for the position of Sales Agent
in the absence of the discriminatory practices, and/or procedures in the
[former] Southern Region of AXA Financial from May 16, 1987 to the
present." The second amended complaint in James W. Brown, on behalf of
others similarly situated v. The Equitable Life Assurance Society of the
United States alleges, among other things, that Equitable Life
discriminated on the basis of race against African-American applicants
and potential applicants in hiring individuals as sales agents.
Plaintiffs sought a declaratory judgment and affirmative and negative
injunctive relief, including the payment of back-pay, pension and other
compensation. The court referred the case to mediation, pursuant to
which the parties reached a proposed settlement agreement in November
2000. In connection therewith, the case was dismissed in the United
States District Court for the Northern District of Alabama, Southern
Division and refiled in the United States District Court for the
Northern District of Georgia, Atlanta Division. The final settlement
required notice to be given to class members and was subject to court
approval. A hearing was held in January 2002 and thereafter, an order
was entered approving the settlement.
In November 1997, an amended complaint was filed in Peter Fischel, et
al. v. The Equitable Life Assurance Society of the United States
alleging, among other things, that Equitable Life violated ERISA by
eliminating certain alternatives pursuant to which agents of Equitable
Life could qualify for health care coverage. In March 1999, the United
States District Court for the Northern District of California entered an
order certifying a class consisting of "[a]ll current, former and
retired Equitable agents, who while associated with Equitable satisfied
[certain alternatives] to qualify for health coverage or contributions
thereto under applicable plans." Plaintiffs allege various causes of
action under ERISA, including claims for enforcement of alleged promises
contained in plan documents and for enforcement of agent bulletins,
breach of a unilateral contract, breach of fiduciary duty and promissory
estoppel. In June 2000, plaintiffs appealed to the Court of Appeals for
the Ninth Circuit contesting the District Court's award of legal fees to
plaintiffs' counsel in connection with a previously settled count of the
complaint unrelated to the health benefit claims. In that appeal,
plaintiffs have challenged the District Court's subject matter
jurisdiction over the health benefit claims. Oral argument on this
appeal was heard in November 2001. In May 2001, plaintiffs filed a
second amended complaint which, among other things, alleges that
Equitable Life failed to comply with plan amendment procedures and
deletes the promissory estoppel claim. Equitable Life answered the
complaint in June 2001. In September 2001, Equitable Life filed a motion
for summary judgment on all of plaintiffs' claims, and plaintiffs filed
a motion for partial summary judgment on all claims except their claim
for breach of fiduciary duty.
F-40
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 challenges the change,
effective January 1, 1989, in the pension benefit formula from a final
average pay formula to a cash balance formula. Plaintiffs allege that
the change to the cash balance formula violates ERISA by reducing the
rate of accruals based on age, failing to comply with ERISA's notice
requirements and improperly applying the formula to retroactively reduce
accrued benefits. The relief sought includes a declaration that the cash
balance plan violates ERISA, an order enjoining the enforcement of the
cash balance formula, reformation and damages. Defendants answered the
complaint in October 2001.
In September 1999, a complaint was filed in an action entitled R.S.M.
Inc., et al. v. Alliance Capital Management L.P., et al. in the Chancery
Court of the State of Delaware. The action was brought on behalf of a
purported class of owners of limited partnership units of Alliance
Capital Management Holding L.P. ("Alliance Holding") challenging the
then-proposed reorganization of Alliance Holding. Named defendants
include Alliance Holding, four Alliance Holding executives, the general
partner of Alliance Holding and Alliance, which is a wholly owned
indirect subsidiary of Equitable Life, and Alliance, which is the
operating partnership whose units are not publicly traded. Equitable
Life is obligated to indemnify the defendants for losses and expenses
arising out of the litigation. Plaintiffs allege, inter alia, inadequate
and misleading disclosures, breaches of fiduciary duties, and the
improper adoption of an amended partnership agreement by Alliance
Holding. The complaint seeks, inter alia, payment of unspecified money
damages and an accounting of all benefits alleged to have been
improperly obtained by the defendants. In August 2000, plaintiffs filed
a first amended and supplemental class action complaint. The amended
complaint alleges in connection with the reorganization that, inter
alia, the partnership agreement of Alliance Holding was not validly
amended, the reorganization of Alliance Holding was not validly
effected, the information disseminated to holders of units of limited
partnership interests in Alliance Holding was materially false and
misleading, and the defendants breached their fiduciary duties by
structuring the reorganization in a manner that was grossly unfair to
plaintiffs. Plaintiffs seek declaratory, monetary and injunctive relief
relating to the allegations contained in the amended complaint. In
September 2000, all defendants other than Robert H. Joseph, Jr., filed
an answer to the amended complaint denying the material allegations
contained therein. In lieu of joining in the answer to the amended
complaint, Mr. Joseph filed a motion to dismiss in September 2000. In
November 2000, defendants, other than Mr. Joseph, filed a motion to
dismiss the amended complaint. In December 2000, plaintiffs filed a
motion for partial summary judgment on the claim that the Alliance
Holding partnership agreement was not validly amended. In April 2001,
the Chancery Court issued a decision granting in part and denying in
part defendants' motion to dismiss; the claim alleging that the
partnership agreement of Alliance Holding was not validly amended was
one of the claims dismissed. In October 2001, a memorandum of
understanding was executed, setting forth the terms of a settlement in
principle, and in December 2001, a stipulation of settlement was filed
with the Delaware Court of Chancery. The settlement is subject to a
number of conditions, including preparation of definitive documentation
and approval, after a hearing, by the Delaware Court of Chancery.
Subsequent to the August 30, 2000 announcement of AXA's proposal to
purchase the outstanding shares of AXA Financial common stock that it
did not already own, the following fourteen putative class action
lawsuits were commenced in the Delaware Court of Chancery: Fred Buff v.
AXA Financial, Inc., et al., Sarah Wolhendler v. Claude Bebear, et al.;
Jerome and Selma Stone v. AXA Financial, Inc., et al.; Louis Deranieri
v. AXA Financial, Inc., et al.; Maxine Phillips v. AXA Financial, Inc.,
et al.; Ruth Ravnitsky v. AXA Financial, Inc., et al.; Richard Kager v.
AXA Financial, Inc., et al.; Mortimer Cohen v. AXA Financial, Inc., et
al.; Lee Koneche, et al. v. AXA Financial, Inc., et al.; Denver
Employees Retirement Plan v. AXA Financial, Inc., et al.; Harry Hoffman
v. AXA Financial, Inc., et al.; Joseph Villari v. AXA Financial, Inc.,
et al.; Max Boimal v. AXA Financial, Inc., et al.; and Jay Gottlieb v.
