SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996 Commission File No. 1-11166
- --------------------------------------------------------------------------------
The Equitable Companies Incorporated
------------------------------------
(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.)
787 Seventh Avenue, New York, New York 10019
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 554-1234
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year if changed
since last report.)
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) been subject to such filing requirements
for the past 90 days.
Yes x No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at November 11, 1996
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 185,836,471
Page 1 of 37
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page #
------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995...................................................... 3
Consolidated Statements of Earnings for the Three Months and Nine
Months Ended September 30, 1996 and 1995............................... 4
Consolidated Statements of Shareholders' Equity for the Nine Months
Ended September 30, 1996 and 1995...................................... 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995............................................ 6
Notes to Consolidated Financial Statements............................ 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 17
PART II OTHER INFORMATION
Item 1: Legal Proceedings........................................................ 36
Item 6: Exhibits and Reports on Form 8-K......................................... 36
SIGNATURES.......................................................................... 37
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements.
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value ........... $ 17,550.4 $ 16,069.5
Held to maturity, at amortized cost ................... 184.4 241.2
Trading account securities, at market value ............. 15,192.0 10,911.4
Securities purchased under resale agreements ............ 22,315.8 18,567.4
Mortgage loans on real estate ........................... 3,298.5 3,638.3
Equity real estate ...................................... 3,706.1 3,916.2
Policy loans ............................................ 2,167.3 1,976.4
Other equity investments ................................ 801.4 952.4
Other invested assets ................................... 633.8 890.8
------------ ------------
Total investments ................................... 65,849.7 57,163.6
Cash and cash equivalents ................................. 914.8 1,200.4
Broker-dealer related receivables ......................... 14,274.9 13,134.0
Deferred policy acquisition costs ......................... 3,281.1 3,085.9
Amounts due from discontinued GIC Segment ................. 1,270.1 2,097.1
Other assets .............................................. 4,306.1 3,889.0
Closed Block assets ....................................... 8,345.7 8,612.8
Separate Accounts assets .................................. 28,242.3 24,566.6
------------ ------------
Total Assets .............................................. $ 126,484.7 $ 113,749.4
============ ============
LIABILITIES
Policyholders' account balances ........................... $ 21,793.3 $ 21,908.6
Future policy benefits and other policyholders' liabilities 4,155.9 4,013.2
Securities sold under repurchase agreements ............... 29,761.3 26,744.8
Broker-dealer related payables ............................ 18,604.4 13,499.6
Short-term and long-term debt ............................. 5,474.1 4,604.5
Other liabilities ......................................... 5,510.3 5,089.1
Closed Block liabilities .................................. 9,193.2 9,507.2
Separate Accounts liabilities ............................. 28,154.7 24,531.0
------------ ------------
Total liabilities ................................... 122,647.2 109,898.0
------------ ------------
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY
Series C convertible preferred stock ...................... 24.4 24.4
Series D convertible preferred stock ...................... 307.5 286.6
Stock employee compensation trust ......................... (307.5) (286.6)
Series E convertible preferred stock ...................... 380.2 380.2
Common stock, at par value ................................ 1.8 1.8
Capital in excess of par value ............................ 2,581.9 2,561.1
Retained earnings ......................................... 835.3 590.7
Net unrealized investment gains ........................... 49.0 328.3
Minimum pension liability ................................. (35.1) (35.1)
------------ ------------
Total shareholders' equity .......................... 3,837.5 3,851.4
------------ ------------
Total Liabilities and Shareholders' Equity ................ $ 126,484.7 $ 113,749.4
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ----------------------
1996 1995 1996 1995
----------- ------------ ---------- ----------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
REVENUES
Universal life and investment-type
product policy fee income ......................... $ 220.7 $ 197.1 $ 651.4 $ 581.4
Premiums ............................................ 145.8 140.2 439.2 452.7
Net investment income ............................... 824.0 754.9 2,406.9 2,237.4
Investment gains, net ............................... 91.8 113.1 464.5 385.5
Commissions, fees and other income .................. 639.2 577.1 2,006.6 1,552.9
Contribution from the Closed Block .................. 23.7 28.2 73.8 85.4
----------- ----------- ----------- -----------
Total revenues ................................ 1,945.2 1,810.6 6,042.4 5,295.3
----------- ----------- ----------- -----------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances 316.0 315.1 949.4 922.0
Policyholders' benefits ............................. 268.4 245.7 795.6 766.1
Other operating costs and expenses .................. 1,167.4 1,081.0 3,663.7 3,147.9
----------- ----------- ----------- -----------
Total benefits and other deductions ........... 1,751.8 1,641.8 5,408.7 4,836.0
----------- ----------- ----------- -----------
Earnings before Federal income taxes,
minority interest and cumulative effect of
accounting change ................................. 193.4 168.8 633.7 459.3
Federal income taxes ................................ 57.2 50.2 190.3 136.1
Minority interest in net income of consolidated
subsidiaries ...................................... 38.9 21.2 127.9 58.7
----------- ----------- ----------- -----------
Earnings before cumulative effect of
accounting change ................................. 97.3 97.4 315.5 264.5
Cumulative effect of accounting change,
net of Federal income taxes ....................... -- -- (23.1) --
----------- ----------- ----------- -----------
Net earnings ........................................ 97.3 97.4 292.4 264.5
Dividends on preferred stocks ....................... 6.7 6.7 20.0 20.0
----------- ----------- ----------- -----------
Net Earnings Applicable to Common Shares ............ $ 90.6 $ 90.7 $ 272.4 $ 244.5
=========== =========== =========== ===========
Per Common Share:
Assuming No Dilution:
Earnings before cumulative effect of
accounting change ............................. $ .48 $ .49 $ 1.57 $ 1.33
Cumulative effect of accounting change,
net of Federal income taxes ................... -- -- (.12) --
----------- ----------- ----------- -----------
Net Earnings .................................... $ .48 $ .49 $ 1.45 $ 1.33
=========== =========== =========== ===========
Assuming Full Dilution:
Earnings before cumulative effect of
accounting change ............................. $ .46 $ .46 $ 1.48 $ 1.27
Cumulative effect of accounting change,
net of Federal income taxes ................... -- -- (.11) --
----------- ----------- ----------- -----------
Net Earnings .................................... $ .46 $ .46 $ 1.37 $ 1.27
=========== =========== =========== ===========
Cash Dividend Per Common Share ...................... $ .05 $ .05 .15 $ .15
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(In Millions)
<S> <C> <C>
Series C convertible preferred stock, beginning of year
and end of period................................................ $ 24.4 $ 24.4
----------- ----------
Series D convertible preferred stock, beginning of year .......... 286.6 216.4
Change in market value of shares ................................. 20.9 76.1
----------- ----------
Series D convertible preferred stock, end of period .............. 307.5 292.5
----------- ----------
Stock employee compensation trust, beginning of year ............. (286.6) (216.4)
Change in market value of shares ................................. (20.9) (76.1)
----------- ----------
Stock employee compensation trust, end of period ................. (307.5) (292.5)
----------- ----------
Series E convertible preferred stock, beginning of year
and end of period................................................ 380.2 380.2
----------- ----------
Common stock, at par value, beginning of year and end of period .. 1.8 1.8
----------- ----------
Capital in excess of par value, beginning of year ................ 2,561.1 2,538.7
Additional capital in excess of par value ........................ 20.8 16.0
----------- ----------
Capital in excess of par value, end of period .................... 2,581.9 2,554.7
----------- ----------
Retained earnings, beginning of year ............................. 590.7 304.0
Net earnings ..................................................... 292.4 264.5
Dividends on preferred stocks .................................... (20.0) (20.0)
Dividends on common stock ........................................ (27.8) (27.6)
----------- ----------
Retained earnings, end of period ................................. 835.3 520.9
----------- ----------
Net unrealized investment gains (losses), beginning of year ...... 328.3 (232.6)
Change in unrealized investment (losses) gains ................... (279.3) 282.2
----------- ----------
Net unrealized investment gains, end of period ................... 49.0 49.6
----------- ----------
Minimum pension liability, beginning of year and end of period ... (35.1) (2.7)
----------- ----------
Total Shareholders' Equity, End of Period ........................ $ 3,837.5 $ 3,528.9
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(In Millions)
<S> <C> <C>
Net earnings ............................................................ $ 292.4 $ 264.5
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Interest credited to policyholders' account balances ................ 949.4 922.0
Universal life and investment-type product policy fee income ........ (651.4) (581.4)
Net change in trading activities and broker-dealer related
receivables/payables .............................................. 64.6 1,575.2
Decrease in matched resale agreements ............................... (1,126.1) (5,379.6)
Increase in matched repurchase agreements ........................... 1,126.1 5,379.6
Investment gains, net of dealer and trading gains ................... (98.8) (119.8)
Changes in clearing association fees and regulatory deposits ........ (115.5) (132.6)
Change in accounts payable and accrued expenses ..................... 222.9 357.7
Change in Federal income taxes payable .............................. (86.2) 95.1
Other, net .......................................................... (275.5) (34.2)
----------- ----------
Net cash provided by operating activities ............................... 301.9 2,346.5
----------- ----------
Cash flows from investing activities:
Maturities and repayments ............................................. 1,743.3 1,418.1
Sales ................................................................. 7,323.2 5,616.5
Return of capital from joint ventures and limited partnerships ........ 64.3 34.7
Purchases ............................................................. (10,182.9) (7,167.4)
Decrease in loans to discontinued GIC Segment ......................... 827.0 1,155.4
Other, net ............................................................ (165.5) (260.6)
----------- ----------
Net cash (used) provided by investing activities ........................ (390.6) 796.7
----------- ----------
Cash flows from financing activities: Policyholders' account balances:
Deposits ............................................................ 1,402.2 2,034.3
Withdrawals ......................................................... (1,839.5) (2,078.9)
Net increase (decrease) in short-term financings ...................... 137.1 (1,584.0)
Additions to long-term debt ........................................... 296.3 251.5
Repayments of long-term debt .......................................... (307.6) (163.7)
Payment of obligation to fund accumulated deficit of discontinued
GIC Segment ......................................................... -- (1,215.4)
Other, net ............................................................ 114.6 (69.4)
----------- ----------
Net cash used by financing activities ................................... (196.9) (2,825.6)
----------- ----------
Change in cash and cash equivalents ..................................... (285.6) 317.6
Cash and cash equivalents, beginning of year ............................ 1,200.4 825.3
----------- ----------
Cash and Cash Equivalents, End of Period ................................ $ 914.8 $ 1,142.9
=========== ==========
Supplemental cash flow information
Interest Paid ......................................................... $ 2,129.9 $ 2,019.4
=========== ==========
Income Taxes Paid ..................................................... $ 79.1 $ 4.1
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The preparation of the accompanying consolidated financial statements in
conformity with GAAP required 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. These statements should
be read in conjunction with the consolidated financial statements of The
Equitable for the year ended December 31, 1995. The results of operations
for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
Certain reclassifications have been made in the amounts presented for
prior periods to conform those periods with the current presentation.
2) ACCOUNTING CHANGES AND PRONOUNCEMENTS
The Equitable implemented SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. The statement requires long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate the carrying value of such assets may
not be recoverable. Impaired real estate is written down to fair value
with the impairment loss being included in Investment gains, net. Before
implementing SFAS No. 121, valuation allowances on real estate held for
the production of income were computed using the forecasted cash flows of
the respective properties discounted at a rate equal to The Equitable's
cost of funds. The adoption of the statement resulted in the release of
valuation allowances of $152.4 million and recognition of impairment
losses of $144.0 million on real estate held and used. Real estate which
management has committed to disposing of by sale or abandonment is
classified as real estate to be disposed of. Valuation allowances on real
estate to be disposed of continue to be computed using the lower of
estimated fair value or depreciated cost, net of disposition costs.