AXA Financial, Inc., et al. AXA Financial, AXA, and directors and/or
officers of AXA Financial are named as defendants in each of these
lawsuits. The various plaintiffs each purport to represent a class
consisting of owners of AXA Financial common stock and their successors
in interest, excluding the defendants and any person or entity related
to or affiliated with any of the defendants. They challenge the adequacy
of the offer announced by AXA and allege that the defendants have
F-41
engaged or will engage in unfair dealing, overreaching and/or have
breached or will breach fiduciary duties owed to the minority
shareholders of AXA Financial. The complaints seek declaratory and
injunctive relief, an accounting, and unspecified compensatory damages,
costs and expenses, including attorneys' fees. The Delaware suits have
been consolidated under the name In re AXA Financial, Inc. Shareholders
Litigation. A similar lawsuit was filed in the Supreme Court of the
State of New York, County of New York, after the filing of the first
Delaware action; it is captioned Harbor Finance Partners v. AXA
Financial, Inc., et al. In December 2000, the parties to the Delaware
suits reached a proposed agreement for settlement and executed a
memorandum of understanding. Shortly thereafter, agreement was reached
with the plaintiff in the New York suit to stay proceedings in New York
and to participate in and be bound by the terms of the settlement of the
Delaware suits. In November 2001, the parties filed a stipulation of
settlement with the Delaware Court of Chancery. The settlement, which
does not involve any payment by AXA Financial, is subject to conditions,
including approval, after a hearing, by the Delaware Court of Chancery.
The hearing on the settlement is scheduled for March 2002.
Subsequent to the August 30, 2000 announcement of the proposed sale of
DLJ, four putative class action lawsuits were filed in the Delaware
Court of Chancery naming AXA Financial as one of the defendants and
challenging the sale of DLJ because the transaction did not include the
sale of DLJdirect tracking stock. These actions are captioned Irvin
Woods, et al. v. Joe L. Roby, et al.; Thomas Rolle v. Joe L. Roby, et
al.; Andrew Loguercio v. Joe L. Roby, et al.; and Robert Holschen v. Joe
L. Roby, et al. The plaintiffs in these cases purport to represent a
class consisting of the holders of DLJdirect tracking stock and their
successors in interest, excluding the defendants and any person or
entity related to or affiliated with any of the defendants. Named as
defendants are AXA Financial, DLJ and the DLJ directors. The complaints
assert claims for breaches of fiduciary duties, for violation of class
members' voting rights under 8 Del. C. ss.242, and for breach of implied
contractual promise, and seek an unspecified amount of compensatory
damages and costs and expenses, including attorneys' fees. The parties
in these cases have agreed to extend the time for defendants to respond
to the complaints.
Subsequent to the August 30, 2000 announcement of the proposed sale of
DLJ, a putative class action lawsuit was filed in the United States
District Court, Southern District of New York, captioned Siamac Sedighim
v. Donaldson, Lufkin & Jenrette, Inc., et al. This action challenges the
sale of DLJ (for omitting the DLJdirect tracking stock) and also alleges
Federal securities law claims relating to the initial public offering of
the DLJdirect tracking stock. The complaint alleges claims for
violations of the securities laws, breaches of the fiduciary duties of
loyalty, good faith and due care, aiding and abetting such breaches, and
breach of contract. The plaintiff purports to represent a class
consisting of: all purchasers of DLJdirect tracking stock in the initial
public offering and thereafter (with respect to the securities law
claims); and all owners of DLJdirect tracking stock who allegedly have
been or will be injured by the sale of DLJ (with respect to all other
claims). Named as defendants are AXA Financial, Equitable Life, AXA,
DLJ, Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse
Group, Diamond Acquisition Corp., and DLJ's directors. The complaint
seeks declaratory and injunctive relief, an unspecified amount of
damages, and costs and expenses, including attorney's fees. In February
2001, defendants moved to dismiss the complaint and in October 2001, the
court granted defendants' motion, dismissing all claims based on Federal
law with prejudice and dismissing all claims based on state law on
jurisdictional grounds, and entered judgment for the defendants. The
plaintiffs did not file a notice of appeal, and their time to appeal has
expired.
In April 2001, a putative class action entitled David Uhrik v. Credit
Suisse First Boston (USA), Inc., et al. was filed in Delaware Court of
Chancery on behalf of the holders of CSFBdirect tracking stock (formerly
known as DLJdirect tracking stock). Named defendants include AXA
Financial, Credit Suisse First Boston (USA), Inc., the former directors
of DLJ and the directors of Credit Suisse First Boston (USA), Inc. The
complaint challenges the sale of DLJ common stock as well as the March
2001 offer by Credit Suisse to purchase the publicly owned CSFBdirect
tracking stock for $4 per share and asserts claims for breaches of
fiduciary duties and breach of contract. Plaintiffs seek injunctive
relief, an unspecified amount of compensatory damages, and costs and
expenses, including attorneys' fees. The Uhrik action, along with the
actions captioned Irvin Woods, et al. v. Joe L. Roby, et al.; Thomas
Rolle v. Joe L. Roby, et al.; Andrew Loguercio v. Joe L. Roby, et al.;
and Robert Holschen v. Joe. L. Roby, et al., are among the actions that
have been consolidated under the caption In re CSFBdirect Tracking Stock
Shareholders Litigation. In May 2001, the Delaware Court of Chancery
ordered that the Uhrik complaint be the operative complaint in the
consolidated actions. A memorandum of understanding outlining the terms
of a proposed settlement was executed in July 2001. It is anticipated
F-42
that a stipulation of settlement will be filed with the Delaware Court
of Chancery in or before March 2002. The proposed settlement, which does
not involve any payment by AXA Financial, is subject to a number of
conditions, including confirmatory discovery and approval, after a
hearing, by the Delaware Court of Chancery.
In April 2001, an amended class action complaint entitled Miller, et al.
v. Mitchell Hutchins Asset Management, Inc., et al. was filed in Federal
District Court in the Southern District of Illinois against Alliance,
Alliance Fund Distributors, Inc. ("AFD"), a wholly owned subsidiary of
Alliance, and other defendants alleging violations of the Investment
Company Act of 1940, as amended ("ICA"), and breaches of common law
fiduciary duty. The allegations in the amended complaint concern six
mutual funds with which Alliance has investment advisory agreements,
including Premier Growth Fund, Alliance Health Care Fund, Alliance
Growth Fund, Alliance Quasar Fund, Alliance Fund and Alliance
Disciplined Value Fund. The amended complaint alleges principally that
(i) certain advisory agreements concerning these funds were negotiated,
approved, and executed in violation of the ICA, in particular because
certain directors of these funds should be deemed interested under the
ICA; (ii) the distribution plans for these funds were negotiated,
approved, and executed in violation of the ICA; and (iii) the advisory
fees and distribution fees paid to Alliance and AFD, respectively, are
excessive and, therefore, constitute a breach of fiduciary duty.
Alliance and AFD believe that plaintiffs' allegations are without merit
and intend to vigorously defend against these allegations. At the
present time, management of Alliance and AFD are unable to estimate the
impact, if any, that the outcome of this action may have on Alliance's
results of operations or financial condition.
On December 7, 2001 a complaint entitled Benak v. Alliance Capital
Management L.P. and Alliance Premier Growth Fund ("Benak Complaint") was
filed in Federal District Court in the District of New Jersey against
Alliance and Alliance Premier Growth ("Premier Growth Fund") alleging
violation of the ICA. The principal allegations of the Benak Complaint
are that Alliance breached its duty of loyalty to Premier Growth Fund
because one of the directors of the General Partner of Alliance served
as a director of Enron Corp. ("Enron") when Premier Growth Fund
purchased shares of Enron and as a consequence thereof, the investment
advisory fees paid to Alliance by Premier Growth Fund should be returned
as a means of recovering for Premier Growth Fund the losses plaintiff
alleges were caused by the alleged breach of the duty of loyalty.
Plaintiff seeks recovery of fees paid by Premier Growth Fund to Alliance
during the twelve months preceding the lawsuit. On December 21, 2001 a
complaint entitled Roy v. Alliance Capital Management L.P. and Alliance
Premier Growth Fund ("Roy Complaint") was filed in Federal District
Court in the Middle District of Florida, Tampa Divisions, against
Alliance and Premier Growth Fund. The allegations and relief sought in
the Roy Complaint are virtually identical to the Benak Complaint. On
December 26, 2001 a compliant entitled Roffe v. Alliance Capital
Management L.P. and Alliance Premier Growth Fund ("Roffe Complaint") was
filed in the Federal District Court in the District of New Jersey
against Alliance and Premier Growth Fund. The allegations and relief
sought in the Roffe Complaint are virtually identical to the Benak
Complaint. On February 14, 2002, a complaint entitled Tatem v. Alliance
Capital Management L.P. and Alliance Premier Growth Fund ("Tatem
Complaint") was filed in the Federal District Court in the District of
New Jersey against Alliance and Premier Growth Fund. The allegations and
relief sought in the Tatem Complaint are virtually identical to the
Benak Complaint. Alliance believes the plaintiffs' allegations in the
Benak Complaint, Roy Complaint, Roffe Complaint and Tatem Complaint are
without merit and intends to vigorously defend against these
allegations. At the present time Alliance's management is unable to
estimate the impact, if any, that the outcome of these actions may have
on Alliance's results of operations or financial condition.
Although the outcome of litigation generally cannot be predicted with
certainty, AXA Financial's management believes that (i) the settlement
of the Brown, R.S.M., In re AXA Financial, Inc. Shareholders Litigation
and the Uhrik litigations will not have a material adverse effect on the
consolidated financial position or results of operations of AXA
Financial and (ii) the ultimate resolution of the other litigations
described above should not have a material adverse effect on the
consolidated financial position of AXA Financial. AXA Financial's
management cannot make an estimate of loss, if any, or predict whether
or not any of such other litigations described above will have a
material adverse effect on AXA Financial's consolidated results of
operations in any particular period.
In addition to the matters previously reported and those described
above, the Holding Company and its subsidiaries are involved in various
legal actions and proceedings in connection with their businesses. Some
of the actions and proceedings 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
F-43
matter is likely to have a material adverse effect on AXA Financial'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.
18) LEASES
AXA Financial 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
noncancelable operating leases for 2002 and the four successive years
are $114.6 million, $107.3 million, $112.9 million, $100.5 million,
$84.4 million and $921.0 million thereafter. Minimum future sublease
rental income on these noncancelable operating leases for 2002 and the
four successive years is $6.0 million, $4.6 million, $4.6 million, $4.6
million, $3.1 million and $21.1 million thereafter.
At December 31, 2001, the minimum future rental income on noncancelable
operating leases for wholly owned investments in real estate for 2002
and the four successive years is $80.3 million, $86.8 million, $82.9
million, $77.0 million, $75.4 million and $601.6 million thereafter.
AXA Financial has entered into capital leases for certain information
technology equipment. Future minimum payments under noncancelable
capital leases for 2002 and the three successive years are $4.9 million,
$4.6 million, $2.7 million and $.9 million.
19) INSURANCE GROUP STATUTORY FINANCIAL INFORMATION
Equitable Life is restricted as to the amounts it may pay as dividends
to the Holding Company. 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 Equitable Life to pay
shareholder dividends not greater than $544.0 million during 2002.
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 2001, 2000 and
1999, the Insurance Group statutory net income totaled $547.7 million,
$1,068.6 million and $547.0 million, respectively. Statutory surplus,
capital stock and Asset Valuation Reserve ("AVR") totaled $6,100.4
million and $6,226.5 million at December 31, 2001 and 2000,
respectively. In 2001, 2000 and 1999, respectively, $1.7 billion, $250.0
and $150.0 million in dividends were paid to the Holding Company by
Equitable Life.
At December 31, 2001, the Insurance Group, in accordance with various
government and state regulations, had $23.5 million of securities
deposited with such government or state agencies.
In 1998 the NAIC approved a codification of statutory accounting
practices ("Codification"), which provides regulators and insurers with
uniform statutory guidance, addressing areas where statutory accounting
previously was silent and changing certain existing statutory positions.
Equitable Life and Equitable of Colorado became subject to Codification
rules for all state filings upon adoption of Codification by the
respective states.
On December 27, 2000, an emergency rule was issued by the New York
Insurance Department ("NYID"), which adopted Codification in New York
effective on January 1, 2001 except where the guidance conflicted with
New York Law. Equitable Life is required to prepare the Quarterly and
Annual Statements and Audited financial statements in accordance with
New York rules and regulations which are filed in all states.
Differences between the New York regulations and Codification consist of
the accounting for deferred taxes and goodwill.
The implementation of Codification resulted in a $1,630.9 million
increase to surplus and capital stock, principally due to the $1,660.8
million valuation adjustment related to Alliance.
The NYID is currently expected to adopt Codification's accounting for
deferred income taxes and goodwill effective in 2002. The impact of
adopting the deferred tax accounting is estimated to be a $363.6 million
decrease to surplus and capital stock at December 31, 2001.
The application of the Codification rules as adopted by the State of
Colorado had no significant effect on Equitable Life or Equitable of
Colorado.