Implementation of the SFAS No. 121 impairment requirements relative to
other assets to be disposed of resulted in a charge for the cumulative
effect of an accounting change of $23.1 million, net of a Federal income
tax benefit of $12.4 million, due to the writedown to fair value of
building improvements relating to facilities being vacated beginning in
1996.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". SFAS
No. 125 specifies the accounting and reporting requirements for transfers
of financial assets, the recognition and measurement of servicing assets
and liabilities and extinguishments of liabilities. SFAS No. 125 is
effective for transactions occurring after December 31, 1996 and is to be
applied prospectively. Management has not yet determined the effect of
implementing SFAS No. 125.
3) FEDERAL INCOME TAXES
Federal income taxes for interim periods have been computed using an
estimated annual effective tax rate. This rate is revised, if necessary,
at the end of each successive interim period to reflect the current
estimate of the annual effective tax rate.
7
<PAGE>
4) INVESTMENTS
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
--------- ----------
(In Millions)
<S> <C> <C>
Balances, beginning of year ............................ $ 325.3 $ 284.9
SFAS No. 121 release ................................... (152.4) --
Additions charged to income ............................ 88.7 67.8
Deductions for writedowns and asset dispositions ....... (105.2) (49.7)
-------- --------
Balances, End of Period ................................ $ 156.4 $ 303.0
======== ========
Balances, end of period:
Mortgage loans on real estate ........................ $ 93.3 $ 66.8
Equity real estate ................................... 63.1 236.2
-------- --------
Total .................................................. $ 156.4 $ 303.0
======== ========
</TABLE>
For the three months and nine months ended September 30, 1996 and 1995,
investment income is shown net of investment expenses (including interest
expense to finance short-term trading instruments) of $602.3 million,
$1,809.0 million, $637.3 million and $1,844.0 million, respectively.
As of September 30, 1996 and December 31, 1995, fixed maturities
classified as available for sale had amortized costs of $17,436.8 million
and $15,453.5 million, fixed maturities in the held to maturity portfolio
had estimated fair values of $198.3 million and $262.9 million and trading
account securities had amortized costs of $15,125.7 million and $10,812.4
million, respectively. Other equity investments included equity securities
with carrying values of $365.1 million and $459.7 million and costs of
$433.6 million and $419.2 million as of September 30, 1996 and December
31, 1995, respectively.
For the nine months ended September 30, 1996 and 1995, proceeds received
on sales of fixed maturities classified as available for sale amounted to
$6,784.1 million and $5,046.5 million, respectively. Gross gains of $94.9
million and $136.2 million and gross losses of $58.8 million and $49.9
million were realized on these sales for the nine months ended September
30, 1996 and 1995, respectively. The decrease in unrealized investment
gains related to fixed maturities classified as available for sale for the
nine months ended September 30, 1996 amounted to $502.5 million.
During the nine months ended September 30, 1995, one security classified
as held to maturity was sold and twelve securities classified as held to
maturity were transferred to the available for sale portfolio. All actions
were taken as a result of significant deterioration in creditworthiness.
The amortized cost of the security sold was $4.2 million. The aggregate
amortized cost of the securities transferred was $116.0 million with gross
unrealized investment losses of $3.2 million transferred to equity for the
nine months ended September 30, 1995.
Impaired mortgage loans along with the related provision for losses
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- --------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses ........ $ 428.6 $ 310.1
Impaired mortgage loans with no provision for losses ..... 148.3 160.8
-------- --------
Recorded investment in impaired mortgage loans ........... 576.9 470.9
Provision for losses ..................................... 88.0 62.7
-------- --------
Net Impaired Mortgage Loans .............................. $ 488.9 $ 408.2
========= ========
</TABLE>
8
<PAGE>
Impaired mortgage loans with no provision for losses are loans where the
fair value of the collateral or the net present value of the loans equals
or exceeds the recorded investment. Interest income earned on loans where
the collateral value is used to measure impairment is recorded using the
cash basis method. 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.
During the nine months ended September 30, 1996 and 1995, respectively,
The Equitable's average recorded investment in impaired mortgage loans was
$548.7 million and $295.5 million. Interest income recognized on these
impaired mortgage loans totaled $30.9 million and $20.3 million for the
nine months ended September 30, 1996 and 1995, respectively, including
$13.7 million and $10.8 million recognized on the cash basis method.
5) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are treated as financing
transactions and carried at the amounts at which the securities
subsequently will be reacquired in the respective agreements. These
agreements with counterparties were collateralized principally by U.S.
government securities. The weighted average interest rates on securities
sold under repurchase agreements were 5.57% and 5.69% at September 30,
1996 and December 31, 1995, respectively.
6) ALLIANCE - CURSITOR TRANSACTION
On February 29, 1996, Alliance acquired the business of Cursitor-Eaton
Asset Management Company and Cursitor Holdings Limited in exchange for
approximately 1.8 million Alliance Units, $84.9 million in cash, $21.5
million in notes which are payable ratably over the next four years and
substantial additional consideration which will be determined at a later
date. The Equitable recognized an investment gain of $20.6 million as a
result of the issuance of Units in this transaction. At September 30,
1996, The Equitable's ownership of Alliance Units was approximately 57.4%.
7) BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ------------ --------- -----------
(In Millions)
<S> <C> <C> <C> <C>
Revenues
Individual insurance and annuities ... $ 841.7 $ 793.5 $ 2,496.9 $ 2,436.6
Group pension ........................ 60.7 77.1 189.3 209.4
Attributed insurance capital ......... 17.9 17.0 49.2 45.6
---------- ---------- ---------- ----------
Insurance operations ............... 920.3 887.6 2,735.4 2,691.6
Investment services .................. 1,022.1 924.0 3,295.5 2,609.6
Corporate and other .................. 12.8 10.5 40.6 30.5
Consolidation/elimination ............ (10.0) (11.5) (29.1) (36.4)
---------- ---------- ---------- ----------
Total ................................ $ 1,945.2 $ 1,810.6 $ 6,042.4 $ 5,295.3
========== ========== ========== ==========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- ----------
(In Millions)
<S> <C> <C> <C> <C>
Earnings (Loss) Before Federal
Income Taxes, Minority Interest
and Cumulative Effect of
Accounting Change
Individual insurance and annuities ..... $ 86.8 $ 80.6 $ 240.3 $ 232.2
Group pension .......................... (8.3) (.9) (28.6) (12.7)
Attributed insurance capital ........... 9.7 9.9 23.5 22.5
-------- -------- -------- --------
Insurance operations ................. 88.2 89.6 235.2 242.0
Investment services .................... 135.5 108.0 487.3 296.6
Corporate and other .................... 5.6 (3.2) 15.0 (3.9)
Consolidation/elimination .............. (.4) (.4) .7 (1.4)
-------- -------- -------- --------
Subtotal ............................. 228.9 194.0 738.2 533.3
Corporate interest expense ............. (35.5) (25.2) (104.5) (74.0)
-------- -------- -------- --------
Total .................................. $ 193.4 $ 168.8 $ 633.7 $ 459.3
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- --------------
(In Millions)
<S> <C> <C>
Assets
Individual insurance and annuities ......... $ 53,559.8 $ 50,328.8
Group pension .............................. 3,601.0 4,033.3
Attributed insurance capital ............... 2,055.5 2,391.6
------------ ------------
Insurance operations ..................... 59,216.3 56,753.7
Investment services ........................ 67,043.2 56,785.7
Corporate and other ........................ 840.9 826.7
Consolidation/elimination .................. (615.7) (616.7)
------------ ------------
Total ...................................... $ 126,484.7 $ 113,749.4
============ ============
</TABLE>
8) DISCONTINUED OPERATIONS
Summarized financial information of the discontinued GIC Segment follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate .................... $ 1,285.0 $ 1,485.8
Equity real estate ............................... 1,057.1 1,122.1
Cash and other invested assets ................... 361.7 665.2
Other assets ..................................... 191.5 579.3
---------- ----------
Total Assets ..................................... $ 2,895.3 $ 3,852.4
========== ==========
Liabilities
Policyholders' liabilities ....................... $ 1,360.3 $ 1,399.8
Allowance for future losses ...................... 118.8 164.2
Amounts due to continuing operations ............. 1,270.1 2,097.1
Other liabilities ................................ 146.1 191.3
---------- ----------
Total Liabilities ................................ $ 2,895.3 $ 3,852.4
========== ==========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
--------- --------- -------- --------
(In Millions)
<S> <C> <C> <C> <C>
Revenues
Investment income (net of investment
expenses of $31.8, $40.5, $96.1
and $117.9) ............................ $ 50.2 $ 52.6 $ 182.4 $ 202.1
Investment (losses) gains, net ........... (6.2) 6.6 (23.8) (12.3)
Policy fees, premiums and other
income, net ............................ .1 .1 .2 .6
------- ------- -------- --------
Total revenues ........................... 44.1 59.3 158.8 190.4
Benefits and Other Deductions ............ 56.9 76.6 196.2 253.9
------- ------- -------- --------
Losses Charged to Allowance
for Future Losses ...................... $ (12.8) $ (17.3) $ (37.4) $ (63.5)
======= ======= ======== ========
</TABLE>
Investment valuation allowances amounted to $19.9 million on mortgage
loans and $16.3 million on equity real estate for an aggregate of $36.2
million at September 30, 1996. As of January 1, 1996, the adoption of SFAS
No. 121 resulted in a release of existing valuation allowances of $71.9
million on equity real estate and recognition of impairment losses of
$69.8 million on real estate held and used. At December 31, 1995,
valuation allowances amounted to $19.2 million on mortgage loans and $77.9
million on equity real estate for an aggregate of $97.1 million.
Benefits and other deductions included $23.3 million, $94.8 million, $38.7
million and $116.0 million of interest expense related to amounts borrowed
from continuing operations for the three months and nine months ended
September 30, 1996 and 1995, respectively.
The allowance for future losses is based upon management's best judgment
and there can be no assurance ultimate losses will not differ.
9) CLOSED BLOCK
Summarized financial information of the Closed Block follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ -------------
(In Millions)
<S> <C> <C>
Assets
Fixed maturities:
Available for sale, at estimated fair value (amortized
cost of $3,730.0 and $3,662.8) ............................. $ 3,736.2 $ 3,896.2
Mortgage loans on real estate .................................. 1,422.2 1,368.8
Policy loans ................................................... 1,778.8 1,797.2
Cash and other invested assets ................................. 321.8 440.9
Deferred policy acquisition costs .............................. 780.8 823.6
Other assets ................................................... 305.9 286.1
---------- ----------
Total Assets ................................................... $ 8,345.7 $ 8,612.8
========== ==========
Liabilities
Future policy benefits and other policyholders'
account balances .............................................. $ 9,159.6 $ 9,346.7
Other liabilities .............................................. 33.6 160.5
---------- ----------
Total Liabilities .............................................. $ 9,193.2 $ 9,507.2
========== ==========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
--------- -------- -------- ---------
(In Millions)
<S> <C> <C> <C> <C>
Revenues
Premiums and other income .............. $ 171.3 $ 178.8 $ 539.1 $ 561.3
Investment income (net of investment
expenses of $6.9, $6.6, $21.0 and
$20.3) ............................... 140.2 133.3 408.4 400.7
Investment losses, net ................. (4.6) (.6) (13.2) (7.5)
-------- -------- -------- --------
Total revenues ......................... 306.9 311.5 934.3 954.5
-------- -------- -------- --------
Benefits and Other Deductions
Policyholders' benefits and dividends .. 266.9 270.8 810.2 824.1
Other operating costs and expenses ..... 16.3 12.5 50.3 45.0
-------- -------- -------- --------
Total benefits and other deductions .... 283.2 283.3 860.5 869.1
-------- -------- -------- --------
Contribution from the Closed Block ..... $ 23.7 $ 28.2 $ 73.8 $ 85.4
======== ======== ======== ========
</TABLE>
Investment valuation allowances amounted to $33.4 million and $18.4
million on mortgage loans and $2.5 million and $4.3 million on equity real
estate for an aggregate of $35.9 million and $22.7 million at September
30, 1996 and December 31, 1995, respectively. As of January 1, 1996, the
adoption of SFAS No. 121 resulted in the recognition of impairment losses
of $5.6 million on real estate held and used.
10) COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ----------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net earnings .......................... $ 97.3 $ 97.4 $ 292.4 $ 264.5
Less - dividends on preferred stocks .. 6.7 6.7 20.0 20.0
--------- --------- --------- ---------
Net earnings applicable to common
shares - assuming no dilution ....... 90.6 90.7 272.4 244.5
Add - dividends on convertible
preferred stock and interest on
convertible subordinated debt ....... 10.5 10.5 31.4 31.4
--------- --------- --------- ---------
Net Earnings Applicable to Common
Shares -Assuming Full Dilution ...... $ 101.1 $ 101.2 $ 303.8 $ 275.9
========= ========= ========= =========
Weighted average common shares
outstanding - assuming no
dilution(1) ......................... 185.5 184.3 185.2 184.0
Add - assumed exercise of stock
options ............................. 1.3 1.2 1.2 .8
Add - assumed conversion of
convertible preferred stock ......... 17.8 17.8 17.8 17.8
Add - assumed conversion of
convertible subordinated debt ....... 14.7 14.7 14.7 14.7
--------- --------- --------- ---------
Weighted Average Shares
Outstanding - Assuming
Full Dilution ....................... 219.3 218.0 218.9 217.3
========= ========= ========= =========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ----------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net Earnings Per Common Share:
Assuming No Dilution:
Net earnings before cumulative
effect of accounting change ..... $ .48 $ .49 $ 1.57 $ 1.33
Cumulative effect of accounting
change, net of Federal
income taxes .................... -- -- (.12) --
--------- --------- --------- ---------
Net Earnings ...................... $ .48 $ .49 $ 1.45 $ 1.33
========= ========= ========= =========
Assuming Full Dilution:
Net earnings before cumulative
effect of accounting change ..... $ .46 $ .46 $ 1.48 $ 1.27
Cumulative effect of accounting
change, net of Federal
income taxes .................... -- -- (.11) --
--------- --------- --------- ---------
Net Earnings ...................... $ .46 $ .46 $ 1.37 $ 1.27
========= ========= ========= =========
<FN>
(1) Stock options were not included because their effect was less than 3%.
</FN>
</TABLE>
Shares of the Series D Convertible Preferred Stock (or common stock issued
on conversion thereof) are not considered to be outstanding in the
computation of weighted average shares of common stock until the shares
are allocated to fund the obligations for which the SECT was established.
11) RESTRUCTURE COSTS
At September 30, 1996, liabilities associated with 1994 and 1995 cost
reduction programs totaled $27.3 million. During the nine months ended
September 30, 1996 and 1995, The Equitable restructured certain operations
in connection with cost reduction programs and incurred costs of $2.6
million and $15.8 million, respectively, primarily associated with
severance related benefits. Amounts paid during the nine months ended
September 30, 1996 and charged against the liabilities for the 1994 and
1995 cost reduction programs totaled $13.1 million.
12) LITIGATION
There have been no new material legal proceedings and no material
developments in matters which were previously reported in The Equitable's
Notes to Consolidated Financial Statements for the year ended December 31,
1995, except as follows:
13
<PAGE>
On May 29, 1996, the New York County Supreme Court entered a judgment
dismissing the complaint with prejudice in the previously reported action
Golomb, et al. v. The Equitable Life Assurance Society of the United
States. Plaintiffs have filed a notice of appeal of that judgment. On
February 9, 1996, Equitable Life removed the Pennsylvania action, Malvin
v. The Equitable Life Assurance Society of the United States, to the
United States District Court for the Middle District of Pennsylvania.
Following the decision granting Equitable Life's motion to dismiss the New
York action (Golomb), on the consent of the parties, the District Court
ordered an indefinite stay of all proceedings in the Pennsylvania action,
pending either party's right to reinstate the proceeding, and ordered that
for administrative purposes the case be deemed administratively closed. On
February 2, 1996, Equitable Life removed the Texas action, Bowler, et al.
v. The Equitable Life Assurance Society of the United States, to the
United States District Court for the Northern District of Texas. On July
1, 1996, Equitable Life filed a motion for summary judgment dismissing the
complaint in its entirety. The Equitable's management has been advised
that plaintiffs plan to oppose the motion for summary judgment. In August,
1996, the court granted plaintiffs leave to file a supplemental complaint
on behalf of a proposed class of Texas policyholders claiming unfair
discrimination, breach of contract and other claims arising out of alleged
differences between premiums charged to Texas policyholders and premiums
charged to similarly situated policyholders in New York and certain other
states. Plaintiffs seek refunds of alleged overcharges, exemplary or
additional damages citing Texas statutory provisions which among other
things, permit two times the amount of actual damage plus additional
penalties if the acts complained of are found to be knowingly committed,
and injunctive relief. Equitable Life has also filed a motion for summary
judgment dismissing the supplemental complaint in its entirety. The
Equitable's management has been advised that plaintiffs plan to oppose
that motion.
On May 22, 1996, a separate action entitled Bachman v. The Equitable Life
Assurance Society of the United States, was filed in Florida state court
making claims similar to those in the previously reported Golomb action.
The Florida action is asserted on behalf of a proposed class of Florida
issued or renewed policyholders, insured after 1983 under Lifetime
Guaranteed Renewable Major Medical Insurance Policies issued by Equitable
Life. The Florida action seeks compensatory and punitive damages and
injunctive relief restricting the methods by which Equitable Life
increases premiums in the future, based on various common law claims. On
June 20, 1996, Equitable Life removed the Florida action to Federal court.
Equitable Life has answered the complaint, denying the material
allegations and asserting certain affirmative defenses. Although the
outcome of any litigation cannot be predicted with certainty, particularly
in the early stages of an action, The Equitable's management believes that
the ultimate resolution of this litigation should not have a material
adverse effect on the financial position of The Equitable. Due to the
early stage of such litigation, The Equitable's management cannot make an
estimate of loss, if any, or predict whether or not such litigation will
have a material adverse effect on The Equitable's results of operations in
any particular period.
On November 6, 1996, a proposed class action entitled Fletcher, et al. v.
The Equitable Life Assurance Society of the United States, was filed in
California Superior Court for Fresno County, making substantially the same
allegations concerning premium rates and premium rate increases on
guaranteed renewable policies made in the Bowler action. The complaint
alleges, among other things, that differentials between rates charged
California policyholders and policyholders in New York and certain other
states, and the methods used by Equitable Life to calculate premium
increases, breached the terms of its policies and that Equitable Life
misrepresented and concealed the facts pertaining to such differentials
and methods in violation of California law. Plaintiffs seek compensatory
damages in an unspecified amount, rescission, injunctive relief and
attorneys fees. Although the outcome of any litigation cannot be predicted
with certainty, particularly in the early stages of an action, The
Equitable's management believes that the ultimate resolution of this
litigation should not have a material adverse effect on the financial
position of The Equitable. Due to the early stage of such litigation, The
Equitable's management cannot make an estimate of loss, if any, or predict
whether or not such litigation will have a material adverse effect on The
Equitable's results of operations in any particular period.
14
<PAGE>
In connection with the previously reported action entitled Sidney C. Cole
et al. v. The Equitable Life Assurance Society of the United States and
The Equitable of Colorado, Inc., on June 28, 1996, the court issued a
decision and order dismissing with prejudice plaintiff's causes of action
for fraud, constructive fraud, breach of fiduciary duty, negligence, and
unjust enrichment, and dismissing without prejudice plaintiff's cause of
action under the New York State consumer protection statute. The only
remaining causes of action are for breach of contract and negligent
misrepresentation. Plaintiffs have made a motion for reargument with
respect to this order, which was submitted to the court in October 1996.
On May 21, 1996, an action entitled Elton F. Duncan, III v. The Equitable
Life Assurance Society of the United States, was commenced against
Equitable Life in the Civil District Court for the Parish of Orleans,
State of Louisiana. The action is brought by an individual who purchased a
whole life policy. Plaintiff alleges misrepresentations concerning the
extent to which the policy was a proper replacement policy and the number
of years that the annual premium would need to be paid. Plaintiff purports
to represent a class consisting of all persons who purchased whole life or
universal life insurance policies from Equitable Life from January 1, 1982
to the present. Plaintiff seeks damages, including punitive damages, in an
unspecified amount. On June 21, 1996, Equitable Life removed the action to
the United States District Court for the Eastern District of Louisiana.
Plaintiff has made a motion to remand to the Louisiana Civil District
Court, and Equitable Life will oppose such motion. On July 26, 1996, an
action entitled Michael Bradley v. Equitable Variable Life Insurance
Company, was commenced in New York state court. The action is brought by
the holder of a variable life insurance policy issued by EVLICO. The
plaintiff purports to represent a class consisting of all persons or
entities who purchased one or more life insurance policies issued by
EVLICO from January 1, 1980. The complaint puts at issue various alleged
sales practices and alleges misrepresentations concerning the extent to
which the policy was a proper replacement policy and the number of years
that the annual premium would need to be paid. Plaintiff seeks damages,
including punitive damages, in an unspecified amount and also seeks
injunctive relief prohibiting EVLICO from canceling policies for failure
to make premium payments beyond the alleged stated number of years that
the annual premium would need to be paid. Equitable Life and EVLICO have
made a motion to consolidate or jointly try this proceeding with the Cole
action, which will not be heard until November 1996. Although the outcome
of any litigation cannot be predicted with certainty, particularly in the
early stages of an action, The Equitable's management believes that the
ultimate resolution of the litigations discussed in this paragraph should
not have a material adverse effect on the financial position of The
Equitable. Due to the early stages of such litigation, The Equitable's
management cannot make an estimate of loss, if any, or predict whether or
not such litigation will have a material adverse effect on The Equitable's
results of operations in any particular period.
Equitable Life recently received a subpoena from the U.S. Department of
Labor ("DOL") requesting copies of any third-party appraisals in Equitable
Life's possession relating to the ten largest properties (by value) in the
Prime Property Fund ("PPF"). PPF is an open-end, commingled real estate
separate account of Equitable Life's for pension clients. Equitable Life
serves as investment manager in PPF and has retained Equitable Real Estate
Investment Management, Inc. ("Equitable Real Estate") as adviser. In early
1995, the DOL commenced a national investigation of commingled real estate
funds with pension investors, including PPF. The investigation now appears
to be focused principally on appraisal and valuation procedures in respect
of fund properties. The most recent request from the DOL seems to reflect,
at least in part, an interest in the relationship between the valuations
for those properties reflected in appraisals prepared for local property
tax proceedings and the valuations used by PPF for other purposes. At no
time has the DOL made any specific allegation that Equitable Life or
Equitable Real Estate has acted improperly and Equitable Life and
Equitable Real Estate believe that any such allegation would be without
foundation. While the outcome of this investigation cannot be predicted
with certainty, in the opinion of management, the ultimate resolution of
this matter should not have a material adverse effect on The Equitable's
consolidated financial position or results of operations.