F-44
The NYID requires quarterly disclosure reconciling both net income and
capital and surplus between practices prescribed and permitted by the
State of New York and the January 1, 2001 NAIC Accounting Practices and
Procedures manual. The 2001 reconciliation for Equitable Life follows:
December 31, 2001
-------------------
(In Millions)
Net Income, State of New York basis................................................... $ 543.7
Prescribed Practices.................................................................. -
Permitted Practices................................................................... -
-------------------
Net Income, NAIC Basis................................................................ $ 543.7
===================
Statutory surplus and capital stock, State of New York basis.......................... $ 5,446.0
Prescribed Practices:
Deferred tax liability............................................................ (363.6)
Permitted practices................................................................... -
-------------------
Statutory Surplus and Capital Stock, NAIC Basis....................................... $ 5,082.4
===================
The differences between statutory surplus and capital stock determined
in accordance with Statutory Accounting Principles ("SAP") and total
shareholders' 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) Federal income taxes are generally accrued
under SAP based upon revenues and expenses in the Federal income tax
return while under GAAP deferred taxes provide for timing differences
between recognition of revenues and expenses for financial reporting and
income tax purposes; (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 Alliance and Alliance 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; and
(j) certain assets, primarily pre-paid assets, are not admissible under
SAP but are admissible under GAAP.
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from GAAP. The following reconciles the Insurance Group'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 net earnings and equity on a GAAP basis.
F-45
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Net change in statutory surplus and
capital stock.................................... $ 104.1 $ 1,321.4 $ 848.8
Change in asset valuation reserves................. (230.2) (665.5) (6.3)
----------------- ---------------- -----------------
Net change in statutory surplus, capital stock
and asset valuation reserves..................... (126.1) 655.9 842.5
Adjustments:
Future policy benefits and policyholders'
account balances............................... 278.7 262.6 (80.4)
DAC.............................................. 458.5 469.1 198.2
Deferred Federal income taxes.................... (354.8) (127.3) (154.3)
Valuation of investments......................... 67.9 (134.8) 21.5
Valuation of investment subsidiary............... (1,507.9) (29.2) (133.6)
Limited risk reinsurance......................... - - 128.4
Dividends paid to the AXA Financial............. 1,700.0 250.0 150.0
Capital contribution............................. - - (470.8)
Stock option expense related to AXA's minority
interest acquisition........................... - (493.9) -
Other, net....................................... 135.8 448.8 253.8
GAAP adjustments of Other Discontinued
Operations..................................... (5.1) 54.3 51.3
----------------- ---------------- -----------------
Net Earnings of the Insurance Group................ $ 647.0 $ 1,355.5 $ 806.6
================= ================ =================
December 31,
--------------------------------------------------------
2001 2000 1999
----------------- ---------------- -----------------
(In Millions)
Statutory surplus and capital stock................ $ 5,446.0 $ 5,341.9 $ 4,020.5
Asset valuation reserves........................... 654.4 884.6 1,550.1
----------------- ---------------- -----------------
Statutory surplus, capital stock and asset
valuation reserves............................... 6,100.4 6,226.5 5,570.6
Adjustments:
Future policy benefits and policyholders'
account balances............................... (1,120.7) (1,399.4) (1,662.0)
DAC.............................................. 5,513.7 5,128.8 4,928.6
Deferred Federal income taxes.................... (1,252.2) (640.7) (223.5)
Valuation of investments......................... 635.9 140.2 (717.3)
Valuation of investment subsidiary............... (2,590.8) (1,082.9) (1,891.7)
Limited risk reinsurance......................... - - (39.6)
Issuance of surplus notes........................ (539.4) (539.1) (539.1)
Other, net....................................... 942.6 776.2 501.5
GAAP adjustments of Other Discontinued
Operations..................................... (123.8) (164.3) (160.0)
----------------- ---------------- -----------------
Equity of the Insurance Group...................... $ 7,565.7 $ 8,445.3 $ 5,767.5
================= ================ =================
F-46
20) BUSINESS SEGMENT INFORMATION
AXA Financial's operations consist of Financial Advisory/Insurance and
Investment Management. AXA Financial's management evaluates the
performance of each of these segments independently and allocates
resources based on current and future requirements of each segment.
The Financial Advisory/Insurance segment offers a variety of
traditional, variable and interest-sensitive life insurance products,
annuity products, mutual fund asset management accounts and other
investment products to individuals and small groups and provides
financial planning services for individuals. It also administers
traditional participating group annuity contracts with conversion
features, generally for corporate qualified pension plans, and
association plans which provide full service retirement programs for
individuals affiliated with professional and trade associations. This
segment also includes Separate Accounts for individual insurance and
annuity products.
The Investment Management segment principally includes Alliance.
Alliance provides diversified investment management and related services
globally to a broad range of clients including: (a) institutional
clients, including pension funds, endowments and domestic and foreign
financial institutions, (b) private clients, including high net worth
individuals, trusts and estates and charitable foundations, (c)
individual investors, principally through a broad line of mutual funds,
and (d) institutional investors by means of in-depth research, portfolio
strategy and other services. This segment also includes institutional
Separate Accounts that provide various investment options for large
group pension clients, primarily defined benefit and contribution plans,
through pooled or single group accounts.
Intersegment investment advisory and other fees of approximately $116.6
million, $153.2 million and $75.6 million for 2001, 2000 and 1999,
respectively, are included in total revenues of the Investment
Management segment.
The following tables reconcile segment revenues and earnings from
continuing operations before Federal 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.
2001 2000 1999
----------------- ---------------- ------------------
(In Millions)
Segment revenues:
Financial Advisory/Insurance...................... $ 4,912.4 $ 4,754.1 $ 5,234.0
Investment Management............................. 3,000.3 2,523.6 1,875.7
Consolidation/elimination......................... (90.0) (120.4) (32.4)
----------------- ---------------- ------------------
Total Revenues..................................... $ 7,822.7 $ 7,157.3 $ 7,077.3
================= ================ ==================
Segment earnings (loss) from continuing operations
before Federal incometaxes and minority
interest:
Financial Advisory/Insurance...................... $ 401.5 $ (642.4) $ 513.4
Investment Management............................. 492.7 542.8 462.6
----------------- ---------------- ------------------
Total Earnings (Loss) from Continuing
Operations before Federal Income Taxes
and Minority Interest........................... $ 894.2 $ (99.6) $ 976.0
================= ================ ==================
December 31,
--------------------------------------------------------
2001 2000 1999
----------------- ---------------- ------------------
(In Millions)
Assets:
Financial Advisory/Insurance....................... $ 84,951.9 $ 91,685.0 $ 87,213.9
Investment Management.............................. 16,031.3 17,672.3 11,902.4
Consolidation/elimination.......................... (74.1) (96.5) 2,477.5
----------------- ---------------- ------------------
Total Assets....................................... $ 100,909.1 $ 109,260.8 $ 101,593.8
================= ================ ==================
Assets in the consolidation/elimination line at December 31, 1999
included the net assets of the discontinued Investment Banking and
Brokerage segment.