15
<PAGE>
In connection with the previously reported arbitration involving Equitable
Casualty Insurance Company ("Casualty"), the arbitration panel issued a
final award in favor of Casualty and GEICO General Insurance Company
("GEICO General") on June 17, 1996. The result of the arbitration is
expected to resolve in favor of Casualty and GEICO General two litigations
that were commenced by Houston General Insurance Company ("Houston
General") and that have been stayed by the presiding courts pending the
completion of the arbitration. Houston General has informed Casualty,
through counsel, that it is considering whether to consent to entry of a
judgment enforcing the arbitration award or whether to contest the award.
The Equitable's management believes that Houston General has no valid
basis for contesting the arbitration award and therefore the ultimate
resolution of this matter should not have a material adverse effect on The
Equitable's financial position or results of operations.
With respect to the previously reported National Gypsum litigation, the
Bankruptcy Court has remanded the Texas state court action to state court.
With respect to the previously reported Spectravision litigation,
plaintiffs have filed an amended complaint in which DLJSC is no longer
named as a defendant.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts
of the complaint in the previously reported litigation involving Alliance
and the Alliance North American Government Income Fund, Inc. The
plaintiffs have filed motions requesting that the court reconsider its
decision and for permission to file an amended complaint. While the
ultimate outcome cannot be determined at this time, Alliance's management
does not expect that it will have a material adverse effect on Alliance's
consolidated financial position or results of operations.
In addition to the matters previously reported and the matters 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 matter is
likely to have a material adverse effect on The Equitable's consolidated
financial position or results of operations.
16
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and financial
condition of The Equitable should be read in conjunction with the Consolidated
Financial Statements and the related Notes to Consolidated Financial Statements
included elsewhere herein, and with the Management's Discussion and Analysis
section included in The Equitable's 1995 Report on Form 10-K.
COMBINED RESULTS OF OPERATIONS
The contribution from the Closed Block is reported on one line in the
consolidated statements of earnings. The following table presents the results of
operations of the Closed Block for the three months and the nine months ended
September 30, 1996 and 1995 combined with the results of operations outside of
the Closed Block. See Closed Block results as combined herein on page 19.
Management's discussion and analysis addresses the combined results of
operations unless noted otherwise.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
----------- ---------- ---------- ----------
(In Millions)
<S> <C> <C> <C> <C>
Combined Results of Operations
Policy fee income and premiums ....... $ 537.3 $ 515.8 $ 1,628.7 $ 1,593.4
Net investment income ................ 964.2 888.2 2,815.3 2,638.1
Investment gains, net ................ 87.2 112.5 451.3 378.0
Commissions, fees and other income ... 639.7 577.4 2,007.6 1,554.9
---------- ---------- ---------- ----------
Total revenues ..................... 2,228.4 2,093.9 6,902.9 6,164.4
Total benefits and other deductions .. 2,035.0 1,925.1 6,269.2 5,705.1
---------- ---------- ---------- ----------
Earnings before Federal income taxes,
minority interest and cumulative
effect of accounting change ........ 193.4 168.8 633.7 459.3
Federal income taxes ................. 57.2 50.2 190.3 136.1
Minority interest in net income of
consolidated subsidiaries .......... 38.9 21.2 127.9 58.7
---------- ---------- ---------- ----------
Earnings before Cumulative Effect
of Accounting Change ............... $ 97.3 $ 97.4 $ 315.5 $ 264.5
========== ========== ========== ==========
</TABLE>
Continuing Operations
Compared to the comparable prior year period, the higher pre-tax results of
operations for the nine months ended September 30, 1996 reflected increased
earnings in the Investment Services, Individual Insurance and Annuities and the
Corporate and Other segments partially offset by higher losses in the Group
Pension segment. The increase in Federal income taxes was attributed to higher
pre-tax results of operations. The increase in minority interest in net income
of consolidated subsidiaries was attributable to DLJ's IPO and increased
earnings at both DLJ and Alliance.
The $738.5 million increase in revenues for the nine months ended September 30,
1996 compared to the corresponding period in 1995 was attributed primarily to a
$452.7 million increase in commissions, fees and other income principally due to
increased business activity within the Investment Services segment, a $250.5
million increase in investment results and a $35.3 million increase in policy
fee income and premiums.
17
<PAGE>
Net investment income increased $177.2 million for the nine months ended
September 30, 1996 as compared to the comparable prior year period principally
due to increases of $103.9 million and $63.1 million, respectively, for the
Investment Services and the Individual Insurance and Annuities segments. The
Investment Services increase was attributed to higher business activity while
the Individual Insurance and Annuities increase was due to higher overall
investment yields on a larger asset base.
Investment gains increased by $73.3 million for the nine months ended September
30, 1996 from $378.0 million for the same period in 1995. Investment gains at
DLJ increased by $124.7 million with increased dealer and trading gains of
$100.1 million and higher gains of $24.6 million on other equity investments.
The 1996 gains on other equity investments included a gain of $79.4 million on
the sale of the remaining shares of a single corporate development portfolio
investment. A gain of $20.6 million was recognized as a result of the issuance
of Alliance Units to third parties upon completion of the Cursitor acquisition.
There were investment losses of $55.1 million on General Account Investment
Assets as compared to gains of $19.9 million in the first nine months of 1995.
Losses on mortgage loans increased to $59.2 million, $35.5 million higher than
in 1995, while losses on equity real estate totaled $42.0 million, $27.0 million
higher than in the first nine months of 1995. There were $2.8 million of gains
on the General Account's other equity investments as compared to $5.0 million
during the first nine months of 1995. There were gains of $43.3 million on fixed
maturities, a decrease of $10.3 million from the comparable 1995 period.
On January 1, 1996, The Equitable implemented SFAS No. 121. As a result,
existing valuation allowances of $152.4 million on equity real estate were
released and impairment losses of $149.6 million were recognized on real estate
held and used. Due to the adoption of this statement, equity real estate
classified as available for sale is no longer depreciated. See Note 2 of Notes
to Consolidated Financial Statements.
For the first nine months of 1996, total benefits and other deductions increased
by $564.1 million from the comparable period in 1995, reflecting increases in
other operating costs and expenses of $490.6 million, Corporate interest expense
of $30.5 million, a $27.0 million increase in interest credited to policyholders
and a $16.0 million increase in policyholders' benefits. The increase in other
operating costs and expenses principally was attributable to increased operating
costs of $495.2 million in the Investment Services segment associated with
increased segment activities. Higher Corporate interest expense resulted from
the interest on the Surplus Notes issued by Equitable Life in the fourth quarter
of 1995. There was a $24.0 million increase in interest credited to
policyholders for the Individual Insurance and Annuities segment, primarily due
to small changes in crediting rates applied to a larger in force book of
business. The Group Pension segment's $3.1 million increase in interest credited
to policyholders was due to the impact of pass-throughs of lower investment
losses to participating pension contractholders offset by smaller policyholders'
account balances.
Discontinued GIC Segment
In the first nine months of 1996, $37.4 million of pre-tax losses were incurred
and charged to the GIC Segment's allowance for future losses as compared to
pre-tax losses of $63.5 million in the first nine months of 1995. Investment
results declined by $31.2 million in the first nine months of 1996 as compared
to the year earlier period. Net investment income declined by $19.7 million,
principally due to lower income on mortgage loans and fixed maturities as these
asset bases continued to decrease, partially offset by higher income on equity
real estate. Investment losses increased $11.5 million to $23.8 million in the
first nine months of 1996 as compared to the comparable prior year period. There
were $12.9 million and $5.0 million of losses on equity real estate and other
equity investments, respectively, in 1996 versus $4.6 million and $1.6 million
of gains, respectively, during the year earlier period. These declines were
partially offset by $3.5 million of lower losses on fixed maturities and $9.1
million lower losses on mortgage loans. Benefits and other deductions declined
by $57.7 million principally due to the decrease of $26.0 million in interest
credited on a reduced GIC contract base and $21.2 million lower interest
payments on loans from continuing operations due to repayments.
18
<PAGE>
COMBINED RESULTS OF CONTINUING OPERATIONS BY SEGMENT
Individual Insurance and Annuities
The Closed Block is part of the Individual Insurance and Annuities segment. The
following table combines the Closed Block amounts with the reported results of
operations outside of the Closed Block on a line-by-line basis.
<TABLE>
<CAPTION>
Individual Insurance and Annuities
(In Millions)
Nine Months Ended September 30,
----------------------------------------------
1996
---------------------------------
As Closed 1995
Reported Block Combined Combined
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Policy fees, premiums and other income .. $ 1,128.7 $ 539.1 $ 1,667.8 $ 1,612.6
Net investment income ................... 1,299.2 408.4 1,707.6 1,644.5
Investment (losses) gains, net .......... (4.8) (13.2) (18.0) 48.6
Contribution from the Closed Block ...... 73.8 (73.8) -- --
---------- -------- ---------- ----------
Total revenues ........................ 2,496.9 860.5 3,357.4 3,305.7
Total benefits and other deductions ..... 2,256.6 860.5 3,117.1 3,073.5
---------- -------- ---------- ----------
Earnings before Federal Income Taxes,
Minority Interest and Cumulative
Effect of Accounting Change ........... $ 240.3 $ -- $ 240.3 $ 232.2
========== ======== ========== ==========
</TABLE>
The earnings from operations in the Individual Insurance and Annuities segment
for the nine months ended September 30, 1996 reflected an increase of $8.1
million from the year earlier period primarily due to higher policy fees on
variable and interest-sensitive life and individual annuities contracts,
favorable mortality experience on term life insurance and lower deferred
acquisition cost amortization. These increases were offset by lower investment
results, higher employee benefit costs, higher claims experience on directly
written and reinsurance assumed disability income policies and higher costs
associated with new distribution channels and new product initiatives. The
effect of small changes in crediting rates on the larger in force books of
business for interest-sensitive life and annuity products was more than offset
by the increase in investment income.
Total revenues increased by $51.7 million primarily due to a $75.1 million
increase in policy fees and a $12.9 million increase in commissions, fees and
other income, offset by declines of $32.8 million in premiums and $3.5 million
in investment results. The decrease in premiums principally was due to lower
traditional life premiums and lower reinsurance assumed on individual annuity
contracts. The decline in investment results resulted from investment losses in
1996 as compared to gains in 1995 due to higher losses on mortgage loans and
equity real estate and lower gains on fixed maturities and other equity
investments, partially offset by higher investment income.
Total benefits and other deductions for the nine months ended September 30, 1996
rose $43.6 million from the comparable 1995 period. Other operating expenses
increased $45.8 million principally due to higher employee benefit costs related
to lower interest rate assumptions used in the calculation of retirement program
costs, higher costs associated with building new distribution channels and new
product initiatives, and higher volume related commissions and other expenses.
Interest credited on policyholders' account balances increased $24.0 million due
to the increases in the books of business noted above. Policyholders' benefits
increased by $26.6 million due to emerging claims experience on directly written
and reinsurance assumed disability income business and higher variable and
interest-sensitive life mortality experience. These increases were partially
offset by a $5.0 million increase in deferred policy acquisition cost ("DAC")
capitalization and lower term life mortality experience. Higher mortality
experience on variable and interest-sensitive life policies and investment
losses contributed to the $47.8 million lower DAC amortization.
Losses on the directly written disability income business were $34.4 million for
the nine months ended September 30, 1996, a $6.8 million increase from the prior
year's comparable period. Incurred benefits (benefit payments plus additions to
claims reserves) for directly written disability income products increased $20.1
19
<PAGE>
million in the first nine months of 1996 from the comparable 1995 levels due to
lower terminations of existing claims. Losses on the reinsurance assumed
disability income business were $19.1 million for the nine months ended
September 30, 1996, a $15.6 million increase from the prior year's comparable
period.
Premiums and Deposits - The following table reflects premiums and deposits,
including universal life and investment-type contract deposits, for the
segment's major product lines.