F-47
21) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 2001 and 2000 are summarized
below:
Three Months Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
--------------- --------------- ---------------- -----------------
(In Millions)
2001
Total Revenues...................... $ 2,078.3 $ 1,942.1 $ 1,835.6 $ 1,966.7
=============== =============== ================ =================
Earnings from Continuing
Operations........................ $ 195.9 $ 72.1 $ 51.9 $ 64.5
=============== =============== ================ =================
Net Earnings........................ $ 202.4 $ 70.3 $ 51.4 $ 100.7
=============== =============== ================ =================
2000
Total Revenues...................... $ 1,854.1 $ 1,944.6 $ 1,993.9 $ 1,364.7
=============== =============== ================ =================
Earnings (Loss) from Continuing
Operations........................ $ 134.7 $ 192.7 $ 193.1 $ (857.8)
=============== =============== ================ =================
Net Earnings (Loss) ................ $ 298.6 $ 291.1 $ (106.4) $ 1,932.1
=============== =============== ================ =================
22) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Assuming the Bernstein acquisition had occurred on January 1, 1999,
revenues for AXA Financial, Inc. would have been $6.72 billion and $6.81
billion for 2000 and 1999, respectively, on a pro forma basis. The
impact of the acquisition on net earnings on a pro forma basis would not
have been material.
This pro forma financial information does not necessarily reflect the
results of operations that would have resulted had the Bernstein
acquisition actually occurred on January 1, 1999, nor is the pro forma
financial information necessarily indicative of the results of
operations that may be achieved for any future period.
F-48
Report of Independent Accountants on
Consolidated Financial Statement Schedules
To the Board of Directors of
AXA Financial, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 6, 2002, except as to note 17, for which the date is February 28,
2002, 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 14(A)(2) of this Form
10-K. In our opinion, 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.
PricewaterhouseCoopers LLP
New York, New York
February 6, 2002, except as to Note 17,
for which the date is February 28, 2002
F-49
AXA FINANCIAL, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2001
Estimated Carrying
Type of Investment Cost (A) Fair Value Value
- ------------------ ---------------- ----------------- -----------------
(In Millions)
Fixed maturities:
U.S. government, agencies and authorities........... $ 1,113.5 $ 1,174.3 $ 1,174.3
State, municipalities and political subdivisions.... 138.9 144.4 144.4
Foreign governments................................. 143.1 157.7 157.7
Public utilities.................................... 2,047.4 2,089.0 2,089.0
All other corporate bonds........................... 19,026.5 19,392.2 19,392.2
Redeemable preferred stocks......................... 404.7 397.4 397.4
---------------- ----------------- -----------------
Total fixed maturities.............................. 22,874.1 23,355.0 23,355.0
---------------- ----------------- -----------------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other............ 64.8 66.5 66.5
Mortgage loans on real estate.......................... 4,333.3 4,438.7 4,333.3
Real estate............................................ 317.3 XXX 317.3
Real estate acquired in satisfaction of debt........... 376.5 XXX 376.5
Real estate joint ventures............................. 181.9 XXX 181.9
Policy loans........................................... 4,100.7 4,476.4 4,100.7
Other limited partnership interests.................... 701.9 701.9 701.9
Other invested assets.................................. 741.4 741.4 741.4
---------------- ----------------- -----------------
Total Investments...................................... $ 33,691.9 $ 33,779.9 $ 34,174.5
================ ================= =================
<FN>
(A) Cost for fixed maturities represents original cost, reduced by repayments
and writedowns and adjusted for amortization of premiums or accretion of
discount; for equity securities, cost represents original cost reduced by
writedowns; for other limited partnership interests, cost represents
original cost adjusted for equity in earnings and distributions.
</FN>
F-50
AXA FINANCIAL, INC.
SCHEDULE II
BALANCE SHEETS (PARENT COMPANY)
DECEMBER 31, 2001 AND 2000
2001 2000
----------------- ----------------
(In Millions)
ASSETS
Investment in consolidated subsidiaries................................ $ 7,983.2 $ 8,984.1
Fixed maturities available for sale, at estimated fair value
(amortized costs, $79.5 and $51.5)................................. 81.0 51.5
Fixed maturities held to maturity, at amortized cost
(estimated fair value $56.4)....................................... - 52.0
Other invested assets.................................................. 23.7 32.7
----------------- ----------------
Total investments................................................ 8,087.9 9,120.3
Cash and cash equivalents.............................................. 134.7 292.7
Loans to affiliates.................................................... - 3,000.0
Intangible assets, net................................................. 558.2 540.1
Federal income taxes receivable........................................ 362.4 -
Other assets........................................................... 421.5 388.7
----------------- ----------------
Total Assets........................................................... $ 9,564.7 $ 13,341.8
================= ================
LIABILITIES
Short-term and long-term debt.......................................... $ 1,506.6 $ 1,802.0
Federal income taxes payable........................................... - 664.8
Liability associated with AXA minority interest acquisition............ - 349.9
Liability for employee benefit plans................................... 905.6 714.4
Accrued liabilities.................................................... 327.9 303.6
----------------- ----------------
Total liabilities................................................ 2,740.1 3,834.7
----------------- ----------------
SHAREHOLDERS' EQUITY
Series D convertible preferred stock................................... - 219.6
Stock employee compensation trust...................................... - (219.6)
Common stock, at par value............................................. 3.9 4.6
Capital in excess of par value......................................... 1,016.7 4,753.8
Treasury stock......................................................... - (629.6)
Retained earnings...................................................... 5,601.9 5,380.6
Accumulated comprehensive income (loss)................................ 202.1 (2.3)
----------------- ----------------
Total shareholders' equity....................................... 6,824.6 9,507.1
----------------- ----------------
Total Liabilities and Shareholders' Equity............................. $ 9,564.7 $ 13,341.8
================= ================
The financial information of AXA Financial, Inc. (Parent Company) should be read
in conjunction with the Consolidated Financial Statements and Notes thereto. For
information regarding Capital Stock see Note 11 of Notes to Consolidated
Financial Statements.