<TABLE>
<CAPTION>
Premiums and Deposits
(In Millions)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Product Line:
Individual annuities
First year ......................... $ 488.1 $ 389.2 $ 1,560.0 $ 1,335.1
Renewal ............................ 256.2 248.0 918.0 828.1
---------- ---------- ---------- ----------
744.3 637.2 2,478.0 2,163.2
Variable and interest-sensitive life
First year recurring ............... 41.3 39.7 131.4 134.8
First year optional ................ 34.4 32.2 118.9 112.4
Renewal ............................ 268.2 246.2 871.1 781.8
---------- ---------- ---------- ----------
343.9 318.1 1,121.4 1,029.0
Traditional life
First year recurring ............... 4.4 5.7 14.1 17.8
First year optional ................ 1.2 1.4 3.7 4.4
Renewal ............................ 199.7 202.7 623.2 634.6
---------- ---------- ---------- ----------
205.3 209.8 641.0 656.8
Other(1)
First year ......................... 4.2 15.5 22.3 64.3
Renewal ............................ 91.4 87.5 279.3 290.8
---------- ---------- ---------- ----------
95.6 103.0 301.6 355.1
Total First Year ..................... 573.6 483.7 1,850.4 1,668.8
Total Renewal ........................ 815.5 784.4 2,691.6 2,535.3
---------- ---------- ---------- ----------
Grand Total .......................... $ 1,389.1 $ 1,268.1 $ 4,542.0 $ 4,204.1
========== ========== ========== ==========
<FN>
(1) Includes health insurance and reinsurance assumed.
</FN>
</TABLE>
First year premiums and deposits for the nine months ended September 30, 1996
increased from prior year levels by $181.6 million primarily due to higher sales
of individual annuities offset, in part, by lower reinsurance assumed on
individual annuity contracts. Renewal premiums and deposits increased by $156.3
million during the nine months ended September 30, 1996 over the prior year
period as increases in the larger block of variable and interest-sensitive life
and individual annuities policies were partially offset by decreases in
traditional life policies and other product lines. Traditional life premiums and
deposits for the first nine months of 1996 decreased from the prior year's
comparable period by $15.8 million due to the marketing focus on variable and
interest-sensitive products and the decline in the traditional life book of
business. The 16.8% increase in first year individual annuities premiums and
deposits in 1996 over the prior year period included $135.6 million from a
recently introduced line of retirement annuity products and reflected an
approximately $135.8 million decrease in premiums related to an exchange program
that offers contractholders of existing SPDA contracts with no remaining
surrender charges an opportunity to exchange their contract for a new flexible
premium variable contract which retains assets in The Equitable and establishes
new surrender charge scales. Management believes the ongoing strategic
positioning of The Equitable's insurance operations continues to impact first
year life premiums and deposits. Particular emphasis has been devoted to the
implementation of a new needs based selling approach and the establishment of
consultative financial services as the cornerstone of the sales process. Changes
in agent recruitment and training practices have resulted in retention and
productivity improvements, which management expects ultimately will have a
positive effect upon life premium results.
20
<PAGE>
Surrenders and Withdrawals - The following table summarizes surrenders and
withdrawals, including universal life and investment-type contract withdrawals,
for the segment's major product lines.
<TABLE>
<CAPTION>
Surrenders and Withdrawals
(In Millions)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Product Line:
Individual annuities ................... $ 507.4 $ 464.7 $ 1,706.1 $ 1,682.0
Variable and interest-sensitive life ... 99.0 99.5 328.0 309.6
Traditional life ....................... 76.6 84.4 263.1 259.1
-------- -------- ---------- ----------
Total .................................. $ 683.0 $ 648.6 $ 2,297.2 $ 2,250.7
======== ======== ========== ==========
</TABLE>
Policy and contract surrenders and withdrawals increased $46.5 million during
the nine months ended September 30, 1996 compared to the same period in 1995.
Surrenders of individual annuities and variable and interest-sensitive life
products increased by $24.1 million and $18.4 million, respectively, due to the
increased size of the books of business. Overall, surrender ratios have declined
during the first nine months of 1996.
Investment Services
The following table summarizes the results of operations for the Investment
Services segment.
<TABLE>
<CAPTION>
Investment Services
(In Millions)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Third party commissions and fees ...... $ 609.3 $ 532.4 $ 1,915.8 $ 1,453.3
Affiliate fees ........................ 31.6 34.6 93.7 102.1
Other income(1) ....................... 381.2 357.0 1,286.0 1,054.2
---------- -------- ---------- ----------
Total revenues ........................ 1,022.1 924.0 3,295.5 2,609.6
Total costs and expenses .............. 886.6 816.0 2,808.2 2,313.0
---------- -------- ---------- ----------
Earnings before Federal Income Taxes,
Minority Interest and Cumulative
Effect of Accounting Change ......... $ 135.5 $ 108.0 $ 487.3 $ 296.6
========== ======== ========== ==========
<FN>
(1) Includes net dealer and trading gains, investment results and other items.
</FN>
</TABLE>
For the nine months ended September 30, 1996, pre-tax earnings for the
Investment Services segment increased by $190.7 million from the year earlier
period primarily due to higher earnings for DLJ and Alliance. Underwriting and
trading revenues at DLJ decreased in the third quarter of 1996 as compared to
the third quarter of 1995 and the second quarter of 1996 due to an overall
decline in market conditions. DLJ's earnings for the first nine months of 1996
were higher than in the comparable 1995 period largely due to increased levels
of underwriting and merger and acquisition activity, higher dealer and trading
gains and the growth in trading volume on most major exchanges.
21
<PAGE>
Total segment revenues were up $685.9 million principally due to higher revenues
at DLJ. Other income for the nine months ended September 30, 1996 included a
gross gain of $20.6 million on the issuance of Alliance Units during the first
quarter of the year in connection with the Cursitor transaction.
Total costs and expenses increased by $495.2 million for the nine-month period
of 1996 as compared to the comparable period in 1995, principally reflecting
increases in compensation and interest and other expenses at DLJ due to
increased activity.
The following table summarizes results of operations by business unit.
<TABLE>
<CAPTION>
Investment Services
Results of Operations by Business Unit
(In Millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings before Federal income taxes,
minority interest and cumulative effect of
accounting change:
DLJ(1) ..................................... $ 84.6 $ 63.7 $ 329.3 $ 184.3
Alliance ................................... 50.4 42.0 144.5 114.5
Equitable Real Estate ...................... 10.1 11.2 26.6 28.1
Consolidation/elimination(2)(3) ............ (9.6) (8.9) (13.1) (30.3)
-------- -------- -------- --------
Earnings before Federal Income Taxes,
Minority Interest and Cumulative
Effect of Accounting Change(4) ............. $ 135.5 $ 108.0 $ 487.3 $ 296.6
======== ======== ======== ========
<FN>
(1) Excludes amortization expense of $0.9 million, $1.5 million, $2.8 million
and $4.3 million for the three months and the nine months ended September
30, 1996 and 1995, respectively, on goodwill and intangible assets related
to Equitable Life's acquisition of DLJ in 1985, which are included in
consolidation/elimination.
(2) Includes interest expense of $2.8 million, $4.4 million, $8.9 million and
$14.1 million related to intercompany debt issued by intermediate holding
companies payable to Equitable Life for the three months and the nine months
ended September 30, 1996 and 1995, respectively.
(3) Includes a gain of $16.9 million (net of $3.7 million related state income
tax) for the nine months ended September 30, 1996 on issuance of Alliance
Units to third parties upon the completion of the Cursitor transaction
during the first quarter of the year.
(4) Pre-tax minority interest related to DLJ was $25.9 million, $4.5 million,
$98.3 million and $13.5 million for the three months and the nine months
ended September 30, 1996 and 1995, respectively, and $21.2 million, $17.1
million, $61.0 million and $46.1 million for Alliance for the same
respective periods.
</FN>
</TABLE>
DLJ - DLJ's earnings from operations for the nine months ended September 30,
1996 were $329.3 million, up $145.0 million from the comparable prior year
period. Revenues increased $572.3 million to $2.54 billion primarily due to
increased underwriting revenues of $203.0 million, higher dealer and trading
gains of $100.1 million, higher commissions of $85.1 million, higher fees of
$45.3 million and higher gains on the corporate development portfolio of $24.6
million. DLJ's expenses were $2.21 billion for the nine months ended September
30, 1996, up $427.3 million from the comparable prior year period. The increase
was primarily due to a $213.3 million increase in compensation and commissions,
higher interest expense of $62.6 million and a $19.9 million increase in
occupancy and communications expenses.
22
<PAGE>
DLJ's derivative activities are not as extensive as many of its competitors.
Instead, DLJ has focused its derivative activities on writing over the counter
("OTC") options to accommodate its customers' needs, trading in forward
contracts in U.S. government and agency issued or guaranteed securities and
engaging in futures contracts on equity based indices, interest rate instruments
and currencies, and issuing structured notes. DLJ's involvement in swap
contracts is not significant. As a result, DLJ's involvement in derivatives
products is related primarily to revenue generation through the provision of
products to its clients as opposed to hedges against DLJ's own positions.
Options contracts are typically written for a duration of less than thirteen
months. Revenues from these activities (net of related interest expense) were
approximately $51.2 million and $65.7 million for the nine months ended
September 30, 1996 and 1995, respectively. Option writing revenues are primarily
from the amortization of option premiums. The decrease in revenues primarily
resulted from lower premiums received by DLJ due to a number of factors,
including market conditions and competition from other financial institutions.
The notional value of written options contracts outstanding was approximately
$7.5 billion and $4.2 billion at September 30, 1996 and 1995, respectively. The
increase in the notional value of options was primarily due to increases in
customer activity related to U.S. government obligations and foreign debt
securities. Such written options contracts are substantially covered by various
financial instruments that DLJ had purchased or sold as principal.
As part of DLJ's trading activities, including trading activities in the related
cash market instruments, DLJ enters into forward and futures contracts primarily
involving securities, foreign currencies, indices and forward rate agreements.
Such forward and futures contracts are entered into as part of DLJ's covering
transactions and generally are not used for speculative purposes.
Net trading (losses) gains on forward contracts were $(39.7) million and $126.3
million and net trading gains (losses) on futures contracts were $20.9 million
and $(53.3) million for the nine months ended September 30, 1996 and 1995,
respectively.
The notional contract and market values of the forward and futures contracts at
September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
--------------------- -----------------------
Purchases Sales Purchases Sales
--------- -------- --------- ---------
(In Millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value)... $ 18,610 $ 24,290 $ 15,104 $ 14,944
========= ========= ========= =========
Futures Contracts
(Notional Market Value)..... $ 2,290 $ 3,546 $ 272 $ 1,004
========= ========= ========= =========
</TABLE>
DLJ issues structured notes which are customized derivative instruments in which
the amount of interest or principal paid on a debt obligation is linked to
movements in the value of cash market financial instruments. At September 30,
1996 and 1995, DLJ had issued structured notes with principal amounts of $217.7
million and $61.5 million outstanding, respectively. DLJ expects the volume of
this activity to increase in the future. DLJ covers its obligations on
structured notes primarily by purchasing and selling the securities to which the
value of its structured notes are linked.
Alliance - Alliance's earnings from operations for the nine months ended
September 30, 1996 were $144.5 million, an increase of $30.0 million from the
prior year's comparable period. Revenues totaled $575.5 million for the first
nine months of 1996, an increase of $111.9 million from the comparable period in
1995, due to increased investment advisory and service fees. Alliance's costs
and expenses increased $81.9 million for the nine months ended September 30,
1996 primarily due to increases in employee compensation and benefits and
promotional expenditures.