F-51
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF EARNINGS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
----------------- ----------------- ---------------
(In Millions, Except Per Share Amounts)
REVENUES
Equity in earnings (loss) from continuing operations
of consolidated subsidiaries before cumulative
effect of accounting change........................ $ 546.9 $ (195.7) $ 375.1
Net investment income (loss)............................. 20.0 (76.4) 32.4
Investment (losses) gains, net........................... (.8) 78.8 126.3
----------------- ----------------- -----------------
Total revenues..................................... 566.1 (193.3) 533.8
----------------- ----------------- -----------------
EXPENSES
Interest expense......................................... 132.4 135.6 86.5
Expenses related to AXA's minority interest
acquisition........................................ - 48.7 -
Amortization of goodwill and intangible assets........... 27.9 14.2 -
General and administrative expenses...................... 42.7 29.1 20.5
----------------- ----------------- -----------------
Total expenses..................................... 203.0 227.6 107.0
----------------- ----------------- -----------------
Earnings (loss) from continuing operations before
Federal income taxes .............................. 363.1 (420.9) 426.8
Federal income tax benefit............................... 21.3 83.6 41.1
----------------- ----------------- -----------------
Earnings (loss) from continuing operations............... 384.4 (337.3) 467.9
Earnings from discontinued operations, net of
Federal income taxes:
Investment Banking and Brokerage segment............. - 376.2 630.1
Other................................................ 43.9 58.6 28.1
Gain on disposal of the discontinued Investment
Banking and Brokerage segment........................ - 2,317.9 -
Cumulative effect of accounting change, net of
Federal income taxes................................. (3.5) - -
----------------- ----------------- -----------------
Net Earnings............................................. $ 424.8 $ 2,415.4 $ 1,126.1
================= ================= =================
F-52
AXA FINANCIAL, INC.
SCHEDULE II
STATEMENTS OF CASH FLOWS (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
----------------- ----------------- -----------------
(Dollars In Millions)
Net earnings............................................. $ 424.8 $ 2,415.4 $ 1,126.1
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Equity in net earnings of subsidiaries................. (587.3) (239.1) (1,033.3)
Gain on disposal of the discontinued Investment
Banking and Brokerage segment....................... - (2,317.9) -
Dividends from subsidiaries............................ 1,802.4 288.5 162.2
Investment losses (gains), net......................... .8 (78.8) (126.3)
Change in accrued liability for AXA minority
interest acquisition................................ (349.9) 349.9 -
Change in Federal income tax liability................. (1,028.1) (215.5) (3.4)
Other.................................................. 33.7 (90.6) 15.7
----------------- ----------------- -----------------
Net cash provided by operating activities................ 296.4 111.9 141.0
----------------- ----------------- -----------------
Cash flows from investing activities:
Maturities and repayments.............................. 24.0 47.1 63.5
Sales.................................................. .1 2,048.4 502.6
Proceeds from sale of equity investee.................. - 1,880.5 -
Loans to affiliates.................................... - (3,000.0) -
Purchase of Alliance Units............................. - (1,600.0) -
Purchases.............................................. - (11.0) (379.2)
Net change in short-term investments................... 14.0 (14.1) (1.3)
Other.................................................. (5.2) (10.1) 14.2
----------------- ----------------- -----------------
Net cash provided (used) by investing activities......... 32.9 (659.2) 199.8
----------------- ----------------- -----------------
Cash flows from financing activities:
Additions to long-term debt............................ - 476.2 -
Repayment of long-term debt............................ (46.0) - -
(Decrease) increase in short-term debt................. (250.3) 230.6 (30.0)
Dividends paid to shareholders......................... (200.7) (42.9) (43.8)
Proceeds from issuance of common stock................. 9.7 176.1 79.2
Purchase of treasury stock............................. - (138.7) (243.7)
----------------- ----------------- -----------------
Net cash (used) provided by financing activities......... (487.3) 701.3 (238.3)
----------------- ----------------- -----------------
Change in cash and cash equivalents...................... (158.0) 154.0 102.5
Cash and cash equivalents, beginning of year............. 292.7 138.7 36.2
----------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year................... $ 134.7 $ 292.7 $ 138.7
================= ================= =================
Supplemental cash flow information
Interest Paid.......................................... $ 125.0 $ 118.2 $ 85.2
================= ================= =================
Income Taxes Paid...................................... $ 938.3 $ 294.3 $ 70.2
================= ================= =================
F-53
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2001
Future Policy Policy Amortization
Deferred Benefits Charges (1) Policyholders' of Deferred (2)
Policy Policyholders' and Other and Net Benefits and Policy Other
Acquisition Account Policyholders' Premium Investment Interest Acquisition Operating
Segment Costs Balance Funds Revenue Income Credited Cost Expense
- -------------------- ------------ -------------- -------------- ---------- ---------- -------------- ------------ -----------
(In Millions)
Financial Advisory/
Insurance......... $ 5,513.7 $ 20,939.1 $ 13,539.4 $ 2,362.2 $ 2,349.8 $ 2,868.6 $ 287.9 $ 1,354.4
Investment
Management....... - - - - 46.6 - - 2,507.6
Consolidation/
Elimination....... - - - - 26.7 - - (90.0)
------------ -------------- -------------- ---------- ---------- -------------- ------------ -----------
Total............... $ 5,513.7 $ 20,939.1 $ 13,539.4 $ 2,362.2 $ 2,423.1 $ 2,868.6 $ 287.9 $ 3,772.0
============ ============== ============== ========== ========== ============== ============ ===========
<FN>
(1) Net investment income is based upon specific identification of portfolios within segments.
(2) Operating expenses are principally incurred directly by a segment.
</FN>
F-54
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 2000
Future Policy Policy Amortization
Deferred Benefits Charges (1) Policyholders' of Deferred (2)
Policy Policyholders' and Other and Net Benefits and Policy Other
Acquisition Account Policyholders' Premium Investment Interest Acquisition Operating
Segment Costs Balance Funds Revenue Income Credited Cost Expense
- -------------------- ------------ -------------- -------------- ---------- ---------- -------------- ------------ -----------
(In Millions)
Financial Advisory/
Insurance......... $ 5,128.9 $ 20,445.8 $ 13,432.1 $ 2,588.3 $ 2,585.3 $ 3,108.8 $ 309.0 $ 1,978.6
Investment
Management....... - - - - 58.3 - - 1,980.8
Consolidation/
Elimination....... - - - - 24.6 - - (120.3)
------------ -------------- -------------- ---------- ---------- -------------- ------------ -----------
Total................$ 5,128.9 $ 20,445.8 $ 13,432.1 $ 2,588.3 $ 2,668.2 $ 3,108.8 $ 309.0 $ 3,839.1
============ ============== ============== ========== ========== ============== ============ ===========
<FN>
(1) Net investment income is based upon specific identification of portfolios within segments.
(2) Operating expenses are principally incurred directly by a segment.