23
<PAGE>
Equitable Real Estate - Equitable Real Estate's earnings from operations were
$26.6 million for the first nine months of 1996, down $1.5 million from the
preceding year's comparable period. Revenues declined $19.9 million to $153.9
million for the first nine months of 1996 when compared to the comparable 1995
period. Operating expenses decreased by $18.4 million totaling $127.3 million
for the nine months ended September 30, 1996. The declines were primarily due to
the absence of the EQ Services' mortgage servicing contracts which were sold in
October 1995.
Fees From Assets Under Management - As the following table illustrates, third
party clients continued to represent an important source of revenues and
earnings.
<TABLE>
<CAPTION>
Fees and Assets Under Management
(In Millions)
At or For the
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Fees:
Equitable .............. $ 28.6 $ 31.9 $ 84.7 $ 93.4
Third Party ............ 186.5 162.2 537.9 443.4
------- ---------- --------- ---------
Total .................... $ 215.1 $ 194.1 $ 622.6 $ 536.8
======= ========== ========= =========
Assets Under Management:
Equitable .............. $ 54,812 $ 48,569
Third Party(1) ......... 173,298 147,619
--------- ---------
Total .................... $ 228,110 $ 196,188
========= =========
<FN>
(1) Included $1.8 billion of performing mortgages at September 30, 1995 under a
special stand-by services contract with the RTC which expired in 1995.
Stand-by fees were received on the entire portfolio under the contract;
servicing fees were earned only on those mortgages that were delinquent.
</FN>
</TABLE>
Fees from assets under management increased for the nine months ended September
30, 1996 from the prior year's comparable period principally as a result of
growth in assets under management for third parties. Alliance's third party
assets under management increased by $30.73 billion primarily due to the
acquisition of Cursitor and National Mutual Funds Management (North America) in
the first half of the year and to market appreciation. Third party assets at
Equitable Real Estate decreased by $7.89 billion principally due to the sale in
October 1995 by EQ Services of mortgage servicing contracts.
24
<PAGE>
Group Pension
The following table summarizes the results of operations for the Group Pension
segment.
<TABLE>
<CAPTION>
Group Pension
(In Millions)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------
1996 1995 1996 1995
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Policy fees, premiums and other income ... $ 10.2 $ 14.2 $ 34.1 $ 41.6
Net investment income .................... 58.8 62.7 185.6 199.8
Investment (losses) gains, net ........... (8.3) .2 (30.4) (32.0)
------- ------- -------- --------
Total revenues ........................... 60.7 77.1 189.3 209.4
Total benefits and other deductions ...... 69.0 78.0 217.9 222.1
------- ------- -------- --------
Loss Before Federal Income Taxes,
Minority Interest and Cumulative
Effect of Accounting Change ............ $ (8.3) $ (.9) $ (28.6) $ (12.7)
======= ======= ======== ========
</TABLE>
The results for the Group Pension segment reflected a $15.9 million higher loss
for the nine months ended September 30, 1996 compared to the same period a year
ago. Investment losses in 1996 were $30.4 million, a $1.6 million improvement
from comparable losses for the first nine months of 1995. After reflecting the
effect of pass-throughs to participating pension contractholders, however,
investment losses net of pass-throughs increased by $11.2 million. Due to the
cumulative amount of investment losses realized on assets supporting
participating pension contractholder account balances, future investment losses
are not expected to be reduced by further pass-throughs. The investment losses
principally resulted from additions to asset valuation allowances on mortgage
loans and writedowns of equity real estate. Additionally, reserves were
strengthened by $7.0 million in 1996 on certain pension par contracts.
Investment income for the nine months ended September 30, 1996 decreased by
$14.2 million from the comparable period of the prior year primarily due to a
smaller asset base. Policy fees, premiums and other income declined by $7.5
million in the first nine months of 1996 when compared to the same 1995 period
due to the smaller book of business, partially offset by the $3.1 million
increase in interest credited.
CONTINUING OPERATIONS INVESTMENT PORTFOLIO
The continuing operations investment portfolio is composed of the General
Account investment portfolio and investment assets of the Holding Company and
its non-operating subsidiaries, the Trust and the SECT. The General Account
investment portfolio is discussed first, followed by a separate discussion on
the Holding Company Group investment portfolio.
25
<PAGE>
General Account Investment Portfolio
The following table reconciles the consolidated balance sheet asset amounts to
the amounts of General Account Investment Assets.
<TABLE>
<CAPTION>
General Account Investment Assets Carrying Values
September 30, 1996
(In Millions)
General
Balance Holding Account
Sheet Closed Company Investment
Balance Sheet Captions: Total Block Other(1) Group (2) Assets
- -------------------------------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities:
Available for sale ........... $ 17,550.4 $ 3,736.2 $ (192.9) $ 432.9 $ 21,046.6
Held to maturity ............. 184.4 -- -- 184.4 --
Trading account securities ..... 15,192.0 -- 15,192.0 -- --
Securities purchased under
resale agreements ............ 22,315.8 -- 22,315.8 -- --
Mortgage loans on real estate .. 3,298.5 1,422.2 -- -- 4,720.7
Equity real estate ............. 3,706.1 181.4 (20.3) -- 3,907.8
Policy loans ................... 2,167.3 1,778.8 -- -- 3,946.1
Other equity investments ....... 801.4 104.4 243.4 6.7 655.7
Other invested assets .......... 633.8 93.9 638.0 5.2 84.5
----------- ---------- ----------- -------- -----------
Total investments ............ 65,849.7 7,316.9 38,176.0 629.2 34,361.4
Cash and cash equivalents ...... 914.8 (57.9) 403.2 158.6 295.1
----------- ---------- ----------- -------- -----------
Total .......................... $ 66,764.5 $ 7,259.0 $ 38,579.2 $ 787.8 $ 34,656.5
=========== ========== =========== ======== ===========
<FN>
(1) Assets listed in the "Other" category principally consist of assets held in
portfolios other than the Holding Company Group and the General Account
(primarily securities held in inventory or for resale by DLJ) which are not
managed as part of General Account Investment Assets and certain
reclassifications and intercompany adjustments. The "Other" category is
deducted in arriving at the General Account Investment Assets.
(2) The Holding Company Group investment assets are not managed as part of
General Account Investment Assets and are deducted in arriving at General
Account Investment Assets.
</FN>
</TABLE>
The General Account Investment Assets presentation set forth in the following
pages includes the investments of the Closed Block on a line-by-line basis.
Management believes it is appropriate to discuss the information on a combined
basis in view of the similar asset quality characteristics of major asset
categories in the portfolios.
Writedowns on fixed maturities were $26.7 million and $40.3 million for the nine
months ended September 30, 1996 and 1995, respectively. Writedowns on equity
real estate totaled $3.1 million in the first nine months of 1996. The following
table shows asset valuation allowances and additions to and deductions from such
allowances for mortgages and equity real estate for the nine months ended
September 30, 1996 and 1995.
26
<PAGE>
<TABLE>
<CAPTION>
General Account Investment Assets
Valuation Allowances
(In Millions)
Equity Real
Mortgages Estate Total
---------- ----------- ---------
<S> <C> <C> <C>
September 30, 1996
Assets Outside of the Closed Block:
Beginning balances ......................... $ 65.5 $ 259.8 $ 325.3
SFAS No. 121 release(1) .................... -- (152.4) (152.4)
Additions .................................. 47.2 41.5 88.7
Deductions(2) .............................. (19.4) (85.8) (105.2)
-------- -------- --------
Ending Balances ............................ $ 93.3 $ 63.1 $ 156.4
======== ======== ========
Closed Block:
Beginning balances ......................... $ 18.4 $ 4.3 $ 22.7
Additions .................................. 15.2 .8 16.0
Deductions(2) .............................. (.2) (2.6) (2.8)
-------- -------- --------
Ending Balances ............................ $ 33.4 $ 2.5 $ 35.9
======== ======== ========
Total:
Beginning balances ......................... $ 83.9 $ 264.1 $ 348.0
SFAS No. 121 release(1) .................... -- (152.4) (152.4)
Additions .................................. 62.4 42.3 104.7
Deductions(2) .............................. (19.6) (88.4) (108.0)
-------- -------- --------
Ending Balances ............................ $ 126.7 $ 65.6 $ 192.3
======== ======== ========
September 30, 1995 Total:
Beginning balances ......................... $ 110.4 $ 223.3 $ 333.7
Additions .................................. 33.3 41.3 74.6
Deductions(2) .............................. (35.2) (24.7) (59.9)
-------- -------- --------
Ending Balances ............................ $ 108.5 $ 239.9 $ 348.4
======== ======== ========
<FN>
(1) As a result of the adoption of SFAS No. 121, $152.4 million of allowances on
assets held for investment were released and impairment losses of $149.6
million were recognized on real estate held and used.
(2) Primarily reflected releases of allowances due to asset dispositions and
writedowns.
</FN>
</TABLE>
27
<PAGE>
General Account Investment Assets by Category
The following table shows the amortized cost, valuation allowances and the net
amortized cost of the major categories of General Account Investment Assets at
September 30, 1996 and the net amortized cost at December 31, 1995.
<TABLE>
<CAPTION>
General Account Investment Assets
(Dollars In Millions)
September 30, 1996 December 31, 1995
---------------------------------------------------- --------------------------
% of % of
Net Total Net Net Total Net
Amortized Valuation Amortized Amortized Amortized Amortized
Cost Allowances Cost Cost Cost Cost
------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities(1).......... $ 20,927.4 $ -- $ 20,927.4 60.6% $ 19,149.9 56.7%
Mortgages.................... 4,847.4 126.7 4,720.7 13.7 5,007.1 14.8
Equity real estate........... 3,973.4 65.6 3,907.8 11.3 4,130.3 12.2
Other equity investments..... 655.7 -- 655.7 1.9 764.1 2.3
Policy loans................. 3,946.1 -- 3,946.1 11.4 3,773.6 11.2
Cash and short-term
investments(2)............. 379.6 -- 379.6 1.1 952.1 2.8
------------- ------------ ----------- ------- ------------ --------
Total........................ $ 34,729.6 $ 192.3 $ 34,537.3 100.0% $ 33,777.1 100.0%
============= ============ =========== ======= ============ ========
<FN>
(1) Excludes unrealized gains of $119.2 million and $857.9 million on fixed
maturities classified as available for sale at September 30, 1996 and
December 31, 1995, respectively.
(2) Comprised of "Cash and cash equivalents" and short-term investments included
within the "Other invested assets" caption on the consolidated balance
sheet.
</FN>
</TABLE>
Management has a policy of not investing substantial new funds in equity real
estate except to safeguard values in existing investments or to honor
outstanding commitments. It is management's continuing objective to reduce the
size of the equity real estate portfolio relative to total assets over the next
several years. Management anticipates that reductions will depend on real estate
market conditions, the level of mortgage foreclosures and expenditures required
to fund necessary or desired improvements to properties.
28
<PAGE>
Investment Results of General Account Investment Assets
<TABLE>
<CAPTION>
Investment Results by Asset Category(1)
(Dollars In Millions)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------- --------------------------------------------------
1996 1995 1996 1995
------------------------ ------------------------ ------------------------ ------------------------
(1) (1) (1) (1)
Yield Amount Yield Amount Yield Amount Yield Amount
---------- ------------- ---------- ------------- -------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Income.............. 7.93% $ 408.7 8.09% $ 369.5 7.92% $ 1,186.9 8.12% $ 1,076.9
Investment
Gains/(Losses).... 0.16% 8.2 0.46% 20.6 0.29% 43.3 0.40% 53.6
---------- ------------- ---------- ------------- ------------------------ ---------- -------------
Total............... 8.09% $ 416.9 8.55% $ 390.1 8.21% $ 1,230.2 8.52% $ 1,130.5
Ending Assets....... $ 20,927.4 $ 18,372.4 $ 20,927.4 $ 18,372.4
Mortgages:
Income.............. 8.89% $ 106.1 9.13% $ 116.3 8.88% $ 324.4 8.77% $ 346.6
Investment
Gains/(Losses).... (0.66)% (7.9) (1.28)% (16.2) (1.62)% (59.2) (0.60)% (23.7)
---------- ------------- ---------- ------------- ------------------------------------ -------------
Total............... 8.23% $ 98.2 7.85% $ 100.1 7.26% $ 265.2 8.17% $ 322.9
Ending Assets....... $ 4,720.7 $ 5,029.2 $ 4,720.7 $ 5,029.2
Equity Real
Estate (2):
Income.............. 2.59% $ 20.0 2.01% $ 18.1 2.78% $ 65.0 2.60% $ 71.4
Investment
Gains/(Losses).... (1.37)% (10.6) 0.46% 4.2 (1.80)% (42.0) (0.55)% (15.0)
---------- ------------- ----------- ------------- ------------------------------------ -------------
Total............... 1.22% $ 9.4 2.47% $ 22.3 0.98% $ 23.0 2.05% $ 56.4
Ending Assets....... $ 3,069.4 $ 3,526.3 $ 3,069.4 $ 3,526.3
Other Equity
Investments:
Income.............. 15.75% $ 26.6 7.82% $ 15.6 14.37% $ 75.6 10.23% $ 62.4
Investment
Gains/(Losses).... 0.23% .4 (0.30)% (0.6) 0.54% 2.8 0.82% 5.0
---------- ------------- ----------- ------------- ------------------------------------ -------------
Total............... 15.98% $ 27.0 7.52% $ 15.0 14.91% $ 78.4 11.05% $ 67.4
Ending Assets....... $ 655.7 $ 801.5 $ 655.7 $ 801.5
Policy Loans:
Income.............. 7.16% $ 70.1 7.00% $ 65.0 6.98% $ 202.5 6.92% $ 190.4
Ending Assets....... $ 3,946.1 $ 3,733.3 $ 3,946.1 $ 3,733.3
Cash and Short-term
Investments:
Income.............. 10.65% $ 12.1 7.07% $ 16.4 8.62% $ 43.0 7.79% $ 50.9
Ending Assets....... $ 379.6 $ 1,012.9 $ 379.6 $ 1,012.9
Total:
Income.............. 7.68% $ 643.6 7.42% $ 600.9 7.62% $ 1,897.4 7.51% $ 1,798.6
Investment
Gains/(Losses).... (0.12)% (9.9) 0.10% 8.0 (0.22)% (55.1) 0.08% 19.9
---------- ------------- ----------- ------------- ------------------------------------ -------------
Total(3)............ 7.56% $ 633.7 7.52% $ 608.9 7.40% $ 1,842.3 7.59% $ 1,818.5
Ending Assets....... $ 33,698.9 $ 32,475.6 $ 33,698.9 $ 32,475.6
<FN>
(1) Yields have been annualized and calculated based on the quarterly average
asset carrying values excluding unrealized gains (losses) in fixed
maturities. Annualized yields are not necessarily indicative of a full
year's results.
29
<PAGE>
(2) Equity real estate carrying values are shown net of third party debt and
minority interest in real estate of $838.4 million and $919.5 million as of
September 30, 1996 and 1995, respectively. Equity real estate income is
shown net of operating expenses, depreciation, third party interest expense
and minority interest. Third party interest expense and minority interest
totaled $12.9 million, $14.6 million, $41.2 million and $44.0 million for
the three months and the nine months ended September 30, 1996 and 1995,
respectively.
(3) Total yields are shown before deducting investment fees paid to the
Investment Subsidiaries (which include asset management, acquisition,
disposition, accounting and legal fees). If such fees had been deducted,
total yields would have been 7.28%, 7.21%, 7.12% and 7.29% for the three
months and the nine months ended September 30, 1996 and 1995, respectively.
</FN>
</TABLE>
For the nine months ended September 30, 1996, General Account investment results
increased $23.8 million as higher investment income on fixed maturities offset
increased losses on mortgages and equity real estate. On an annualized basis,
total investment yield decreased to 7.40% from 7.59%. Investment income
increased by $98.8 million or 5.5%, resulting in an increase in the annualized
income yield to 7.62% from 7.51%. Excluding SFAS No. 121 related permanent
impairment writedowns of $149.6 million and releases of valuation allowances
totaling $152.4 million relating to equity real estate, additions to asset
valuation allowances were $104.7 million and writedowns of fixed maturities and
equity real estate were $29.8 million in the nine months ended September 30,
1996 compared to $74.6 million and $40.3 million, respectively, in the nine
months ended September 30, 1995.
Total investment results for fixed maturities increased $99.7 million or 8.8%
for the nine months ended September 30, 1996 compared to the year earlier
period. Investment income increased by $110.0 million reflecting a higher asset
base, primarily from reinvesting nearly all available funds into fixed
maturities. Investment gains were $43.3 million for the nine months ended
September 30, 1996 compared to the year earlier $53.6 million. Writedowns on
fixed maturities were $26.7 million in the first nine months of 1996 as compared
to $40.3 million in the comparable period of 1995. Total investment results on
mortgages declined by $57.7 million or 17.9% in the nine months ended September
30, 1996 compared to the same period a year ago largely due to lower investment
income attributable to a lower asset base and higher additions to asset
valuation allowances. Equity real estate investment results were $33.4 million
lower during the nine months ended September 30, 1996 than the year earlier
period reflecting lower investment income and higher additions to asset
valuation allowances and writedowns.
Fixed Maturities. Fixed maturities consist of publicly traded debt securities,
privately placed debt securities and small amounts of redeemable preferred
stock, which represented 71.4%, 27.9% and 0.7%, respectively, of the amortized
cost of this asset category at September 30, 1996.
<TABLE>
<CAPTION>
Fixed Maturities By Credit Quality
(Dollars In Millions)
September 30, 1996 December 31, 1995
Rating Agency -------------------------------------- -------------------------------------
NAIC Equivalent Amortized % of Estimated Amortized % of Estimated
Rating Designation Cost Total Fair Value Cost Total Fair Value
- -------- ---------------------- --------------- --------- ------------ ----------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1-2 Aaa/Aa/A and Baa...... $ 18,221.9(1) 87.1% $ 18,271.9 $ 16,536.0(1) 86.4% $ 17,423.9
3-6 Ba and lower.......... 2,555.5(2) 12.2 2,628.6 2,483.4(2) 13.0 2,448.3
------------ ------- ------------ ----------- -------- -----------
Subtotal......................... 20,777.4 99.3 20,900.5 19,019.4 99.4 19,872.2
Redeemable preferred stock
and other...................... 150.0 0.7 146.1 130.5 0.6 126.5
------------ ------- ------------ ----------- -------- -----------
Total........................... $ 20,927.4 100.0% $ 21,046.6 $ 19,149.9 100.0% $ 19,998.7
============ ======= ============ =========== ======== ===========
<FN>
(1) Includes Class B Notes with an amortized cost of $89.6 million and $100.0
million at September 30, 1996 and December 31, 1995, respectively, eliminated
in consolidation.
(2) Includes Class B Notes with an amortized cost of $100.0 million, eliminated
in consolidation.
</FN>
</TABLE>
30
<PAGE>
At September 30, 1996, The Equitable held collateralized mortgage obligations
("CMOs") with an amortized cost of $2.48 billion, including $2.35 billion in
publicly traded CMOs. About 63.4% of the public CMO holdings were collateralized
by GNMA, FNMA and FHLMC securities. Approximately 41.6% of the public CMO
holdings were in planned amortization class ("PAC") bonds. At September 30,
1996, interest only ("IO") strips amounted to $6.1 million at amortized cost.
There were no holdings of principal only ("PO") strips at that date. In
addition, at September 30, 1996, The Equitable held $2.39 billion of mortgage
pass-through securities (GNMA, FNMA or FHLMC securities) and also held $486.5
million of Aa or higher rated public asset backed securities, primarily backed
by home equity and credit card receivables.
<TABLE>
<CAPTION>
Fixed Maturities
Problems, Potential Problems and Restructureds
Amortized Cost
(In Millions)
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
FIXED MATURITIES ............................... $ 20,927.4 $ 19,149.9
Problem fixed maturities ....................... 56.6 70.8
Potential problem fixed maturities ............. 0.5 43.4
Restructured fixed maturities(1) ............... 3.5 7.6
<FN>
(1) Excludes restructured fixed maturities of $4.2 million and $3.5 million that
are shown as problems at September 30, 1996 and December 31, 1995,
respectively, and excludes $0.0 million and $9.2 million of restructured
fixed maturities that are shown as potential problems at September 30, 1996
and December 31, 1995, respectively.
</FN>
</TABLE>
The amount of potential problem fixed maturities decreased $42.9 million from
December 31, 1995 to September 30, 1996 primarily due to asset sales.
Mortgages. Mortgages consist of commercial, agricultural and residential loans.
At September 30, 1996, commercial mortgages totaled $3.07 billion (63.3% of the
amortized cost of the category), agricultural loans were $1.74 billion (35.8%)
and residential loans were $43.6 million (0.9%).
31
<PAGE>
Mortgages
Problems, Potential Problems and Restructureds
Amortized Cost
(Dollars In Millions)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- ------------
<S> <C> <C>
COMMERCIAL MORTGAGES .......................................... $ 3,066.9 $ 3,413.7
Problem commercial mortgages .................................. 76.1 41.3
Potential problem commercial mortgages ........................ 388.4 194.7
Restructured commercial mortgages(1) .......................... 346.6 522.2
VALUATION ALLOWANCES .......................................... $ 116.4 $ 79.9
As a percent of commercial mortgages ........................ 3.8% 2.3%
As a percent of problem commercial mortgages ................ 153.0% 193.5%
As a percent of problem and potential problem commercial
mortgages ................................................. 25.1% 33.9%
As a percent of problem, potential problem and restructured
commercial mortgages ...................................... 14.4% 10.5%
AGRICULTURAL MORTGAGES ........................................ $ 1,736.9 $ 1,624.1
Problem agricultural mortgages ................................ 87.0 82.9
Restructured agricultural mortgages ........................... 2.0 2.0
VALUATION ALLOWANCES .......................................... $ 9.0 $ 4.0
<FN>
(1) Excludes restructured commercial mortgages of $11.2 million and $12.6
million that are shown as problems at September 30, 1996 and December 31,
1995, respectively, and excludes $229.2 million and $148.3 million of
restructured commercial mortgages that are shown as potential problems at
September 30, 1996 and December 31, 1995, respectively.
</FN>
</TABLE>
Problem commercial mortgages increased by $34.8 million from December 31, 1995
to September 30, 1996 primarily attributed to previously identified potential
problem loans which became delinquent. Potential problem loans increased as
mortgages previously classified as restructured or unclassified were identified
as potential problem loans. During the nine months ended September 30, 1996, the
amortized cost of foreclosed commercial mortgages totaled $0.8 million with no
reduction in amortized cost required at the time of foreclosure.
The original weighted average coupon rate on the $346.6 million of restructured
mortgages was 9.3%. As a result of these restructurings, the restructured
weighted average coupon rate was 8.4% and the restructured weighted average cash
payment rate was 8.1%. The foregone interest on restructured commercial
mortgages (including restructured commercial mortgages presented as problem or
potential problem commercial mortgages) for the nine months ended September 30,
1996 was $4.9 million.
32
<PAGE>
The following table shows the distribution of problem and potential problem
commercial mortgages by property type and by state.