</FN>
F-55
AXA FINANCIAL, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEAR ENDED DECEMBER 31, 1999
Policy Amortization
Charges (1) Policyholders' of Deferred (2)
and Net Benefits and Policy Other
Premium Investment Interest Acquisition Operating
Segment Revenue Income Credited Cost Expense
- ------------------------------------------ -------------- ------------ --------------- -------------- --------------
(In Millions)
Financial Advisory/Insurance.............. $ 2,434.6 $ 2,779.9 $ 3,141.4 $ 380.0 $ 1,199.2
Investment Management..................... - 13.4 - - 1,413.1
Consolidation/Elimination................. - 44.0 - - (32.4)
-------------- ------------ --------------- -------------- --------------
Total..................................... $ 2,434.6 $ 2,837.3 $ 3,141.4 $ 380.0 $ 2,579.9
============== ============ =============== ============== ==============
<FN>
(1) Net investment income is based upon specific identification of portfolios within segments.
(2) Operating expenses are principally incurred directly by a segment.
</FN>
F-56
AXA FINANCIAL, INC.
SCHEDULE IV
REINSURANCE (A)
AT AND FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Assumed Percentage
Ceded to from of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
----------------- ---------------- ----------------- --------------- ---------------
(Dollars In Millions)
2001
Life Insurance In Force...... $ 263,375.6 $ 75,190.5 $ 42,640.4 $ 230,825.5 18.47%
================= ================ ================= ===============
Premiums:
Life insurance and
annuities.................. $ 830.2 $ 63.6 $ 138.5 $ 905.1 15.30%
Accident and health.......... 159.8 109.5 64.5 114.8 56.18%
----------------- ---------------- ----------------- ---------------
Total Premiums............... $ 990.0 $ 173.1 $ 203.0 $ 1,019.9 19.90%
================= ================ ================= ===============
2000
Life Insurance In Force...... $ 260,762.0 $ 54,418.0 $ 42,588.0 $ 248,932.0 17.11%
================= ================ ================= ===============
Premiums:
Life insurance and
annuities.................. 939.2 $ 52.6 $ 130.8 $ 1,017.4 12.86%
Accident and health.......... 164.6 70.4 63.4 157.6 40.23%
----------------- ---------------- ----------------- ---------------
Total Premiums............... $ 1,103.8 $ 123.0 $ 194.2 $ 1,175.0 16.53%
================= ================ ================= ===============
1999
Life Insurance In Force...... $ 256,231.0 $ 40,892.0 $ 44,725.0 $ 260,064.0 17.20%
================= ================ ================= ===============
Premiums:
Life insurance and
annuities.................. $ 866.7 $ 42.5 $ 131.9 $ 956.1 13.80%
Accident and health.......... 172.8 26.6 74.8 221.0 33.85%
----------------- ---------------- ----------------- ---------------
Total Premiums............... $ 1,039.5 $ 69.1 $ 206.7 $ 1,177.1 17.56%
================= ================ ================= ===============
<FN>
(A) Includes amounts related to the discontinued group life and health business.
</FN>
F-57
Part II, Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
9-1
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
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 IV, Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(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 which begins on page
E-1.
(B) Reports on Form 8-K
1. On January 31, 2001, the Holding Company filed a report on Form 8-K
relating to a fourth quarter non-recurring gain and completion of the
sale of shares of Credit Suisse Group.
2. On May 30, 2001, the Holding Company filed a report on Form 8-K relating
to the naming of Christopher M. Condron as President and Chief Executive
Officer of the Holding Company.
14-1
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 21, 2002 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 21, 2002
- --------------------------------------------
Henri de Castries
/s/Christopher M. Condron President and Chief Executive Officer, March 21, 2002
- -------------------------------------------- Director
Christopher M. Condron
/s/Stanley B. Tulin Vice Chairman of the Board and March 21, 2002
- -------------------------------------------- Chief Financial Officer
Stanley B. Tulin
/s/Alvin H. Fenichel Senior Vice President and Controller March 21, 2002
- --------------------------------------------
Alvin H. Fenichel
/s/Claude Bebear Director March 21, 2002
- --------------------------------------------
Claude Bebear
/s/Bruce W. Calvert Director March 21, 2002
- --------------------------------------------
Bruce W. Calvert
/s/John S. Chalsty Director March 21, 2002
- --------------------------------------------
John S. Chalsty
/s/Francoise Colloc'h Director March 21, 2002
- --------------------------------------------
Francoise Colloc'h
Director March ___, 2002
- --------------------------------------------
Claus-Michael Dill
/s/Joseph L. Dionne Director March 21, 2002
- --------------------------------------------
Joseph L. Dionne
Director March ___, 2002
- --------------------------------------------
Jean-Rene Fourtou
/s/Donald J. Greene Director March 21, 2002
- --------------------------------------------
Donald J. Greene
S-1
/s/Anthony J. Hamilton Director March 21, 2002
- --------------------------------------------
Anthony J. Hamilton
/s/John T. Hartley Director March 21, 2002
- --------------------------------------------
John T. Hartley
/s/John H. F. Haskell, Jr. Director March 21, 2002
- --------------------------------------------
John H. F. Haskell, Jr.
/s/Nina Henderson Director March 21, 2002
- --------------------------------------------
Nina Henderson
/s/W. Edwin Jarmain Director March 21, 2002
- --------------------------------------------
W. Edwin Jarmain
/s/Didier Pineau-Valencienne Director March 21, 2002
- --------------------------------------------
Didier Pineau-Valencienne
/s/George J. Sella, Jr. Director March 21, 2002
- --------------------------------------------
George J. Sella, Jr.
/s/Peter J. Tobin Director March 21, 2002
- --------------------------------------------
Peter J. Tobin
S-2
INDEX TO EXHIBITS
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
2.1 Purchase Agreement dated April 10, 1997, Filed as Exhibit 2 to the registrant's Form
between Equitable Life and Lend Lease 10-Q for the quarter ended March 31, 1997 and
Corporation Limited incorporated herein by reference
2.2 Acquisition Agreement dated as of June 20, Filed as Exhibit 2.1 to Alliance's annual
2000, amended and restated as of October report on Form 10-K for the year ended
2, 2000, among Alliance, Alliance Holding, December 31, 2000 and incorporated herein by
Alliance Capital Management LLC, reference
Bernstein, Bernstein Technologies Inc.,
SCB Partners Inc., Sanford C. Bernstein &
Co., LLC, and SCB LLC
2.3 Purchase Agreement dated as of June 20, Filed as Exhibit 10.18 to Alliance's annual
2000 by and among Alliance, the Holding report on Form 10-K for the year ended
Company and Bernstein December 31, 2000 and incorporated herein by
reference
2.4 Financing Agreement dated as of June 20, Filed as Exhibit 10.19 to Alliance's annual
2000 between the Holding Company and report on Form 10-K for the year ended
Alliance December 31, 2000 and incorporated herein by
reference
2.5 Letter Agreement dated as of June 20, 2000 Filed as Exhibit 10.20 to Alliance's annual
between the Holding Company and Bernstein report on Form 10-K for the year ended
December 31, 2000 and incorporated herein by
reference
2.6 Stock Purchase Agreement dated as of Filed as Exhibit 2.1 to the registrant's Current
August 30, 2000 among CSG, AXA, report on Form 8K dated November 14, 2000
Equitable Life, AXA Participations Belgium and incorporated herein by reference
and the 2000 the Holding Company
2.7 Letter Agreement dated as of October 6, Filed as Exhibit 2.2 to the registrant's Current
2000 to the Stock Purchase Agreement Report on Form 8-K dated November 14, 2000
among CSG, AXA, Equitable Life, AXA and incorporated herein by reference
Participations Belgium and the Holding
Company
2.8 Agreement and Plan of Merger dated as of Filed as Exhibit 2.1 to AXA's Form F-4
October 17, 2000 among AXA, AXA Merger Registration Statement (No. 333-50438),
Corp. and the Holding Company included as Annex A thereto, dated November
21, 2000 and incorporated herein by reference
2.9 Certificate of Merger of AXA Merger Corp. Filed as Exhibit 2.1 to the registrant's
with and into the Holding Company dated annual report on Form 10-K for the year ended
January 2, 2001 December 30, 2000
3.1 Restated Certificate of Incorporation of Filed as Exhibit 4.01(a) to Post-Effective
the Holding Company Amendment No. 1 to the registrant's
Form S-3 Registration Statement
(No. 333-03224), dated May 29, 1997 and
incorporated herein by reference
E-1
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
3.2 Amendment to Restated Certificate of Filed as Exhibit 4.01(g) to Post-Effective
Incorporation of the Holding Company 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
the Holding Company incorporated herein by reference
3.4 Amendment to the Restated Certificate of Filed as Exhibit 3.4 to the registrant's
Incorporation of the Holding Company dated Form 10-Q for the quarter ended June 30, 2000
May 19, 2000 and incorporated herein by reference
3.5 By-laws of the Holding Company, 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 the Holding Filed as Exhibit 4(c) to the registrant's
Company's Common Stock, par value $.01 per Form S-1 Registration Statement
share (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 the Holding Company to Chemical Bank, Form S-4 Registration Statement
as Trustee (No. 33-73102), dated December 17, 1993 and
incorporated herein by reference
4.3 First Supplemental Indenture, dated as of Filed as Exhibit 4.03 to the registrant's
December 1, 1993, from the Holding Company Form S-4 Registration Statement
to Chemical Bank, as Trustee (No. 33-73102), dated December 17, 1993 and
incorporated herein by reference
4.4 Form of Second Supplemental Indenture Filed as Exhibit 4.04 to the registrant's
Form S-4 Registration Statement
(No. 33-73102), dated December 17, 1993 and
incorporated herein by reference
4.5 Form of Third Supplemental Indenture, Filed as Exhibit 4.05 to the registrant's
dated as of December 8, 1994 from the Current Report on Form 8-K dated December 1,
Holding Company to Chemical Bank, as 1994 and incorporated herein by reference
Trustee
4.6 Fourth Supplemental Indenture, dated Filed as Exhibit 4.18(a) to the registrant's
April 1, 1998, from the Holding Company to Current Report on Form 8-K dated April 7,
The Chase Manhattan Bank (formerly 1998 incorporated herein by reference
known and Chemical Bank), as Trustee,
together with forms of global Senior Note
and global Senior Indenture
E-2
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
4.7 Subordinated Indenture, dated as of Filed as Exhibit 4.10 to the registrant's
October 22, 1994, between the Holding Current Report on Form 8-K dated December 19,
Company and Shawmut Bank Connecticut, 1994 and incorporated herein by reference
National Association, as Trustee
4.8 First Supplemental Indenture, dated as of Filed as Exhibit 4.11 to the registrant's Current
October 22, 1994, between the Holding Report on Form 8-K dated December 19, 1994
Company and Shawmut Bank Connecticut, and incorporated herein by reference
National Association, as Trustee
4.9 Fifth Supplemental Indenture, dated July 28, Filed as Exhibit 4.18(d) to the registrant's
2000, from the Holding Company to The Current Report dated July 31, 2000 and
Chase Manhattan Bank (formerly known as incorporated herein by reference
Chemical 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 annual
the Voting Trust Agreement dated as of report on Form 10-K for the year ended
May 12, 1992 December 31, 1997 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 Equitable Life, Form S-1 Registration Statement
the Holding Company 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 Equitable Life, the Holding Company Form S-1 Registration Statement
and AXA (No. 33-48115), dated May 26, 1992 and
incorporated herein by reference
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 Equitable Life 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
E-3
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
10.5+ Management Compensation Arrangements with Filed as Exhibit 10.22 to the registrant's
Messrs. Bebear and de Castries and Ms. annual report on Form 10-K for the year ended
Colloc'h 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 the S-4 Registration Statement (No. 33-84462),
Holding Company 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 and Equitable Life 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 Equitable Life 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 Equitable Life 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, Equitable Life and EVLICO reference
10.7(e) Second Amendment of Lease, dated as of May Filed as Exhibit 10.1 to the registrant's
1, 1997, between 1290 Partners L.P. and Form10-Q for the quarter ended June 30, 1997
Equitable Life and incorporated herein by reference
10.8 Agreement dated April 24, 1996, between Filed as Exhibit 10.27 to the registrant's
Equitable Life and Mr. Stanley B. Tulin Form 10-Q for the quarter ended March 31, 1997
and incorporated herein by reference
10.9 Employment Agreement dated May 11, 2001 Filed as Exhibit 10.16 to the registrant's
between the Holding Company, Equitable Form 10-Q for the quarter ended June 30. 2001
Life and Christopher M. Condron and incorporated by reference herein
10.10 Restated Employment Agreement dated as of Filed as Exhibit 10.17 to the registrant's
July 5, 2001 between the Holding Company, Form 10-Q for the quarter ended September 30,
Equitable Life and Stanley B. Tulin 2001 and incorporated herein by reference
E-4
Tag
Number Description Method of Filing Value
- ------------ -------------------------------------------- ------------------------------------------------ ----------
21 Subsidiaries of the registrant Omitted pursuant to General Instruction I of
Form 10-K
23 Consent of PricewaterhouseCoopers LLP Filed herewith
<FN>
+ Denotes executive compensation plans and arrangements.
</FN>
E-5