<TABLE>
<CAPTION>
September 30, 1996
------------------------
(Dollars In Millions)
Amortized % of
Cost Total
----------- ---------
<S> <C> <C>
Problem Commercial Mortgages
Property Type:
Retail ............................................. $ 46.2 60.7%
Industrial ......................................... 18.7 24.6
Hotel .............................................. 9.5 12.5
Apartment .......................................... 1.7 2.2
-------- --------
Total .............................................. $ 76.1 100.0%
======== ========
State:
Massachusetts ...................................... $ 26.7 35.1%
Puerto Rico ........................................ 19.8 26.0
Pennsylvania ....................................... 13.7 18.0
California ......................................... 9.5 12.5
Mississippi ........................................ 4.1 5.4
Other (no state larger than 5.0%) .................. 2.3 3.0
-------- --------
Total .............................................. $ 76.1 100.0%
======== ========
Potential Problem Commercial Mortgages
Property Type:
Retail ............................................. $ 166.8 42.9%
Hotel .............................................. 134.1 34.5
Office ............................................. 78.9 20.3
Industrial ......................................... 8.6 2.3
-------- --------
Total .............................................. $ 388.4 100.0%
======== ========
State:
Illinois ........................................... $ 109.8 28.3%
New York ........................................... 102.5 26.4
Pennsylvania ....................................... 60.1 15.5
Virginia ........................................... 56.3 14.5
Texas .............................................. 23.9 6.2
Other (no state larger than 5.0%) .................. 35.8 9.1
-------- --------
Total .............................................. $ 388.4 100.0%
======== ========
</TABLE>
At September 30, 1996, management identified impaired loans as defined under
SFAS No. 114 with a carrying value of $562.6 million. The provision for losses
for these impaired mortgage loans was $111.0 million at September 30, 1996.
Income earned on these loans in the first nine months of 1996 was $39.5 million,
including cash received of $34.1 million.
For the nine months ended September 30, 1996, scheduled principal amortization
payments and prepayments on commercial mortgage loans received aggregated $226.1
million. In addition, during the first nine months of 1996, $199.6 million of
commercial mortgage loan maturity payments were scheduled, of which $114.0
million were paid as due. Of the amount not paid, $43.9 million were granted
short term extensions of up to nine months, $23.9 million were delinquent or in
default for non-payment of principal and $17.8 million were extended for a
weighted average of 7.0 years at a weighted average interest rate of 7.6%. There
were no foreclosures of maturing loans.
33
<PAGE>
Equity Real Estate. As of September 30, 1996, on the basis of amortized cost,
the equity real estate category included $3.00 billion (or 75.4%) acquired as
investment real estate and $976.7 million (or 24.6%) acquired through or in lieu
of foreclosure (including in-substance foreclosures).
Real estate properties with amortized costs of $294.6 million and $283.3 million
were sold during the first nine months of 1996 and 1995, respectively. In the
first nine months of 1996 and 1995, respectively, losses of $0.2 million and
$20.8 million were recognized on equity real estate which was sold.
As of January 1, 1996, The Equitable adopted SFAS No. 121. At September 30,
1996, allowances totaling $65.6 million were held on properties identified as
available for sale with an amortized cost of $411.4 million.
At September 30, 1996, the vacancy rate for The Equitable's office properties
was 13.9% in total, with a vacancy rate of 9.9% for properties acquired as
investment real estate and 24.3% for properties acquired through foreclosure.
The national commercial office vacancy rate was 13.1% (as of June 30, 1996) as
measured by CB Commercial.
Holding Company Group Investment Portfolio - Continuing Operations
For the nine months ended September 30, 1996, Holding Company Group investment
results were $40.6 million, as compared to $34.8 million in the year earlier
period. The increase principally was due to higher investment income on the
Holding Company's portfolio reflecting income on the proceeds received from the
October 1995 DLJ IPO.
At September 30, 1996, the Holding Company Group investment portfolio's $787.8
million carrying value was made up of $617.3 million of fixed maturities ($403.1
million with an NAIC 1 rating), $163.8 million of cash and short-term
investments and $6.7 million of other equity investments. At December 31, 1995,
the portfolio's carrying value was $773.1 million, which included $410.8 million
of fixed maturities ($143.3 million with an NAIC 1 rating), $315.5 million of
cash and short-term investments and $46.8 million of other equity investments.
<TABLE>
<CAPTION>
Holding Company Group Fixed Maturities
By Credit Quality
(Dollars In Millions)
September 30, 1996 December 31, 1995
Rating Agency ----------------------------------- ------------------------------------
NAIC Equivalent Amortized % of Estimated Amortized % of Estimated
Rating Designation Cost Total Fair Value Cost Total Fair Value
- ------ ---------------------- ------------ ------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1-2 Aaa/Aa/A and Baa...... $ 483.2 78.0% $ 493.6 $ 222.5 54.2% $ 241.9
3-6 Ba and lower.......... 136.2 22.0 137.6 188.1 45.8 190.6
------------ ------- ----------- ---------- ------- -------------
Total...................... $ 619.4 100.0% $ 631.2 $ 410.6 100.0% $ 432.5
============ ======= =========== ========== ======= =============
</TABLE>
At September 30, 1996, the amortized cost of problem fixed maturities was $0.0
million, $9.7 million for potential problem fixed maturities and $12.0 million
for restructured fixed maturities.
LIQUIDITY AND CAPITAL RESOURCES
Since becoming a public company in 1992, The Equitable's Board of Directors has
declared quarterly cash dividends of $0.05 per share on the outstanding shares
of its Common Stock. The Equitable has three series of preferred stock
outstanding. The annual dividend rate on the Series C Convertible Preferred
Stock is fixed at 6% and dividends amounted to $1.1 million for the nine months
ended September 30, 1996. The Series D Convertible Preferred Stock will increase
shareholders' equity only when shares are released from the SECT. No shares of
Series D Convertible Preferred Stock were released from the SECT during the
first nine months of 1996. The Series E Convertible Preferred Stock's dividend
rate is fixed at 6.125% and dividends totaled $18.9 million for the nine months
ended September 30, 1996. The Series E Preferred Stock dividends are payable
quarterly in Common Stock.
34
<PAGE>
In April 1996, The Equitable filed a shelf registration statement with the SEC
to register approximately 11.9 million shares of The Equitable's Common Stock
issuable upon conversion of shares of the Series D Convertible Preferred Stock
held by the SECT. The SECT was established in 1993 to provide a source of
funding for a portion of the obligations arising under various employee
compensation and benefit programs of certain of The Equitable's subsidiaries. In
October 1996, the SECT trust agreement was modified so that the initial
mandatory conversion date, previously January 31, 1997, became September 30,
1997. Prior to September 30, 1997, the SECT is required to convert at a minimum
an amount of the Series D Convertible Preferred Stock equivalent to
approximately 796,000 shares of Common Stock for distribution. However, the
amount of Common Stock distributed may not exceed a maximum value of
approximately $216.1 million.
Equitable Life has a commercial paper program with an issue limit of up to
$500.0 million. This program is available for general corporate purposes and is
supported by Equitable Life's existing $350.0 million bank credit facility,
which expires in June 2000. Equitable Life uses this program from time to time
in its liquidity management. At September 30, 1996, there were no amounts
outstanding under either the commercial paper program or the revolving credit
facility.
During the third quarter of 1996, DLJ completed an offering from a shelf
registration of $200.0 million of 8.42% mandatorily redeemable preferred stock,
redeemable in whole or in part, at DLJ's option, on or after August 31, 2001.
In October 1996, DLJ exercised its option to exchange all 2.25 million shares
outstanding of its $8.83 cumulative preferred stock for $225.0 million in
aggregate principal amount of 9.58% subordinated exchange notes due October 15,
2003. The notes are redeemable in whole or in part, at DLJ's option, at any
time. Equitable Life held $20.0 million of DLJ's $8.83 cumulative preferred
stock at September 30, 1996.
Consolidated Cash Flows
The net cash provided by operating activities was $301.9 million for the nine
months ended September 30, 1996 compared to $2,346.5 million for the nine months
ended September 30, 1995. Cash provided by operating activities in 1995
principally was attributable to the $1,575.2 million net change in trading
activities and broker-dealer related receivables/payables at DLJ reflecting its
increased level of business activity.
Net cash used by investing activities was $390.6 million for the nine months
ended September 30, 1996 as compared to net cash provided by investing
activities of $796.7 million for the same period in 1995. In 1996, investment
purchases exceeded sales, maturities, repayments and return of capital by $1.05
billion. The discontinued GIC Segment repaid $827.0 million of loans from
continuing operations during the first nine months of 1996. Cash provided by
investing activities during the first nine months of 1995 primarily was
attributable to the $1.16 billion decrease in loans to the discontinued GIC
Segment resulting from repayments in January 1995. Investment purchases exceeded
sales, maturities and repayments by approximately $98.1 million, partially
offsetting the effect of the GIC repayment.
Net cash used by financing activities was $196.9 million for the nine months
ended September 30, 1996 as compared to $2.83 billion in the first nine months
of 1995. In the first nine months of 1996, withdrawals from policyholders'
account balances exceeded deposits by $437.3 million. During the first nine
months of 1996, cash used for the repayment of long-term debt of $307.6 million
was more than offset by the net increase of $137.1 million in short-term
financing, principally at DLJ, and by the net cash proceeds of $247.8 million
from DLJ's February 1996 Medium Term Notes offering. Net cash used by financing
activities during the first nine months of 1995 primarily resulted from a $1.58
billion decrease in short-term financings, principally due to net repurchase
agreement activity, and the $1.22 billion decrease in the amount due to the
discontinued GIC Segment as a result of continuing operations' $1.22 billion
cash settlement at the beginning of the year of its obligation to fund the
discontinued GIC Segment's accumulated deficit. Withdrawals from policyholders'
account balances exceeded deposits by $44.6 million during the nine months ended
September 30, 1995.
The operating, investing and financing activities described above resulted in a
decrease in cash and cash equivalents during the first nine months of 1996 of
$285.6 million to $914.8 million.
35
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None, except (i) as previously reported in the Registrant's Form 10-K for the
year ended December 31, 1995 and (ii) as set forth in Note 12 to the
Registrant's Unaudited Consolidated Financial Statements in Part I of this Form
10-Q for the quarter ended September 30, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Equitable Companies Incorporated
-------------------------------------------
(Registrant)
Date: November 11, 1996 /s/ Jerry M. de St. Paer
------------------------ -------------------------------------------
Senior Executive Vice President and
Chief Financial Officer
Date: November 11, 1996 /s/ Alvin H. Fenichel
------------------------ -------------------------------------------
Senior Vice President and Controller
37
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 17,550,400
<DEBT-CARRYING-VALUE> 184,400
<DEBT-MARKET-VALUE> 198,300
<EQUITIES> 801,400
<MORTGAGE> 3,298,500
<REAL-ESTATE> 3,706,100
<TOTAL-INVEST> 65,849,700
<CASH> 914,800
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,281,100
<TOTAL-ASSETS> 126,484,700
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 4,155,900
<POLICY-HOLDER-FUNDS> 21,793,300
<NOTES-PAYABLE> 5,474,100
0
404,600
<COMMON> 1,800
<OTHER-SE> 3,431,100
<TOTAL-LIABILITY-AND-EQUITY> 126,484,700
1,090,600
<INVESTMENT-INCOME> 2,406,900
<INVESTMENT-GAINS> 464,500
<OTHER-INCOME> 2,080,400
<BENEFITS> 795,600
<UNDERWRITING-AMORTIZATION> 193,200
<UNDERWRITING-OTHER> 3,470,500
<INCOME-PRETAX> 633,700
<INCOME-TAX> 190,300
<INCOME-CONTINUING> 315,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (23,100)
<NET-INCOME> 292,400
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.37
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
